As payment technologies advance, a variety of real-time or near-real-time payment schemes are under development around the world. Each scheme has specific features, benefits and limitations. Keep reading to find out more about some of the world’s largest faster payment clearing infrastructures, including Single Euro Payments Area (SEPA) Instant Credit Transfer, Faster Payments Service (FPS), RTP® network, Society for Worldwide Interbank Financial Telecommunication Global Payments Innovation (Swift GPI) and more.
SEPA Instant Credit Transfer scheme
Instant payments have been around since the early 2010s in many European countries, but they were limited to only domestic transfers or transfers among the same payment service providers. In 2017, however, the European Union introduced the SEPA Instant Credit Transfer (SCT Inst) scheme, which enabled transfers across borders.
SCT Inst payments are settled within 10-20 seconds. Recipients can only receive payments in euros, and the payment limit is 100,000 euros. The payer’s and recipient’s banks must both be participants in the SCT Inst scheme. SCT Inst uses ISO 20022 payment messages.
The European Payments Council (EPC) has enforced the use of ISO 20022 messages since 2019. On Nov. 19, 2023, the EPC will migrate to a new version of ISO 20022, requiring the use of structured addresses in ISO 20022 payment messages. Structured addresses split address information into several fields instead of comprising one unstructured address field. Starting in November 2023, all banks and payment service providers (PSPs) will be required to accept payment messages with structured addresses. Then, starting in 2025, banks and PSPs will be required to send all their messages with structured addresses.
The European Commission (EC) legislature is looking to accelerate the rollout of instant payments in euros. The EC has proposed a few changes to the current instant payment offering. One proposed change is that banks would not charge more for instant credit transfers than they charge for regular credit transfers.
One-Leg Out Instant Credit Transfer
In addition to SCT Inst, the EPC is looking to offer instant payment when one leg of the payment chain is not in the SEPA zone and when the payment is not in euros. The EPC’s One-Leg Out Instant Credit Transfer (OCT Inst) scheme clearly supports such international payment transactions. On top of that, the OCT Inst scheme also supports cross-currency payments between euro and other non-euro SEPA currencies — such as Nordic currencies, the Swiss franc (CHF), the British pound sterling (GBP) and Central and Eastern European currencies — within the SEPA schemes’ geographical scope. OCT Inst should not be confused with SCT Inst; they are two different payments schemes.
Faster Payments Service
The U.K.’s Faster Payments Service (FPS) aims to reduce payment times from the BACS system’s (previously called Bankers’ Automated Clearing System) standard of three business days to typically a few seconds. The initiative’s origins date back to 1984, with the Clearing House Automated Payment System (CHAPS), which provided limited expedited service for high-value transactions. FPS officially launched in 2008, and in 2018, it became a subsidiary company of Pay.UK, which operates the U.K.’s retail payments systems.
FPS offers 24/7 payments services, with confirmations issued within 15 seconds and transactions completed within two hours. Transfers are irrevocable. FPS covers single payments, scheduled transfers, direct debits and bulk payments. Payment orders can only be processed in British pounds sterling (GBP). The limit for any one FPS transaction was 250,000 GBP until February 2022, when it increased to 1 million GBP. FPS transactions are processed in the ISO 8583 financial card messaging format.
New Payments Architecture
The U.K.’s Payments Strategy Forum is in the process of developing a new way of organizing interbank payments. The New Payments Architecture (NPA) initiative, to which it is proposed that all the payment types will be migrated, will replace the ISO 8583 messaging format with the information-rich ISO 20022 data model. NPA is anticipated to go live in 2025. However, there is currently no firm date projected for the phaseout of ISO 8583, and the NPA will continue to support the existing FPS ISO 8583 and processing time.
In June 2023, the NPA published new ISO 20022 message implementation guidance within the new data model. The most significant change is Pay.UK’s unique end-to-end transaction reference (UETR) mandate. The UETR, introduced by Swift in 2018 to facilitate payment tracking in Swift GPI, is a string of 36 unique characters used in all payment instruction messages across the payment chain.
The NPA has mandated the use of UETRs in all messages referencing transactions across the entire payment life cycle. Currently, Faster Payment utilizes the Faster Payment Identifier (FPID), a unique reference number relating to the payment. Enforcing the use of a UETR is a remarkable step toward interoperability across the entire U.K. payment life cycle.
RTP
The Clearing House (TCH) launched its RTP network in 2017. The RTP network is open to all federally insured U.S. depository institutions. RTP is available 24/7. Payments are processed in real time, are irrevocable and use the ISO 20022 data model. The credit transfer limit on the RTP network is currently $1 million (USD).
FedNow® Service
In addition to RTP, U.S. real-time payments are also available via the FedNow Service, an instant payment clearing infrastructure developed by the U.S. Federal Reserve. The program’s pilot phase launched in July 2023 with approximately 110 providers. FedNow is expected to go live by the end of 2023.
FedNow will be available to banks and credit unions via their Fed Master Account. FedNow will offer a 24/7 instant payment service with an upper limit of 20 seconds. The default transaction value limit will be set to $100,000 (USD), but financial institutions can adjust it, with a maximum limit of $500,000 (USD). FedNow payments will be processed within the ISO 20022 data model.
FedNow is not intended to replace private-sector instant payment services such as TCH’s RTP service. Instead, it will operate in support of and in competition with them to foster efficiency in instant payments.
Swift GPI
The Society for Worldwide Interbank Financial Telecommunication (Swift) is a secure cross-border payment messaging network that facilitates payments between roughly one-third of all global banks. In January 2017, Swift launched its global payments innovation service Swift GPI to process global payments in a fast and traceable manner.
Unique to Swift GPI is the continuous end-to-end tracking through the unique end-to-end transaction reference (UETR), which acts as a unique, unalterable reference for each payment. This reference enables payment orders to be not only fully digitized and extremely fast, but also traceable back to the bank handling a payment. Swift GPI enables efficient, transparent processing and automatic notification of status changes and fees.
The cloud-based Swift GPI initiative innovates the way businesses make international payments. Global payments can be received in as little as 30 minutes, a significant improvement over the traditional international payment timeline. It is often difficult to track the status of payments when using traditional payment schemes. However, with Swift GPI, businesses have access to real-time tracking information detailing the status of their payment, including when it is credited to the recipient’s account. Because all transactions are tracked in real-time via an immutable audit trail, there is less risk of fraud or misdirection of funds. The improved security provided by Swift GPI helps reduce costs associated with fraud prevention while also providing greater confidence for both parties involved in the transaction.
Why choose UL Solutions for instant payments implementation support
UL Solutions stands committed to supporting our customers in building trusted security, compliance and interoperability into their local and global operational infrastructures. We leverage our deep knowledge of traditional and smart payments to help financial institutions overcome the challenges of instant payments and navigate a path to successful and confident adoption.
We offer advisory, testing and certification services, security evaluations, and test tools to support you during the full product life cycle, during product development or while implementing new technologies. Our products and services provide customers with an efficient, cost-effective and automated testing process. Contact us today to learn more about our real-time and instant payments implementation services and tools and to discuss your specific needs with our experts.
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