Europe's instant payments meet a roadblock: older bank networks

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Europe's banks stand to benefit a lot from the SEPA Instant Credit Transfer scheme (SCT Inst) — but "instant" is a high bar that many banks may not be able to reach.

Any real-time payment can be slowed down by friction at the receiving bank if it is not online or not properly equipped to handle faster payments. This was the case for ABN Amro, one of the largest banks in the Netherlands, which needed fiber optic connections to handle instant payments up to 15,000 euros ($18,455 U.S.) in less than 10 seconds at any time of any day.

"The adoption of the SCT Inst scheme requires an in-depth review of banks' connectivity practices and it represents one of the most relevant changes in latency," said Andrea Galeazzi, network services director for Milan-based SIA Group, a technology infrastructure fiber optic provider for financial institutions and corporations.

SIA has connected its SIAnet infrastructure to ABN Amro to enable participation in the Euro Banking Association's Pan-European instant payments structure called RT1, designed last year as a means for financial institutions to use any payment type and be compliant with the SCT Inst.

The list of RT1 participants represents a wide range of financial institutions and it continues to grow. Planners of the Single Euro Payment Area, which began in 2014, always considered an option for a common, faster payments infrastructure as a key to the entire project.

"Instant payments really represents a choice for payment service providers to respond to evolving customer needs and competition from non-banking players," Galeazzi added.

That connection through SIA serves as an interesting example of what is occurring in parts of Europe's faster payments landscape when companies provide the technology to ease the process, said Gareth Lodge, a London-based industry analyst with Celent.

"The Netherlands is a very interesting market to watch because they are building a domestic system currently," Lodge said. "There is a grand plan though, as they are looking to move all of their payments to real time."

Many aren’t aware that the system being replaced in the Netherlands already cleared transactions in 30-minute windows, making the change relatively small, Lodge added.

"The next step being discussed — though I’m not sure there is an official commitment — is to move the majority, if not all, direct debits to real time time using Request To Pay," Lodge said. "There is a strong possibility that more than 70% of all payments in the Netherlands will be real-time in the next five years."

As with many other faster payments networks, the infrastructure is being set up to allow the addition of messaging services and easier integration for application programming interfaces that will continue to introduce new services to the network for financial institutions.

In 2017, after the introduction of faster payments, SIA Group says it managed networks for 13.1 billion clearing transactions, 6.1 billion card transactions, 3.3 billion other payments, and 56.2 billion various financial transactions, while carrying 784 terabytes of data on its network.

In addition to integrating banks into RT1, SIAnet plans to connect banks to the ECB's upcoming instant payment settlement service, or TIPS, and any other automated clearing houses.

"Getting onto SCT Inst is entirely optional for banks now," Celent's Lodge said. "But my personal belief is that the ECB will push to make it mandatory, particularly since they've launched TIPS for settling real-time payments."

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