- Thierry Spanjaard
Instant payments to set the card ecosystem on fire
Standardization of instant payments has been going on for a few years. In 2017, the European Payment Council (EPC) has set up the standards for SEPA Instant Credit Transfer (SCT Inst), which are built upon the previous SEPA Credit Transfer (SCT). Typically, SCT Inst allows to transfer money between two bank accounts within the SEPA area, within 10 seconds, on any day of the year at any time. A threshold has been set by the EPC limiting the maximum amounts transferable in a SCT Inst transaction at EUR 15,000.
Similar schemes are set up out of the SEPA area. For instance, the UK has set up its domestic “Faster payments” standards that allows to transfer up to GBP 250,000 (EUR 289,000) per transaction. One may anticipate floor limits for instant payments in Euros may evolve in the future.
Instant payments should not be seen only as a means to make SCT faster. By transferring funds instantly, they come in direct competition with all other payment means, including cards. In most cases, typing the IBAN of a payment recipient can be seen as impractical for payments to merchants or P2P payments. But regular users of SCT Inst can set up a list of often used IBANs in their bank app on their handset, making instant payments easy. In addition, some schemes offer to make instant payments even more convenient, for instance the French interbank Paylib service operates as an additional layer on top of the instant payment infrastructure that allows to identify a payment recipient by his/her phone number rather than by an IBAN. More generally, many FinTech are ready to build services to make instant payments always more accessible thanks to open banking regulations. Online and physical merchants are in the process of adding instant payments as a regular payment means among others, as they make payments not only faster but also cheaper for the whole ecosystem.
Also, until now, many financial institutions are charging their customer higher fees for SCT Inst than for SCT. As a result, at the end of 2021, only 11% of SCT were SCT Inst, according to the European Commission.
The European Commission has recently published a draft law that would make it mandatory for all European financial institutions to offer instant payments in Euros for free. Payment security is taken into account as there should be an IBAN check on payments, warning consumers if there is a mismatch between the name of the beneficiary and the IBAN number. The enforcement of such a rule will instantly create a strong competition to all other payment means: SCT will immediately become obsolete, and card payments will be under threat, as they involve transaction fees and require between a few hours and a few days to complete a transaction. Merchants and consumers alike are looking for ways to reduce the transaction fees, and moving money faster could be seen as a means for removing friction in the global economy.
Already the BEUC (Bureau Européen des Unions de Consommateurs – The European Consumer Organization) and Ecommerce Europe, which represents the European Digital Commerce sector, have announced their support for a quick adoption of instant payments. On the other side, Payments Europe, the “the voice of the European card-based payments industry” have already issued a statement in which they ask that “the market should be allowed to determine the pricing and commercial dynamics linked to instant payments,” rather than making them free for all.
Building a more fluid ecosystem means making opportunities more even and reinforcing the influence of the Euro area, according to the European Commission. It would also be a means to reduce the transaction fees paid on many international transactions to Visa and Mastercard.