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FinTech: Instant Payments across Europe. The ambitious EPC project

The European Payments Council (EPC) has recently published a scheme to make instant payments between EU countries adhering to SEPA. Speed, area of distribution and availability 24/7/365 are the main innovation points of this scheme, named SEPA Instant Credit Transfer (SCTinst).

According to the ERPB (Euro Retail Payments Board), the term instant payments refers to electronic retail payment solutions available 24/7/365 and resulting in the immediate or close-to-immediate interbank clearing of the transaction and crediting of the payee’s account with confirmation to the payer (within seconds of payment initiation), regardless of the underlying payment instrument used and of the underlying arrangements for clearing and settlement mechanisms that make this possible (CSMs). Instant payments entail different layers: a scheme layer (i.e. a set of agreed rules and technical standards for executing instant payment transactions), and the underlying clearing (the process of transmitting and reconciling transfer orders) and settlement (the temporary or definitive completion of the transaction) layers.

Following an agreement with ERPB, the EPC published in November 2016 a version of SCTInst Scheme Rulebook, defining the technical and procedural rules to be implemented by PSPs willing to join the scheme.

Three are the main points of the Rulebook:

  • the service availability 24/7/365;
  • the (nearly) immediacy of the transfer, with a target maximum execution time of 10 seconds to make the funds available to the beneficiary; and
  • the reach of the service, applied in all the 34 countries adhering to SEPA, for the transfer of amounts up to 15.000 euros.

There are several benefits of SCTinst, involving all the service participants. Consumers will be able to make payments in emergency situations even through smart devices, without the ordinary one and an half day of waiting for the transaction to be finalized; undertakings and governments will optimize working capital management as well as increase efficiencies and integrate tax, social insurance or other government-related payments; finally, PSPs will have an opportunity to strengthen the relationship with customers, promote the acquisition and subsequent retention of new customers, as well as provide a competitive advantage in the market place.

The EPC has also defined three main expectations in relation to the approach to be undertaken by the clearing industry in order to make SCTinst fully operative at a pan European level: risk mitigation, access policies and interoperability.

The need for risk mitigation arises from the duty of the payee’s PSP (e.g. the bank) to make the funds available to the payee before receiving them from the payer’s PSP. In order to mitigate the consequent credit risk, the EPC expects the PSPs to enforce appropriate measures such as cash guarantee funds.

The expectation of open access policies arises from the fact that a PSP adhering to the SCTinst scheme must be able to reach (and be reached by) any other scheme participant in the EU. If, as it is likely to happen, SCTinst will be in force in relation to more than one clearing infrastructure, it should be enough for a PSP to participate in one infrastructure only to be reachable by anyone. This requires PSPs to adopt open access policies, without the imposition by certain infrastructure of participation or registration obligations on users of other infrastructures.

Both the expectations mentioned above relate to the third and possibly most important one: interoperability, an essential element for allowing a PSP within certain CSMs to reach users in another system. The clearing industry will have to ensure a full technical and business interoperability of the infrastructures within November 2017, through the use of standards and the adoption of procedures for the efficient and safe clearing and settlement of transactions between infrastructures, as well as the conclusion of bilateral (or multilateral) agreements between infrastructures, covering their mutual obligations in processing transactions on behalf of their participants.

In order to facilitate interoperability, in April the EACHA (European Automated Claring House Association) published an updated version of EIPIF (EACHA Instant Payments Interoperability Framework) for CSMs willing to take advantage of it, that comprises a set of technical standards and procedures fully aligned with the EPC SCTInst Scheme Rulebook.

The focus on interoperability reaffirms the long-standing favorable position taken by the European Union towards such requirement. Directive 91/250 on the legal protection of computer programs, for example, provides for an exception to the copyright protection, allowing the program decompilation (converting the object code into source code) to achieve the interoperability with a different program. Likewise, antitrust law precludes one or more companies to deny interoperability with their systems when the denial would constitutes abuse of dominant position (collective or not) on the market. Furthermore, said requirement is solidly grounded on Regulation 260/2012 for credit transfers and direct debits. In article 4, in fact, the regulation establishes for participants of a retail payment system the legal obligation to ensure that their payment system is technically interoperable with other retail payment systems within the Union.

The first operational steps for the implementation of SCTinst scheme are already in place. As an example, EBA has begun to test its instant payments infrastructure platform, ahead of November launch.

We will have to wait and see which steps will be taken next.

We will no doubt keep you posted.

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Alessandro Ferrari @Alessan1Ferrari / Costanza Pollini