Instant payment are in the limelight as the EU's Instant Payments regulation begins to roll out. And there are plenty of benefits that come along with it.
Security and data remain at the forefront as businesses look to reduce potential risks and optimize their payment processes.
But what if companies could maintain security and traceability of their payments while also benefiting from speed? It seems that instant payments will allow just that.
Instant payments refers to money transfers that are made available in the recipient’s account within seconds year round while maintaining availability and compliance with security standards. We've seen implementations of instant or near-instant payments since 1973 (in the case of Japan’s ZENGIN) and with the growth of the real-time payment network in the US today.
But in Europe, this push is shaped by the Instant Payments Regulation.
Instant payment is well-defined thanks to the guidelines written into the regulation [1]. So, let’s look closer at each of those features:
This one is a no-brainer. Credit transfers should be processed – from initiation to settlement – within a matter of seconds.
Payments need to be instant at all times. Payment service providers will need effective and reliable digital and back-end infrastructure to enable this.
Instant payments should come at the same cost to other credit transfers of the same type.
Payers must be able to verify the payee through a free service that matches bank details to names– something that should apply to payments whether instant or otherwise.
There are more aspects built into the regulation, including simplified sanctions screening, the ability to pay cross-border, and more.
There are a few different ways in which real-time payments are important for businesses.
The obvious answer. But speed in and of itself isn’t of particular interest to businesses. Instead, it is more to do with the flexibility and control it offers.
Instant payments are fast and digital. That translates to efficiency when it comes to resources, with time and costs being cut when compared to traditional means.
With transfers taking a matter of seconds, businesses don’t need to wait around to receive payments from clients. Forecasting and the general management of cash also becomes easier. Likewise, suppliers can also expect faster turnover of cash, enabling them to invest it faster.
This new wave of instant payment will now be offered for all credit transfers in the SEPA area – and at no extra cost. In terms of timeline, all requirements for sending and receiving instant payments are expected to be in force from June 2028. But even today
17.8% of all SEPA credit transfers were in the form of SEPA instant credit transfers in the first quarter of 2024. [2] That represents a sizable adoption of instant transfers even as the regulation is rolling out and availability scales.
The ability to make payments immediately allows for a large amount of flexibility about when payments are made. In turn, this enables businesses to benefit from greater management of short-term cash flow, which in turn allows for extended payment terms with their suppliers.
Extended payment terms are a great tool for managing working capital and ensuring money within the company can be allocated as needed. Instant payments enable this management by giving companies more control and certainty of when the payments actual leave their account and thus allow for even further extensions of payment terms.
When it comes to new payment technologies, businesses are often slow to move. That makes sense, as there are plenty of security concerns and internal workflows that would need to be reworked. That is a big upfront investment of time and money.
But instant payment looks to be different – businesses around the world seem to be very enthusiastic about the new innovation in the payment scene. Consumers are slowly but surely getting access to them too, setting up the infrastructure and understanding that should soon make its way to B2B scenarios.
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[1] Instant Payments Regulation | European Central Bank
[2] Regulation drives instant payments | KPMG