Italian Payment Service Providers (PSPs) were among the first to adhere to the SEPA Instant Credit Transfer (SCT Inst) Scheme that was launched in November 2017 by the European Payments Council (EPC).From the beginning, Italian PSPs decided to devote a substantive effort to the development of SCT Inst, targeting mainly to “digital customers” already used to operating online, by making instant payments available via multiple channels (i.e. online banking, mobile banking applications) and received positive feedback even at the earliest stages. Individuals are becoming increasingly familiar with instant payments: they can make their payments around the clock (on a 24/7 basis, 365 days per year, even on holidays or during the night), and have them confirmed instantaneously after initiation (within 10 seconds). Later on, according to roll-out plans that will be defined by each PSP, a fully fledged omni-channel experience with instant payments will be offered to customers.
The feedback from Italian PSPs participating to the SCT Inst Scheme is absolutely positive as well. The complexity that PSPs have to face in order to make it possible to execute payment services in seconds 24/7/365 is huge, considering that all IT systems (such as channels, core applications, reporting systems, etc.) have to be upgraded. In addition, it is fundamental to pay due attention and monitor constantly the fraud detection activities, Know Your Customer/Anti-Money Laundering/ Countering Financing of Terrorism (KYC/AML/CTF), and Sanctions screening. But if we look into some statistics from Italian SCT Inst participants, the system availability and performances are very close to 100% and the average execution time is always below the maximum limit set by the Scheme. Volumes are still concentrated on the five working days and during business hours, but the execution of instant payments during the weekend is increasing.
Pace of growth
Since its launch, SCT Inst has registered a continuous positive pace of growth: at SEPA level, 2,079 PSPs have already joined the Scheme, representing 51% of European providers; the increase in transaction volumes is picking up, reaching 5,53% of all credit transfer volumes in the fourth quarter of 2019. Focusing on the Italian market, about two years after the launch of SCT Inst, in January 2020, 30 Italian PSPs are adhering to the Scheme, and already account for around 60,6% of the payment accounts open in Italy. This means that more than half the banks’ customers can already enjoy an instant payment experience mainly, at this stage, for person-to-person or person-to-business transactions (such as for example when they have to split the bill, buy a second-hand product or make a very urgent payment at due date). The use of instant payments by Italian customers is predominantly limited to the national environment, but the share of cross-border SCT Inst instructions is growing, reaching around 5-6% of total instant payments, as we observed in a survey carried out in the first three quarters of 2019.
A quick further take-off of instant payments is one of the main priorities of the European authorities as it is considered the key tool for modernizing and making European payment services competitive and strengthening the role of the euro. For this reason, the full adoption of the SCT Inst Scheme is crucial both at a pan-European level and in Italy as well: the Italian Banking Association (ABI) is promoting the adoption of the Scheme by PSPs located in Italy. ABI is the National Adherence Support Organisation (NASO) for Italy and acts as the first point of contact for Applicants as well as an overall facilitator in the adherence process to the SCT Inst Scheme; moreover, to facilitate adherence from the administrative perspective to its member banks, ABI acts as their Agent. In addition, following the monitoring initiatives put in place by the EPC, ABI is periodically collecting information about the roll-out plans of Italian PSPs.
Critical mass
In the course of 2020, the European Payments Council expects a “critical mass” of participants to be achieved: in Italy, 68 PSPs have already completed the adherence process to become participants as of April 2020 and the majority of PSPs should adhere to the SCT Inst scheme by the end of the year at the latest. In order to promote the adoption and achieve the full deployment of the Scheme, the key main drivers for current and future SCT Inst participants are: i) full reachability at a SEPA level and interoperability between all the SCT Inst compliant Clearing and Settlement Mechanisms (CSMs); ii) the increase of the maximum amount at Scheme level; and iii) the development of new services and products that make use of the SCT Inst as settlement instrument.
