11 Sept 2021
5 mins read

What is Instant SEPA? A look behind the curtains.

Sepa Instant Payments
Quick summary

SEPA Instant emerges as a game-changer in the dynamic landscape of European payments. This innovative network connects European banking systems, offering instant bank transfers in Euros and revolutionising B2B transactions. Traditional payment systems, often mired in delays and complexities, give way to this seamless, real-time solution. SEPA Instant not only promises speed and convenience but also bridges national boundaries, fostering a cohesive European financial ecosystem.

Why was SEPA Instant created?

In the world of payments, consumers expect ever-improving and faster services. It didn't take long that people got used to the easy and instant card payments. With the more user friendly authentication protocol 3DS2 this will only get better. So one can only expect companies to make business instantly as well. The reality, however, is that most payments with invoices or bills take days to settle.

The issue with B2B transactions, in particular, is that incompatible systems delay them, adding extra fees and complexity. To tackle this problem several European countries such as Germany, UK and Norway planned their own payment solutions. The limitation of their approach was that national payment schemes stop at national borders, creating a fragmented European landscape.

Based on the premise of European mobility, the first pan-European network for instant bank transfers in Euro - Instant SEPA Transfer was born. Citizens and businesses could pay with the same ease and convenience across the Single Euro Payments Area as in their home country.

What is SEPA Instant?

SEPA Instant is a new bank transfer technology that allows for euro transactions to be processed in seconds, regardless of the week's time and day. Unlike most payment methods, the speed is independent of your account provider's underlying payment clearing and settlement arrangements. So, as long both European payment institutions, involved in the transfer, are participants in SEPA instant, the transfer should be near-instant or up to 10 seconds by definition.

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How Does SEPA Instant Transfer work?

Banks process most credit transfers in batches. That means you send your payment to your bank at various times during the day. Banks typically put these transactions into a "big batch" and submit them to the clearing and settlement at the end of the business day.

The processing of SEPA instant payments, in contrast, is on a transaction level. Thanks to Open Banking, the Payment Service Provider can recognize that the SEPA transaction is an instant payment, so that they process it and clear the amount (and potentially settle) in real-time. Traditional banking could never match this speed.

Impacting the payments landscape

One of the significant advancements in the payments landscape is the digitalization of its infrastructure. The launch of the European SEPA SCT Instant scheme marked a development towards cross-border real-time payment services between connected banks.

Payment service providers like Payhawk can now develop overlay services around B2B invoice payments for corporates. This is particularly useful for business that want to implement ‘Just-in-time’ cash management practices. Firms can also achieve cost savings by efficient use of cash and the streamlining of the reconciliation process.

Realizing the potential of SEPA Instant, Andrea Galeazzi, Network Services Director at SIA, has supported payment service providers in their SEPA Instant implementation from the start. In an interview, he shares his view on the impact SEPA will have on the payment landscape:

The payment scheme's adoption can bring new business opportunities in almost all kinds of payments. From P2P transactions to the P2B/B2B environment for payments in e-commerce, insurance, automotive, supply chain, oil, or gas supply, refunding, etc.

4 Key Factors that make SEPA Instant favourable for the B2B world

€100 000 maximum amount per transfer

The transaction amount plays a crucial world, particularly in the business environment. If a company can instantly send or receive more money, this directly impacts its cash flow.

Speed

Most transfers take up to 3 days to arrive. With SEPA Instant, over 99% of transactions are completed in less than  five seconds. That allows firms to continue their operations without interruptions.

Flexibility

You can initiate a SEPA Instant Transfer irrespective of the underlying payment instrument used (credit transfer, direct debit, or a payment card) and of the underlying arrangements for clearing (whether bilateral interbank clearing or clearing via infrastructures) and settlement (e.g., with guarantees or in real-time).

Availability

Instant payments do not only need to be executed in real-time. They must also be accessible on a 24/7 basis. This implies a constant availability of payment systems to enable the initiation of payments outside regular business hours on all year calendar days.

Considering these developments, many have suggested that instant payment services will become “the new normal.” Whether this will happen will determine the economies of scale of instant payments and the efficiency gain in the payment system as a whole.

Adoption and Growth

The above-mentioned factors played a key role in the adoption of instant payments. Of course, there are some challenges like the fragmentation of the payment services sector. Nevertheless, banks across Europe have adopted a collaborative approach for the implementation of SCT Inst to reap the full benefits of the scheme.

In terms of numbers, 2272 payment service providers (which represents 56% of European PSPs) have already joined the scheme. As we can see, the combination of trust and functionality ensures SEPA Instant's fast adoption and growth for the time ahead.

If you are curious to learn how Payhawk utilizes SEPA payments, don't hesitate to send us a message.

Boris Angelov - Principal Product Manager at Payhawk - the spend management solution of tomorrow.
Boris Angelov
Principal Product Manager
LinkedIn

Boris has a diverse product background from launching finance products to bringing payment programs to life. He is currently leading the Spend Controls product area focusing on enterprise features that bring visibility and control to finance teams.

See all articles by Boris →
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