What are instant payments?

In many European countries, standard payment transfers supported by legacy payment systems can take a few days to reach the business accounts. This means that companies need to carefully plan their spending and rely on consumers not to reverse their payments until they’re cleared.

For a very long time, traditional transfers were the only choice for those who wanted to pay by bank. Businesses couldn’t even dream about digital payments that could take seconds rather than days. SEPA transfers in Europe and the Faster Payments scheme in the UK have challenged this system by introducing instant payment rails. These rails enable transfers to reach business accounts in seconds. However, many countries in Europe still use traditional transfers.

What are instant payments, how do they benefit businesses and when will they become available in all European countries?

What are instant payments?

Instant payments are quick money transfers. These payments can travel from one bank account to another as quickly as 10 seconds. This payment transfer method is much more convenient than traditional transfers, which may take several days to reach a business’s bank account.

How do instant payments work?

Instant payments can travel from one bank account to another in seconds. These payments don’t depend on business working hours. They travel just as quickly at night or during weekends.

For instant transactions to work, these payments have to be made to and from banks that run on instant payment rails. In Europe, these are SEPA Instant payment rails, and in the UK, instant transfers are supported by the Faster Payments service.

Instant payment rails in Europe

Instant transfers can only happen if banks support instant payment rails. These are provided by different transfer services.

SEPA Instant payments

Instant transfers can only happen between banks that support SEPA Instant transfers (also known as SCT Inst). Once a user with a SEPA-compliant bank account confirms a transfer to another SEPA-compliant bank, the payment will reach its destination in around ten seconds. These payments can be made at any time of the day and don’t depend on business working hours. SEPA Instant transfers can be cross-border as long as they’re done in the eurozone.

During the third quarter of 2022, over 13% of all Euro credit transfers were made through SEPA Instant payment rails. This number is growing every year. The latest data from the European Payment Council shows that 2,313 payment service providers (PSPs) from 29 European countries are already participating in the scheme.

Faster Payments service

Pay.UK launched the Faster Payments scheme in 2008 for online and telephone payments. Prior to that, payments in the UK would take around three days to clear. With Faster Payments, transfers can be cleared in a few seconds.

Every UK bank and building society is available to send and receive instant payments. In 2021, Faster Payments processed 3.4 billion transactions valued at 2.6 trillion GBP, making it a record-breaking year.

What are the benefits of instant payments?

Instant payments enable merchants to receive money instantly and contain other benefits:

• Account-to-account payments ensure a smooth payment flow which can increase conversion rates
• Lower payment rejection rates
• Minimised fraud risk
• Quicker shipping of goods
• Higher cash flow

And these are just a few of the main benefits that instant payments create for businesses.

Barriers to instant payments adoption

According to the European Payment Council, over 60% of European PSPs participate in the SCT Inst scheme. However, at the beginning of 2022, only 11% of all euro credit transactions in the EU were made using instant payment rails.

This means that not all the banks that could support instant transactions are doing it. This choice may be related to legacy payment systems that are unable to support instant transactions, the price of maintaining instant payment systems or integration costs, among other disadvantages.

Moreover, for the banks that do offer instant payments, SCT Inst isn’t a mandatory payment rail. This means banks can charge their customers extra fees for instant transfers.

Another issue holding instant payments back is the use of bank cards. While card payments can be instantly authorised, they aren’t settled on instant payment rails. This means that settling card payments can take even longer than traditional bank transactions, up to 10 days. Such a long settlement time means companies are facing issues when managing their cash flows, and the refund process for consumers is significantly slower.

Account-to-account payments, powered by open banking and PSD2, are the solution to this issue. Direct bank payments can run on instant payment rails, where those are available, and therefore reach business accounts in seconds.

What is the future of instant payments?

The EU Commission put forward draft legislation which could significantly change the payment landscape by mandating banks to support instant payments. The council has seen that countries which had previously started using SCT Inst in full force are greatly benefiting from this payment system. The unified law would help even more countries to unlock the benefits of instant transactions.

Banks would be forbidden to charge extra for quicker transactions under this legislation. Currently, each country features different pricing for completing an instant payment. In some regions, companies are charged a fee for each instant transaction. In other areas, banks have introduced a monthly subscription package that covers various services, including instant payments.

The legislation will still have to be agreed upon and then implemented, which means that the earliest banks could expect the new laws to come into effect would be the end of 2023.

kevin. is here to help you accept payments instantly

While legacy payment systems are slow to catch up with all the opportunities that come their way, companies like kevin. are ready to help companies boost their businesses. All the direct bank payments initiated with kevin. that come through SEPA Instant payments supporting banks reach business accounts instantly if businesses opt in to accept instant transactions.

As soon as banks join SCT Inst, kevin. can enable businesses to benefit from the quick settlements. Companies don’t have to worry about funds arriving in days or even weeks. They can increase their cash flow instantly without implementing any extra features.