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News analysis: Europe gears up for SCT Inst scheme go live

16 November 2017

The single euro payments area (SEPA) instant credit transfer (SCT Inst) scheme, developed by the European Payments Council (EPC), goes ‘live’ on a voluntary basis on 21 November 2017, writes Neil Ainger as he examines the readiness of the sector.

SCT Inst provides customers with the possibility of instant payments across the 34 SEPA Countries in Europe from Austria to Italy, Poland to France and so on, and is eagerly awaited across the continent.

But how ready is the European banking and payments sector for the voluntary requirement to provide instant payments? How easy or otherwise was it for banks, or other alternative payment service providers (PSPs), to move towards supporting instant payments within their own internal organisation, aligning it with their financial crime compliance rules and liquidity positions.

What are the benefits and challenges, and how many have made the optional move so far? Should it have been mandatory?

These and other questions will be answered in the days, weeks and years ahead after the SCT Inst scheme goes live on 21 November 2017, but it is already clear that many large European banks and account clearing houses (ACHs) in Spain and elsewhere have invested money in order to be ready, but uptake isn’t universal. InstaPay will be covering the launch date and aftermath imminently.

Uptake of Europe’s SCT Inst will likely be slow with even Jean-Yves Jacquelin, Chair of the EPC Scheme Evolution & Maintenance Working Group, saying previously over the summer that by the end of 2022 only 50% of all SEPA credit transfers (SCTs) could be instant. Time will tell if this prediction is accurate, or if adoption rates are slower or faster as the voluntary SCT Inst scheme rolls out.

The drivers for its introduction are clear, with satisfying customer demand for fast, constantly available payments the clear winner in InstaPay’s instant payments (IP) survey of its professional readers this summer:

  • 77% thought meeting customer demand was the key driver for SCT Inst and indeed any other real-time payment (RTP) scheme, such as the TCH US platform recently launched. It is worth remembering that regulators monitor the needs and wants of consumers and corporates as well, so if uptake of SCT Inst, or any other scheme, isn’t strong enough on a voluntary basis action could be taken in the long-term to make instant payments mandatory, thereby driving up participation to meet customer demand.
  • 95% of banks that took part in InstaPay’s summer survey saw the biggest IP challenge as integration with legacy systems.

Integration and reach challenges
How easy, or otherwise, has it been for early SCT Inst adopters to update internal batch-based systems to a real-time 24×7 operational stance is a key question being asked by later joiners ahead of next week’s ‘go live’. Can banks easily and cheaply connect into updated centralised clearing and settlement mechanisms (CSMs) on a national basis and cross-border, using either pan-European networks such as RT1  by EBA Clearing or advanced ACHs in France and other such countries that can move money around the region easily and cheaply due to their investments in technology, and appropriate partnerships.

As the EPC scheme designers say in the their latest rulebook version 1.1, which officially comes into effect at 8am Central European Time (CET) on 21 November:

“The separation of Scheme from infrastructure permits the operation of the Scheme by multiple CSMs. The CSMs may add features and services to the benefit of choice and competition, provided that the rules, practices and standards of the Scheme are fully met.”
EPC rulebook version 1.1. 

Standards, competition & the marketplace
The hoped for widespread adoption of ISO20022 XML messaging on the back of the SCT Inst EPC rulebook and value-added services that can use the extra characters made available by it for tracking, mobile account nomination and other end uses will be reliant on the investment of CSMs, pioneer banks and others. The scheme rules aren’t a golden wand.

Pricing will vary depending on the value-add services that users select. The marketplace will decide what services are launched, spurred on by overlapping regulation such as the EU Payment Services Directive (PSD) 2, which seeks to open up the sector to competition and non-bank players that may further impact pricing. These newcomers being encouraged by regulators are often enabled by financial technology (FinTech) innovation and can collaborate or compete with established banks and other payment service providers (PSPs) such as PayPal.

The FinTech trend can be harnessed by established banks, as much as it can by the rare newcomers to the market with deep enough pockets to compete with them. Accessibility and ownership issues in regard to the instant payment backbone become more topical in this competitive environment. This and cross-border and system interoperability will do doubt be much discussed as SCT Inst goes live next week.

Connectivity & ownership issues
Some financial institutions (FIs) in smaller or less technologically advanced European countries, or those banks bedevilled by legacy IT concerns, may rely on traditional bi- or multi-lateral deals to move payments cross-border, via CSMs and connection portals such as SWIFTNet Instant or depend on vendor supplied solutions.

ACH ownership issues will likely come more to fore in future years, just as access issues for FinTechs can be expected to become a ‘hot topic’ debate in the Open Banking, data and application programming interface (API) environment that PSD2 presages.

Key parameters of SCT Inst
Whatever methodology FIs or PSPs wishing to provide SCT Inst-compliant payments choose to follow, using whatever mechanisms, the key parameters necessary to comply with the EPC scheme rulebook remain the same – namely:

  • A SEPA payment must be in the beneficiary’s account within 10 seconds.
  • Participants must be able to process SCT Inst payments on a constant 24x7x365 basis.
  • Initially the maximum SCT Inst value will be €15,000, but this is expected to rise in time as the system proves itself, gains adherents and settles down.

Corporates, as opposed to consumer, end users are only likely to become majorly interested once the maximum rises. The pioneering national UK Faster Payment Service (FPS), for instance, started with a similar maximum amount before moving to three figure limits later on in its decade-long operational journey.

As an aside the UK is now looking to update its aging early adopter technology model so that it can more easily connect with the instant payment schemes being rolled out across Europe, US and elsewhere. Rather than a thrice daily settlement speeds are also expected to increase.

ACH & global considerations
Interestingly, the UK’s ACH ownership model has already changed with VocaLink passing into MasterCard’s ownership in recent years, although the technology provider was officially separated from the nation’s FPS payment infrastructure provider, as a technology provider, despite its past expertise and history in the ACH arena.

Danish-headquartered Nets proposed takeover this year by Hellman & Friedman for $5.3bn is another illustration of the changing ACH ownership trend as instant payments rollout globally. Its deal with Bankart to operate instant payments in Slovenia is also illustrative of the increased competition and cross-border operation expected in this new era for European payments.

Other early IP adopters in Sweden, Poland and elsewhere are often more instant in their operational capabilities than the UK. These ACHs don’t rely on three times a day ‘near’ real-time settlement mechanisms, as the UK does, or older card and ATM-based messaging standards. But that is the price the UK paid for being an early mover in this field.

Later movers such as the TCH US platform can learn lessons from the early adopters. The same applies to SCT Inst.

With the launch of the SCT Inst scheme the rest of the European continent is catching up on a regional basis, even surpassing the once pioneering UK and other nations. Its adoption of ISO20022 standards and so forth, if successful, moves the continent ahead.

How the evolving backbones in Europe, the US, UK, Singapore and elsewhere in the world connect globally will be an interesting question for the future, especially as experimental distributed ledger technology (DLT) providers such as Ripple may seek to offer an alternative global payment system, even while SWIFT explores the technology itself for its correspondent banking network provision.

For now, the volume of instant payments and spread of more traditional real-time payment (RTP) backbones can be expected to grow in the years ahead. InstaPay will be monitoring developments in the US, in Europe with the SCT scheme next week, and in many other regions that are looking to adopt this service in future years. Instant payments time has arrived and it’s an exciting time.


Author: Neil Ainger
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