5 Critical Ways SEPA will Unite Europe with Instant Payments in 2023 (and Beyond)
In 2023, the world of Instant Payments is poised for significant advancements, particularly within the Single Euro Payments Area (SEPA). SEPA being the payment-integration initiative of the European Union (EU) to simplify bank transfers in euros.
What is the purpose of SEPA and the future of payments in Europe?
As of January 2023, the SEPA region consists of 36 countries – both eurozone and non-eurozone – including the UK. The governing body of the SEPA register, the European Commission (EC), has introduced a legislative proposal to further its agenda of simplifying bank transfers. It is now focusing on instant payments (in euros).
The goal is to make instant payments the norm across the SEPA area, building upon the success seen in markets like Sweden, Denmark, Finland, the United Kingdom, Germany, France, and Spain. However, the EU instant payments landscape is complex, stemming from market fragmentation, multiple new schemes, and regulatory nuances.
1. Achieving widespread availability in a fragmented region
Statistics published by the European Parliament reveal that 1 in 3 payment providers do not currently offer Instant Payment services in euros, and approximately 70 million account providers within the eurozone do not provide instant payments options to their account holders.
To address this, the EC proposal advocates for universal access. It suggests that all Payment Service Institutions (PSIs) already offering credit transfers in euros should also extend their services to include instant SEPA payments. The proposal centres on achieving universal availability of SEPA Instant Credit Transfers (SCT Inst), a scheme set up by the European Payments Council (EPC) that enables the transfer of up to 15,000 euros in less than ten seconds.
Moreover, it emphasises the importance of increasing trust in super-fast transactions by implementing Confirmation of Payee-like services. This feature ensures that senders are informed about the recipient’s identity of their transfer, enhancing security and transparency.
Affordability is another critical aspect, aiming to ensure that end-user fees for instant payments are equal to or lower than those associated with Standard Credit Transfers. This provision seeks to make instant payments more accessible and cost-effective for a broader range of users.
2. Modernizing EU payment infrastructure
Modernising payment infrastructure helps eliminate barriers and friction in cross-border payments, making it easier for businesses and consumers to engage in trade and other financial activities.
Up-to-date payment infrastructure is a critical component of the digital economy, enabling electronic payments, e-commerce, and digital financial services. This digital transformation is seen as crucial for the EU’s competitiveness on the global stage.
Legacy payment systems can be slow and costly. By modernising payment infrastructure, the EU aims to improve the efficiency of its financial systems. Faster and more efficient payments can lead to cost savings for businesses and individuals, as well as reduce the risk of delays and errors.
3. The consequences of market fragmentation
A significant challenge within the EU revolves around market fragmentation, primarily arising from variations across countries and their chosen payment schemes. Adopting diverse instant payment schemes in different member states has resulted in interoperability issues, hindering the seamless cross-border flow of funds and transactions.
This fragmentation underscores the importance of harmonisation efforts and regulatory initiatives aimed at fostering a more integrated and standardised instant-payments landscape throughout the SEPA region:
Different instant payment schemes are not always compatible, making cross-border transactions cumbersome. Also, currency conversion and settlement processes can vary significantly.
EU member states have the autonomy to set specific rules and regulations for instant payments, causing legal complexity. Harmonising these regulations is an ongoing challenge.
Multiple payment service providers and banks offer instant payment services, leading to diverse interfaces and user experiences. Consumer confusion and fragmented adoption are consequences of this competitive landscape.
4. The strategic relevance of Instant Payments
Several instant payment schemes are available today, each serving specific purposes and regions. In addition to SCT Inst, the TARGET Instant Payment Settlement (TIPS) system is another noteworthy initiative. TIPS specialises in facilitating real-time euro payments, contributing to the efficient movement of funds across the Eurozone.
The latest initiatives to further the availability of SCT Instant Payments (SCT Inst) are as follows:
- One Leg Out Instant Transfer (OCT Inst): This is the newest scheme dedicated to the euro leg of international transfers and will go live in November 2023.
- SEPA Request to Pay (SRTP): This scheme allows a payee to request payment initiation and supports various physical and online cases. The “SRTP Rulebook v3” will become effective in November 2023.
- SEPA Payment Account Access: This is a multi-stakeholder initiative for banks, third-party providers, and merchants that enables premium payment services beyond PSD2 and open banking. In essence, it ensures harmonisation, interoperability, and reachability across Europe. “Rulebook v1.0” will become effective in November 2023.
- European Payment Initiative (EPI): Launched by 12 European banks and financial institutions, the EPI aims to create a unified, innovative, pan-European solution that leverages SCT Inst. An EPI-powered, P2P digital wallet will be launched at the end of 2023.
However, alongside these pan-European schemes, individual EU member states may establish their own schemes. These initiatives, while promoting faster payments within a specific country, introduce a layer of complexity when conducting cross-border transactions, as the interoperability between these diverse national systems can pose challenges for businesses and consumers operating internationally.
The coexistence of both pan-European and national schemes reflects the EU’s dual approach to instant payments, aiming to balance harmonisation and accommodating local preferences and requirements.
5. The instant payments solution of tomorrow?
The changes to current legislation offered by the EC will no doubt bolster a more united European marketplace that benefits the millions of small and medium-sized businesses operating within it. The slew of new initiatives designed to widen the availability and usability of SCT Inst across the SEPA region will be welcomed with open arms by merchants and private customers alike.
But what if there was already a well-designed instant payments solution available in the leading European marketplaces? One that had been created with the vision of uniting European businesses and fostering a sense of oneness in “the old continent”.
This solution would need to securely and conveniently enable instant payments in and out through a single API and single integration. This ensures that small and medium-sized businesses can send and receive funds without needing to understand, integrate and comply with multiple schemes, banks, or other financial institutions.
A modern, fit-for-purpose solution for bank transfers in euros would also need to promote transparency and education — informing wherever possible to help people understand the various real-time payment initiatives and schemes:
- Streamlined cross-border transactions: Simplify cross-border instant payments by offering a unified interface that transcends scheme and country boundaries. Users must be able to execute transactions seamlessly without being constrained by scheme limitations.
- Regulatory compliance: Spread understanding and adhering to diverse regulations, ensuring users are not burdened by regulatory complexity. This simplifies the user experience and enhances trust in the service.
- User-centric approach: Place a premium on user convenience, offering intuitive and consistent interfaces. A single platform for multiple schemes will simplify payment initiation and tracking.
- Transparency: Demystify the complex world of instant payments by giving users clear information about fees, exchange rates, and transaction status.
The future of bank transfers in euros is already here
Luckily, such a solution already exists. Brite Payments has taken an open banking-first approach to build a network that enables 24/7/365 instant payments processing while helping address the limitations of SEPA Inst and the fragmented nature of real-time payments in Europe.
Additionally, Brite’s proprietary Instant Payments Network enables instant payments and payouts in markets and currencies outside the Eurozone.
We are a second-generation fintech company based in Stockholm, leveraging Open Banking technology to process account-to-account (A2A) payments in real-time between consumers and online merchants.