From a strategic point of view, the main issue that limits the attractiveness of SCT Inst is the lack of full reachability, i.e. the full adherence by all the PSPs that are currently participants in the “traditional” SCT and the possibility to reach all the accounts in the SEPA geographical area without any country limitation. Italian PSPs have recourse to three infrastructures to exchange and settle instant payments: RT1, the platform managed by EBA Clearing, TIPS (“TARGET Instant Payment Settlement”, i.e. the settlement service for instant payments launched by the Eurosystem in November 2018) and NEXI, the local CSM that settles in BiComp (the national settlement system managed by Banca d’Italia). Full SEPA-wide reachability could be achieved only in case full interoperability between all SCT Inst compliant CSMs is granted. On this point, Italian banks hope that all the necessary initiatives will be carried out, also by the authorities, in order to make the CSMs interoperable between each other and with TIPS, allowing de facto all PSPs to reach other participants (and be reached) regardless the settlement infrastructures they choose to use.
After an initial period where all participants got acquainted with the new Scheme, the current maximum amount of the SCT Inst, set to 15.000 euro, was increasingly perceived as a barrier to the full development of the Scheme. Indeed, it is noticeable that the rise of instant payments over the last two years mainly took place at a consumer level. Raising the limit up to 100.000 as of July 1st, 2020 will enhance the attractiveness of the Scheme and open up new opportunities that will make SCT Inst fit for other categories of payment end-users such as “Corporates” and “Small Businesses”. This is an important point that Italian PSPs have been constantly stressing in order to identify more use cases to promote the use of SCT Inst among their customers, also in a business-to-business and business-to-person context.
Request to pay
Alongside the need to ensure full adoption and reachability of the Scheme and the definition of a higher maximum amount at Scheme level, the development of new services and products based on SCT Inst is considered essential in order to promote instant payments in a broader sense. From this point of view, both the Euro Retail Payments Board and the European Payments Council are devoting substantial effort to support the take-off of instant payments and are conducting many activities aiming at making SCT Inst grow faster.
Among these initiatives, the most relevant one is the creation of a “Request to pay” service as a functionality encompassing any means of claiming a payment by a Creditor for goods and services in physical and online stores as well as in a person-to-person context. The “Request to pay” could be considered as the missing piece in an end-to-end payment experience enabling solutions that will allow users to initiate and reconcile payments easily in a straight-through manner. This end-to-end standardisation is key in order to improve the efficiency of the payment value chain and, more generally, to address the challenges of the whole financial supply chain and corporate accounting such as payment execution, communication, and reconciliation, making SCT Inst appealing also for “Corporates” and “Small Businesses”.
Another initiative that has the potential to foster the growth on a larger scale of instant payments is the SEPA Proxy Lookup (SPL), a Scheme developed by the EPC and operational since January 1st, 2019. It aims at allowing the exchange of data necessary to initiate person-to-person proxy-based mobile payments via an alias (for instance, the phone number) at a pan-European level, facilitating the interoperability between person-to-person payment solutions and increasing the volumes of cross-border payments. This scheme follows the vision, endorsed by the Euro Retail Payment Board already in 2016, “of allowing any person to initiate a pan-European person-to-person mobile payment safely and securely, using a simple method with information the counterparty is prepared to share in order to make a payment”.
Furthermore, it is important to consider that the initiation of payments via the mobile channel is expected to be key for the take-up of SCT Inst in all contexts. As a matter of fact, we can see a rising interest in the solutions already available in various European countries that allow both in-store payments and mobile commerce via mobile devices as a complement to card payments. To this end, a dedicated EPC multi-stakeholder group developed usage guidelines and interoperability rules that are fundamental in order to make it possible for end-users to pay with a specific national payment solution in the entire SEPA geographic area.
Lastly, with a focus on the execution of payments at the online or physical point of interaction (POI), the Euro Retail Payments Board has carried out an analysis to identify the barriers to pan-European reach and usability of existing and planned end-user solutions. Based on this study, it will identify possible solutions to solve the issues that hinder the execution of pan-European SCT Instant based POI payments, focusing in particular on the definition of requirements for harmonisation, standardisation, and interoperability.
In conclusion, full reachability and interoperability and the development of instant payment-based services and products are key for making SCT Inst the “new normal” across Europe. When these goals will be attained, large-scale marketing initiatives could be carried out by all stakeholders in order to promote the full deployment of SCT Inst (including the possibility to define a new “label” to make all SCT Inst-based services recognizable in the SEPA area).
In parallel, the market is already moving towards the creation of a pan-European digital and card-based payment solution which leverages on SCT Inst and the adjoining initiatives and which can meet the expectations of EU consumers, businesses and authorities alike.
