Mark my words, Instant Payments or Real Time Payments will be hot in 2015! Globally there are various Instant or Faster Payments initiatives already in place, and many more being considered – but what is the European / SEPA take on Instant Payments? With the SEPA region in mind, what are Instant Payments, what is the Instant Payments ‘vision’ and what are the proposed next steps for faster payments in the SEPA zone? Well luckily enough all of these questions were recently addressed by the European Central Bank (ECB) and the ERPB (Euro Retail Payments Board)…
This article refers to the ECB Pan-European instant payments in euro: definition, vision, and way forward issued on 12 November 2014. Please refer to the ECB article for full details.
Why all the fuss over Instant Payments / Real Time Payments?
Everybody wants everything now! In this age of instant and real time information, there is an appetite for real time payments. People don’t want to wait a day or two for receipt of their payment, they want it now! As a result people are look at alternative forms of payments such as mobile payments (where an e-wallet is credited) or digital currencies such as Bitcoin. There is an expectation and demand within the public and private sector for instant retail payments. Specifically this refers to payments that are person to person, e-commerce and government payments. The belief is that the demand for instant payments may result in individual countries pursuing their own instant payments or faster payments schemes which would result in fragmentation within the SEPA zone. This would essentially undo the hard work carried out as part of the SEPA migration.
From a payment service provider (PSP) perspective there are a couple of driving factors too. Knowing the appetite in the market place, the PSP’s want to address the existing shortfall and offer instant payments as a solution and service. They believe instant payments will help them to attract a bigger market share and ensure they stay competitive with the newer, sometimes more innovative, payment service providers.
So, this is why instant payments are considered to be the next European wide deliverable after the SEPA implementation.
What are Instant Payments / Real Time Payments?
The ECB / ERPB indicates:
“Instant payments are hence defined as electronic retail payment solutions available 24/7/365 and resulting in the immediate or close to immediate interbank clearing of the transaction and crediting of the payee’s account (within seconds of payment initiation), irrespective of the underlying payment instrument used (credit transfer, direct debit or payment card) and of the underlying clearing and settlement arrangements that make this possible”.
What is the ECB Instant Payments Vision?
- Payment Solution Providers should:
- Cooperate and collaborate and offer a interoperable instant payments solution
- Not operate as silo’s
- Operate a common instant payments scheme which follows an agreed set of rules and technical standards that enable instant payments
- Utilise existing payment instruments (First Layer) and existing clearing (Second Layer) and settlement (Third Layer) systems
- The formation of at least one pan-European euro instant payments scheme
- Which the EPC could establish by stating the rules and standards based on the existing SEPA Credit Transfer and clearing / settlement structures
- The euro Instant Payment scheme should:
- Operate 24/7/365 and across Europe
- Offer either immediate or close to immediate payment (i.e. crediting of the suppliers account)
- Be collaborative and interoperable and supported by Clearing and settlement systems
Examples of Instant Payment / Real Time Payment Solutions
Globally there are some already implemented instant payment initiatives:
- South Africa, Canada, Singapore, Denmark, Sweden, Poland, UK
There are many European instant payment schemes being considered:
- The Netherlands, Finland, Norway
Instant Payments – Timing, timing, timing…
I said it before in the Immediate Payments post that the concept of a collaborative pan European instant payment euro payments scheme is great. But it all comes back to timing. The ERPB is now in the process of “reflecting and possibly” agreeing on the need for the development and implementation of such a scheme. Potential providers of a potential European-wide instant payment scheme are invited to present the feasibility of such a scheme in June 2015. To ensure competitiveness and pan-European collaboration the European bodies need to move fast. The risk is that instant payment scheme providers may develop fragmented and competing schemes in the interim.