What are instant payments? Are they really instant?

Profile Photo
Wol Akec, Product manager
11 Mar 2021
money moving in and out of portals

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 wealth management and online gaming, 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 compared

While 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 out

It’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 advantage

Bank 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 Payments

In 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 hours

Last 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 Transfer

In 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.

The European Payments Council launched SCT Inst in November 2017 — and it was the first pan-Europe instant payment scheme. But it’s an optional scheme. And since not all banks are yet members, not all payments can be processed through this scheme.

In Germany and Spain, for example, there is high SCT Inst coverage (87%), while Ireland has very little (1%). Across the UK and Europe overall, there is 58% coverage for SCT Inst. We expect to see this increase as more banks connect to the faster rails.

Another issue with SCT Inst is that it uses two different infrastructure solutions, RT1 and TIPS. Banks can choose to opt into either. Yet these two systems aren’t interoperable, meaning you can’t make payments between the two.

In September 2020, SCT Inst made up 7.4% of all SEPA payments (with the rest going through the classic SEPA Credit Transfer scheme, settling within 1 business day).


The open banking effect

The good news is that open banking is changing what’s possible: giving merchants access to the fastest payment rails previously only reserved for banks.

Open banking payments (or Payment Initiation Service — PIS — as it’s technically known) are typically processed via Faster Payments in the UK and SCT Inst or SCT in Europe.

As described earlier, that means that money goes directly from a customer’s account to the merchant’s account, without an intermediary holding funds.

This is true even when using a provider like TrueLayer to process your open banking payments. TrueLayer customers benefit from these rails, without needing to be regulated and without having to resort to unsafe options like screen-scraping.

With more businesses offering open banking payments to their customers, we’re seeing payment volumes grow rapidly. And the more volume we drive through schemes like SCT Inst, the more incentive banks will have to join the scheme — which ultimately means more customers will consistently benefit from instant payments.

Instant payments with PayDirect

The benefits of open banking payments for merchants are significant. Speed aside, they typically convert 40% better than cards, have much lower rejection rates, low fraud, higher value limits and they cost less.

But open banking is a one way rail, meaning you can’t use it to process refunds or make a payout to a customer.

That’s why TrueLayer has combined the power of open banking with instant payouts (via the fastest bank payment rails discussed in this article) to give businesses a complete, high-converting, low-fraud online payment solution: PayDirect.

Find out more about instant bank payments, or contact us to speak to one of our payment experts.

20 May 2024

How to successfully reverse chargebacks

13 May 2024

Charting Europe’s path to payments leadership

hand folding a debit back with a X in the background
10 May 2024

Chargeback prevention: 7 ways to reduce chargebacks

Categories to explore