SEPA Instant Payments

What are Instant Payments?

  

The ‘new frontier’ for SEPA 

Instant payments, also named ‘immediate’ or ‘real-time’ payments, are the new next step in the harmonisation of payments in the Single Euro Payments Area (SEPA), in the end aimed at supporting Europe’s competitiveness and economic growth. With migration to SEPA credit transfers and direct debits nearly completed, and the digitalisation of the economy leading to new consumers’ and retailers’ expectations, instant payments will be the European Payments Council’s (EPC) main focus in the next coming years.

Definition

The Euro Retail Payments Board (ERPB) has produced a definition of instant payments. The ERPB is a high-level body chaired by the European Central Bank, bringing together the supply and the demand side of the industry to address strategic retail payments issues.

According to the ERPB, instant payments “are defined as electronic retail payment solutions available 24/7/365 and resulting in the immediate or close-to-immediate interbank clearing of the transaction and crediting of the payee’s account with confirmation to the payer (within seconds of payment initiation). This is irrespective of the underlying payment instrument used (credit transfer, direct debit or payment card) and of the underlying arrangements for clearing (whether bilateral interbank clearing or clearing via infrastructures) and settlement (e.g. with guarantees or in real time) that make this possible.”

What are the drivers of instant payments?

The digitalisation of our economy, with the spread of smartphones and of electronic commerce, entails a general acceleration of payments. On the one hand, new technologies lead to changes in customer habits, who make Internet purchases anywhere and at any time, including during evening hours, weekends and holidays. Customers also expect to pay for and receive their purchases as fast as possible. Suppliers, on the other hand, wish to have the certainty to be paid as soon as they release their goods and services.

New technologies stimulate innovation in payments, and contribute to the expectation for instant payments.

How do instant payments differ from other electronic payments?

Whereas funds take up to one business day to be available on a payee’s account when credit transfers are used, and up to one business day or more in the case of card payments, instant payments are processed within seconds. 

Today, the very large majority of electronic payments are processed in batches. All individual payment transactions received during a specific period of time during a business working day are grouped into a single (batch) file. This file is then submitted for further clearing and settlement usually at the end of day. 

Clearing is the process of transmitting, reconciling and, in some cases, confirming transfer orders prior to settlement, potentially including the netting of orders and the establishment of final positions for settlement. Clearing of payments is necessary to turn the promise of payment into an actual movement of funds from one Payment Service Provider (PSP) to another. The settlement completes the processing of a transaction by discharging the obligations of one PSP to another through the transfer of funds.

The processing of instant payments is different as the processing, clearing and (potentially) settlement of payments take place on a transaction-by-transaction basis as soon as they reach a PSP system, i.e. in real time end-to-end.

Whereas funds take up to one business day to be available on a payee’s account when credit transfers are used, and up to one business day or more in the case of card payments, instant payments are processed within seconds.

Today, the very large majority of electronic payments are processed in batches. All individual payment transactions received during a specific period of time during a business working day are grouped into a single (batch) file. This file is then submitted for further clearing and settlement usually at the end of day. 
Clearing is the process of transmitting, reconciling and, in some cases, confirming transfer orders prior to settlement, potentially including the netting of orders and the establishment of final positions for settlement. Clearing of payments is necessary to turn the promise of payment into an actual movement of funds from one Payment Service Provider (PSP) to another. The settlement completes the processing of a transaction by discharging the obligations of one PSP to another through the transfer of funds.

The processing of instant payments is different as the processing, clearing and (potentially) settlement of payments take place on a transaction-by-transaction basis as soon as they reach a PSP system, i.e. in real time end-to-end.

 

What are the benefits of instant payments?

Instant payments are the closest substitute to cash: the transfer of money is immediate and available 24/7/365.

They have a potential of development in particular in the person-to-person and person-to-business segments, in situations where cash and cheque are currently widely used. They would facilitate electronic and mobile commerce payments. They would, therefore, contribute to the larger goal of Digital Europe. Furthermore, they may reduce the cost of managing cash and cheques which are the most expensive means of payment at the level of the entire economy.

The EPC has listed in its June 2015 Report to the ERPB on Instant Payments many examples of use cases of instant payments, such as the purchase of high-value goods (car, antique…) between two individuals, the paying of a share of a joint bill, and the payment of services requiring to be paid on the spot.

Instant payments could help business customers to improve their cash-flow management, and reduce their need to external financing. The availability of funds 24/7 would help to optimise their liquidity management.

PSPs could use their instant payment infrastructure as a springboard to develop other 24/7/365 financial services and products to serve better their customers and attract new clients. Instant payments would be a useful tool to spread the use of digital interaction channels between PSPs and their clients.

State of play of instant payments in the world

Several countries have already launched or are developing domestic instant payment solutions such as Australia, Japan, Brazil, Canada, Chile, China, India, Korea, Mexico, Singapore, and South Africa. In Europe, Denmark, Poland, Sweden, and the UK have also developed national instant payment solutions.

In November 2016 the EPC released the version 1.0 of its SEPA Instant Credit Transfer (SCT Inst) scheme rulebook. More information about this scheme is available on the SEPA Instant Credit Transfer (SCT Inst) page.


Free EPC newsletter
Subscribe
Blog and Discussion Board
Read more
Follow us
LinkedIn

Latest Tweet


Read this interesting itw with @DHUSACorp representative regarding #InstantPayments, #PSD2 and #blockchain https://t.co/2maUXGlc9t
28/04/2017