Europe’s payments
landscape is set for a dramatic overhaul later this year as a new pan-European
instant payments system goes live beginning in November.
The shake-up will
transform SEPA, the Single Euro Payments Area, an EU initiative created to
fully harmonise electronic euro payments, and will enable payments of up to €15,000
to be made across the continent in less than 10 seconds, any time, any day.
Individuals, businesses
and organisations will be able to make efficient, real-time transfers between
accounts in 34 European countries, in what is set to be the most significant
development in the European payment landscape since the launch of SEPA itself.
It’s SEPA, but faster –
dubbed ‘SCT Inst’, short for SEPA Instant Credit Transfer – and the first banks
are expected to start testing in Q2.
Faster payments in
themselves are not a novelty – Denmark offers credit transfers in a blistering
1.5 seconds, and the UK can process faster payments in less than two – but
standardised international transfers are something new.
“Instant payments are
in the spirit of times,” adds Javier Santamaría, Chair of the European Payments
Council (EPC), which promotes the development and integration of European
payments.
“The digitalisation of the economy entails
a general acceleration of payments. Customers’ requirements do not adjust
to arbitrarily set timelines or calendar days. Individuals and firms need to
transact and make payments anywhere and at any time.”
Are banks and businesses ready?
Indeed, the onus is on the banks and Payment Service Providers (PSPs). Though instant payments are not currently mandated by regulators, most banks have bought into SCT Inst – or an alternative version of it – both in anticipation of regulation and to improve service offering for their clients. But it doesn’t come cheap or easy.Until now, SEPA has used batch payment processing. The new system will require clearing and settlement to be done in an instant, meaning banks and PSPs – especially those with elderly legacy systems – are facing a massive infrastructure overhaul to enable real-time payments.
“European banks have less than a year to prepare. In banking project terms, that’s basically tomorrow,” says Barry Kislingbury, Director Solution Consulting of Immediate Payments at ACI Worldwide, one of the organisations named by EBA Clearing as a frontrunner service provider. “SEPA collectively took 14 years to deliver. One European banker whom I recently spoke to said that one of the challenges was the name – he felt that calling the new scheme ‘SEPA Instant’ oversimplified the huge undertaking of a move from traditional SEPA.”
For businesses, the process is generally simpler, especially as large corporates tend to have more modern, agile finance systems. Santamaría advises treasurers to check with their PSP, both to find out if they will be offering instant payments, and to access the latest system updates and compatibility adaptations.
Advantages of early adoption
Many may be wondering if it is all worth the operational hassle. The short answer is, yes, on the surface. Benefits seem to outweigh the potential pitfalls, making payments cheaper, faster and more transparent. “Jumping aboard the instant payments train as soon as possible after November 2017 will not only improve the company’s liquidity management, but also show its eagerness for innovation, and its willingness to offer its customers a new, convenient and easy way to pay,” encourages Santamaría.In the short term, some corporations may struggle to see those advantages, especially with the maximum payment limit of €15,000 capping its usefulness. But in the long run, the streamlining possibilities are plain to see – for example, the real-time visibility of collections and easier automation of processes, both of which should contribute to more sophisticated working capital, as funds can be viewed in real-time and transferred ‘just in time’ without need for overnight bank processing.
“Instant payments are a bit of a catalyst, making banks modernise their infrastructure,” says Kislingbury, which can only be a good thing for the financial industry. “Money velocity is good for business, good for GDP, good for economic growth.”
And there’s more to come, promises Santamaría, suggesting that the speed and maximum transaction amount will increase over time. “The scheme is only the beginning of this journey towards faster pan-European payments.