SEPA Instant : Driving and Delivering Payments Harmonization

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1 SEPA Instant : Driving and Delivering Payments Harmonization

2 Moving from Faster to Instant Digital adoption globally has evolved and resulted in greater speed, convenience and simplicity in all areas of life. Today customer expectation has moved from wanting something faster to wanting something instantly. This is evidenced by the fact, that consumers have access to books, music, videos, and traffic updates instantly. If they want to watch a movie, there are online streaming sites. If they want to shop during lunch they have e-commerce and m-commerce stores. Making Payments real time is also a growing customer expectation and is driving the need to for an Instant payments environment. With consumers demanding Instant payment, global corporates are constantly striving to improve payments cost, quality, and experience. The emergence of Instant Payments will not only help global corporates satiate customer demands, it can also help corporates increase their liquidity position and boost their ability to manage cash more efficiently. Additionally, global enterprises can also expect better cross-border payments services with an Instant Payments economy. 2

3 The Next Big Leap - Payments Harmonization The introduction of the euro as the official currency of several EU countries was just the beginning of payments harmonization. At the end of 2016, the European Payments Council (EPC) launched the Single Euro Payments Area (SEPA) Instant Credit Transfer (SCT Inst) scheme. The scheme is designed to enable individuals, businesses, corporates and administrations to make instant euro credit transfers between accounts across an international area that will progressively span over 34 European countries. The SCT scheme enables payment service providers (PSPs) to offer a core and basic credit transfer service throughout SEPA for either single or bulk payments. The scheme s standards facilitate payments initiation, processing and reconciliation, based on straight-through processing (STP). This payment scheme will allow the transfer of money in Europe, initially up to 15,000 euro, in less than 10 seconds, 24/365. With the implementation of SEPA Instant in November 2017, initiating payments will become more harmonized and convenient for customers who transact in various SEPA countries or with different PSP partners. Adoption of ISO payment messaging standard is also gaining momentum which will contribute to a greater harmonization of payments globally. Additionally, the PSD2 framework is also encouraging payments harmonization throughout the EU. Apart from protecting the rights of consumers and establishing a common legal payments framework, PSD2 also enables payment service providers (PSPs) to begin building on the foundation laid down by SEPA to use new technology to make payments cheaper, quicker and more transparent 3

4 SEPA Instant A Boon to the Payments Value Chain The characteristics of Instant Payments will provide opportunities for parties in the payments value chain to develop and enhance business services. The ability to transact instantly is the key expectation of the times and executing a payment instantly offers great value to all parties in the payments value chain. The new SEPA instant promotes ways to improve integration and operational efficiencies between payment instruments, it looks at how to remove obstacles, encourage innovation and further competition across the payments value chain. Currently, Fintech companies are at the helm of the payments landscape and are seizing every opportunity available in the Payments value chain. According to recent analysis conducted by Ernst and Young on Fintech Adoption, 50% of consumers are using Fintech for money transfer and payments services and 65% of consumers are anticipated to use Fintech for payments related activities in the future. Increasing Fintech adoption around Payments can be attributed to the impetus of regulators and policymakers in many markets and especially in Eurozone. New regulations such as the SEPA Instant and Payment Service Directives2 (PSD2) across the Eurozone, which triggered Open Banking has created new opportunities for Banks in the Payments space. Banks and their traditional technology providers must follow innovation in the payments market and seek ways to partner or otherwise leverage Fintech offerings. 4

5 Banks can lead the Game of Payments The dynamics of banking landscape combined with the digital revolution has transformed the payments industry. This has given rise to the entry of non bank players in the market. To counter this threat banks need to evaluate their real-time capabilities across the entire payments processing chain, right from transaction acceptance and authentication, to processing and back-end systems. A recent survey conducted by InstaPay found that 90% of banks see SEPA Instant as either important or very important. However, only 52% plan on joining the scheme before the launch date of November Instant payments is slated to be the next disrupter in the payments industry and is expected to gravely impact the way banks run their payments business. To remain relevant and derive greater benefits from the trend, banks should invest in new and innovative capabilities to support the growing need for faster and instant payments. Also, banks should consider an API banking strategy to open up their data and services across multiple lines of business. Banks can develop APIs to provide access to savings, loans, mortgages, brokerage, and other services. Armed with the implementation of SEPA Instant & PSD2 and the deployment of open APIs, banks are sure to have an edge. Banks will be well positioned to offer superior payments experience and also provide the instant gratification their customers seek. 5

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