Instant payments: you may or may not have heard of it, but if you haven’t, you will supposedly notice it in the course of next year. Instant payments is the next initiative of Single Euro Payments Area (SEPA) development of the European Central Bank, installed to significantly increase the speed at which (cross-border) payments are made and received, and consequently harmonize payments within the European Union [4,5]. Currently, it takes around one business day for a payment to reach its beneficiary, and instant payments will enable payments to be transferred in real time, 24 hours a day, all 365 days of a year. The transferred funds will be available for use of the beneficiary instantly. Instant payments are going to impact the way we do business in Europe, and each European country has the responsibility to prepare its payment infrastructure in such a way that it will be able to perform these payments ‘instantly’ [4]. What exactly needs to happen for this, and what are the developments in Spain specifically? Moreover, how do we expect instant payments to change the way business is conducted in Spain?
Instant payments: what it is
The Euro Retail Payments Board (ERPB) defined instant payments as “electronic retail payment solutions available 24/7/365, with a maximum limit of 15,000 euros, resulting in the (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”. [7] What exactly does this mean? It means that consumers can make a simple person-2-person mobile payment when buying, for example, a second-hand product at a fair [4]. Also, future personal use of smart devices payments will most likely be better enabled by instant payments. On the business side, cash flow management and e-invoicing or e-billing is made more efficient, which leads to an optimized business. Transferring money will no longer defer a business transaction, and cross-border business within the European Union, as well as business within home-countries, will be stimulated. Although instant payments is partially already available in a few European countries (including Sweden, Denmark and Norway), it will be available in the entire EU from January 2019 onwards [5].
Instant payments: how it works
Continuing the statement of the ERPB: “the instant payment is irrespective of the underlying payment instrument used (credit transfer, direct debit or 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) that make this possible”. [7] As mentioned briefly before, and as emphasized by this quote of the ERPB, underlying arrangements are what enable a payment to be performed instantly. These arrangements must be made by each of the banks of all Member States, so that all payments can be made ‘instantly’, regardless of the bank of the payer or the payee. This ‘instant transaction’ is made possible on the basis of trust within the SEPA, and the obligation for each bank to provide the necessary infrastructure (“SCT Inst”, the so called “scheme” for payments) and liquidity to perform a certain amount and size of payments on the spot [6]. What is more, banks already have to follow the latest regulations for open banking (Payment Service Directive 2, PSD2), in order for Payment Service Providers (PSPs) to be included in instant payments. As it is the bank’s own responsibility to prepare itself for instant payments, competition is fierce: if a bank is not able to participate in the scheme, it will most likely lose a lot of business within a few years [6].
For more information about how instant payments work and the roles of all actors, take a look at the website of the European Payments Council: https://www.europeanpaymentscouncil.eu/what-we-do/sepa-instant-credit-transfer
How Spain is contributing to European instant payments?
Following the above information, Spanish banks have their own responsibility to make instant payments happen. According to several articles, as well as statistics by the Dutch Payments Association (BVN, Betaal Vereniging Nederland), Spanish banks are part of the leading group within the instant payments scheme installation. The below image shows that 72% of Spanish banks are already complying to the European instant payment requirements, which is one of the top percentages of the Member States.
Source: Dutch Payment Association [6]
The fact that Spain is an early adaptor can come somewhat as a surprise, considering the country’s slow adaption to e-commerce and online payments [1]. However, it shows that the Spanish government and Central Bank recognized the importance of following the SEPA developments when it came to instant payments, in order to not lack behind compared to the rest of Europe. They succeeded: with 86 Payment Service Providers (PSPs) on board, Spain is one of the most advanced of the eight European countries who already participate in the instant payment scheme [1]. In her publicly shared interview, Caixa bank’s Beatriz Kissler, who is also the EPC Scheme Management Board member who represents the Spanish banks, says that “the Spanish banking community understood that the deployment of [instant payments] was critical if banks wanted to play a relevant role in shaping the future of financial services” which resulted in the nation’s leading position, and advised other countries to look at Spain as an “example on how to implement the instant payment scheme”. [1] In Spain, the most relevant banks that steer the country towards total implementation of the instant payments scheme are CaixaBank, Iberpay, BBVA, Sabadell and Santander. [2]
How instant payments will affect doing business in Spain
If you are a company, doing business in Spain or with Spanish companies, instant payments will affect your business in various ways. An overview of the benefits of sending and receiving payments instantly, 24/7/365, as made by the European Central Bank [4] is listed here.
Instant payments will lead to:
- Improvement of cash flow and process of payment reconciliation
- Increase in efficiency of e-invoicing and e-billing
- Optimization working capital management and minimization of need for external financing
- Reduction of late payments and speed up the payment of invoices
- Improvement of e-commerce, with goods/services released against concomitant payment, thus decreasing the financial risk
- Speed up check-out processes at a physical point-of-sale
- Increase in efficiency of and integrate tax, social insurance or other government-related payments
Which, overall, will improve the efficiency of doing business and increase the number of small companies that can participate in the economy, as they are no longer limited by funds. [4] Furthermore, it is generally good to know that instant payments will make your life as a business in Spain (and in Europe) slightly easier.
If you are a Payment Service Provider (PSP), interested in joining the open banking business, many opportunities arise when looking at Spain as opposed to other European countries. As the “SCT Inst” scheme is well integrated in most of the Spanish large banks’ ways of operating, you will find it fruitful to join the financial service world in Spain. For more information about opportunities as a PSP (or business) in Spain, please reach out to the Dos Aguas Consulting team and we will be happy to assist you further.
Sources:
[1] European Payments Council (28 November 2017), A very early adopter of the SEPA Instant Credit Transfer scheme tells us about the Spanish experience, Available Online [last accessed: 08.12.2018]
[2] European Payments Council (14 September 2018), Importance of teamwork: Spanish banks lead real-time payments implementation, Available Online [last accessed: 08.12.2018]
[3] Banco de España, Settlement Systems in Spain, Available Online [last accessed: 09.12.2018]
[4] European Central Bank: “Instant Payments” [last accessed: 09.12.2018]
https://www.ecb.europa.eu/paym/retpaym/instant/html/index.en.html
[5] Global Data: Instant payments threaten card schemes in Europe [last accessed: 10.12.2018]
https://www.globaldata.com/instant-payments-threaten-card-schemes-europe/
[6] Betaal Vereniging Nederland: “Instant Payments” [last accessed: 08.12.2018]
https://www.betaalvereniging.nl/en/focus/instant-payments/in-europe/
[7] European Central Bank: “Euro Retail Payments Board” [last accessed: 11.12.2018]
https://www.ecb.europa.eu/paym/retpaym/euro/html/index.en.html