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Pan-European Instant Payment Service Set to Go Live

By Bill Camarda

The first comprehensive European cross-border instant payment service, SEPA Instant Credit Transfer (generally abbreviated to SCT Inst) is set to go live in November 2017. Here's an overview of the system, which enables instant transfers in euros between participating countries within the Single Euro Payments Area (SEPA), and what it may mean for B2B payments.

SCT Inst Background

 

The European Payments Council (EPC), acting at the request of the European Central Bank, announced plans for SCT Inst in 2015.1 EPC subsequently published the SCT instant payments rulebook in November 2016, giving potential participating financial institutions one year to prepare for launch.2

 

EPC set a requirement that SCT Inst payments should be available in the beneficiary's account within no more than 10 seconds. At launch, instant payments of up to 15,000 euros will be transferrable through SCT Inst, with limits to be reviewed annually.3 (This is similar to the incremental approach taken by the U.K.'s Faster Payments system, which launched in 2008 with a GBP10,000 limit, and subsequently raised its limits first to GBP100,000 and then to GBP250,000.4) Even at launch, according to EPC, payment service providers (PSPs) can bilaterally or multilaterally agree to increase the transfer limit and speed if they choose.5

 

Instant Payment Services Fuel New B2B Applications

 

Experts say that instant payments have the potential to drive new services and business applications, as already demonstrated by the domestic instant payment services implemented in some countries. For example, Electronic Payments International cites Poland's Blik, which grew to 3.5 million users and 2 million monthly transactions in just two years; and the Netherlands' iDeal e-commerce payment system, which has achieved more than 50% market share despite intense competition.6

 

In a recent EPC survey, potential users expected that SEPA Inst will first prove most useful for consumer-to-business payments, when small businesses require immediate payment (48%); followed by person-to-person payments (35%) and B2B transactions (14%).7

 

Arn Knol, Director of the Dutch treasury consultancy Zanders, agrees that early applications will focus on collecting B2C instant payments, and gaining real-time visibility into those payments. But he also encourages B2B suppliers to consider opportunities in "order-to-cash and purchase-to-pay domains… For example, if credit limits are carefully monitored for customers and new orders are only approved once payment has been received for outstanding invoices, receiving these funds earlier can help free up this credit limit and accelerate sales."8

 

How SCT Inst Changes the Payment Services Landscape

 

SCT Inst will operate in parallel with other European standardized payment schemes, most notably the SEPA Credit Transfer (SCT) scheme, which currently handles over 18 billion credit transfers annually.9 As its name suggests, SCT Inst is much faster than SCT. Since January 2012, SCT has required payment processing by next day, although many financial institutions now offer same-day SCT processing for some payments.10 11

 

Both SCT and SCT Inst are intended to operate throughout SEPA. This encompasses the entire EU (including the U.K.); some overseas territories associated with EU members; and other European countries such as Iceland, Norway, Liechtenstein, Switzerland, Monaco, and San Marino.12 13 Both schemes aim to make euro-denominated transactions as easy to process across borders within SEPA as they would be within a member state.

 

However, aside from speed, there are other important differences between SCT Inst and SCT. Notably, supporting SCT Inst is optional for banks and other regulated PSPs, whereas supporting SCT is mandatory. Participation is also optional for the Clearing and Settlement Mechanisms (CSMs) that PSPs use to exchange payments, and for the messaging services that support these clearinghouses.14

 

A Gradual Ramp-Up

 

According to EPC, seven large CSMs are expected to support the SCT instant payment scheme on its launch date, including the European Central Bank's clearing organization, EBA CLEARING. EPC expects more CSMs to come aboard in the coming months. When SCT Inst goes live on November 21, PSPs from Austria, Spain, Finland, Italy, and Latvia are expected to be compliant, according to EPC; PSPs from Germany, Portugal, Belgium, Sweden, and the Netherlands are expected to follow soon after.15

 

U.K. companies will initially be able to make euro transfers via SCT Inst through accounts held at participating PSPs.16 In addition, some financial solutions providers have begun announcing offerings to extend the reach of the existing UK Faster Payments system across Europe, via SCT Inst.17

 

Many observers agree that instant payments will at some point become "the new normal."18 In the near term, however, SCT Inst's ability to attract transactions may depend on factors such as the cost, perceived risks, the complexities associated with utilizing the payment service, and the opportunities it creates.19 As one expert points out, SCT Inst requires institutions to move from batches of credit transfers to an environment where "a single instant credit transfer has to be received, accepted, validated, with funds checked, compliance checked, processed by the CSM (including liquidity management), sent to the beneficiary bank, processed and posted to the beneficiary's account, in [10 seconds or less]… non-stop, 24 hours of every day." As a result, exceptions that could previously be addressed over hours or days must now be handled in seconds.20

 

Moreover, as EBA CLEARING notes, "All use cases for instant payments rely on the certainty of the payment for the payer and the payee. There is no room for charge-back or revocability as the funds must be made available immediately."21 Addressing these concerns may require upgrades to accounting, fraud-prevention, and liquidity management systems, as well as other infrastructure.22

 

EPC itself notes that short-term adoption will be hampered by the 15,000 euro limit (too low for some corporate applications); by service providers' need to upgrade their fraud and anti-money-laundering systems; and by continuing concerns about interoperability among SCT Inst and local instant payment systems.23 Still, institutions are buying in, according to EBA CLEARING, which expects that by the end of 2018, financial institutions responsible for 85 percent of its current clearing traffic will have come aboard.24

 

The

Takeaway:

A major pan-European instant payment system, SCT Inst, is due to go live in November 2017, with payment service providers and clearinghouses expected to gradually increase adoption through 2018. In the short term, the euro payment service may provide opportunities for businesses that need to collect quickly from customers. Over time, it may provide other advantages, such as helping companies manage business credit more effectively and potentially grow their sales.

