Banks had six years to implement SEPA Instant Payments. Many didn’t. New EU legislation now gives them nine months.
Despite its introduction in 2017, adoption of SEPA Instant Credit Transfers (SCT Inst) by European banks has been slow. For those that have implemented it, SCT Inst payments are, on average, five times more expensive than SEPA Credit Transfer counterparts.
The percentage of banks that have implemented SCT Inst is high in some countries, such as 100% in Slovenia and 98% in Austria. In other countries, however, adoption has been dismal—Danish banks had one of the lowest adoption rates at 2% by June 2022, “beaten” only by Hungary and Croatia with 0%. As a result of the higher costs and lack of adoption, only 14% of all SEPA Credit Transfers (SCT) were instant payments by May 2023.
The European Commission proposed legislation in October 2022 to mandate the standardised implementation of instant payments. In November 2023, The European Parliament and Council agreed on the Commission’s proposal. The legislation mandates that all banks that offer normal SCTs must also offer SCT Inst—at no additional charge.
Eurozone banks have nine months to set up the infrastructure for customers to receive SCT Inst payments and 18 months for customers to send payments. Non-Euro banks have 33 and 39 months for the same, respectively.
“Our IPaaS solution makes it possible for THE BANKS to meet the nine-month deadline, and our readiness check ensures that already-implemented solutions are compliant.”
Dr. Hubertus von Poser,
Member of the management board of PPI AG
The burden behind implementing SCT Inst payments
“There are plenty of upfront costs when implementing instant payments, but no direct monetary return for the transaction itself,” says Dr. Hubertus von Poser, member of the management board of PPI AG, a leading payments consultancy and solutions provider based in Germany. “Also, it’s risky because you’re implementing a new system over one that has years of reliability behind it.”
An instant payment is defined as a payment that moves from the payer’s account to the recipient’s account within 10 seconds. A lot needs to happen in those 10 seconds, including:
- Verifying funds exist in the account.
- Fraud checks.
- AML (Anti Money Laundering) checks.
- CTF (Counter Terrorism Financing) checks.
- Interbank communication.
- Settlement.
- Immediate reconciliation.
- Notifying that funds have arrived.
The system also needs to run 24/7—ideally backed by on-call customer support.
The new legislation adds even more challenges
As if the existing challenges weren’t enough, the new legislation adds at least three new ones:
- Throughput.
- Forex.
- And privacy challenges.
Throughput: If users can send a payment instantly instead of one that takes 24 hours, at the same cost, why would they choose the slower option? They won’t.
“The SCT Inst system is going to experience a massive surge in throughput as this rolls out,” says von Poser. “Even banks that have SCT Inst implemented need to review their systems to ensure they can handle the load. Market participants expect a threefold increase in transactions.”
Forex: Instant payments must also be possible in foreign currency accounts held in European banks. “That opens up a whole new set of challenges,” says von Poser. “Retail forex trades don’t occur after five PM, so banks don’t know yet how to finalise these transactions during those hours.”
Fintechs like Wise and Revolut offer the appearance of instant off-hours forex trades, but these aren’t truly instant payments, as per the EU’s regulatory definition.
Wise also has legalese in place that allows it to renege on a “guaranteed rate” if the rate changes by more than 5% once markets re-open. In the EU legislation, an instant payment is finalised at the time of the transaction. There’s no going back.
GDPR: Under new rules, payment providers must match IBANs to an account holder name. The question is: How much? Overager matching opens the door to a privacy nightmare as crooks develop tools to check thousands of IBANs and so exfiltrate the names of account holders. Whereas too little checking risks violating the new EU law.
PPI’s “Instant Payments Readiness Check” and “TRAVIC-Instant-Payments-as-a-Service” offer a solution
PPI’s experience in payment consulting solutions spans decades. The company is also the leading provider of solutions for EBICS—a banking communication protocol mandated for all banks in Germany—and FinTS, a bank-independent protocol also used in German banks.
Long before instant payments became mandated, PPI recognised the challenges banks faced and developed an Instant Payments as a Service (IPaaS) solution. The IPaaS is geared toward banks that don’t yet offer instant payments. The solution offers a fast implementation in a modular fashion, and banks can choose to connect to either TIPS—a real-time settlement system operated by the European Central Bank—or RT1, Europe’s other real-time system for retail-level transactions.
PPI’s IPaaS also complies with the latest EU regulations
For banks that already have SCT Inst implemented, PPI offers an Instant Payments Readiness Check service. The service takes only three weeks to complete, checking a bank’s technical requirements and potential risks. It then provides a visualisation of affected systems, areas, and interfaces, with action fields for steps to be taken.
“Implementing SCT Inst was never easy, which is why many banks haven’t done it yet,” says von Poser. “Now, they don’t have a choice. Our IPaaS solution makes it possible for them to meet the nine-month deadline, and our readiness check ensures that already-implemented solutions are compliant.”
SEPA Request to Pay (SRTP)—a new business model opportunity
The new legislation also drives new opportunities. Complementing the new regulation is the EU’s new SRTP messaging functionality, which allows payees to initiate the payment workflow electronically, supporting the end-to-end process.
SRTP doesn’t mandate the payment scheme—you can offer instant payment or another method to fulfil the payment workflow. However, using SCT Inst makes the most sense, given the new regulations that will put them on an even playing field with SCT payments.
As one example, you could combine SRTP with SCT Inst and implement a mobile instant payment solution connected with the user’s phone number. In such a service, the payer sends a payment request to a mobile number, and the user can approve or disapprove on their phone. Using SCT Inst, funds are transferred instantly.
PPI offers a white-label solution called PAYCY that seamlessly integrates SEPA Request-to-Pay functionality inside a bank’s existing infrastructure using standard APIs. As a white-label solution, payers and payees deal only with the bank’s front-end solutions, such as the online banking interface or the bank’s mobile app.
Under the hood, PAYCY ensures compliance with the SRTP standard, enabling banks to offer additional value to customers by implementing SRTP before latecomers.
For payers, the value-add includes bypassing costly card schemes by using a local, instant payment method instead.
PAYCY isn’t just an RTP platform. Its USP is combining RTP with specific use cases such as eInvoices, which existing platforms and the SEPA Request-To-Pay (SRTP) Scheme Rulebook don’t cover.
