In an era when society is increasingly mobile and expects everything done right away, why is Europe still waiting for the “next business day” to complete payments and money transfers? Noncash instant payments are a global trend, and Europe has a good opportunity to join the movement with its new SEPA (Single Euro Payments Area) Instant Credit Transfer (SCT Inst).
Developed by the European Payments Council, SCT Inst is a “must do” for European banks, and its goal is to make payments faster and cheaper for everybody, both businesses and individuals. Instant payment means making and receiving payments 24x7x365, with immediate transfer of funds in seconds. Many financial organisations see the potential, and the number of instant payment providers is increasing, which makes things more urgent for European banks. The Swiss Interbank Clearing (SIC), operated by SIX Interbank Clearing AG, and the UK’s Faster Payment Service pioneered this trend, and today we have initiatives such as Express Elixir in Poland; FAST (Fast And Secure Transfers) in Singapore; and THC (The Clearing House) in the United States, among others.
You might wonder why we need instant payments when payments by debit card, for example, are done instantly. When a customer pays a retailer by card, the customer gets the idea that the payment is instantaneous. Their account might be debited instantly, but the money shows up in the beneficiary’s account much later. In the Single Euro Payment Area (SEPA), the general rule until now was that the beneficiary receives the sum the next banking business day. With the recently adopted SCT Inst scheme, the beneficiary gets the money right away.
Currently, with a credit transfer from one bank account to another, there is a single flow. You take the initiative for payment and inform your bank to pay an amount to a beneficiary’s account. Your bank sends the information and amount to the other bank via a clearing system, and the beneficiary’s bank will make the money available to the account.
How are things changing with instant payment schemes? SCT Inst has a dual flow. As soon as your bank gets the information, it can transfer the funds to the account of the beneficiary and send a message notifying the payer that everything went well and the transfer has been completed. This happens very quickly, in a time frame of 5-10 seconds.
It’s very similar to the normal credit transfer, but the speed makes the difference. One might say that the instant and normal credit transfers look like the same animal, but they are completely different.
For financial institutions, the biggest hurdles in the integration of the SCT Inst system are the old and slow legacy banking information systems. Instant payment cannot work with a slow IT system because banks need to react within a fraction of a second. The system needs to be up and running 24×7 and perform much faster because the SLA is really short. We are talking about an SLA of 5-10 seconds for the full transfer cycle. And 5 seconds is a very brief amount of time to have everything done. Speed and performance are key.
A bank’s supporting business units need to be able to respond in real time as well. If a bank is going to offer its customers instant payments, its customer service must be available 24x7x365 as well. And banks often don’t see the full picture of what needs to be changed in their organisation apart from the technical aspects, software and machines.
European banks really don’t have the chance to oppose SCT Inst, and they can’t delay its implementation for too long if they want to remain competitive in the new digital landscape. Payment services providers are already offering new consumer payment services based on the SCT Inst, so if a bank won’t offer its customers instant payment, those customers have the option of moving to the next bank.