Until recently, instant payment was a term only known to experts and also had many different types of definitions assigned to it. Here is an attempt to bring some order to this chaos and give an overview.
The van den Berg AG gives a great definition: it defines instant payments as electronic multichannel compatible payment solutions that are always available (24/7). Immediate or close to immediate within seconds after initiating payment, a payment confirmation is sent to the payee’s bank, payment is confirmed to the sender, payment is credited to the account of the payee and is made available. Unlike the classic alternatives that merely send a payment advice note, in the case of instant payments, the amount is available in the recipient’s account within seconds.
Meanwhile at the European level and based on SEPA instant payments, a rulebook (SCTInst) has been created that specifies the processes between the participating banks from the receipt of a remittance transfer at the sender’s bank to the entry at the recipient’s bank. The implementation of the rulebook is not mandatory and optional for banks. From a user’s point of view, it’s important to note that respective instant payments have to be processed within 10 seconds (starting at the time of transfer of the sender bank to the infrastructure) and are limited to a maximum value of 15,000 Euros.
When it comes to instant payments, banks have to build new infrastructures, moving away from the “batch structure“ (collection of data sets and processing “in one go“) and moving towards an instant structure (just-in-time process).
Instant payment processes are able to redesign today’s payment processing. Instant payments take the demands of today’s business into account. The benefits of a tit for tat exchange with cash transactions are being elevated to a digital level. So-called cashless cash transactions are rendered possible and offer (not just) the retail sector new possibilities in transaction processing without relying on the payment guarantees by payment systems.
However, the newly created European rulebook is only the beginning because so far only interbank payment and settlement mechanisms are being considered here. It’s important to opt for an end-to-end consideration from sender to payment recipient. It is essential to develop the corresponding products that use the banking infrastructure that needs to be redesigned. Banks should be motivated to accept and process instant payment transfers, also to ensure the future of the giro model.
Retail is working on standardizing all necessary interfaces that are required to make payment information available for processing and to show received payments on the retailer’s account at the checkout. Under the auspices of GS1 Germany, a global organization committed to promoting standardization, retail interfaces in instant payment processes are currently being standardized across Europe. In particular, the interfaces between “checkout and banking app“, “retailer account and checkout“ and “retailer app to banking app“ are being defined. The point is to make the necessary data available and to collect it, respectively, in a standardized format. In doing so, new payment service providers are able to connect to retail systems.
Banks should actively offer and accept SCTInst. They should build the necessary infrastructures to be able to process instant payment methods. Banks can also create their own products or enhance already existing methods of payment to become instant models.
The retail industry can disengage from the constraints of previously existing payment methods and return to setting up their own internal processes again. The corresponding interfaces are made available, while in-house processes are developed autonomously. Processes pertaining to the customer end of things are left to the banks and service providers.
In turn, banks can be certain that all payments are processed through the banking account, while there is a reduced risk of disruptive activities thanks to international payment processes.
Service providers are able to develop and pursue their own products by using the banking infrastructure. This can create a competitive environment, while additional services can result in added benefits.
The German Federal Government should have a positive view of this subject. Payments are a key issue between business stakeholders and are a part of closing any business transaction. A potential increase in efficiency thanks to instant payments benefits all stakeholders and reduces friction. Especially in online retail, uncertainty when selecting a payment method is often closely connected with canceling a purchase. A Europe-wide and standardized retail payment solution that can be adapted to every consumer thanks to an individual product design, can help to solve this issue.
Instant payments have great potential. Existing methods of payment could be adapted to the yet to be built infrastructure. New products could be created by third-party service providers. The giro model remains at the core of all methods of payment. Established banks could differentiate themselves from payment platforms.