SCTinst – what is the significance of the instant bank transfer for modern banking?

SCTinst stands for SEPA Credit Transfer Instant and refers to the superfast form of the SEPA credit transfer—in short, the instant banking transfer. This means that transfers can be made in real-time within the European area. We take a closer look at the SCTinst.

The online market has not only grown immensely in recent years but is also becoming increasingly relevant. Accordingly, the number of bank transfers made is also increasing. Bank transfers are often used for online retail orders. In order to be able to guarantee customer satisfaction and good service here, it is imperative to introduce new, fast payment methods that are also favourable for merchants and end users. For this reason, a set of rules for SCTinst was already presented in 2015. This is a SEPA credit transfer that is processed extra fast compared to the classic credit transfer, within 10 seconds. Colloquially, one also speaks of real-time payments (instant payments) or real-time transfers. It is possible to transfer amounts in real-time thanks to SCTinst.

Goals of the SCTinst

Real-time payments have many advantages. In general, they pursue several goals. One obvious one is that they are available around the clock. Since the transfer is made in real-time, it is not necessary to wait for a business day or business hours of a bank to transfer money via SEPA transfer. Accordingly, the money arrives directly to the payee without delay—no matter which bank with SCTinst in its offer represents the payee. And there is another special feature with SCTinst: The client also receives the payment confirmation in real-time. This means that there is full transparency in the payment process at all times. One advantage for consumers stands out clearly: payment targets can be met in the best possible way. This means that transfers can be used in the best possible way and have an advantage over external payment service providers. And merchants also benefit from the improved cash flow through SCTinst.

Immediate transfer factors to consider

Real-time remittance brings with it many factors that often create a scheduling challenge. Due to the fact that real-time transfers can be initiated 24/7, 365 days a year, banks must also be responsive and available accordingly. On the one hand, real-time systems have to be implemented and set up. For this, credit institutions typically have to make higher investments in order to remain competitive. In addition, the demands on employees are increasing. In order to be able to implement real-time transfers, the time availability of employees must increase significantly accordingly. Employees must also be deployed 24/7 365 to be able to check liquidity management. This is because, in contrast to the classic SEPA transfer, liquidity must now be able to be guaranteed around the clock and on public holidays in order to be able to offer and process transfers in real time. Liquidity management is therefore much more of a challenge here.

What the EU Commission plans to do about SCTinst

Since SCTinst is not yet fully implemented, users cannot enjoy the full benefits. Therefore, the EU Commission has decided to introduce a proposal catalogue. The following points are listed in it:

• All providers of the SEPA Credit Transfer should also have to offer instant payment. This means that all banks would be obliged to offer SCTinst to their customers.
• A major point of criticism of SCTinst is currently the cost factor. Accordingly, the EU Commission proposes that instant payments should not cost more than standard SEPA credit transfers.
• To ensure security, the account number (IBAN) and the name of the recipient specified by the originator must be checked before the transfer is executed. This is to protect the ordering party from possible errors or fraud.
• In order to narrow down processes and avoid checks per transaction, instant transfers are to be checked against the EU sanctions list once a day. This applies to all customers.

Should the EU Commission turn these points into law, the consequence is clear: banks will be forced to invest in real-time payments to meet all points. This could drastically change payment transactions within Germany and with other European countries.

How and where can SCTinst be used?

Although instant bank transfer has not found its way into everyday life either in merchant circles or among consumers, there are many attractive ways to use SCTinst.
For example, instant bank transfer can be used:

• At the point of sale, that means directly at the retailer. Whether it’s the supermarket or the car repair shop—this offers a new payment option.
• In every online store. This eliminates the need to pay by invoice or to use external payment service providers. The biggest advantage is over the “prepayment” method of payment. The customer no longer has to wait until the payment has been confirmed by the merchant. The goods can therefore be delivered much faster.
• For payments from private individuals to private individuals. The so-called P2P system makes it possible to send payments in real-time thanks to SCTinst. The payment arrives immediately at the desired payee.

In general, there are no restrictions in the area of trade. And also the P2P system is so even more innovative and user-friendly. But what about the practical implementation here?

SCTInst – already arrived in practice?

Although the SCTinst offers many advantages in the field of eCommerce and online trade and can also be an important argument in negotiations for other trades, it is not yet widely used. The European Payment Council’s “Status Update on SCT Inst Scheme July 2022” lists that among all SCTinst providers, usage of the service has increased in 2022 compared to 2021, but is still only 11.48% among all services.* In order to offer a nationwide service here, real-time transfer needs to be implemented by significantly more credit institutions. So far, the additional expense that banks have to incur in implementing it has deterred some credit institutions. In addition, there must be no disadvantage compared with the classic SEPA credit transfer, such as additional cost. However, the opportunities are clear: if real-time transfers can be received by all banks and triggered just as actively, there is the possibility of replacing previous procedures. In addition, real-time transfers create a basis on which modern, efficient products can be developed.

With SCTinst, it is possible to make payment processes even more transparent and user-friendly. The opportunity to use SCTinst as a basis for new payment solutions in the future is immense, but unfortunately, as is so often the case, there is a lack of nationwide coverage of the service. The chance to make a step forward through SCTinst and catch up with PayPal and Co. is very big here and should not be wasted.

*https://www.ecb.europa.eu/paym/groups/erpb/shared/pdf/17th-ERPB-meeting/SCT_Inst_scheme_update.pdf