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SEPA Instant Credit Transfer The time to act is now! â€؛ content â€؛ dam â€؛ Deloitte...

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  • SEPA Instant Credit Transfer The time to act is now!

  • 02

    SEPA Instant Credit Transfer| The time to act is now!

    SEPA Instant Payments - The time to act is now! 01

    What is SCT Inst and what are key use cases? 02

    What are Key drivers for SCT Inst? 03

    SCT Inst – Current Participation Statistics across SEPA Zone 04

    Route to Instant Payments adoption across Europe 05

    Emergence of P27 - Nordics 06

    Irish Outlook 07

    Request to Pay – Game changer? 08

    Offering Instant Payments 09

    - Considerations for Banks

    - Considerations for Corporates

    What does the future hold for Instant Payments? 15

    Ending Notes

    Contents

  • 01

    SEPA Instant Credit Transfer| The time to act is now!

    SEPA Instant Credit Transfer (SCT Inst) has been launched since Nov 2017 across EU as an optional Payment scheme for banks to participate in. Adoption has been mixed across the EU due to PSD2/Openbanking implementation deadlines.

    However many countries have taken a pro-active stance and have implemented SCT Inst at a domestic level with collaboration between banks and involvement of the Central Bank.

    These countries have a head start and have already started looking beyond SCT Inst to start offering various overlay services like making payments using Proxy details (Mobile Number/ Email addresses), reducing the time limit for execution of instant payments, developing new services like Request to Pay to support wide variety of use cases.

    It is clear from countries where SCT Inst is already live that collaboration between banks is a key factor for successful launch.

    With the final deadline for PSD2 passed, banks need to start looking at SCT Inst in conjunction with Open Banking to maximise the opportunities both offer.

    SEPA Instant Payments - The time to act is now!

  • SEPA Instant Credit Transfer| The time to act is now!

    02

    SCT Inst allows instant payment transactions in EUR currency to any beneficiary within Euro Zone within 10 seconds. SCT Inst has potential applications in a variety of customer segments. Banks will have to develop a value proposition taking into considering existing use case, solutions available in the market and the characteristic of the service made available to target customers. Following are some of the relevant use cases

    Peer-2-Peer (P2P) Instant payments are likely to replace cash and checks for everyone with a bank account. The most suitable use case for SCT Inst in the P2P segment includes: emergency money transfer, remittance, rent payment, restaurant bill split, and payment for second-hand good during

    non-business hours. Banks can achieve significant cost savings by reducing cash costs arising from the distribution of cash, ATM maintenance and security costs. Increased usage of instant payments solution in the P2P segment will ultimately lead to a cashless society.

    Consumer-2-Business (C2B) A merchant can provide consumers with an alternate payment instrument to cards for e-commerce and PoS retail transactions. This will lower the payment costs for merchants and reduce credit risk for e-retailers on the sale of digital content such as music, movies and books. The merchant can then pass the cost savings to customers in the form of loyalty rewards. Likewise customers also have convenience with paying bills at last minutes without

    incurring any penalties. Other use cases of C2B also include ‘pay-on-delivery’ of physical goods and ‘pay-per-use’ services.

    Business-2-Business (B2B) SCT Inst will be widely accepted for corporate payments if limit is increased (>€15,000). Banks can develop overlay services around B2B invoice payments for corporates to implement ‘Just-in-time’ cash management practices. Firms can achieve cost savings by efficient use of cash and the streamlining of the reconciliation process.

    Business-2-Consumer (B2C) Organisation can use instant payments for salary and pension payments. This would provide the recipient with faster access to funds.

    Customer purchases an online book and pays via instant payment method available on retailer website

    Funds are instantly credited to online retailer account

    Funds are credited to publisher account

    Publisher initiates royalty payment to author via instant payment as per contractual terms

    Author remits Funds to their family via Peer-2-Peer Instant Payment App

    Funds are available for author to be withdrawn from Bank ATM

    Funds are credited to author account

    “Just-in-Time” cash management engine initiates an automated instant payment to the publisher from sale proceeds

    What is SCT Inst and what are key use cases?

