We live in an increasingly digital world where a lot of automated solutions can provide services in next to real time. However, some fundamental services are lagging behind, like the payment infrastructure used by EU banks. The European Commission states that only 11% of all the euro credit transfers in the EU were instant at the beginning of 2022. To solve this issue and reduce the barriers that prevent this a new proposal has been submitted.
– Moving from “next day” transfers to “ten seconds” transfers is seismic and comparable to the move from mail to e-mail. Yet today, nearly nine out of ten credit transfers in euro are still processed as traditional ‘slow' transfers.
Mairead McGuiness, Commissioner for financial services, financial stability and Capital Markets Union.
What does the proposal entail?
The proposal is an amendment to the Single Euro Payments Area (SEPA) regulation, which aimed to enable any euro transactions within the EU fast, safe and efficient. Just like any national transfers. The new proposal contains four requirements:
- Availability - An obligation for EU payment service providers (PSPs) to offer an instant version within a defined period of time
- Affordability - A requirement for PSPs to ensure that the price does not exceed the price charged for traditional, non-instant transfers in euro
- Increased trust - To verify that there is a match between the beneficiary and the IBAN with the information submitted by the payer before the payment is paid, in order to warn for any mistake or fraud
- Less friction - To remove the friction of instant payments without harming the effectiveness of the screening process of persons that are subject to EU sanctions
Why are instant payments important?
Payments are an important feature of any economic system and in any business relationship. Today, a transfer can take up to 3 days to arrive in the designated bank account. A time frame in which businesses or individuals may be locked out of a service or a good, despite having paid for it. Meanwhile, businesses may be hampered by not receiving money quickly since it hampers their cash flow which in turn may delay their possibility to honor their agreements. The most affected by slow transfers of money is without a doubt SMEs. The euro sum locked up in the financial system at any given day is up to a staggering amount of 200 billion euros. The estimated impact of implementing the proposal is in the range of 1.34-1.84 euros annually. In other words, slow transfer times can cause trouble in the processes of any company and society, and it creates ripple effects in the supply chains.
Instant payments come with a wide range of benefits such as improved liquidity and cash-flow. Such benefits have a positive impact on recipients of such payments, including consumers, merchants, and freelancers, by significantly boosting their economic efficiency. This is particularly relevant in an e-commerce context where merchants after being paid instantly are able to immediately and safely release goods and services. Instant payments also stimulate the development of new payment solutions and can be particularly useful in cross-border transactions.
While the new proposal cannot solve every issue with payments, it can help companies and individuals to build trust and quickly resolve unsettled transactions. Overall a quick and efficient system will help intra-European trade to improve.
Did you say 10 seconds?
Yes, according to the SEPA regulation, in order for credit transfer to be instant it has to meet different conditions. One of these conditions is that the payee’s payment account shall be credited with the amount transferred within 10 seconds after the time of receipt of the payment order.
Imagine, how moving from “next day” transfers to “10 seconds” transfers could disrupt the way business is conducted today. This is especially interesting when looking at the e-commerce, digital creators, and influencer marketing industries.
Instant payments are however not part of a hard-to-reach future. It already exists and is being put to use in countries around the world. At Gigapay we believe that instant payments are absolutely necessary and think that providing such payments form an integral part of a great payout experience. We help companies in the creator economy with unlocking digital creators and believe that a digital worker, you shouldn't have to wait multiple days to receive compensation for your work.
Gigapay and its partners make this possible. Payouts can take as little as 7 seconds before the money is in the creator’s bank account.
