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SEPA’s big three – Understanding the impact of incoming payment schemes

SEPA is a European role model in payments harmonisation. It started as the logical next step after the introduction of the Euro as a single currency, and has already standardised Euro payments across borders and simplified payments via bank transfer, direct debit and debit card. Completing this mission has been a fantastic achievement unlike anything else seen in other similarly fragmented regions worldwide, but this is only step one.


SEPA has the potential to become a world leader in payments technology and in managing open payments infrastructure / standards. In recent years, it has launched various new initiatives aimed at improving, streamlining, or securing payments, for both consumers and businesses alike. In the years ahead, there are several notable incoming schemes and initiatives from SEPA that warrant further analysis, which are set to make a big difference for European payments. Most notable among them are Instant Credit Transfer (SCT Inst), Mobile P2P (SMP2P), and Request-To-Pay (SRTP). In my opinion, these are the three big schemes that will define European payments for the next decade.


Unlike the European Payments initiative, which is set to rival the brands like PayPal, SEPA’s incoming schemes are not oven-ready payment products. Instead, they are standards/rulebooks for payment flows, on which businesses will need to build their own applications. They are central to SEPA’s aims, and it’s important to understand how they will work together, their likely impact and if there are any potential pitfalls to implementation or adoption.


I believe I am well placed to do this analysis. I am a payments industry veteran of over 20 years, I have run multiple payments businesses across multiple countries, and I have been watching SEPA’s movements with keen interest since day one.


SEPA Instant Credit Transfer – overview 

I want to start with SCT Inst, since it is already technically in the market, albeit, arguably still in an early adoption stage (a bit like Open Banking). SCT Inst is a pan-European push payment standard that enables instant payments up to €100,000 across international borders. The SCT Inst scheme guarantees payment clearing and crediting of funds between two participating PSPs within 10 seconds.


Approximately 2,500 payments service providers are already able to receive and/or make SCT Inst payments today. Expect this number to grow significantly in the years ahead, since SICT is an incredibly strong proposition, and a great potential competitor to card schemes with benefits to both payer and payee.



Despite the name, SCT Inst offers a lot more value than just instant payments and alerts. It is a scheme equally suited for B2B and B2C instant payments, offering a familiar banking experience at low cost. For businesses, it creates an extremely reliable and smooth cash flow. They can see instantly if an invoice has been paid, no waiting for payments to clear before shipping a product or commencing a project. For consumers, I think SCT Inst could gradually cause a shift away from B2C card payments for big ticket items like flights, since it has a nominal transaction fee. Merchants may also be inclined to guide customers to this more efficient payment scheme. As a result, it could change the payment mechanics of markets with high value sales, including the auto, aviation, holiday, and real estate industries. It eliminates fraud and chargebacks, as well as taking the risk out a high-value transaction (with a slight caveat covered below).



Adoption is the biggest challenge for all payment schemes, even the most viable ones. If businesses don’t adopt it or encourage customers to use SCT Inst, it won’t ever go mainstream. We also need to see the majority of businesses adopt it at the same time, or else there can be a readiness mismatch between those receiving and making payments, which will cause delays and counteract the benefits of what are supposed to be “instant” transactions. 


We may also see a situation where some banks charge for SCT Inst, which consumers naturally won’t like, and will create a barrier to entry. I don’t think regulations should touch commercial freedoms, but hopefully banks won’t make SCT Inst costs prohibitive. The endgame must be that SCT Inst becomes the default setting for any bank transfer on both the sending and receiving side.


Finally, one last potential SCT Inst challenge could be fraud/risk. Whenever a new scheme appears, fraudsters will look to take advantage. In the case of SICT, because it facilitates such fast transactions, money will disappear from accounts instantly, and banks/merchants no longer have 24hrs to assess the validity of the payment. Banks will need to vastly improve their transaction monitoring and risk management capabilities if SCT Inst does become the new norm for big ticket expenses. Consumers also need to get used to the real time element of the payments, and that their money is gone immediately.


It’s important to remember that these pitfalls should be minor issues rather than anything too serious. They will be ironed out quickly, and soon businesses and consumers across Europe will start to reap the benefits of SICT.


SEPA Mobile P2P

Mobile P2P will enable instant peer-to-peer transactions with just a mobile number or email address, meaning someone can send money to a contact without asking for their bank details, and without both needing to use the same banking service/app (such as Monzo/Venmo). 


Telcos play no role in Mobile P2P – SEPA simply supplies a proxy-look up service. This means that a consumer registers with their mobile number or email as a proxy for their IBAN – which is fetched by SEPA in the background. Banks can enable the service for their customers in their banking apps, as well it being adopted by third-party messaging apps. It’s easy to imagine fintechs building a smooth P2P app using the proxy look-up and allowing people to simply send funds from their phone to another phone number. The scheme is interoperable across Europe and, in conjunction with SCT Inst, the transaction and crediting of funds is instant.



I can see Mobile P2P being a big hit with consumers. Today, there are many ways to split a dinner bill quickly among a group of friends, but this scenario usually works better in banking adverts than in reality. In the real world, not everyone has the same app, card or bank. However, nearly everyone who would use a service like Mobile P2P already uses a messaging service like Whatsapp, iMessage or Facebook messenger. If Whatsapp suddenly enabled users to pay their contacts within the app (but without the recipient necessarily having to be on Whatsapp), I think the scheme would hit critical mass almost immediately.


