If you operate a business in the Single Euro Payments Area (SEPA), you’ve probably heard of the new SEPA Instant Credit Transfer (SCT Inst) scheme. The scheme enables instant payments between European accounts in under 10 seconds, both domestically and across borders.
SCT Inst went live in November 2017, and it’s being rolled out by early adopters in some countries—beginning with Austria, Estonia, Germany, Italy, Latvia, Lithuania, the Netherlands and Spain. Over the next few years it will be expanded to other banks and European countries, including the Nordic region—potentially reaching 34 countries in total. This could make it a truly pan-European payment scheme, facilitating immediate and secure transactions across borders.
“I think it’s clear that it will become a mainstream payment type. Instant payments will be the new normal in Europe,” says Tino Kam, Head of Payments, Liquidity Management and Corporate Channels at Nordea. “The scheme will grow rapidly and replace many of the existing credit transfer and payment card flows. It offers huge potential for businesses of all sizes.”
But what does SCT Inst really mean for your business? In this article we delve into its many benefits; including enhanced customer experiences, better liquidity management, and the potential for new business models.
24/7 speed and convenience
Today’s consumers demand greater convenience, and SCT Inst will help deliver this. “Imagine you’re an e-commerce merchant. The ability for your customers to purchase at any time is crucial—they might buy something from your online store early on Saturday morning,” says Kam. “With SCT Inst, settlement is immediate—so instead of waiting a day for the payment to clear, it happens instantaneously. You can ship the goods as soon as you’re notified, and this will happen in seconds.”
The UK adopted a domestic instant payment scheme in 2008, and both customers and businesses have benefited from its round-the-clock availability. According to a recent report, almost half (49%) of UK instant payments are made outside of business hours. “The success of instant payments in the UK shows the level of demand for 24/7 availability, which SCT Inst will deliver,” says Kam.
The success of instant payments in the UK shows the level of demand for 24/7 availability, which SCT Inst will deliver.
And the benefits of speed aren’t limited to e-commerce. “Any purchasing you do via mobile or online will be improved by the instant payment scheme,” says Kam. “But it will also affect other transactions in our daily lives. For example, I’ve been working in the UK and you now see many corporates using it to pay their staff. Employees can be immediately reimbursed for business or travel expenses, instead of waiting until the next day. An instant experience becomes the norm.”
Fast, irrevocable payments
With SCT Inst, each transaction is final once it’s processed—so there’s no settlement risk, and you can ship goods with confidence. This can help you speed up your entire supply chain, improve working capital and reduce risks.
“Let’s say you’re an importer—you’ve received the trial shipment of goods, they’re in perfect order with the right documentation. You can make a payment instantly, so the exporter releases the rest of your shipment that day,” says Kam. “And you receive a digital receipt on your mobile which can be reconciled back into your ERP immediately.”
Kam believes that the immediacy of SCT Inst will drive innovation, and definitely lead to new business models. “The benefits for each business will vary greatly depending on their size, industry and customer needs—but it’s clear that instant payments will have a significant impact on the way organisations do business,” says Kam. “And combined with open banking, this is really going to disrupt and transform existing business models.”
Improved cash management
Businesses often deal with frustrating delays between sending invoices and receiving payments, sometimes of weeks or months. This makes reconciliation harder and has negative cash flow implications.
By transitioning to a real-time payment model, you can speed up these payment cycles—enabling your treasury to optimise your working capital. Your cash forecasting becomes more accurate, as more incoming and outgoing transactions happen instantly. And when you’re making a business payment to a supplier or third party, you can delay it until the last minute—so the cash stays in your own account for longer.
Furthermore, SCT Inst relies on the ISO20022 XML format. “This format is becoming an industry standard, so it will be easier to integrate and reconcile with ERP systems,” says Kam. “And because the format has more information embedded in each payment, you’ll have access to advanced reporting and analytics capabilities.” This data can help to give your treasury a more comprehensive view of your payments, exposure and overall liquidity risks.
Future high-value transactions
One potential drawback is that SCT Inst will have a maximum payment limit of €15,000, to help reduce the potential impact of fraud. But Kam thinks this will change fast, and ultimately SCT Inst will provide a lower-cost method of moving large amounts of cash. This will most likely be achieved through Closed User Groups.
Closed User Groups will involve selected banks agreeing bilaterally to a higher payment limit. It should gradually replace existing high-value payment schemes like the real-time gross settlement (RTGS) system in Finland. “The high-value payments or RTGS system in Finland is quite old and costly. It charges a fee of at least 10 euros per transaction,” says Kam. “The new solution will be faster and more cost-effective for large businesses.”
The high-value payments or RTGS system in Finland is quite old and costly. The new solution will be faster and more cost-effective for large businesses.
By the end of 2018, the rules and details of the Closed User Groups will be released, allowing selected banks to participate. Kam is optimistic about the uptake. “I hope that by 2020, a large number of Finnish banks will be involved, so it can slowly but steadily replace the current high-value payment solution.”
Innovation in the Nordic region
It’s clear that instant payments will have a dramatic impact on companies in Europe, by optimising cash flow, enhancing customer experiences and enabling innovative new business models. At Nordea, we’re ready to embrace this change. “From a Nordea perspective, we definitely think that in the next five years we’ll see a steep growth in the volume of instant payments in general,” says Kam.
“Eventually, we want to offer harmonised instant payments across the entire Nordic region—supporting cross-border and multi-currency payments. Obviously, this ambition will take a little more time, but we’re committed to the idea that instant payments will shape the future of business in our region.”
For more information write to Tino Kam at tino.kam [at] nordea.com or check out SEPA Instant Credit Transfer
With special thanks to:
Tino Kam, Head of Payments, Liquidity Management and Corporate Channels, Nordea
In our next article we’ll offer some recommendations to help your business prepare for SCT Inst and take advantage of instant payments.