Bill Camarda - The Author

The Author

Bill Camarda

Bill Camarda is a professional writer with more than 30 years’ experience focusing on business and technology. He is author or co-author of 19 books on information technology and has written for clients including American Express Private Bank, Ernst & Young, Financial Times Knowledge and IBM.

Sources

1. “Instant Payments,” European Central Bank; https://www.ecb.europa.eu/paym/retpaym/instant/html/index.en.html
2. “An update on the implementation of the SEPA Instant Credit Transfer scheme,” EPC; https://www.europeanpaymentscouncil.eu/news-insights/insight/update-implementation-sepa-instant-credit-transfer-scheme
3. “A New Era in Payments,” EPC, https://www.europeanpaymentscouncil.eu/sites/default/files/infographic/2017-05/EPC278-16_Infographic_SCT%20Inst_Nov%202016_FINAL.pdf
4. “History/Timeline,” Faster Payments; http://www.fasterpayments.org.uk/about-us/history
5. “European Payments Council launches SEPA Instant Credit Transfer scheme,” Banking Technology; http://www.bankingtech.com/660672/european-payments-council-launches-sepa-instant-credit-transfer-scheme/
6. “SEPA instant payments threaten card schemes in Europe,” Electronic Payments International; http://www.electronicpaymentsinternational.com/comments/instant-payments-threaten-card-schemes-europe/
7. “Results of our first poll on the best use-cases of the SEPA Instant Credit Transfer scheme: consumer-to-business payment situations win the majority of votes!,” EPC; https://www.europeanpaymentscouncil.eu/news-insights/news/results-our-first-poll-best-use-cases-sepa-instant-credit-transfer-scheme
8. “SEPA Instant is Coming,” Treasury Today; http://treasurytoday.com/2017/01/sepa-instant-is-coming-ttti
9. “SEPA Credit Transfer,” EPC; https://www.europeanpaymentscouncil.eu/what-we-do/sepa-credit-transfer
10. “Frequently Asked Questions,” European Central Bank, https://www.ecb.europa.eu/paym/retpaym/undpaym/qa/html/index.en.html
11. For example: https://www.ingpcm.com/media/1933554/cut-off-times.pdf#page=24&zoom=100
12. “Map of SEPA Scheme Countries and Territories,” EPC, https://www.europeanpaymentscouncil.eu/document-library/other/map-sepa-scheme-countries-and-territories
13. “Full SEPA (Single Euro Payments Area) Migration - Frequently Asked Questions,” European Commission, http://europa.eu/rapid/press-release_MEMO-11-936_en.htm?locale=en
14. “Clearing and Settlement Mechanisms,” EPC, https://www.europeanpaymentscouncil.eu/what-we-do/sepa-payment-scheme-management/clearing-and-settlement-mechanisms
15. “An update on the implementation of the SEPA Instant Credit Transfer scheme,” EPC, https://www.europeanpaymentscouncil.eu/news-insights/insight/update-implementation-sepa-instant-credit-transfer-scheme
16. “SEPA Instant Credit Transfer Scheme - What You Need to Know,” London & Zurich; https://www.landz.co.uk/industry-news/sepa-instant-credit-transfer-scheme-need-know/
17. “Form3 selects Instant Payments Framework (IPF) for SEPA Instant Payments,” Icon Solutions: https://www.iconsolutions.com/icon_in_the_news/form3-selects-instant-payments-framework-ipf-sepa-instant-payments/
18. “SCT Inst and CSMs: an interview with José M Beltrán of STET,” EPC, https://www.europeanpaymentscouncil.eu/news-insights/insight/sct-inst-and-csms-interview-jose-m-beltran-stet
19. “Will the upgrade to real-time payments be problematic for banks?” FX-MM; https://www.fx-mm.com/news/53998/upgrade-real-time-payments-problematic/
20. Ibid.
21. “Ensuring a smooth take-off for euro instant payments: A white paper on pan-European infrastructure considerations,” EBA Clearing, 8, https://rt1.ebaclearing.eu/media/azure/production/1141/ebacl_20170614_white_paper_on_euro_instant_payment_take-off_v10_-printer-friendly.pdf
22. “Will the upgrade to real-time payments be problematic for banks?” FX-MM; https://www.fx-mm.com/news/53998/upgrade-real-time-payments-problematic/
23. “An update on the implementation of the SEPA Instant Credit Transfer scheme,” EPC, https://www.europeanpaymentscouncil.eu/news-insights/insight/update-implementation-sepa-instant-credit-transfer-scheme
24. “Intesa Sanpaolo and EBA Clearing complete first pan-European instant payment test,” Banking Technology; http://www.bankingtech.com/801652/intesa-sanpaolo-and-eba-clearing-complete-first-pan-european-instant-payment-test/

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