The argument for SEPA Instant Credit adoption part two: The challenges

By Darryl Proctor | 16 June 2017

SEPA Instant Credits (SEPA Inst.) is due to go live in November 2017. Temenos is amongst those assisting a number of banks in joining the scheme, supporting all infrastructures, including featuring as a front runner for the EBA’s R1 system. European banks have just months to prepare to meet this imminent deadline, however there are still those yet to start the journey. SEPA Inst. enablement isn’t obligatory for banks (only infrastructure providers) so why would a bank look to offer customers this service and what’s needed to make SEPA Inst. a reality?

The SEPA Inst. challenge

So real-time payments are set to be the new normal, and SEPA must keep up, but SEPA Inst. Credits is quite different from SEPA Credit Transfers. SEPA credit transfers are processed in batch.

The new scheme is different, the processing of SEPA Inst. Payments will be at a transaction level. As soon as a payment service provider recognises a SEPA transaction (using ISO 20022 global messaging standards), this single real-time credit transfer has to be received, accepted, validated, with funds checked, compliance checked, processed by the clearing and settlements mechanism (including liquidity management), sent to the beneficiary bank, processed and posted to the beneficiary’s account. And this processing has to be done non-stop. No down time, not even scheduled downtime is allowed, forcing banks to run real-time operations 24/7 hours a day, every day. How can banks efficiently achieve this?

Meeting the challenge – beyond real-time transactions

To support the need for real-time payments functionality now, banks must have a sufficiently agile real-time payments solution and to be really top of the class, have a sufficiently agile real time core.

Breadth and depth of functionality as well as flexibility through configuration, saving time, reducing risk and providing quick time to market is also key. But real-time payments isn’t just about processing the transaction. Banks must ensure that transactional data is also real-time. Real-time payments are irrevocable, once sent to be cleared real-time accounting with the core back-office and real-time status tracking is available. Banks should be looking to support the management of real-time enquiries, for example, offering the ability to view unconfirmed real-time payments with timeout expiry, for monitoring and remedial action. Also, real-time notification of payment status to payer (for outgoing payments) and payee (for incoming payments). In addition, they may want to ensure they have real-time payments tracking, and value-added services such as automatic SMS/email to provide real-time status updates to customers etc.

Without a real-time, modern platform you are only part of the pack, not the leader.

Meeting the challenge – supporting corporate liquidity

The opportunity for bank corporate customers is huge, but to leverage this, banks need to ensure they have a solution providing full visibility of the payment journey with real-time updates of funds availability and status confirmations. Real-time payment status updates with rich payment information allows customers to increase supply chain automation, through electronic reconciliation of payments against orders. In addition, Instant Payments supports investigations on real-time payment status and associated workflows, providing clarity on transactions initiated automatically and manual investigation messages, and process answers received gives bank the ability to fully service their customers.

A real-time payments solution should look to push liquidity updates to an external Liquidity/Cash Position Management engine and offer reporting compatible with both their core banking platform and external data framework and analytical reporting solutions.

Making the move to SEPA Inst.

The requirements of each real-time payments scheme vary and continually evolve until scheme launch (and sometimes beyond). But banks must not be despondent or worry that it is too hard to achieve the points raised above. There are a range of service providers who have established standalone, real-time solutions for domestic and SEPA schemes as well as partnerships with fintechs to support cross-border transactions outside of the Eurozone. These should be easy to implement, with cost efficiency at their core and the end user as a focus. A paper from Deloitte recently stated: “There are many different back-end solutions in the marketplace that have the potential to enable faster payments. In our experience with innovation in the financial services sector, effective organisations start with the customer’s need, develop value propositions that are clearly differentiated against competitors, and then put in place the infrastructure needed to support those value propositions.”

SEPA Inst – forming part of payments evolution

There is no doubt that real-time payments as a whole will play an enormous role in the evolution of the payments market. And SEPA Inst. Payments will be no exception. In a webcast by KPMG focused on whether the SEPA region really needs Inst. Payments now that they have SEPA, it was highlighted that: “SEPA kept us all very busy for years, especially the corporate market but also to bring direct debits over 34 countries. At the same time when Europe worked on SEPA, other countries worked in parallel in speeding up payments to fulfil customer expectations.”

So to answer the question as to why bother with SEPA Inst. Credits, all I can say is: can you afford not to?

The argument for SEPA Instant Credit adoption part one: The opportunities was publsihed earlier this week

This article was originally published in Payments {R}Evolution magazine

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