21 March 2017

European Payments Council: SCT Inst and CSMs: an interview with José M Beltrán of STET

Clearing and Settlement Mechanisms are instrumental in making SCT Inst transactions a reality, and companies offering these services have to prepare in advance of payment service providers. STET's Beltrán -one of the leading European clearing and settlement systems- shed some light on instant CSMs.

Which factors are instrumental in making the SCT Inst scheme a success from a clearing and settlement perspective? What are the main challenges?

We had already delivered efficiencies in SEPA clearing and settlement with the implementation of the SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) schemes and related regulations over the last few years.

The implementation of the SCT Inst scheme now introduces a new challenge to CSMs. We move to processing unitary transactions with an expected service level agreement (SLA) of one second for the actions of the CSM – and uninterrupted availability 24/7/365. This requires new infrastructures, because batch systems cannot simply be upgraded to support SCT Inst. In addition, these new infrastructures need to be technology future-proofed to support the flexibility and evolution that is expected as new products and services are delivered in the SCT Inst scheme.

Needless to say, an instant payment CSM needs to deliver an efficient, secure and one hundred percent reliable service 24/7/365 to support the PSP community in building market trust and confidence. If we are to build the acceptance and critical mass that will ensure the success of the scheme, we cannot afford a single hitch from the first day of the scheme onwards.

In your view, what will be the main impact of instant payments on the European CSM industry?

A number of thoughts come to mind. One is that ‘instant’ will inevitably become the new normal. This will vary by community and may take some time, but the expectation of instant execution is at the heart of our technology revolution. Payments will become instant to a very high percentage. The investments required to deliver a high volume SCT Inst CSM on a highly performant and cost-effective infrastructure will most likely lead to some degree of CSM concentration.

Other impacts, like the TARGET2 ASI6 RT functionality being deployed to support SCT Inst clearing and settlement 24/7 and eliminate related risks, could be extended to the settlement of other clearing services such as SCTs, SDDs and cards. This optimisation could lead to clearing convergence.

Liquidity optimisation features are being developed for SCT Inst. In conjunction with the planned evolution of TARGET2, these would deliver further efficiencies leading to concentration of clearing activity by PSPs in fewer CSMs.

CSM concentration is a possible outcome, but the main impact, however, is that the delivery of all these components in a competitive environment will lead to a much better payments infrastructure for SEPA.

In the long term, how would you like the SCT Inst scheme to evolve?

The SCT Inst will enable the fast execution of a payment in return for goods and services. Services enhancing the customer experience will evolve; instant payments will be a new way to make a payment and will certainly replace the use of cheques and cash. Later, SCT Inst could be seen as an alternative to existing payment instruments such as SCTs and card payments, but the consumer appetite for moving to a new instrument will depend on the efficiency of the existing ones. So whether a community is cash- or card-based will have an important impact on take-up. We could also imagine incentives to drive the change, but then we have already optimised the payments infrastructure in SEPA in the last decade with large benefits to the consumer. Therefore a good degree of patience will probably be required to see the baby grow and work its way towards university.

Full interview

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