Real Benefits from Real-Time: Delivering Instant Payments in Europe

There has been a lot of talk about European instant payments

With 2017 fast approaching, now is the time to look at practical delivery. 

We live in impatient times – everyone wants everything now. Digital services save time but raise expectations. The ‘business day’ has all but disappeared and instant payments align financial services with the 24/7 society. 

Almost a year has passed since the Euro Retail Payments Board (ERPB) invited the European Payments Council (EPC) to propose a design for instant SEPA payments. Much time has been spent discussing the best approach but it is time to consider practicalities. 

The publication of the SCT Inst rulebook will signal the start of implementation in earnest.

The initial vision was for a Pan-European system with a single standard. However, several domestic schemes are now developing, with small variations on the rulebook. And, the UK, Sweden, Denmark, Poland, and Norway are all live; each has its own scheme rules, message formats and currency.

This raises important questions:

-          What does this mean for the delivery of an interoperable cross-border scheme?

-          What are the investment implications for Pan-European banks that must deliver solutions to meet many local needs?

Time for action

The scheme is scheduled to be live by November 2017. This is ambitious, but there’s nothing like a deadline to focus the mind.

Now is a good time for banks to get their hands dirty and evaluate the practicalities of instant payments. SCT Inst is more than ‘a faster SEPA’. Moving to real-time extends far beyond payment systems to core banking, fraud, reconciliation and many others.

Every bank needs to figure out its own approach but a lot can be learned from the experience of others.

The customer experience – translating real-time into real benefits

There is a great appetite for instant payments throughout Europe. Consumers currently make do with services like PayPal. But, sooner or later all banks and markets will adopt instant. The good news is that real-time is a catalyst to innovation that boosts payment volumes.

In practice, implementing instant payments is about much more than technology – it’s about business process re-engineering and developing a 24/7-service culture. 

With the arrival of PSD2, instant payments when combined with open APIs, offers a golden opportunity to reinvent payments and create next-generation customer propositions. The key is to work with all stakeholders to develop new exciting use cases that add real value for retail and business customers: it’s not just about doing things faster.

Impact of real-time on banks

No payment exists in isolation: it is part of a bank’s internal processing infrastructure that includes fraud detection, the general ledger, and accounting and reporting systems. And this must fit in with the wider external ecosystem.

Real-time payments leave no room for error. When a real-time service fails, customers notice immediately, and the bank’s reputation suffers. In the digital age, customers readily voice opinions and bad news travels fast. Persistent failures in payments have a significant impact on brand and reputation. 

Banks need to evaluate their real-time capabilities across the entire payments processing chain, from transaction acceptance and authentication, to processing and back-end systems. Real-time fraud and sanctions checks are difficult to achieve and many lessons can be learned from the cards world, where real-time authorization is the norm.

But not all account management systems support real time. Instant payments require stringent Service Level Agreements to be met. When a core banking platform is unavailable – during end-of-day batch processing or even for scheduled maintenance – banks must find alternative ways to maintain service continuity.

Learning from past experiences implementing real time payments in other countries, one solution is to embed a stand-in capability in the real-time payments platform. This allows the bank to respond in real-time even when the core banking system is unavailable, and reduces the number of queries to its core banking systems. This is a practical example of how to resolve the multiple availability challenges without disrupting existing core systems.

Learn from others

Experienced technical partners will play an important role in setting standards and best practice methods. With only a year till the SCT Inst live date, many banks need to turn talk into action. November 2017 is not far away - but there’s nothing like a deadline to focus the mind.