Instant Payments and SEPA Instant Credit Transfer (SCT Inst)

Instant money transfers are the nearest replacement for currency because they have the ability to grow in the segments of person-to-person and person-to-business in circumstances where cash and checks are commonly utilized (Santamaría, 2019). They can reduce the cost of handling cash and cheques, the most costly means of payment at the level of the economy as a whole. They also promote purchases in online and internet transactions. In the past years, many private firms have come up with a solution to instant payments without even a need for credit cards. They do this by establishing a payment link between the payer and the receiver via the payer’s online banking module (Mozdzynski, 2017). These innovative and low-cost payment solutions called “payment initiation services” are already offered in a number of Member States (e.g., Sofort in Germany, IDeal in the Netherlands, Trustly in Sweden, eXpay in Poland) (Mozdzynski, 2017).

Rui Pimentel considers instant payments as one of the remaining challenges that will help in the integration and modernization of retail payments in Europe (Pimentel, 2016). The number of mobile-related technologies is projected to grow, not only in terms of purchases but in the broader context in terms of the transaction environment. Construction of a pan-European instant payment solution also could take on a prominent role in the near future, in line with this trend (Pimentel, 2016).

The European Union hasn’t been sleeping on the concept of instant payments. In November 2017, SEPA Instant Credit Transfer (SCT Inst) was launched across the EU as an optional payment scheme for the banks to participate in (European Payments Council, 2020). SCT Inst allows instant payment transactions within 10 seconds in euro currency to any beneficiary within the eurozone. It has potential applications in a variety of market segments like Peer-2-Peer (P2P), Consumer-2-Business (C2B), Business-2-Business (B2B), and Business-2-Consumer (B2C) (European Payments Council, 2020). The main innovative characteristics include real-time electronic transfer of money across Europe withing 10 seconds, permanent availability of service on a 24/7 basis, targeted pan-European reach, a multitude of use cases it supports, etc. (Santamaría, 2019). Ireland is one of the few countries in Europe where there is no SEPA SCT Inst offer from any domestic bank. In a market where more than 90 percent of SEPA payments are local in nature, deploying SEPA instantly can only make sense for an Irish bank when most other Irish banks can receive instant SEPA payments at least (Thumar, et al., 2019).

Figure 3: SEPA INSTANT CREDIT TRANSFER SCHEME (European Payments Council, 2020)

One of the significant challenges that banks face is the prioritization against the already developing projects. Since SCT Inst is not mandatory, it needs to be prioritized against many regulatory compulsory projects. Because transfers would be immediate, several banks would have to evaluate their existing payment system and determine its suitability for sizeable instant payment volumes. Considering that many payment platforms have evolved in a batch payment environment over many years, this assessment may reveal that a platform upgrade is needed. This will add considerable expense and delivery commitment to banks in instant execution of their SEPA SCT (Thumar, et al., 2019). A paper also suggests the use of Real time Gross Settlement for instant payments in Europe (Yawe & Kiwala, 2019). The authors further summarize eight critical issues that the central banks should consider in order to provide payments and settlement infrastructure, which are dynamic and versatile for a rapidly changing globalized environment. The central banks should consider catalyst role in respect to policy choices and its consequences; a balance must be maintained between central bank money and private based money in the economy. It should also keep an eye on private institution led innovations, robust security of primary bank payment and settlement systems, social cost-benefit analysis, adequacy of liquidity, Interdependencies between payment and settlement systems, keeping up with continually evolving payment system and efficiency, safety and ubiquity (Yawe & Kiwala, 2019). One example of a private bank taking over incumbent banks in terms of instant payments, as we know, is Revolut. Revolut is a British Financial Technology Company that offers digital services in a mobile application (Revolut, 2020). It has a range of features relating to banking like transferring money abroad in different currencies, a debit card that can be used in 120 countries, vaults for budgeting, overseas medical insurance, etc. (Russon, 2019). The most recent addition to the list of participants of SEPA SCT Inst is Revolut (Earley, 2020). Revolut customers in Ireland can now transfer money instantly to the bank accounts of 2200 participating payment service providers in Europe. Ireland still hasn’t embraced an instant payment technology as compared to the world who are already in the race for instant payment technology.

Figure 4: Instant payment initiatives around the world (Thumar, et al., 2019)

Unified Payment Interface technology in India is based on real-time Immediate Payment Service (IMPS); hence Using UPI enables the user to send or receive money instantly (Salmony, 2017). UPI, through the means of IMPS, has done wonders for financial inclusion of every section regardless of their income status. Instant transfers probably could also catapult Europe ahead of revolutionary creative technologies that were literally not feasible until instant payments appeared, which can prove to be a strategic advantage for Europe globally (Salmony, 2017).

REFERENCES —

1. Santamaría, J., 2019. Developments in instant payments. Journal of Payments Strategy & Systems, 13(3), pp. 190–193.
2. Mozdzynski, D., 2017. THE CONCEPTIONS OF NEW PAYMENT METHODS BASED ON REVISED PAYMENT SERVICES DIRECTIVE (PSD2). Information Systems in Management, 6(1), pp. 50–60.
3. Pimentel, R., 2016. Integration and modernisation of retail payments in Europe: Barriers and challenges. Journal of Payments Strategy & Systems, 10(1), pp. 64–71.
4. Thumar, J. et al., 2019. SEPA Instant Credit Transfer -The time to act is now!. Deloitte Ireland LLP.
5. Revolut, 2020. All your money needs in one app. [Online]
   Available at: https://www.revolut.com/en-IE/about-revolut
   [Accessed 19 August 2020].
6. Russon, M.-A., 2019. What is Revolut?. [Online]
   Available at: https://www.bbc.com/news/business-47768661
   [Accessed 19 August 2020].
7. Earley, K., 2020. Revolut launches SEPA instant bank transfers for Irish customers. [Online]
   Available at: https://www.siliconrepublic.com/companies/revolut-instant-transfers-sepa-europe-ireland
   [Accessed 20 August 2020].
8. Yawe, B. L. & Kiwala, Y., 2019. The role of real-time gross settlement in a world of instant payments. Journal of Payments Strategy & Systems Volume, 13(3), pp. 194–200.
9. Salmony, M., 2017. The future of instant payments: Are we investing billions just for mobile peer-to-peer payment?. Journal of Payments Strategy & Systems , 11(1).