Are instant payments really ‘instant’?
We compare UK and European payment rails to find out what instant really means in the world of online payments.
When it comes to customer experience, fast payments matter. They can help you keep customers — and even win you new ones.Research from YouGov and TrueLayer (2020) shows that not only are customers more likely to trust brands that process their payments instantly, but in industries like and , around half of customers are likely to switch to a competitor that does so, and as many as 1 in 3 would consider spending more if they knew they could take out their money instantly.There are other benefits to instant payments too: for businesses it means better visibility of real-time cash position and improved cashflow. If you’re in e-commerce, it also means less risk, since you won’t have to fulfil orders before payment is received.But what does ‘instant’ really mean when it comes to online payments, and how close are we to achieving it in the UK and Europe?
Payment methods comparedWhile many merchants and providers claim payments are instant, that isn’t always the case. Firstly, it depends on the rails.
- When a customer makes an online card payment to a merchant for example, it takes up to 3 days to settle. If that same merchant needs to make a refund or payout via the customer’s card, this can take up to 5 days.
- Digital wallets like PayPal are typically faster: payments to a merchant settle instantly, but payouts can still take 24 hours.
- Direct Debit payments meanwhile are comparatively slow, since the merchant is pulling the money from the customer, under a pre-agreed mandate (as oppose to the customer initiating the payment).
Pay-in vs pay outIt’s useful to distinguish between payments from a payer to a merchant (pay-ins) and payments from a merchant to a payer (payouts or refunds).Even if pay-ins don’t settle immediately, businesses can often allow their customers to use their funds, as soon as they have confirmation that the payment has been executed.With payouts and refunds, customers can’t use their money until the funds settle into their account, which means instant payouts are only possible in the UK using Faster Payment rails and in European countries with high coverage of SEPA Instant Credit Transfer (SCT Inst).
The bank to bank advantageBank to bank payments (sometimes referred to as Account to Account or A2A) are usually the fastest way to pay. That’s because money goes directly from a customer’s account to the merchant’s account: there are no intermediaries holding funds.So, they’re faster than card payments for example, but exactly how fast?In reality, speed is mostly down to the mechanics of the underlying payment/banking scheme in a given country, as well as the percentage of banks and providers connected to that scheme.So what’s the picture in the UK and Europe?UK: Faster PaymentsIn the UK the answer is quite simple — bank to bank payments typically settle instantly.The Faster Payments scheme, run by Pay.UK, launched in the UK in 2008 for online and telephone payments. Before it came along, payments typically took 3 days using the BACS system (or within 1 day and often instantly for high value payments using CHAPS). With Faster Payments, recipients typically receive funds within a few seconds, though in some cases it can be up to 2 hoursLast year, £2.9bn payments (or £2.1 trillion in value) were processed via Faster Payments and every UK bank and building society is now able to send and receive them.
Europe: SEPA Instant Credit TransferIn Europe things get more complicated. There are two main schemes:
- SEPA Instant Credit Transfer (SCT Inst), where payments typically settle in under 10 seconds
- SEPA Credit Transfer where payments settle a few times a day/within one business day.