Next Step on SEPA Instant Payments: International Instant Euro Scheme

Blog· 5min June 1, 2023

Globe illustration with arrows showing payments moving

Shaping the Future of Cross-border Instant Payments

The European Payments Council (EPC) recently introduced the One-leg Out Instant Credit Transfer scheme, set to go live on 28th November 2023. This scheme establishes a framework of rules, practices, and standards for any SEPA Payment Service Provider (PSP) conducting Euro-denominated instant credit transfers between SEPA (Euro Leg) and non-SEPA countries or SEPA countries with non-euro currencies (non-Euro Leg). 

This initiative is a crucial advancement in achieving the objectives of the 2020 EU Retail Payments Strategy. It marks the beginning of a harmonised real-time cross-border retail payment infrastructure, enabling instant payments across different geographies and jurisdictions. 

The One-leg Out Instant Credit Transfer scheme aligns with the G20 Cross-Border Payments Roadmap, endorsed by G20 finance ministers and central bank governors in October 2020. This roadmap aims to improve cross-border payment systems by making them faster, more accessible, transparent, and cost-effective. The new scheme directly contributes to these goals by facilitating more efficient Euro-denominated instant credit transfers between SEPA and non-SEPA countries. 

Adoption of ISO 20022 Standard

The ongoing global adoption of the ISO 20022 standard for payment and settlement systems enhances the efficiency and reliability of interlinking instant payment infrastructures. The European Union (EU), an early adopter of the ISO 20022 standard, has implemented it across all SEPA schemes and TARGET (RTGS) services since March 2023. The United Kingdom (UK) and the United States (US) have plans to adopt the standard between June 2023 and March 2025, respectively. 

Correspondent banking, a key component in facilitating cross-border payments, will also experience significant benefits from the adoption of the Cross-Border Payments and Reporting Plus (CBPR+) initiative launched in March 2023. CBPR+ is a global market practice that defines and establishes guidelines for implementing the ISO 20022 messaging standard specifically for cross-border payment transactions and their associated reporting requirements. 

The Growing Importance of Cross-Border Payments

Cross-border payments are integral to international trade and economic activity. With the rise of e-commerce and technological advancements, the volume and value of cross-border payments have been growing globally. Account-to-account payments are becoming increasingly popular alternatives to cash and card payments. 

Given the political will, regulatory initiatives, and increasing demand for instant cross-border payments, it's now time for Payment Service Providers to act.

Challenges and Opportunities in Cross-Border Payments

A SEPA scope arrangement (Euro Leg) alone is insufficient for effective cross-border payments and similar initiatives are needed from other geographies. Consequently, the landscape remains open for private initiatives to lead the integration with different market infrastructures. The full reach of an international instant payments solution depends on the willingness, readiness, and joint efforts of financial and credit institutions to provide instant cross-border retail payment services.

Impact on Competition: Traditional Banks vs. FinTech Companies

The One-leg Out Instant Credit Transfer scheme has the potential to significantly impact the competitive landscape in the payments industry, particularly between traditional banks and fintech companies. By facilitating faster and more efficient cross-border transactions, this new scheme may lead to a shift in the balance of power among payment service providers. 

Traditional banks face both opportunities and challenges with the implementation of the One-leg Out Instant Credit Transfer scheme. Banks can leverage their existing infrastructure, customer base, and compliance expertise to adopt this new payment system, providing clients with faster, more reliable cross-border transactions. This could help them retain and attract customers, particularly those involved in international trade and commerce. However, traditional banks also face significant challenges in adapting to this new environment, as legacy systems and processes may not be well-suited to handle corresponding banking for the purpose of instant credit transfers 

FinTech companies, on the other hand, are well-positioned to capitalise on the opportunities presented by the One-leg Out Instant Credit Transfer scheme. Agile and technologically advanced, these companies can quickly adapt to new payment systems and offer innovative solutions to their customers. This is likely to enable them to capture a larger share of the cross-border payments market, which has traditionally been dominated by banks. 

Strengthening Fraud Detection and Prevention in Cross-Border Instant Payments

The integration of robust fraud detection solutions is critical in maintaining trust and reliability in the rapidly evolving landscape of instant cross-border payments. Credit and financial institutions must collaborate to develop and implement comprehensive strategies to tackle this challenge. 

A crucial aspect of effective fraud prevention is the sharing of fraud data and pattern analysis between different parties involved in the payment ecosystem. This data exchange enables organisations to identify suspicious activities and emerging fraud trends more accurately and rapidly, resulting in quicker response times and reduced financial losses. 

The adoption of a standardised taxonomy for fraud prevention can significantly enhance the accuracy of fraud trend intelligence and data analysis. By utilizing a common language and framework, all payment service providers can better understand and interpret the data shared, leading to improved detection and prevention of fraudulent activities. 

Achieving Global Reach and Legal Certainty in Cross-Border Payments

The successful implementation of instant cross-border payments relies heavily on the establishment of harmonised API protocols for data exchange and the adoption of ISO 20022 standards. These elements are essential in ensuring seamless and efficient communication between different payment service providers and financial institutions to achieve global reach to accounts. 

Harmonised API protocols enable streamlined data exchange between different systems and platforms, allowing for more efficient and accurate processing of payment transactions. The adoption of ISO 20022 as a global standard for payment messaging ensures consistent communication and facilitates interoperability between various payment schemes. 

Addressing legal challenges is also of paramount importance in the realm of cross-border payments. One of the primary goals is to achieve the same degree of legal certainty for cross-border transactions as for domestic ones, particularly in cases involving a party's default. To accomplish this, it is essential to establish a integrated legal framework that outlines the rights and obligations of all parties involved in instant cross-border payment transactions. 

Key Considerations

With the adoption of the ISO 20022 standard across major economies, it is critical for financial and credit institutions to choose the right partners for digital transformation, integration between market infrastructures, and cross-currency services. Minimising the number of integration points should be considered, as this is the current hurdle with traditional cross-border payment services. 

Higher security and lower overall costs of payments to merchants are key drivers in accelerating the adoption of an instant cross-border payment solution. KYC, AML/CFT, and fraud detection solutions are vital in making instant cross-border payments reliable for end-users. FinTech players can play an essential role in this, especially in helping smaller PSPs become more competitive. 

Form3 currently provides Faster Payments and SEPA Instant Payments processing services and is now working on the launch of the US real-time payments service with RTP and FedNow. 

Whether global or local, you can benefit the most from a cloud agnostic solution that eases your integration with major market infrastructures and provides fraud prevention and other value-added services. 

Discover how we can support your future European payment ambitions

Written by

Andreia Dias SEPA Instant Product Manager at Form3
Andreia Dias SEPA Instant Product Manager