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Europe Takes a Step Toward True Payments Standardization

Jan 30, 2017

Magnus Carlsson, Manager, Treasury & Payments, AFP

Europe is a little bit closer to creating a true standard for real-time payments.

In late November, the European Payments Council (EPC) launched the Single Euro Payments Area (SEPA) Instant Credit Transfer (SCT Inst) platform. It will enable corporates and individuals to make instant euro credit transfers, initially up to €15,000, between accounts across the 34 SEPA countries in 10 seconds, any day of the year. This process currently can take up to a full day.

As the Single Euro Payments Area was developed it was touted as a unified way of making payments in Europe and as such, a “further step in European payments integration.” That’s a bit misleading; back before SEPA was even mandatory, additional functionality was being added in certain regions throughout Europe. For example, Finland added more services that allowed for extended remittance information. And in more recent times, well after SEPA was launched, some of the participating countries began to develop functionality to make payments faster.

But here’s the catch—if the rest of the countries in Europe didn’t also add those services as well, they couldn’t benefit from them. Take the case with remittance information. The Finns’ didn’t think the 140 character limitation was sufficient enough. So they provided additional space. This may have worked really well within Finland, but what happens when you send a payment with extended remittance information to SEPA countries that do not support the added remittance space? Well, the information that exceeds 140 characters is most likely going to be lost. My point is that these kind of deviations from the standard will only serve to weaken it, unless they are universally adopted.  And as I’ve said numerous times when discussing ISO 20022, a standard with multiple versions is not a standard.

Therefore, this new effort by the EPC is somewhat revolutionary in that it will rein everyone in and create a real-time payments system that adheres to the same standards across the board. European payment service providers (PSPs) have until November of this year to prepare themselves to process these transactions.

Of course, the EPC is relying on the providers and participants to go along with these rules to make it all happen. Time will tell if that all goes smoothly or if the EPC will have to take further action to make sure everyone complies. As we saw with SEPA’s initial implementation, sometimes deadlines need to be pushed back.

Corporate perspective

For corporate treasurers with operations in Europe, I see this as a superb development. In addition to speeding up transactions, there are a few key elements in the SCT Inst platform that should be a hit with practitioners.

Flexible transaction limits. PSPs who want to increase the amount limit and transaction speed will be permitted to do so. Furthermore, the maximum amount for transactions will be reviewed on an annual basis. So just as The Clearing House’s real-time system in the United States is expected to eventually allow for larger dollar amounts, we could see the value of SEPA’s Instant Credit Transfers increase over time.

Given that at least some treasury professionals were put off by NACHA’s $25,000 limit on same-day ACH transactions—and likely would be equally dismayed by SCT Inst’s €15,000 limit—this is significant. Practitioners make high-dollar transactions rather frequently; being able to do so in a matter of seconds would garner a lot of interest.

Minimal implementation. Given that this new platform is based on the existing infrastructure, there shouldn’t be many changes that corporate end-users will need to make, if any at all. Of course, corporates will need to be aware that payments will move faster if they plan to use the service—but the good news is that it is an opt-in service that they don’t have to use.

More stakeholder input. Unlike the initial SEPA implementation, which more or less just moved forward without much guidance from stakeholders, this effort appears to have taken into consideration the needs and concerns of market participants. The ECP allowed participants to be involved in the process and provide comment as needed. I expect that will continue over time; the ECP appears prepared to listen to the concerns of stakeholders and make adjustments to the platform if necessary.

Overall, it looks like the ECP has taken some cues from the Federal Reserve’s efforts to speed up payments in the U.S. So while it might take some time, that type of approach bodes well for payments standardization as a whole because it takes into account the people who are actually going to be transacting.