Long reads

EBAday 2021: Striving for strong instant payments uptake

Paige McNamee

Paige McNamee

Senior Reporter, Finextra

At the heart of the European Commission’s Retail Payments Strategy lies the ambition to bolster progress toward instant payments, calling for a full uptake via SEPA Instant Credit Transfers (SCT Inst) by the end of 2021.

More than 50 instant payment schemes currently exist around the world, and while the manner in which consumer payments leverage instant payments is becoming apparent, the way in which corporate payments and wider integration of instant payments will grow remains to be seen.

Pressure to assess and deliver real-time capabilities with SCT Inst is mounting as financial institutions in Europe and across the globe are looking for the most efficient and lucrative ways to implement instant payments.

What are the factors helping and hindering this instant payment uptake, and importantly, how much progress have we really made?

Instant payments to drive competition

Time and time over the payments industry has been told that instant payments itself holds the key not only towards delivering the ‘instant’ expectation of retail and corporate customers, but also provide certainty of payment, enhanced transparency, a more competitive and open market (in combination of Open Banking), and even faster access to government stimulus payments.

McKinsey notes that the pandemic-induced acceleration of the move from physical to virtual banking drove a fundamental shift in adoption of technologies, while investment in instant payments have begun to reap greater benefits – both in POS and e-commerce usage of instant solutions.

While organisations may have felt the need to prioritise Covid-19 contingency plans during 2020, appetite for instant payments is abundant. As of February 2021, EBA CLEARING notes that its instant SEPA credit transfer infrastructure RT1 boasts an average daily volume of 998,991 transactions, worth an average €598 million. In February 2020, this figure was around half the current levels: 504,669 at an average daily value of €226 million.

These numbers underscore the reality that the tone of the ‘instant payments conversation’ has evolved. Discussion of the impact and significance of instant payments cannot overlook the sheer volume of transactions which have shifted and the momentum towards instant payments in the wake of Covid-19.

Key instant payments obstacles

While significant progress has been made away from cash payments toward digital, integration across payments systems still needs improvement.

Another factor relevant to the success of instant payments is the impending PSD2 review which may have implications for instant payments in the context of new types of fraud. Strengthening the payer’s protection and regulating chargeback procedures, may have the effect of making instant payments closer to card transactions in nature.

Developing cross-currency instant payments is also raised among industry experts, alongside the need to establish links between the payment systems processing instant payments in euro and those of other relevant currencies.

P27 is being held as the poster child of championing a multi-currency, integrated solution providing instant payments within the Nordics. CEO Lars Sjogren commented in 2020 that the European Commission and EU’s decision to add instant payments to their roadmap in parallel to P27 will be a positive for the Nordics, “because it is bringing a lot of attention to the real-time payments environment.”.

“I don’t see any conflict. In fact, when the European Union describes their retail payments strategy, they mention P27 as an example of an interesting and important regional initiative.”

Where are we seeing instant payments traction?

Given the timeline and market pressure, it isn’t entirely surprising that the number of partnerships between large financial institutions, payments providers and technology firms are growing.

On the recent announcement that Fidor would partner with SIA to deliver instant payments services across Germany, Fidor CEO Michael Maier stated: “We are very pleased to partner with SIA to offer our clients a fully integrated Instant SEPA Payment Solution within our digital platform.”

The platform will allow European financial institutions and their customers to send and receive payments in less than 10 seconds for a maximum amount currently set at 100,000 euros per individual transaction, 24 hours a day, 365 days a year, in line with the SEPA Instant Credit Transfer scheme of the European Payments Council (EPC).

Instant payments will be a core topic discussed at the Euro Banking Association and Finextra’s EBAday 2021. Running in digital format on 28-30 June for its sixteenth year, the event will welcome a host of board directors, chief executive officers and payments and technology heads from Europe’s leading banks, and registration is now open.

Comments: (1)

Jeremy Light
Jeremy Light - Fourdotzero - London 19 March, 2021, 13:461 like 1 like

Starting 2008, it took around 7 years for SIPS, real-time payments in the UK Faster Payments system, to reach ~1bn annual txns, or just over 15 real-time payments per capita per year, and just 7 months for the Nets real-time payments system in Denmark to reach the same level after it launched in late 2014.

It is over 3 years since the first SCT Inst payment in the Eurozone, and looking at EPC stats, the current run rate of SCT Inst is about 1.8bn txns per year, or 5 real-time payments per capita per year in the Eurozone. This is more like the steady adoption of the UK experience than the fast adoption of the Denmark experience, and a little surprising given we are now much more advanced in a digital age of always on, instant services.

Given that real-time payments are core to a modern digital economy, and that even targets for adherence to SCT Inst (under Article 4 of the SEPA Regulation2) appear still to be met in Eurozone countries, I expect that the EC may mandate adoption targets for SCT Inst, and soon.

Meanwhile, UK SIPS are currently running at about 32 real-time payments per capita per year, or 2bn payments, growing at over 20% annually (and on a system that is 13 years old needing replacement), illustrating that Eurozone banks and other PSPs have a massive upside from SCT Inst, and should get motoring, with or without a regulatory push.