Real-time payments across Europe could become a reality within two years, after the European Payments Council (EPC) released its vision for an instant credit transfer system.
It comes after the Euro Retail Payments Board, a body chaired by the European Central Bank, voiced concerns that national schemes such as the UK’s Faster Payments could create a fragmented market “which would be prejudicial to the harmonisation of electronic payments”.
What will SEPA real-time payments look like?
The ERPB is aiming for a comprehensive system having previously defined instant payments 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 with confirmation to the payer (within seconds of payment initiation)”.
It continued: “This is irrespective of the underlying payment instrument used (credit transfer, direct debit or payment card) and of the underlying arrangements for clearing (whether bilateral interbank clearing or clearing via infrastructures) and settlement (e.g. with guarantees or in real time) that make this possible.”
A SEPA-based instant payments system would be the first international real-time infrastructure and hugely important for the region. National schemes are proving hugely influential and the possibility to open this up across frontiers is exciting.
Aside from the ‘fragmentation’ talked about above, there is a sense that payments are always playing catch up. Anthony Richter, chair of the EPC ad hoc task force on instant payments, notes: “The digitalisation of our economy, with the spread of smartphones and of electronic commerce, entails a general acceleration of payments. Consumers expect to pay for – and receive – their internet purchases as fast as possible, while suppliers wish to be certain to receive the funds as soon as they sell their goods and services.”
Internet commerce is central to the discussion. As a recent Swift report pointed out, the “seemingly straightforward process of debiting one bank account and crediting another often takes longer than the physical movement of the goods”.
Real-time payments is merely the ‘financial supply chain’ catching up with other changes in the market, particularly in retail.
Why SEPA’s version could be important
SEPA instant payments are signs of the acceleration in real-time payment systems in the last few years. Certainly the significant success of systems such as the UK’s Faster Payments is making other countries realise there are huge benefits.
The Federal Reserve has set out its plans for the US market, while Australia is one of many countries in the process of setting up real-time payments.
As the EPC acknowledges, national schemes are fragmented – they are no different to current payment rails, just the trains that run on them are quicker.
“Despite strong areas of commonality, the approach for clearing and the approach for settlement varies from system to system – ‘one-size does not fit all’ – and these differences are expected to remain, as communities make different implementation choices,” notes Swift.
However, the EPC vision covers payments across the 34 SEPA countries. It’s a “pan-European solution” – the Channel Tunnel of payment rails, the first time that international instant payments are being considered. As such, the proposals could hold the blueprint for a global system one day – we just need to find a way to overcome the differences that are already in place. Of course the work already carried out under SEPA to deliver pan EU bulk payments and RTGS systems has shown that it is possible.