Insight & Analysis

SEPA Instant is coming

Published: Jan 2017

Arguably the biggest development in the European payments landscape since the launch of SEPA will arrive later this year. Are you up to speed on the SEPA Instant Credit Transfer Scheme?

At the end of last year, the European Payments Council (EPC) announced that it had launched the Single Euro Payments Area (SEPA) Instant Credit Transfer (SCT Inst) scheme.

Dubbed as a ‘world first’ the scheme is designed to enable individuals, businesses, corporates and administrations to make instant euro credit transfers between accounts across an international area that will progressively span over 34 European countries.

The scheme is scheduled to go live later this year.

In perspective

SEPA has been alive and well in Europe for some time now, despite some slight hiccups on the way. And, although not perfect, corporates are benefiting from the standardised and cheaper way of making payments across the Eurozone that SEPA enables.

Corporates are likely to benefit even further in the future as well, as the EPC enables banks and various payment service providers (PSPs) to begin building on the foundation laid down by SEPA to use new technology to make payments cheaper, faster and more transparent.

“SCT Inst is one of the first and most prominent instance of this,” says Arn Knol, Director at Dutch treasury consultancy firm Zanders.

SEPA Instant Credit Transfer: key facts

  1. Money from a payment will be available in the account of a beneficiary within ten seconds.
  2. Initially only a maximum of €15,000 can be transferred.
  3. The scheme is based on the existing SEPA credit transfer scheme.
  4. Credit transfers in euro will be covered by the scheme.
  5. Payments can be made 24/7/365.

Immediate impact?

Despite the fanfare around the launch, the new scheme is unlikely to have a sizeable impact on what corporates in Europe are doing – at least not initially.

“The original SEPA credit transfer scheme is already very efficient, especially when compared to some of the other ACH clearing systems in European countries,” says Knol. “In fact, SEPA already allows for same day payments, although this is not always supported by banks and sometimes the service costs (a lot) extra.” Knol is therefore not sure that many corporates will be in a hurry to adapt their processes to leverage this scheme.

The maximum payment limit of €15,000 further dulls the usefulness of SCT Inst to most corporates.

Overall then, the scheme will most likely benefit consumers initially. The first corporates who may begin to take advantage are those operating in a B2C environment and primarily on the collections side as they will be able to achieve real-time visibility of their collections rather than only during banking hours.

Future benefit

That doesn’t mean that treasury professionals should dismiss the SCT Inst. Instant payment schemes seem to be the direction that the market is heading in. And there are numerous benefits that corporates may be able to obtain from using these in the future.

“In the ‘order to cash and purchase to pay domains’ faster payment schemes can enable more sophisticated behaviour,” says Knol. “For example, if credit limits are carefully monitored for customers and new orders are only approved once payment has been received for outstanding invoices, receiving these funds earlier can help free up this credit limit and accelerate sales.”

Also, when looking at the payments side the new scheme allows corporates to very accurately time the disbursement of their payments to ensure that payments are always made just in time. “This will improve the working capital of the corporate and reduce the time that funds are stuck overnight in banks, both of which are beneficial for the treasury department,” adds Knol.

Instant payments alone do not help corporates achieve these benefits, however. There will also be a need for treasury departments to work towards obtaining intraday reports, which will require enhancements in the technological infrastructure of most corporates.

Further developments

It will be interesting to watch how SCT Inst develops in the months and years to come and whether the scheme will have a fundamental impact in the corporate space.

For Knol, this will largely depend on two key developments. Firstly, the maximum payment limit needs to increase. “We do believe that in order for this scheme to be adopted by corporates to make payments the limit should be increased significantly,” he says. “But this will depend on the processes and liquidity impact on the banks.”

Secondly, Knol also believes that the scheme needs to be priced competitively by the banks. “If the transaction cost is not at least equal or lower than next-day SEPA CTs corporates might find it an unattractive instrument for large volumes of their payments,” he says. “There is a risk of this being the case because if there is an impact on the banks’ intraday liquidity or an opportunity cost as banks can no longer time the execution of the payment (even by minutes or hours) then the costs for the bank for offering these instant payments would likely be passed onto the client.”

Either way SEPA Inst looks set to become a cornerstone of the European payments ecosystem and something that all treasury professionals should be aware of.

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