The Swiss National Bank addressed trends and the future of payment traffic in Switzerland at its Money Market Apéro in Zurich. The focus was on instant payments and distributed ledger technology.
Switzerland needs to keep up with the latest developments in payments while laying the foundations for trust among people and businesses. «The public sector creates the foundation for people's trust in money,» according to prepared notes (in German) for SNB Governing Board member, Andréa Maechler, ahead of Thursday’s evening event.
However, the private financial sector plays an important role in developing innovative technologies to provide customer solutions, as the industry is familiar with the needs of companies and end customers, she said.
The «Swiss Payments Vision» as envisaged by the SNB, requires a contribution from both public and private sectors, she said. The aim is to create an efficient, reliable, and secure ecosystem for future cashless payments in Switzerland.
Advancing digitization and the increasing use of new technologies are driving change in payment traffic, she said. This applies not only to Switzerland but worldwide.
Three Principles
Three principles must continue to be observed in future developments: The close integration of private and central bank money, that all payments significant to the overall system are settled in risk-free central bank money, and have a high degree of interoperability.
This means integrating payment systems, payment solutions, and forms of money as seamlessly as possible, she added.
«Ways must be found to enable cashless transfers of value directly from payer to recipient securely and quickly, and to seamlessly integrate new payment instruments, forms of money and technologies.»
Instant Payments
Instant payment systems, for example, could offer benefits to end users, commercial banks, and the national economy. For example, credit risks and financing costs could be reduced, and opportunities for process automation could be created. In addition, inefficiencies in cross-border payments could be reduced.
«Based on these benefits, the SNB is convinced that instant and final value transfer in cashless payments between end customers will become the new standard,» Maechler said. However, she said, payment systems still need to be modernized, and she expects commercial banks to introduce them in customer payment transactions in the summer of 2024.
«But for instant payments to be available to commercial banks' end customers, retail solutions by the private sector are still needed,» she added.
Distributed Ledger Technology
Looking at distributed ledger technology (DLT), the most interesting application areas are in financial market infrastructure. DLT promises efficiency gains in post-trade, i.e. clearing, settlement, and custody of assets.
The SNB is currently investigating three approaches for token settlement, working with regulated financial market infrastructures (SIX, BIS) and other market participants. These are synchronized settlement, integrated settlement using a franc-wholesale CBDC (Central Bank Digital Currency), and integrated settlement using private franc token money.
«We don't yet know what role DLT and tokenization will play in the financial system of the future,» Maechler said, adding that the lack of interoperability is seen as a risk, which could lead to a segmentation of the financial market infrastructure, which would endanger the unity of the franc.
