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PSD2 and SCT Inst will catalyse big shift in European payments

Instant Payments are set to overtake online card payments in Europe – and the date when Instant Payments become mainstream is much closer than you might think.

The advent of Instant Payments in November this year, together with the game-changing legislation in the revised Payments Service Directive (PSD2), which allows authorised third-party payment providers (TPPs) to access customer online bank account data and services, are set to change the way we buy and sell goods. They will open the door to new types of payment options for consumers and retailers, meaning that they will rely on traditional card payments less in future.

PSD2 and SCT Inst will change the way we pay

A report by Icon Solutions and Ovum predicts: “The coming 18 months will see PSD2 and Instant Payments combine to change the way consumers not only shop, but also pay.” By the early 2020s, Instant Payments are expected to have become a mainstream payment method across Europe. The report also concludes that Instant Payments and PSD2 will have a detrimental effect on traditional credit and debit card payments in Europe – and seeks to quantify what the impact will be.

Instant Payments and the Post- PSD2 Landscape covers the rollout of Instant Payments (IP) through SCT Inst in November 2017 and the final deadline for PSD2's legal implementation in January 2018. It says the two developments will have a transformative effect on the European retail landscape and Ovum's Instant Payments Forecast Model predicts that, within 10 years of its widespread implementation, Instant Payments will have become one of the three main online payment tools, accounting for roughly one-third of e-commerce spending. This means that Instant Payments will overtake payment cards in e-commerce expenditure by around 2024 – and will represent annual transactions with a value of €725bn for e-commerce and point-of-sale by 2027.

Challenge for banks

This poses a challenge for banks, who will be under pressure to exploit the shift to new products and services, while the direct access to accounts under PSD2 will be a significant disruptor to legacy business. Traditional financial institutions will face pressure to innovate new services, while at the same time TPPs will be bringing their own independent products to the market.

The report's authors conclude: “In combination, PSD2 and Instant Payments will prompt a major modernisation of Europe's payments landscape. Even the modest initial developments will involve billions of euros shifting onto new payment rails. The benefits are clear for merchants, and consumers look set to adopt Instant Payments, so banks should prepare to exploit rather than fight the transition.”

The key findings of the report are:

  • three-quarters of a trillion euros in annual retail expenditure is set to switch to Instant Payments across Europe by the end of 2027;
  • single-transaction card payments (in which the customer enters their card PAN and other information for each transaction) will drop from a 40 per cent of online market share to 11 per cent in the next 10 years;
  • Instant Payments will grow particularly strongly in e-commerce, reaching €338 billion of online expenditure by the end of 2027;
  • toughly 70 per cent of that growth will come from three key markets: Germany, the UK and the Netherlands;
  • in preparation, 59 per cent of Western European retail banks plan to increase spending on their payments infrastructure.

This item appears in the following sections:
Payments - Making
Making International Payments
Making Urgent Payments

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