July 31, 2019
Several countries in the European Union have implemented systems enabling rapid domestic payments between customer accounts at different banks. Initiatives such as Faster Payments Service in the United Kingdom and Nets in Denmark connect the majority of banks in the country and enable instant payments. However, until late 2017, a pan-European instant credit transfer scheme was lacking and customers often had to wait days for payments to be settled.
The introduction of the SEPA Instant Credit Transfer scheme – SCT Inst for short – solved the problem of delayed payments throughout the eurozone. For customers, it reduced payment transfer time to under ten seconds, enabling consumers and businesses to optimize, for example, their liquidity management (e.g. paying invoices right on time). The introduction of SCT Inst (the rules) and accompanying instant payment technology (e.g. TIPS) can help to reposition banks – and with them the traditional bank account. They could regain reputation and customer trust as a result of more transparency, and level the playing field with non-bank players such as PayPal and other financial technology ("fintech") companies regarding innovative payment solutions.
However, we are convinced that instant payments will soon become a standard for money transfer and thus do not allow banks to differentiate. Since the start of SCT Inst, fintechs had the same chance to participate in the new scheme and offer those services to their clients.
In this report, we examine how banks can make the most of this opportunity to recapture the customer interface and claw back market share to regain pole position from non-bank competitors. But let's remember, customers are not interested in new payment rules and technology without a clear use case. They want convenience, usability, efficiency and security.
Banks have several assets that put them in a good starting position: a large customer base, which still frequently interacts with them; experience and expertise in the areas of security, regulation and operations; and a large product range. As instant payments become little more than a convenience, banks should combine them with other products in their portfolio to create attractive solutions for customers, retail as well as corporate. Given this, we will look at some of the potential and beneficial use cases for instant payments, including point of sale (POS) payments, enhanced cash/liquidity management and flexible, instant credit products. Even more importantly, we will show how instant payments can become the technical foundation to defend the bank account as the central anchor for clients' financial transactions.
Finally, we suggest some actions to be taken – and some to be avoided – by top management. These will help to adjust their current payment and product strategy to reflect the opportunities and risks offered by instant payments.