Why aren't more banks adopting SEPA instant?

With the SEPA initiative, banks not only simplified European banking practices but also reduced costs and time. Customers now have their payments credited easily within one business day. The first SEPA transfer initiative requires that payments be credited to the recipient's account by the next working day, subject to weekends and holidays. SEPA instant aimed to complete transactions within seconds without being subject to the limitations. Many banks since then have opted to support SEPA instant to ensure customer satisfaction. But many banks have yet not. With the obvious benefits known to banks, why aren't more of them adopting SEPA instant? 

Learn from our article the challenges of SEPA instant payments that financial institutions face and the steps to mitigate them:

What is SEPA Instant?

SEPA instant payment was introduced in 2017 to provide a quicker crediting of a payee, with the delay being less than ten seconds. Instant payments are the closest substitute for cash. The transfer of money is immediate and available 24/7/365. While most banks in the EU support SEPA instant, many banks do not. Making a transfer through SEPA Instant to a bank supporting regular SEPA will result in the payee receiving the transfer under regular SEPA conditions. 

How does SEPA instant transfer work?

Most bank transfers are handled in batches by banks. This implies that, disregarding whenever you made the payment, your bank will compile these transactions into a large batch before sending them out for clearance and settlement. SEPA instant payments are processed transaction by transaction instead of gathering multiple of them into a single batch. The Payment Service Provider can process the SEPA transaction and clear the amount in real-time because of Open Banking's ability to identify the SEPA transaction as an instant payment.

Benefits of SEPA instant

The SEPA instant has had a significant impact on the volume of transactions due to the integration of payment markets in the EU as intended under the Lisbon Agenda. Overall, the introduction of SEPA instant lowered payment processing costs and increased competition within the cross-border payment sector for businesses. Businesses no longer have to have a bank account in each EU country to send and receive payments, simplifying and consolidating their payment systems and financial management. Merchants and retailers will be able to accept more card payments through a single point of sale terminal in the EU. 

Customers are able to make and receive payments within seconds in real time, not just within their locality but also across the border into the EU. Paying bills and other direct debit transfers are no longer behind because of payment systems integration that allows a customer to pay their bills or subscriptions. Customers thereby have more control of their transactions. 

Banks will save a lot of operational costs through simplifying transactions and standardising bank transfers. Through efficient payment services, banks will be able to get and retain more customers and business clients. 

Challenges for payment service providers in SEPA instant service

Thanks to the Payment Services Directive (PSD2), banks have reduced transaction time to one business day, but to reach the 10 seconds mark needs more progress. Adopting SEPA instant payment is more challenging because the banks will have to redesign their payment process to enable multiple single payments to be executed simultaneously. Banks want to provide instant payments; however, there are multiple barriers for them to overcome to handle payments within a drastically shorter timeframe. We will discuss them in the following:

  • Availability of payment system
  • Liquidity management
  • Anti Money Laundering screening 

Availability of payment system

Instant payments must not only be processed in real time, but they must also be available 24 hours a day throughout the year. Payment systems must be available at all times to enable transactions outside business hours. Because banks execute transactions in bundles rather than individually, the current payment infrastructure is incompatible with the execution of real-time payments.

Payments are gathered throughout the day and processed in bundles on a daily basis. When it comes to instant payments, systems must be able to submit individual transactions to clearing services one at a time. They must be able to execute a large volume of individual transactions at any given moment in order to implement immediate payment. Banks must rely on numerous data centres to provide continuous availability, allowing one data centre to fall down while the other(s) take over processing payment transactions. This active processing would necessitate the core financial system to be online continuously.

Liquidity management

Liquidity management is one of the most difficult tasks that banks face on a daily basis. Processing payments by batches has at least allowed banks to have predictable liquidity flows thus far. Liquidity management becomes very uncertain with real-time payments.

Then there is the issue of establishing a careful balance between having enough liquidity to process incoming payment orders and not storing unnecessary cash that may be utilised to make investments. Instant payments tip this balance over the edge. Inflow and outflow of payments can happen at any time. As a result, banks will try to seek to precisely foresee instant payment trends, and liquidity will have to be successfully managed on a much more regular basis.

The ECB has modified its Central Liquidity Management (CLM) in 2020 to offer a harmonised and consistent management of liquidity in the European payment system to address this liquidity challenge. Real-time gross settlement (RTGS) will be used for high-volume payments, whereas TIPS will be used for low-value quick payments. Financial institutions will hold a Dedicated Cash Account (DCA) to be able to move payment volumes to each of the settlement services (such as TIPS, RTGS, and T2S). Gateways in core systems should be able to provide connectivity with various clearing and settlement processes (e.g., TIPS, RT1). Banks can take advantage of multiple connectors if they wish to join different CSMs to access a larger network.

Anti Money Laundering screening

The time spent on anti-money laundering (AML) analysis and fraud detection eventually reduces as the speed of execution decreases. Although the time is minimal in the execution of rapid payment transactions, it is still a critical step that banks must take to provide a safe payment environment for both clients and financial institutions. In instant payments, banks will crosscheck client and transaction information against sanction high-risk lists and fraud regulations in a matter of seconds.

Instant payment should never be used as a justification for jeopardising an effective AML compliance screening or fraud detection procedure. As a result, banks that handle real-time payments must improve their anti-money laundering and anti-fraud screening systems while effectively managing client-related risk. Many third-party suppliers are offering real-time payment fraud detection software that uses artificial intelligence and automation to perform AML checks and sanctions screening procedures in seconds to address this need.

Instant credit transfers currently account for over 10% of all SEPA credit transfers. Since August 2021, 23 more financial institutions have enlisted as SEPA Instant participants and 8 more in December via RT1. 23% of the participants in the SEPA regime are connected to the instant payment scheme. 


SEPA Instant transfers are beneficial overall for customers, businesses, and banks. In fact, more banks would like to opt for SEPA Instant and provide more efficient services to their customers and clients. However, adopting Instant SEPA is technologically challenging as it requires a massive server to facilitate single transactions. Banks' liquidity will suffer since most banks rely on debts and do not have a substantial amount of cash on hand. Customer satisfaction will be overridden by KYC and AML checks since compliance teams will not have the time needed to do a background check on the transaction. Regardless, those challenges are just technical barriers that will improve as time passes by. In the future, most banks and payment services will adopt instant SEPA as it is better in the long term. 

A quarter of the banks participating in normal SEPA are also enlisted under the instant payment scheme. As a result, more banks and financial institutions are expected to adopt instant payments in the future as we see a linear increase in their enlistment. Although it is not an easy task, it is necessary as customers' expectations escalate due to the globalisation of the banking sector. 

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