It’s not an easy task to get the European Union to speak in a single voice for anything. With 27 member states in motion and the U.K. on its way out, it’s a powerful group of countries stitched into a shared economy but one that’s in constant flux.
Now add in the complete revolution that’s happening with financial institutions (FIs), new payments technology and the coming decentralization of finance. The task of uniting them is daunting. There is however, a group that has taken the financial issues head on and worked with its far-flung members to create that one voice.
The European Payments Council (EPC) is a nonprofit organization that advocates for banks and other payment service providers (PSPs) as they integrate new payments technology and other issues, and it has been the driving force behind the unifying single euro payments area (SEPA) payments schemes. These days, its focus is instant payments.
The journey started in November of 2017. At that time, instant payments had been limited to specific countries: the U.K., Sweden, Poland and Denmark. But many banks and government agencies wanted to create a single payment standard for the EU.
Within the SEPA framework, the EPC was invited to facilitate “harmonization” of the instant payment explosion. The EPC created, and is now in the business of evangelizing, the SEPA Instant Credit Transfer (SCT Inst) scheme that provides all banks with access to instant payments in euro, progressively all across SEPA.
As EPC Director General Etienne Goosse told Karen Webster, the expansion of SCT Inst has been a major effort.
“You have to move from batch to real time,” Goosse said. “You have to be open 24/7, 365 days a year. It’s not just the original investment, it’s also building the capacity and the resilience that moving to instant payments requires. That’s why not everyone has moved to real time at the same speed because there’s so many things to invest in.”
There has been significant progress. To date, 2,310 EU FIs have signed on with SCT Inst, spread across 23 countries but concentrated in 12 eurozone countries and covering 58 percent of the eligible population of European PSPs. According to EPC data, roughly 8 percent of EU transactions were carried out via real-time transfers in the last year. And the goal, he said, is growth. The idea is to cover 100 percent of the eligible populations over time, and by the end of this year, the EPC expects to be over the 10 percent mark when it comes to the percentage of transactions carried out via instant.
Looking For The Killer Use Case
The source of that growth and the adoption of the “killer use case” that will drive instant forward remains an open question, Goosse said. Among the things that make the EU a rather unique environment, there is no single application of instant payments that is pulling the market forward as the use cases vary from section to section. It depends on the strategy adopted by individual banks or by communities. In some communities, peer-to-peer (P2P) payments are a strong driver of instant. And in other communities “they just want it to become the new normal.” There is no single recipe or strategy in the EU for instant payment adoption; it depends on local preference.
The big question hanging over the entire segment, he said, is whether instant payments will move to the point of sale (POS), either in physical or eCommerce transactions.
“It will very much depend on the consumer and on the merchants,” Goosse said. “And, of course, on the solutions that the banks will propose. Contactless cards, especially after COVID, have become really the way most people pay. Do they care whether it’s a card-based payment or whether it’s an instant payment? Maybe so, maybe not. It very much depends on the business, the business model around it and the acceptance. With the regulatory environment in Europe, we still don’t have enough information to know how it will work at the POS.”
Building for greater certainty in the world of instant payments is the overriding goal, he said. That means resolving the challenges that remain around moving money safely and securely, while still offering a usable service. Instant payments are challenging because of their speed; once the money is gone, it’s gone. If it happens to have been inadvertently sent to a fraudster, there is no getting it back.
And there are still many denials of instant transfers happening within the system because banks don’t have time to reflect on investigations, he said. They often reject payments because they cannot afford to take the risk, even though EPC data shows that 95 percent of the time they are bouncing back a legitimate transaction.
“So, we see that, especially for cross-border transactions, even though it’s within the same geographic area,” Goosse said. “We don’t see dramatic fraud versus a standard transfer, but it is something that we are watching and trying to implement tools to enable the banks to control it with blanket denials.”
Raising The Limits
There are also limits on how much can be sent via the instant rails, he said. Until last summer, it was only possible to move 15,000 euros, although as of last July that limit was pressed up to 100,000 euros to make the system more useful for corporate players looking to push funds. That 100,000-euro limit captures roughly 90 percent of B2B transfers in the EU, although the EPC is considering further lifting the cap if there is demand within the market.
“It is very much on our radar,” Goosse said.
Also on the radar, albeit a bit more distantly, is the exploding world of cryptocurrency and digital currency. Right now, Goosse said, there isn’t a lot in the crypto world to really catch the EPC’s interest or attention. There is nothing yet there to substitute for the billions and billions of transactions that are going through the current rails. But that could change with the emergence of stablecoins and government-backed crypto projects.
“I think speed will be a problem,” Goosse said. “It always is with research initiatives that are not private sector driven. But there are many difficulties that they will have to overcome as we all know. And [the European Central Bank wants] to rely on the private sector, which of course requires that these guys are able to make money out of it, which is easier said than done.”