SEPA in the Age of Real-Time Payments

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Real-time payments are becoming the new normal in Europe. Image: Shutterstock

Real-time payments are no longer an aspiration, or a long-term plan. In less than a year, they will be the new normal for 34 countries in Europe — thanks to payments initiatives like SEPA, or the Single Euro Payments Area. SEPA has existed as an integrated payment initiative since 2008. The European community created it to ensure efficiency in the still-cumbersome process of cross-border payments between European countries.

However, by November 2017, SEPA Credit Transfer (SCT) must be ready for adoption as an instant payments scheme, offering settlement in real time for people and businesses all over Europe.

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So, what does this mean for banks across Europe?  

As a new whitepaper from Vocalink points out, individuals, corporates and regulatory authorities are demanding real-time payments across Europe. The service already exists within many countries, and SCT represents the drawing together of these separate “islands” of real time settlement into a new standard.

Many nations in Europe have already implemented their own domestic real-time payment systems, including the U.K., Sweden, Poland, and Denmark. Each of these has served as an example of the challenges that will face SCT as it moves toward broad adoption. Vocalink suggests that there will be “islands of SCT” that interoperate with one another as the service becomes available, much like the “islands” of real-time settlement that exist across Europe struggle for interoperability with one another now.

Vocalink suggests that even this limited exposure to a payments system that is never down has reconditioned customers’ expectations of banking across Europe. Furthermore, individual and corporate customers alike now have the option to air their grievances via social media, amplifying and spreading any dissatisfaction they may feel with the services they use on an unprecedented scale.

In regulatory requirements, PSD2 rules on payment initiation are likely to create a similar appetite for Instant Payments. PSD2 requires up-front disclosure of funds and greater transparency of the payment process for consumers, pushing banks and payment service providers toward a new standard in payments.

This new environment for payments providers and financial institutions is creating a future in which “instant payments may eventually become, as some have said, the new normal for Europe, or SEPA 2.0.”

The work to prepare for this “new normal” is significant, and already underway. Much of it centers on the infrastructure of the payments system itself: the end of batching, the death of the “business day,” zero downtime, and interoperability:

“Clearing and settlement mechanisms for instant payments have fundamentally different requirements to those designed for batch or asynchronous systems. This makes it highly unlikely that an existing batch system can be adapted to run instant payments. As with PSPs [payment service providers] the key requirements are for high availability, both in terms of the ability to operate 24/7 and meet peak demand whilst meeting service levels: end customers will not tolerate a high level of capacity related failures or even planned downtime for maintenance. Systems need to have a guaranteed ability to transact volumes and proven ability to scale.”

Read the whitepaper here.