SCT Inst – or SEPA Instant Credit Transfers – is set to completely change the way that payments are made across Europe. Under the current SEPA scheme, cross-border European payments are processed in batches, and payments are guaranteed to reach their destination the next day. SCT Inst is the EC’s step into the world of truly instant payments. Transactions are processed, cleared (and potentially settled) in real time. The benefits of such a scheme are manifold – instant cross-border money transfers, gig economy companies such as Uber being able to operate across Europe and merchants being able to receive funds the instant goods or services are purchased. Clearly SCT Inst is here to stay.
Although the scheme does cover the 34 SEPA countries it isn’t being made mandatory. Each bank can decide whether it participates and while the benefits are clear to many, to some these are outweighed by potential costs.
Most banks, however do understand that instant payments is the new normal and that neglecting to make the move is not an option in the long term. The potential business benefits are clear; from revenue from overlay services to increased transaction flow – customers are much more likely to use a bank that offers instant payments than one that doesn’t. A recent survey conducted by InstaPay found that 90% of banks see SCT Inst as either important or very important. However only 52% are planning to join the scheme by the November 2017 launch date.
Clearly for some banks (regional banks and mid-sized institutions) the prospect of connecting to the schemes is daunting at best (perhaps also for those who are unconvinced of the benefits). It’s perceived to be expensive, time consuming and complicated; the same InstaPay survey showed that banks see technical integration, making a business case and the availability of an appropriate solution as the most significant challenges. Connecting to instant payments schemes is seen to involve completely replacing technology that has been integral to the functioning of the bank for decades and replacing it with something new and untested. As well as the monetary cost, the potential reputational cost could be huge. Far better, the theory goes, to wait and see what happens with the transition to SCT Inst, which technology approach works best and whether the expense is justified. However, this is not a sound strategy.
I recently spoke at an InstaPay webinar ‘How Ready is Europe for SCT Inst?’ about some of these challenges and my thoughts on how banks can overcome them. Interestingly, the webinar also featured a speaker from CaixaBank who shared some insights from their SCT Inst adoption in Spain and who had some excellent advice for other banks wanting to join the scheme - it’s well worth a listen.
Mandatory through adoption, not regulation
UK Customers are used to payments being made and accepted instantly. Those banks that are able to replicate that experience across Europe will be in a far better position to increase market share, at the expense of those banks that do not offer this service. By the time the dust has settled enough for those “wait and see” banks to decide what to do, the game will already have been lost.
The transition to instant payments must be done sooner rather than later. Customers will always vote with their feet and, with the pace of technological development increasing, the window for SCT Inst as a competitive advantage is small. Conversely the potential for a non-SCT Inst bank to be at a competitive disadvantage is huge.
Research from Lipis advisors has shown that implementing instant payments needn’t be the traumatic experience it’s sometimes believed to be. It is much more efficient to adopt a framework model rather than a complicated “change the bank” approach, as used by the tier 1 global banks. Banks waiting to see how the market plays out will only risk being left behind as their customers move to banks that have already made the transition. If they are to maintain market share, those banks need to act.
If you’re interested in watching the SCT Inst webinar I mentioned, you can download it here.