European instant payments are about to speed up. The new SEPA (Single European Payments Area) Credit Transfer mandate (SCT Inst) has taken root and deadlines for implementation are as soon as January 2025 for some.
Europe’s instant payments
The proposal, ushered in by the European Commission, requires all PSPs (including banks) that offer regular credit transfers in euros to offer instant, or so-called real time payment transfers in the SEPA region.
These will have to be available in both sending and receiving funds.
It aims to improve the availability of instant payment options in euro to everyone who owns a bank account in the EU and EEA countries.
As a result, people will be able to transfer money within ten seconds, inside and outside business hours, in the same country but also to another EU member state.
Crucially, if any charges are applied, they must not be higher than those of the standard credit transfers.
Improving Instant Payment Options
In a statement in 2023, the Council of the EU said the new rules will improve the strategic economy of the European economic and financial sector, reducing reliance on third party financial institutions and infrastructures, which are often in a different country.
It is expected that the new rules will be implemented faster in member states within the SEPA zone and for those outside the euro area, a phased implementation time will be applied.
The first stage of this will be for instant payments to be implemented during business hours only, as it is recognised that challenges may be present in accessing euro liquidity outside business hours.
Thereafter the same rules will apply as to euro area PSPs.
Furthermore, instant payments in euro from non-euro accounts will only be compulsory for PSPs who also provide standard transfers in euro.
Instant Charging
The Commission is to provide a report evaluating the respective charges for national and cross-border transfers, and instant transfers in both national currencies (of member states) and euros, to keep an eye on the evolution of these.
In short, instant payments are to be universally available and affordable, with the longer-term objective of removing friction and increasing trust in the system.
Transparency and standardisation will be the bedrock of achieving the latter two objectives, while upholding rigorous sanction screening.
The mandate has been a couple of years in the planning as appetite to adopt had been latent since its launch as an optional payment scheme in 2017.
Chief among reasons for slow uptake was the lack of a clear and obvious business case compared to other rails, in particular, cards.
Cost of implementation was also a concern and cost of running the rails.
Add to this the introduction of increasing regulatory measures being brought in as well as the fact that with any payments scheme, new avenues of fraud must be considered, and that with any instant payments scheme, this threat becomes compelling, writ large on the horizon.
All in all, a pretty challenging picture, not altogether incentivising.
Since the Europeans adopted a legislative proposal for SCT Inst in 2022, these concerns have become no less challenging.
Nonetheless, banks and PSPs of all sizes have to step up.
States of Readiness Stem From Payments Culture
Speaking with CGI’s Vice President of Payments Consulting, Ainsley Ward, and the Director of Global Payments Solutions, Karen Brown, it is apparent that it is the smaller institutions, tier 2 banks such as savings banks that are facing the greatest journeys, the clear business case not being as, well, clear, perhaps for them as for their larger tier 1 counterparts.
In Germany, for example, as Ward explains, there are thousands of savings banks connected to a centralised infrastructure.
Going through the process of connecting each individual bank is quite the task albeit from afar the piece as a whole may look connected.
In Finland, he says only one market player is not connected, the rest all having ‘receive’ capability.
Sweden, being a non-euro market has a later deadline but is getting ahead.
Brown adds to this the myriad approaches banks have to the adoption.
This is largely driven by whether or not there is a defined business case or whether it is a mere box-ticking exercise in order to be compliant on time.
“It’s a real mixed bag. Some of our big tier banks know exactly how they’re going to utilise it. They’ve got their business cases and go-to-market with regard to how they’re going to service their corporates and consumers,” she says.
Others are grappling with the demands of building something without a clear offering around it.
Launch of EPI
Interestingly, the launch of EPI is providing inspiration for business case ideas.
As Ward says, with its acquisition of iDEAL and Payconiq, EPI “essentially created a pan-European POS network based on SEPA Instant” and brought in very interesting retail cost-saving benefits, for example paying for a taxi cross currency as a traveller.
“Using EPI, it goes as a SEPA transfer, reducing costs out of that system,” he says.
Germany, where the EPI wallet, wero, was launched is a very interesting market for this transformation because its infrastructure is slow and traditional.
“EPI makes a massive business case for the German market,” says Ward.
“We’re also starting to see a lot more use cases in the small to medium enterprise category- small businesses reliant on cash flow, struggling with slow invoice payments [can benefit greatly] from the availability of instant transfers and Payment-on-Delivery for reasonably high values for goods,” says Ward.
Belgium has been doing all its SEPA bulk transfers in less than an hour for at least the last eight years, so while the transition to SCT Inst is a minimal adjustment, the business case isn’t necessarily there.
On the other hand, in The Netherlands, payroll through SCT Instant “has become a market standard”.
It certainly is a rich tapestry across Europe.
So what is the likelihood of hitting those deadlines? Well, for a start the upcoming deadline is the ‘receive’ deadline, and is much the easier, being a passive action, confirming the account and receipt.
Sending, for which the deadline is October 2025, will require multi-party validation as well as Verification of Payee.
For Brown, the odds are stacked against providers, given the raft of regulation incoming: ISO 20022, DORA, Shrems II, all in 2025.
Not only is “October quite tight for banks,” given all the other pressures, but additional to the SCT Inst ‘send’ requirements is the Verification of Payee.
“That’s another system the banks have to adopt in order to do SCT Instant,” says Brown.
It’s no wonder she describes the situation as “panic mode” for the banks now.
However, while she has expressed genuine surprise in the stress-inducing earliness of the ‘send’ deadline, Brown offers a worldly perspective.
“This is now transforming them to become borderless in the instant world .. and there is a directional path in that if you look at this in the future, the integration to other countries will come from this, going truly borderless globally. Effectively that’s what we have with RTGS systems, SWIFT being a pivotal player therein,” she says.
And it’s true. All over the world, instant payments are being implemented. Why should Europe lag behind?
I could not say there is a high degree of confidence in meeting the 2025 deadline, and yet perhaps it does come down to attitude. Why not?
The world went digital in a cataclysmic shift during the pandemic in ways that simply wouldn’t have been believed possible.
Those up and running will continue to provide interesting new angles for use cases and with momentum will come increased payment thresholds, meaning transaction values will pick up as well as volumes, which in turn opens up all manner of fresh opportunity for its use, as Brown and Ward explain.
In two years, SCT Inst transactions have gone from accounting for 14% of all SEPA transactions to 20%.
Working with the largest SEPA transactor, Ward estimates there are 45 million instant transactions a day across Europe: 11 billion a year.
The jury’s out as far as this writer is concerned as to Europe meeting its SCT Inst deadlines. Stranger things have happened.
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