    Figure 1. SCT Inst – Use Cases

    Stats: European Payments Council 09/09/2019

    01 02 03 04 05 06 07 08

    3:00 pm 3:01 pm 3:02 pm 3:03 pm 3:04 pm 3:05 pm 3:06 pm 3:06 pm

    C2B B2B B2C P2P

  • SEPA Instant Credit Transfer| The time to act is now!

    03

    What are Key drivers for SCT Inst?

    The psychology of Instant gratification is defining the characteristics of modern society. The expectation of the tech- savvy generations and digitalisation have resulted in greater speed in all areas of life. Furthermore, regulations like PSD2 are opening up banking ecosystem, fuelling the development of real-time payment platforms by FinTech firms.

    Changing Customer Preferences ‘Power of Now’ – The demand for instant services has forced the customer to look for real-time solutions in social and commercial spaces. Consumers increasingly expect convenience, 24*7 availability and money that moves as fast as an email. Furthermore the adoption of mobile for daily activities and use of digital wallets solutions to transfer funds have increased drastically due to ease of use.

    Market Demand Changing customer preferences has given rise to new service delivery model. The last decade witnessed the emergence of firms focussed on providing services that are instant, easily accessible and available 24*7. Likewise there is increasing pressure from the market for instant payment for services rendered at low processing cost.

    Digitalisation and technological advancement The adoption of new technology has drastically transformed the payments landscape over the past few years. The emergence of virtual currencies like Bitcoin and Ripple with near real-time settlement

    has provided organisations with a cheaper alternative to traditional payment methods. Leading money transfer services and online retailers are increasingly looking to provide virtual currency as an additional payment option to its customers.

    Evolving regulatory landscape and alternative to card payments PSD2 and SCT Inst will bring more competition to the cards market by offering alternate payment options compared to traditional card payments offering range of choices to consumers and merchants. If the card industry fails to innovate at a similar pace, PSD2 and Instant Payments will start giving a tough competition to existing card payments.

    EC has defined a clear objective to have pan-European instant payment solutions, such as paying for goods with a mobile device or allowing money to move from any account to any account, anywhere in Europe in real time and 24/7. These are seen as alternative to Cash and Card payments.

    To support this objective, ECB developed a pan-European Instant Payment system called TIPS which offers final and irrevocable settlement of instant payments in euro, at any time of day and on any day of the year.

    “TIPS could have the capacity to disrupt existing payment solutions - including cards, at least for euro denominated payments. With Instant Payments and the PSD2, Europe has launched two ambitious initiatives. Now we need to work together to create a fully digital European payments system that is open and fair for existing and new operators.“

    Valdis Dombrovskis, VP Financial services, EC

  • SEPA Instant Credit Transfer| The time to act is now!

    04

    SCT Inst – Current Participation Statistics across SEPA Zone

    Bulgaria (2)

    UK (14)

    France (125)

    Spain (88)

    Estonia (5)

    Netherlands (8)

    Denmark (1)

    Germany (1282)

    Sweden (1)

    Republic of Ireland (2)

    Finland (4)

    Belgium (20)

    Luxembourg (2)

    Portugal (15)

    Monaco (1)

    Italy (30)

    Cyprus (1)

    Malta (4)

    Latvia (4)

    Lithuania (15)

    Poland (1) Austria (445)

    2069 PSPs

    22 Countries

    51% European

    PSPs

    Figure 2. SCT Inst – Adoption across EuroZone

    Source: European Payments Council 04/11/2019

  • SEPA Instant Credit Transfer| The time to act is now!

    05

    Route to Instant Payments adoption across Europe

    Banks across Europe have adopted a collaborative approach for implementation of SCT Inst to reap full benefits of the scheme. Below are some chosen examples on how banks have taken up the instant payments journey in Europe.

    Netherlands The four largest Dutch banks committed in early 2015 to build an instant payments infrastructure under the programme guidance of the Dutch Payments Association. All relevant stakeholders, including the Dutch Central Bank, have been involved from the start. From the beginning, the view has bee

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