Real time payments: the next frontier

With customers increasingly requiring ease, speed, convenience, security and always-on processing for their payments, the momentum behind instant payments is building. But the road towards truly real-time payments will not be without its twists and turns, warns Jurgen Vroegh, ING.

Right now, instant payments schemes are being built and implemented in various geographies across the globe. Singapore’s Immediate Payments G3 scheme went live last year and countries from Australia to the US are working on their own equivalents.

Jurgen Vroegh portrait

Meanwhile, the SEPA Instant Credit Transfer Scheme (SCT Inst) stands to introduce real-time payments across the Eurozone. Whereas SEPA Credit Transfers (SCTs) are currently processed in batches, SCT Inst will be processed at a transaction level, and funds will be available in the beneficiary’s account within 10 seconds.

This is great news for treasurers, who will be able to use the SCTs they are used to, but with a much quicker processing speed. Due to go live in November 2017, with an initial value limit of €15,000, SCT Inst will also enable treasurers to process payments 24/7, 365 days a year. SCT Inst therefore offers opportunities to speed up corporate supply chains, improve credit risk management, and cash flow, while optimising cash management. But of course, it also means that banks (and corporates) must be ready for a change in culture towards ‘always-on’ payments processing.

There will undoubtedly need to be upgrades to internal legacy bank systems and infrastructures in order to achieve this – in particular given the prescribed speed of processing – so significant time and investment will be required. Another of the biggest challenges for Eurozone banks will be building the linkages between countries, in particular since some euro nations are working on their own local schemes or adjustments, and delivering a standardised, coherent, SCT Inst scheme that functions across the euro area.

An additional brainteaser will be how to accomplish the required compliance screening, to the necessary standards, within split seconds. Pre-transaction checks are likely to form part of the solution, but greater industry collaboration will be required to find all of the answers.

Challenges aside, the benefits of SCT Inst are expected to be significant. Taking the UK’s Faster Payments Scheme (FPS) as a yardstick, SCT Inst has the potential to bring increased transparency, reduced settlement risk, increased market liquidity and also reduced costs as other, less efficient, payment instruments fall out of favour.

In the UK, FPS – which was launched in 2008 – has gradually become such a significant part of the national infrastructure that it is used for much more then single immediate payments. Some companies even now use FPS for their payroll. The hope is that SCT Inst will have similar success.

But as much as the UK’s blueprint has helped in setting the scope of SCT Inst, as well as determining the risk appetite and the extent of possible value-added services, the Eurozone’s real-time payments scheme will be far from a mere FPS copycat. In fact, as the first cross-border scheme of its kind, albeit within the single currency zone, SCT Inst will be very much setting a precedent.

The advent of SCT Inst is therefore leading to greater speculation around the possibility of a global instant payments infrastructure. But, here, the barriers are extremely high. In addition to the standardisation and compliance challenges, moving money in real-time (not just the messages) will be a sticking point.

So, as long as there is no central global hub or central bank institution that can route global flows, progress towards worldwide cross-border instant payments will be far from ‘immediate’. However, the world is full of surprises – and ING believes that frictionless payments will gradually become the new normal, with instant payments laying the groundwork for that. As such, SCT Inst is a significant step forward for the industry.