Instant Impact: Lessons Learnt in the Wake of the Instant Payments Launch

The dust has now settled on the launch of the European Payments Council’s SCT Inst scheme, which went live across Europe in November 2017. Six months on, Thomas Dusch of UniCredit takes us through the lessons learnt – arguing that excellent client uptake and system stability are reasons for optimism, while collaborative solutions must still be built before instant payments become the new normal.

On 21 November 2017 the European Payments Council’s instant payments scheme, SCT Inst, went live across the SEPA zone’s 34 countries, with 17 banks offering payments in real time. UniCredit was among them – becoming the first bank to process a cross-border transaction from Germany to Italy in just 2.5 seconds. Since that day, coverage has extended to 20 banks from eight countries, showing strong commitment to the cause. The results, meanwhile, have been remarkable – with corporate and retail usage figures both exceeding expectations as banks press on with implementation and try to maximise value for clients.

Ensuring an efficient end-to-end process for corporates, initiating bulk payments, and managing exceptions and reporting are all topics that need to be addressed going forward, yet the lessons we have learnt so far are overwhelmingly positive – with the number and range of transactions proving greater than expected, while the system has shown itself to be remarkably stable. The pieces are falling into place, and work is under way to ensure that instant payments become the de facto payment option for businesses across Europe.

Experiences so far

A number of trends and takeaways have emerged over the past few months. Firstly, we’ve witnessed a surprisingly high number of transactions – at least one third greater than expected. That this points to strong interest among users goes without saying. When you factor in the limited coverage and non-mandatory nature of the SCT Inst scheme, such high figures suggest the groundswell of support for instant payments is far greater even than predicted. This interpretation is bolstered by the fact that roughly two-thirds of instant payments so far have been C2C retail and online banking transactions, where the client has actively chosen to make an instant payment over another option. 

Roughly a third of these transactions took place in the C2B space. Again, this is higher than expected, perhaps driven by existing customer expectations regarding speed and convenience. Certainly, there are clear benefits to instant payments in this respect. Mandatory feedback on unsuccessful transactions provides security and certainty to the client, and there is increasing recognition among corporates that instant payments’ transparency and speed make them a compelling option. The average value of transactions – falling in the low-four-digit range – suggests that these benefits have led to greater engagement from businesses than initially projected.

All this is a reason to celebrate. Instant payments are proving a hit in terms of user engagement, and the core systems themselves have handled the traffic almost faultlessly. Since going live in November, the system is yet to suffer an outage, while 95% of all transactions have been processed within three seconds – well under the prescribed EPC target of 10 seconds.

Ironing out the creases

However, instant payments are still in their infancy and will require careful rearing to ensure they become a mature and fully functioning payment method. One teething problem is that instant payments cannot yet reach every type of account. For instance, saving accounts and foreign currency accounts cannot be addressed yet. 

Exception handling of payment messages is another concern. When transactions are refused, banks are required to inform the client, but feedback messages from other banks are often not specific enough to pinpoint or identify the reason, meaning banks are forced to pass on unclear feedback to their client. 

The ultimate goal, of course, is for all accounts to be reachable by SEPA and instant payments. This is a small gap that needs to be closed, yet additional rules must be defined to do so. To support this process, the usage of standardised return reason codes is needed to provide a clear indication of how transactions can be executed via different payment methods, having been refused by the current one. Making return reason codes more precise, and harmonising rejection codes, is vital to ensuring the payment process doesn’t break down upon refusal.

With this in mind, an EBA-Clearing working group has already been established to develop a harmonised catalogue that will provide guidance for existing and new participant banks, and implement standards to give better support to originating banks. 

Defining how corporate clients can initiate bulk instant payments is another important issue. The vast majority of corporates want to use instant payments within the SEPA system, but demand minimal disruption – they expect the originator bank to re-route payments automatically if instant payments are returned or beneficiary banks do not support instant payments. Again, standards need to be defined and feedback messages expertly designed in order to solve this issue.

End-to-end efficiency 

Other clients have raised the issue that there is no direct trigger system when customers pay invoices via instant payments, which means the next step in the process cannot be initiated immediately. 

To solve this, banks and corporates must work together. Banks need to know what information corporates require, and provide the requested information in real time. Currently, batch-type approaches limit banks to providing this information via advice notes, e.g., every 30 minutes or so, but the emergence of APIs offers the opportunity to close this gap through enriched, instant client services built on shared data – a win-win scenario.

The challenge lies in linking together corporate Enterprise Resource Planning (ERP) software with bank systems to bring about instant information feedback, but, once overcome, entire processes can be automated to run in real time, dovetailing with wider industry 4.0 and digitalisation aims. 

This is, of course, a long-term goal, but the first step has already been taken. A standardised system for continent-wide instant payments is now in place. The natural – and vital – next step is increasing coverage and expanding the markets that can handle instant payments. Beyond that, the future is open for banks and treasuries alike to work in tandem – embracing a new host of real-time efficiencies.