Instant payments: US TCH & SCT Inst launch, but are banks ready?

The launch of The Clearing House (TCH) real-time payments (RTP) platform in the US and of Europe’s SCT Inst scheme is an indication that instant payments are at last going global, but how ready are banks?

The first new payment and clearing infrastructure in over 40 years is now operational in the US after TCH RTP had its first test on 13 November when $3.50 was moved between BNY Mellon and US Bank, prompting the latter’s CEO, Andy Cecere, to say in a statement how “excited” he was.

His counterpart at BNY Mellon, Ian Stewart, hailed it as “one of the most important payment transformation efforts in our industry”. Further transactions have since run involving Citi, J.P. Morgan, PNC and SunTrust, among other early adopters as the system ramps up.

However, the RTP platform is not expected to reach ubiquity until 2020. TCH hopes that ‘by the end of 2018 half of all American depositors will have access to the system’ as the big banks migrate to it. Connecting to the core, integrating and aligning it with internal financial crime compliance activities won’t be easy for banks. But 2020 is a long time to make American consumers and corporates wait for instant payments (IP).

Large processing firms, such as Fiserv and others, are expected to serve the connectivity and processing needs of smaller US banks, credit unions and others that lack the scale or budget to execute their own migration project, but the wait will still be frustrating.

RTP supports fast, irrevocable IP, standardised messaging and data carrying capabilities in the US, which mean new services and functionality such as mobile phone number initiation, liquidity and payment monitoring services should be possible in the future.

The technology was supplied by MasterCard-owned VocaLink and the system built with the collaborative effort of TCH’s 25 owner banks, but it is open to all US depository institutions.

RTP adheres to the objectives of the US Federal Reserve (Fed) Faster Payments Task Force, effectively the scheme overseer, giving the country the chance to finally catch up with other more advanced real-time nations such as Denmark, Singapore and so on but only if banks connect to it.

European regulators, its central bank and payment service providers (PSPs) are also hopeful of speeding up euro payments. The continent’s new single euro payments area (SEPA) instant credit transfer (SCT Inst) scheme will enable fast euro-denominated payments and new services to be rolled out. Various SCT Inst-compliant clearing and settlement mechanisms (CSMs) are slowly proliferating across the continent.

Nine CSMs, such as France’s Stet automated clearing house (ACH) and Equens Worldline, declared their adherence to the voluntary SCT Inst scheme upon its launch on 21 November, but many more still need to follow.

EBA Clearing’s RT1 platform will initially provide much of the pan-European cross-border ‘reachability’ allowing instant payments to be made across the continent. Often this will be via a cross-border partnership, as in the case of Spain’s Iberpay where the ACH will handle domestic SCT Inst-compliant payments itself but use RT1 to reach far-flung corners of Europe.

The banks are lagging behind too. The European Payments Council (EPC), which designed the voluntary scheme rulebook, said 585 PSPs – only 15% of the total in Europe – were offering instant euro payment services on the launch date, across eight countries from Austria to Estonia, Italy to Spain. A lot of the initial volume was from RT1.

The slow uptake means there are a lot of banks and alternative PSPs that still to adhere to the SCT Inst scheme. In common with its US counterpart, the EPC is not envisaging full uptake anytime soon either. It is predicting PSP uptake will only reach 50% by 2020 following the non-mandatory launch on 21 November. Perhaps it should be made mandatory to speed things up?

SCT Inst is intended to reach the 34 SEPA Countries in Europe including Poland, France, UK and so on. It will encourage adoption of the ISO20022 messaging standard and give its users the ability to:

  • Move up to 15,000 euros from one account in Europe to another. The limit may rise later.
  • Maximum of ten seconds allowed.
  • Operate on a constant 24×7 basis.

It shares the fast settlement and 24×7 operational stance of its US TCH equivalent and other IP schemes around the world. Australia, for instance, has its own similar new payment platform (NPP) planned for 2018.

Numbers in Europe should pick up when large German banks, with the biggest euro flows, move fully next summer to the SCT Inst scheme. For now, a lot of smaller German and other nation’s banks have moved, but the volume figures need more Tier 1 banks to migrate to radically increase uptake.

It is not an easy task to migrate to an IP scheme – whether in the US, EU, Australia or wherever – but if banks want to retain payment volume, customers and the capacity to offer value-adding mobile or liquidity services on new infrastructures then they need to move quickly. Otherwise, alternative PSPs may look to take advantage of these new platforms themselves, where permitted, and to win flow for themselves.

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