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SEPA Instant Credit Enablement – A Worthwhile Challenge to traditional cross border payments?

By Darryl Proctor 19 Jun 2017

SEPA Instant Credits (SEPA Inst.) has the potential to revolutionise the European payments market and is set to go live in November 2017.

Though Temenos sits among those aiding banks interested in the scheme so far as being a nominated front running with the EBA, as a non-obligatory banking development it seems uncertain whether this change resistant industry will universally pursue a service with both huge potential and its own set of challenges. As regulatory changes continue to sweep through the banking industry, SEPA Inst. enablement may not be so heavily prioritised, with banking response to the service decidedly mixed. Though 90% of banks consider SEPA Instant Credits to be important, only 52% plan to join the scheme by the November 2017 launch, illustrating that while the vast majority of European banks acknowledge the value and potential of the service, almost half have no immediate plans to implement. Vast though their reasoning may be, the danger in dismissing the importance of SEPA Inst. is not to be undervalued, risking loss of competitiveness, customer retention and failing to keep pace with industry innovation.

One of the most crucial elements when determining whether to implement a new service is the level of customer demand. Corporate expectations for a superior level of service with cross-border payments solutions are evident, presenting a keen opportunity that real-time payments could easily fulfil. With transactions costing between $30 to $40 for a cross-border service that can take days to settle, the considerable cost of both time and money presents a compelling reason to demand a better service. Due to this, alongside notable satisfaction over the increased efficiency of the original SEPA system, it appears clear that SEPA Inst. has considerable appeal for corporates, serving as strong incentive for banks to adopt the scheme.

With 70% of corporations content to consider alternative cross-border payments providers to secure a superior level of service, and the cost of acquiring a new customer estimated to be over 30 times that of retaining an existing customer, maintaining a satisfied customer base is imperative to success in the payments market for banks. From real-time transactions booming in popularity, driven forward by the universal customer mind-set of expecting immediate gratification, to increasing government pressure for a highly accessible, interoperable payments system, real-time payments seem to have solidified their future as the new standard for banks. With real-time payments systems such as SEPA Inst. able to satisfy these expectations, banks must either adopt these services or risk a declining market share.

Of course, offering real-time payments services will require alterations to a payments system, an overhaul that is often avoided by banks due to costing fears. However, a real-time centralised payments system is considered the least expensive method of processing payments per transaction , and offers similarly compelling long-term monetary benefits for banks by breaking payment silos. Investment in modern infrastructure has clear advantages outside of providing an efficient, cost effective level of service, including significantly lower risk of outages and failed payments. Reduced failed payments savings gained through real-time transactions are estimated to be between $612 million and $1.7 billion in 2020 . Real-time payments also enhance the volume and utilisation of real-time data. Financial transaction data pertaining to customers' cross-border business can be collected and analysed in real-time. This enables the bank to elicit financial insights, gain deeper understanding of their customers and provides a wealth of data suited to guiding banks when developing new services that will appeal to customers and meet their needs.

The benefits of real-time payments for corporate clients are plentiful, providing banks with an opportunity to offer premium services intended to increase customer satisfaction and loyalty, and enhance revenue from payments. Additional offerings such as disaster payments and last minute payroll services provide the opportunity for banks to create a more compelling, lucrative payment service, but real-time transactions also contribute to revenue by establishing a more comprehensive view of corporates' global "real-time cash position". With only 13% of multi-national corporates able to see their global cash position in real-time, the impact SEPA Inst. could have on cash and liquidity management would be significant, as well as providing a competitive advantage.

Real-time payments appear set to only grow in popularity, and the numerous benefits they provide for both customers and banks themselves create a strong incentive for SEPA Inst. adoption. Yet it is crucial banks do not overlook the potential difficulties the scheme presents in their haste to drive innovation and heighten competitive advantage. The transition from batch to transaction processing is a key element of SEPA Inst., vital to the success of real-time payments, calling for every stage of a transfer to occur within ten seconds and without any downtime. For banks to achieve this monumental change to their processing method, requiring 24/7 "real-time operations", significant system improvements are required.

In order to rise to the worthwhile challenge of SEPA Inst., banks must ensure they operate an agile, real-time payments solution, able to consistently maintain the standard required for a seamless real-time payments process. Deployment of an agile, real-time core would further benefit banks in their endeavour to flourish as a real-time payments provider, though offering a superior level of service isn't solely limited to the quality of processing. Banks will need to provide all the services that contribute to a successful transaction, including use of and access to transactional data in real-time. Real-time payments present an opportunity for banks to utilise this data to offer real-time enquiry management and real-time payments tracking, granting customers automatic status updates via email or full payment journey visibility with real-time updates. Such visibility would permit customers to improve supply chain automation and provide greater overall clarity. The added value of these services could result in customers placing more trust in their bank, enhancing the sense of security and knowledge felt by customers, engendering stronger feelings of loyalty to the bank.

The challenges banks will face when implementing a real-time payments service such as SEPA Inst. are not negligible and do require careful consideration, but the advantages SEPA Inst. provides undoubtedly outweigh the risk and concerns. Banks need not be disheartened nor avoid pursuing real-time payments, as there are a number of service providers who can deliver the solutions required for a successful real-time payments service, providing simple implementation and lasting cost efficiency. Real-time payments continue to rise in popularity within the payments market and among consumers, proposing a substantial opportunity for banks and their customers to benefit from adoption of SEPA Inst. With strong infrastructure and innovative solutions, banks willing to pursue a significant shift in their payments services of their own volition, will raise their profile as a strong competitor within the industry, and showcase a dedication to innovation and exemplary customer service.

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