Swiss Banks Face Hurdles as SIC Instant Payments Gain Traction

On August 20, 2024, Switzerland reached a significant milestone in the evolution of its financial infrastructure with the successful launch of SIC Instant Payments (SIC IP). This development, led by Swiss National Bank (SNB) and SIX Interbank Clearing Ltd (SIC Ltd), has positioned Switzerland at the forefront of real-time payments in Europe. Comprising over 95% of Swiss retail accounts, 63 banks have already gone live as part of Phase 1, processing up to 10,000 transactions per day with expectations for more growth. While the initial rollout is a success, challenges persist for many financial institutions (FIs) in Switzerland as they prepare for the next phases.

The aim of SIC IP is clear: enable financial institutions to process payments instantly, 24/7, to boost efficiency and reduce settlement risks. However, for many banks, the road to adoption is proving to be more complicated than initially anticipated. A recent Bottomline industry webinar revealed the barriers facing FIs, with a poll of attendees shedding light on the most pressing concerns.

Cost and Complexity: The Biggest Hurdles

According to a poll conducted during the webinar, 38% of financial institutions cited the cost and hassle of implementing a new payment rail as the most significant barrier to SIC IP adoption. This finding reflects a broader hesitation within the industry as FIs grapple with the technical and financial burden of transitioning to an instant payments framework.

Dennis Flad, Partner at t’charta AG, noted that while numerous business cases justify the investment, many institutions are still daunted by the sheer scale of the required infrastructure changes. "Yes, it’s tough, but this is the future. The right partners and expertise can mitigate a lot of the hassle," Flad explained during the discussion.

Another key challenge, highlighted by 25% of respondents, revolves around legacy infrastructure. Many FIs are struggling to update systems that were not designed for real-time transactions, creating bottlenecks in implementation. According to webinar panellist Julien Lempen, Project Portfolio Manager at Banque Cantonale Vaudoise (BCV), overcoming this challenge requires a combination of internal updates and third-party support: "You've got to ensure that your infrastructure is fit for purpose and future-proof to meet regulatory demands like 24/7 system- and process availability and also client fraud protection needs."

Compliance and Fraud Risks in Real-Time

Compliance remains another critical area of concern. With 25% of respondents identifying compliance—especially in areas such as pre-verification and sanctions screening in real-time payments—as a major barrier, the pressure on FIs to ensure regulatory compliance is evident. The speed of instant payments amplifies this challenge, leaving little time for mandatory sanction or fraud checks. In an instant payments system, screening for fraud, verifying customers, and ensuring compliance with international sanctions must all occur within seconds.

Dennis Flad emphasised the need for parallel processing to accommodate these demands, as traditional, linear workflows won’t cut it in an instant payments environment. "You have 10 seconds—sometimes less—to screen and verify. That means processes need to run in parallel which isn’t how many payments processes are currently set up, making it a significant shift in expectations," he noted.

Julien Lempen added that while BCV has adapted its compliance systems to manage incoming payments, the challenge will increase as outgoing instant payments come online. "Our focus has been on reducing friction without compromising security. It’s about processing legitimate payments instantly while effectively blocking fraudulent ones," Lempen explained. He also pointed to the growing role of artificial intelligence and machine learning in helping to automate and enhance these processes.

Fraud: A Growing Concern in Instant Payments

The discussion around compliance naturally led to concerns about fraud, a topic that is becoming increasingly relevant as more FIs adopt instant payments. Instant payments, by their very nature, provide an attractive target for fraudsters due to the speed at which transactions occur. Fraud tactics, such as phishing and CEO scams, are likely to remain the same, but the rapid movement of money presents new risks.

"Phishing and scamming have not changed much, but what we are seeing is the increased speed at which money can leave a bank once fraud is initiated," Flad noted. "This calls for better fraud screening and tighter processes around how payments are monitored."

Looking Ahead: Phase 2 and Broader Adoption

As Switzerland progresses toward Phase 2 of SIC IP implementation, which will bring roughly 180 more financial institutions on board by the end of 2026, the pressure is mounting for FIs to be ready. Many banks are still in the planning stages, with 43% of the 260+ FIs part of Group 2 SIC IP yet to begin their preparations. For these institutions, cost and resource prioritisation remain top concerns, with 13% of respondents pointing to a lack of IT resources as a major roadblock.

Despite these challenges, the benefits of SIC IP are clear. Dennis Flad believes that while instant payments may not lead to an immediate economic boost, they will result in significant business cost savings. "Corporates stand to gain from faster settlement times, which can improve cash flow and reduce transaction costs," Flad explained. For merchants operating on thin margins, the ability to receive payments instantly could be a game changer.

In addition, as Switzerland continues to position itself within the broader European payments landscape, cross-border interoperability is already today and will become increasingly important. While Switzerland is not directly mandated to implement European Payment Regulations, the need to connect with European markets is undeniable. Mathias Sailer, Head of SIX Interbank Clearing (SIC AG), predicts that cross-border instant payments could become a reality, though regulatory hurdles remain.

A Balancing Act for Swiss Banks

The successful rollout of SIC Instant Payments is a promising step for the future of payments in Switzerland, but the road ahead is challenging. As banks work to upgrade their infrastructure, meet compliance demands, and prevent fraud, collaboration with third-party providers and the use of advanced technologies such as AI will be crucial.

Ultimately, the success of account-to-account Instant Payments will depend on how quickly and efficiently Swiss banks can overcome these hurdles. The stakes are high, but so are the potential rewards for those who get it right - both in terms of operational efficiency and customer satisfaction.

As Switzerland prepares for Phase 2 of SIC IP, the financial industry must navigate the complexities of real-time payments, balancing innovation with security, cost with opportunity, and compliance with customer experience.

To learn more, watch our webinar SIC Instant Payments: Impact and Lessons Learned from Phase 1 Implementation in full.