As for businesses, Mobile P2P is not just interesting for messaging providers. I can imagine some micro businesses accepting payments via Mobile P2P as a means of side-stepping card schemes and their costly transaction fees. After all, it is a secure, legitimate scheme, authenticated by the European Commission no less, so why would they pay large card scheme fees if they can avoid it.



For users, the registration process looks set to be incredibly straightforward. They simply register with their phone number once, and they can start accepting payments made to that number indefinitely from that point. I think the only issue will be whether the prospect of payment via mobile number is off-putting to certain people, if they see it as insecure or unnecessary.


There is also a question of how willing banks will be to adopt Mobile P2P. It needs to convince banks to adopt it, even though they can’t make any revenue from it. This may be a tough ask, since it’s easy to imagine banks prioritising other areas of the business.


Mobile P2P may also open the doors to creative new ways to handle money. The combination of virtual IBANs with such a P2P service or the creative combination of request-to-pay with P2P services creates the possibility that it becomes a transparency black hole.


SEPA request to pay (SRTP)

At this stage in development, Request to Pay is a messaging service that requests the recipient to initiate a payment of a certain amount to a payee. It’s best to think about SRTP as an additional functional layer of the customer experience on top of SCT Inst. However, it adds a lot more value than a simple “I want to be paid” mechanism. SRTP makes smart use of reference data such as invoice information, customer reference, currency etc. This can be recorded by the SRTP framework and used to settle detailed bills that provide the payee with multiple payment options.


Businesses registered with SRTP can even message customers/suppliers from within the app, meaning they can handle the requests, payments, communications, and reconciliation all in one place. The SRTP feature is a great basis for future product developments. SRTP can be embedded and improve many existing payment flows with more transparency, easier handling with lower effort.



Despite the possible consumer benefits, SRTP will be almost exclusively a B2B proposition in its early years. It will be used in place of traditional invoices to settle bills more quickly and facilitate reconciliation and bookkeeping. It will directly integrate with accounting platforms like Quickbooks and Xero, as well as ERP software like Oracle or SAP. Businesses may even be able to send authenticated payment requests via a Microsoft Outlook ad-on, and know immediately if the link is responded to. I’m confident that SRTP will trigger new payment products and services to come to market. It will be a powerful tool for business transactions, especially for businesses that struggle with payments as part of their workflow.


B2C uptake may happen at a later stage, but I can imagine organisations like utility providers using the service, since they have a high volume of customers making regular payments. Since customer service is so important for basic utility providers (they all have the same product), the additional features of SRTP are a great fit for augmenting the customer experience. They would allow customers to keep track of all their bills in one place, and even message their utility provider from within the SRTP framework.    


Other typical use case may include petrol station payments and hotel bookings. In these cases, the merchant presents the customer with a maximum ‘pre-authorised’ figure, because the final cost may vary depending on extra products bought in the mini-bar, or the amount of petrol needed. With SRTP, the merchant is guaranteed in advance that the full transaction will be paid in the future.



Request to pay at this stage is a very basic messaging service and it does not involve the actual payment initiation. It will evolve, but right now SRTP is not a scheme itself, it is more a functionality in conjunction with the other schemes like SCT Inst. I expect that SRTP will one day include automatic initiation of a payment. It may also include pre-authorisation of an amount against an SRTP with immediate or deferred payment.


Despite the many possibilities of SRTP, there is still a big effort required on the technical standards and rule books to get all these “functional” items included to make it a really workable and attractive proposition. 


There may also be an adoption issue with SRTP. We saw with 3D-secure that banks had no real motivation to push the scheme. As such, adoption stalled. I fear the same could be true for SRTP. It was developed at a European level, and will be delivered by financial services and payment providers. However, no single body is steering it, it could lead to a fragmented solutions landscape. The adoption cycle I would expect to be identical to what we have seen in the Open Banking movement – which is rather slow.


SEPA has introduced three schemes that solve a broad range of payment issues, which should also compliment the schemes they have in place already. I expect them to benefit a lot of consumers and businesses in Europe, helping them get paid quicker, more easily, and with less fraud. The schemes, especially Mobile P2P, should successfully rival any payment offerings on the horizon from US tech and financial services firms. The only slight concern is adoption, especially with SRTP, as it is aimed more towards the B2B space and therefore requires adoption across the payments eco-system.    


It’s worth noting that there are other important schemes emerging, such as SEPA for Card and SEPA for Cash – however they are still several years away. It’s clear that SEPA is committed to a larger payments ecosystem strategy, and this will hopefully help make European payments a less fragmented and more efficient place. 


Speaking as a fintech entrepreneur, the exciting bit is the many business opportunities these new schemes present to build new, efficient payment flows and journeys, solving legacy problems for businesses and consumers, creating scale through the pan-European and interoperability nature of the schemes. The instant nature of the push SCT Inst with proxies like QR codes can be very powerful, the Request to Pay mechanism embedded in B2B payment flows could see numerous completely new payment products being launched


These new schemes will give fintechs the ability to develop completely new game-changing products. They will be foundational to future business opportunities and I’m excited to see what happens next.  



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Jens Bader

Jens Bader


Funanga AG

Member since

18 Apr 2011



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This post is from a series of posts in the group:

SEPA and European Payments

The Single Euro Payments Area, the Payments Services Directive, the Eurosystem, TARGET2, STEP2, the Euro and related matters.

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