We learnt to look over our shoulders in driving school, and it accompanies us throughout our lives on the road. If you want to switch to the fast lane, you should take a quick look back to judge your surroundings better. This scene in mind takes us right into the heart of payment transactions, where the topic of instant payments is about to shake up the field of “established drivers”.

Instant payments – old model with new spare parts?

SEPA Instant Payments (IP) are bank transfers which are initiated and processed in real time. It takes a maximum of ten seconds from the release of a transaction to the completion of the money transfer. This means maximum security for the payee, as the receipt of money is finalised immediately. In contrast to other procedures (e.g. direct debit), there are no long-term recall rights, which sometimes harbour a residual risk of default over many months.

The advantage of IP for the customer is that the proof of payment is directly accessible to the merchant due to the immediate execution. So, nothing stands in the way of the immediate dispatch of goods. In addition, the execution is directly visible in online banking.

The idea is by no means new. IP has been available in the European SEPA area since 2017 and many institutions have already introduced it. However, there has not yet been a real breakthrough on the German mass market. End customers often ask themselves what IP really differentiate from other available payment methods. What’s more, the e-commerce option of “Sofortüberweisungen” (translating “immediate transfers”), seems confusingly similar and is often used synonymously.

Time for a U-Turn

Therefore, in terms of customer perception, there has always been IP. The advantages were also the same: The execution of a transfer was confirmed directly to the retailer and the risk of default remained low. In turn, the customer could count on fast dispatch.

For a long time, the biggest opponents of “Sofortüberweisungen” were the banks themselves, who actively opposed the use of this solution. The fact that the banks now offer a means of payment that is not only “sofort”, but also instant, seems like a 180-degree turnaround for some consumers and, in view of the confusion surrounding the name, requires at least some explanation.

Switching t the fast lane: IP regulation

Many institutions have been rather hesitant in launching IP. On the one hand, they tried to amortise the investment in the new infrastructure with high transaction fees. On the other hand, some institutions decided not to implement IP at all or only realised the receipt of real-time payments.

The EU and the European Central Bank hope that IP, like SEPA in general, will strengthen the European domestic (payment) market – and that a European payment scheme will provide a counterweight to the major US players.

With the Instant Payment Regulation announced by the EU Commission, every institution in the SEPA area will be obliged to accept and actively execute IP – at no additional cost to the consumer compared to conventional bank transfers. Even though the final details are still being negotiated, the implementation period is expected to be quite ambitious. Both the cost structure and the lack of market coverage would thus be removed as barriers to entry.

However, competition on the payment market is fierce. In addition to traditional bank transfers, there is competition from established payment methods such as PayPal and credit cards. What are the prospects of entering a seemingly saturated market?

Only togehter can we reach our goal: banks and retailers as partners

On the retail side, however, people have their own reasons for questioning the market power of the major payment schemes. The high level of customer popularity makes it almost impossible to do without them. Acknowledging this, schemes are remunerating their services with higher transaction costs than other payment solutions. A payment method with equivalent customer benefits in more favourable conditions is therefore urgently needed.

As early as 2018, there was a retail initiative to introduce IP as an alternative payment medium in bricks-and-mortar retail. “HIPPoS”, the retailer-based instant payment at the point of sale, failed primarily due to an inconsistent network of acceptance points for IP and an unattractive fee structure for the end customer. Even then, however, it was clear that the necessary willingness to innovate and invest to make instant payment suitable for the masses was available.

The initial situation is now changing due to the IP obligation. Today’s main task is to find a suitable user-friendly process with which IP can be integrated into existing customer journeys. This would create common interests between banks and retailers about IP. What is missing so far is a way to get the power on the road.


Request to Pay – tuning or instant payments?

Finalising the purchase, selecting prepayment as an option, logging into online banking and paying instantly – that’s the kind of user guidance that doesn’t give much pleasure. If IP is to realise its full potential, it needs smart and simple integration into the checkout process. Request-to-Pay (R2P) could step in here soon and close the gap between the shop and payment processing. Published by the European Payments Council EPC and now available in version 3.1, payment requests are forwarded to the online banking of the house bank, the payment information is pre-authorised and the IP is executed after approval, including a success message and without a visual break in the process.

There are many other functional features that could be built on the basic use case. The potential for pioneering work in this area seems great. At the latest when the IP regulation comes into force, R2P will also step more into focus. Payment tomorrow will be faster, more efficient and even more digital. It might not take much longer until the first results can be seen.


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