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The future of European payments?

29 March 2019

SEPA Instant Credit Transfer already enables banks to transfer euro funds faster and more easily. In the long term, it could also bring significant benefits to corporates.

In today’s fast-moving, increasingly digitised world, consumers expect a multitude of different interactions and transactions to happen instantly – including payments. So, it was in recognition of evolving consumer behaviours, and consumers’ heightened demand for real-time payments, that the UK originally launched its Faster Payments service in 2008.

Faster Payments, which is now used to process virtually all internet and telephone banking payments in the UK, was set up as an alternative to the more established BACS system. Regarded as a revolutionary development, the service reduced the clearing time for small sterling payments from three working days to a matter of seconds.

SEPA Instant Credit Transfer (SCT Inst), which followed some years later, is the euro equivalent of Faster Payments. It enables real-time payments across borders for countries and territories that are part of the Single Euro Payments Area (SEPA).

What is SCT Inst?

The European Payments Council launched SCT Inst in November 2017. It aims to improve the efficiency and speed of the European payments process while preventing the possible market fragmentation that could arise from the emergence of separate real-time national payment platforms.

Already live in 20 European countries^, SCT Inst is optional to join. This means that individual countries and payment service providers (PSPs) can choose whether to participate in the scheme or not. SCT Inst has steadily gained traction since its launch and it is currently being used by more than 2,000 PSPs.

Ultimately, SCT Inst has the potential to be a pan-European scheme, with the geographic scope to cover 34 European countries and territories. The scheme encourages the adoption of the ISO20022 messaging standard, which is establishing a common language for payments data across the world.

SEPA Instant Credit Transfer Scheme

How does SCT Inst work?

SCT Inst works like a standard SEPA credit transfer – but much faster. With a standard SEPA credit transfer, it typically takes between one and four days for funds to be transferred between accounts that are held by two different banks in SEPA countries.

In contrast, SCT Inst euro credit transfers take place in 10 seconds or less. Although SCT Inst uses the existing SEPA Credit Transfer framework, payments are not processed in batches during the course of the day, which is what happens with standard SEPA credit transfers. Instead, individual transactions are processed instantly and cleared in real time. Available 24 hours a day, every day of the year, SCT Inst is improving the payment experience of consumers and organisations of all sizes. For businesses, the instant availability of funds is also beneficial to cashflow management.

To minimise the risk of fraud, the default limit for an SCT Inst transaction was initially set at €15,000, although this limit is expected to increase. Furthermore, the SCT Inst Rulebook permits scheme participants to allow their customers to send and receive larger amounts than the default amount. For example, the Netherlands has set its own standard specifications for SCT Inst transactions, including a target execution time of five seconds and no value limit for transactions – although individual PSPs are free to set their own value limits.

Key Characteristics of SEPA Instant Credit Transfer

TIPS: the alternative to SCT Inst

While the default SCT Inst transaction limit of €15,000 is sufficient for many consumer and business purposes, it is low by the standards of large corporates. This makes the scheme potentially less useful to them, unless they are transferring funds within a jurisdiction, such as the Netherlands, where the default limit is waived.

An alternative to SCT Inst for corporates is the new TARGET instant payment settlement (TIPS) service, which was launched by the European Central Bank in November 2018. TIPS, which is an extension of the widely adopted, European real-time gross settlement system TARGET2, enables PSPs to offer real-time fund transfers in euros to their customers. This can happen around the clock, 365 days a year. Over time, corporates are likely to make use of both the SCT Inst and TIPS services when transferring funds.

What next for SCT Inst?

In future, SCT Inst could potentially bring significant benefits to corporates beyond the fast transfer of funds. For example, it could enable corporates to establish request-to-pay services for their customers in countries where take-up of direct debits is low today. With request to pay, companies would request funds from their customers on a regular basis, while giving their customers the option to accept, refuse or delay payment. The service would operate on a similar basis to how Italy’s non-pre-authorised direct debit payment system, Ricevuta Bancaria (RIBA), works today.

The EU’s revised Payments Services Directive (PSD2) could also influence how SCT Inst develops over the long term. PSD2 requires the implementation of open banking – where banks use secure application programming interfaces (APIs) to share their customers’ information with authorised third parties. As a result, banks and corporates could respond to consumers’ increasingly ‘anywhere, at any time’ purchasing behaviours by developing new products that use SCT Inst and open banking functionality. Another possible development could be that the SCT Inst scheme later becomes interoperable with other instant payment schemes globally, such as those in Australia, Singapore and the US.

Overall, it is still early days for SCT Inst, but the scheme is building momentum, with more countries due to come on board in 2019. Along with other significant developments, including TIPS and PSD2, it is set to have a far-reaching impact on the European payments landscape in the years ahead.

To find out more about what SCT Inst could mean for your business, speak to your Barclays Relationship Director.