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SCT Isn’t: How ready are banks for Europe’s IP scheme?

05 December 2017

The single euro payments area (SEPA) instant credit transfer (SCT Inst) voluntary scheme went live last month but only 585 PSPs, 15% of the total, were ready for it. How long will it take for the rest to catch up, asks Neil Ainger, and is US TCH RTP adoption similarly slow?

SCT Inst launched in eight countries on 21 November from Austria to Latvia, Italy to Spain and will continue to rollout on a voluntary basis in future years. It offers instant euro payment services up to a €15,000 maximum, on a constant 24×7 operational basis in less than 10 seconds.

The scheme is intended to reach the 34 SEPA Countries in Europe including Poland, France, UK and so on. Various SCT Inst-compliant clearing and settlement mechanisms (CSMs) are slowly rolling it out, but more need to follow, and banks themselves are being slow to adopt it. Eventually, perhaps the scheme will have to be made mandatory?

The European Payments Council (EPC), which designed the voluntary rulebook, is predicting payment service provider (PSP) uptake will only reach 50% by 2020. Cross-border interoperability is reliant on CSM partnerships and EBA Clearing’s pan-European RT1 platform, at least until the European Central Bank’s (ECB) Target Instant Payment Settlement (TIPS) platform launches next year.

More banks going live with their own arrangements will naturally help uptake and reachability, but so far there is no stampede to migrate. Large German banks, with their massive euro transaction volumes, need to move to SCT Inst next year to really get the figures moving, as this earlier InstaPay Blog makes plain.

The situation in the US is similarly slow. The Clearing House (TCH) real-time payments (RTP) infrastructure launch in the US on 13 November shares the same instant payment (IP) timeframe and always-on constant operation as its European cousin. But the TCH RTP platform is not expected to reach ubiquity either until 2020.

TCH has said it hopes that ‘by the end of 2018’ half of all American depositors will have access to the system, so it is expected to overtake Europe’s system as it ramps up. But the instant service is not certainly immediately available to all.

US TCH RTP adoption
TCH RTP is the first new payment and clearing infrastructure in over 40 years in the US. Its inaugural test on 13 November saw $3.50 move between BNY Mellon and US Bank in three seconds. Further transactions have gone through the platform involving PNC, SunTrust, Citi and J.P. Morgan, among other early adopters.

BNY Mellon Treasury Services’ head, Ian Stewart, hailed the US project as “one of the most important payment transformation efforts in our industry” in a statement after the first test of the system.

“As an industry, RTP positions us like never before to meet the evolving needs of our customers and commercial clients,” said William Demchak, PNC’s president and CEO, in the same statement. He is also on TCH’s Supervisory Board and added: “At a time when our clients are asking for the ability to conduct their business with greater speed, efficiency and security, RTP will make everyday financial tasks such as paying bills, issuing invoices or making payroll faster, safer and more satisfying.”

RTP follows the objectives of the US Federal Reserve (Fed) Faster Payments Task Force. It supports fast, irrevocable IP, standardised messaging and data carrying capabilities, which mean new functionality such as mobile phone number initiation, liquidity and payment monitoring services should be possible. The technology was supplied by MasterCard-owned VocaLink and built with the assistance of TCH’s 25 owner banks.

Migration isn’t easy
On both sides of the Atlantic, banks are slow to migrate to these new IP schemes because connecting to a centralised core infrastructure isn’t easy. Neither is integrating and aligning it with internal financial crime compliance activities, such as sanctions screening or anti-money laundering (AML).

In the US at least processing firms, such as Fiserv, FIS, Icon and others, are expected to meet the connectivity and processing needs of smaller US credit unions and other PSPs by offering payment hubs, cloud-based services and so on. For those without the scale or budget to run their own migration project – or indeed for those who prefer to leave it to dedicated tech firms – this vendor-driven assistance will no doubt be useful. It could speed up widespread adoption and aid internal efficiency. However, waiting until 2020 for the majority of PSPs to be able to offer fast data-rich payments could be frustrating for consumers and corporates.

Banks should be doing all they can, as early as they can, to migrate to the US TCH and European SCT Inst schemes – not to mention similarly planned IP schemes due for launch in Australia next year, and underway elsewhere in the world. The task is not a simple one, as Nicolas Cailly, deputy director of payments & cash management at Société Générale, made plain in a recent InstaPay Blog. But no one wants to see a repeat of the decade-long saga it took to introduce the normal SEPA credit transfer and direct debit (SDD) instruments across Europe.

If it takes too long to introduce instant SCTs then the opportunity might well open up for non-bank providers to take away more flow from traditional transaction banks. If the fast 24×7 services that customers demand in the 21st century aren’t provided by their usual suppliers then others may well step into the breach. Early adopters can protect their incumbent positions somewhat if they move quickly, integrate well and stay on top of the great migration that is now underway on both sides of the Atlantic.


Author: Neil Ainger