Germany’s role in the uptake of SEPA instant payments: Fast or slow?

27 November 2017


The latest stats from the European Payments Council (EPC), show there are over 400 German Payment Service Providers (PSPs) gearing up to go-live early next year with EBA Clearing’s new SCT Inst-compliant instant payments RT1 platform.

At first glance, this would make German banks the biggest (by leaps and bounds) banking community providing an pan-European instant payments service to its consumers. However, taking a closer look at these RT1 joiners paints an interesting picture. It shows a disconnect between its larger and smaller bank adopters of the single euro payments area (SEPA) Instant Credit Transfer (SCT Inst) voluntary scheme designed by the EPC.

Examining the new joiners

Most of the early joiners from Germany are small banks either running modern IT systems or using a third party provided Software-as-a-Service (SaaS) banking platform. This means that, unlike the big banks, they have almost no legacy baggage. Adapting to the always-on, real-time nature of instant payments (IP) is therefore easier.

To transition to IP, larger banks will have more of a challenge, including needing to modernise their payments infrastructure.  Traditional payment hubs weren’t designed for the needs of instant payments and retrofitting them to support IP will only lead banks’ down the rabbit hole of endless changes. You can read more on this in my earlier blog post.  Additionally, IP brings a drastic change in the liquidity management procedures within a bank’s treasury so there are alignment and integration issues that can take longer for larger banks. InstaPay’s earlier news coverage of the German situation, citing ‘Der Treasurer’ magazine’s survey of German banks shows how PSPs like Deutsche Bank are planning a slower adoption as they address these issues.

The impact of TIPS

Another interesting twist to the instant payments adoption in Europe is the scheduled launch of another pan-European scheme. The European Central Bank’s (ECB) TARGET Instant Payments Settlement (TIPS platform is due to go live in November 2018). TIPS was supposed to leverage on the existing RT1 platform rules, based on the SCT Inst rulebook, to ensure harmonisation between the two schemes. However, there seems to be some discrepancies between the  rules. For instance, different liquidity requirements, unanswered questions around interoperability and dual pricing.This has led several German banks to simply wait for confirmation that the final TIPS specifications are in sync with RT1 before they start-off with their own IP projects.

German banks process approximately 30% of all euro payments and will have a major impact on the success of SCT Inst. Banks wishing to pick up the challenge and support this initiative need to think about the cost of implementation and time to market.  Wholesale change of the existing infrastructure should be avoided. Instead, banks should adopt a framework approach that works in parallel to their existing payment systems. This would ensure minimum disruption to the existing batch payment processes while addressing the needs of IP through a dedicated system. IPF would be able to support both RT1 and TIPS, allowing banks a choice of Clearing and Settlement Mechanisms (CSMs) to support.

If larger German banks want to not only keep pace with the competition but lead the instant payments race, it is essential that they quickly consider transitional approaches that are fast-to-market, low cost and low risk.

Aniruddha Maheshwari is a payments consultant with Icon Solutions and senior business analyst with over a decade’s worth of experience in pre-sales and trends in the global payment & cash management arena. He has worked on key payment initiatives, such as the UK Faster Payments Service (FPS); SEPA Credit Transfers (SCTs); SEPA Instant Payments (SCT Inst); and Hungarian instant payments. He has also advised banks and industry bodies about implementing TARGET2, SWIFT, Sanctions Screening, and so on, including at top tier banks in Europe and UK. 

Aniruddha has a particular interest in designing payment processing systems for modern schemes using new age technologies and contextual information. His product expertise spans to: Global PAYPlus (GPP), ECHOS (FIS), Ambit Messaging Hub (AMH) and MINT.

Kate Nelson