The Netherlands is a frontrunners with Instant Payments in the eurozone. In 2019 seven banks representing over 95% of all Dutch bank customers had launched Instant Payments as their primary payment method for SEPA Credit Transfers (SCTs).
In early 2015 six major Dutch banks agreed to build an Instant Payments infrastructure, with a collective programme organized and supervised by the Dutch Payments Association. Another bank joined later in the programme. These banks were all committed to offer Instant Payments to every customer using mobile and online banking in 2019: ABN AMRO, ING, Rabobank, three Volksbank brands and Knab.
The Dutch central bank and umbrella organisations for retailers and consumers, were also involved from the start. All the participants shared a vision that Instant Payments should become the normal way to pay in our increasingly 24/7 society; credit transfers should be as fast and ubiquitous as e-mails and text messages.
Instant Payments by default
After an intensive end-to-end test period of almost 9 months, Instant Payments were gradually rolled out by the participating banks in the spring of 2019, rather than in a single big bang. By the end of 2019 some 200 million interbank Instant Payments had already been processed. The expected yearly volume for Dutch Instant Payments will be close to a billion transactions.
The participating banks have all opted to offer Instant Payments by default, at no additional charge to consumers. With a mere 17 million inhabitants, the Netherlands now handles more Instant Payments than any other euro-country. Daily volumes can peak to 2 million interbank transactions on a busy day. Instant Payments have truly become the new normal in the Netherlands, in less than a year.
The objective of the Instant Payments programme was to create a common infrastructure. Commercial propositions for Instant Payment services are left to individual banks.
From day one in 2015, all the participating banks were fully committed to collaborate in the programme, all the way up to board level. This proved to be vital for the success of such a complex and lengthy endeavour.
Collaboration with other stakeholders was also essential to the success of Instant Payments in the Netherlands. Various stakeholders in the Dutch payment system were involved early in the programme, representing payment institutions as well as retailers and consumers. An important contribution of these stakeholders was to provide convincing business cases, for B2B-, B2C- and C2C-situations.
Testing was thorough and extensive. The testing program included bilateral testing, multilateral testing, testing with the CSM (Clearing and Settlement Mechanism), stress testing, peak load testing, endurance testing and outage testing. In particular, testing that an interrupted bank does not cause a breakdown elsewhere in the payment chain, proved to be very useful.
The controlled, stepwise rollout allowed each participant to adjust incrementally. At 50 percent of the current volume, bank customers were already getting used to real time credit transfers. For a while during the rollout, the volume remained at 75 percent. This allowed the participants to optimally prepare and fine-tune every node in the payment chain for a full 100 percent workload. As a result, the switch to Instant Payments over the summer of 2019 was concluded without disturbances and was hardly noticeable to end users.
Broad coverage among banks and their customers was a major goal and could only be achieved with full collaboration between originating and beneficiary banks. As a result of this collaboration, the vast majority of Dutch bank customers (over 95 %) can now be reached with Instant Payments. This ensures a reliable and predictable customer experience.
Dutch domestic Instant Payments are fully compliant with the SCT Inst scheme from the EPC (European Payments Council). On top of this, the Dutch banks agreed on a more ambitious maximum end-to-end delivery time of 5 seconds, instead of at most 10 seconds as stipulated in the generic EPC scheme.
Furthermore, to allow Instant Payments to become the primary payment method for electronic credit transfers, Dutch bank customers can transfer any amount as long as their account balance is sufficient. The current generic SCT Inst scheme limits the amount to 15 000 euro per transaction. This limit will be raised to 100 000 euro per transaction, partly inspired by the Dutch approach without a limit on the amount.
Despite a rigorous adherence to the European SCT Inst scheme, interoperability within SEPA proves to be more of a challenge than anticipated. Currently, SEPA-banks are divided across a dozen separate Instant Payment CSMs that are not yet interoperable. Therefore, banks are left with the burden and cost of connecting to multiple CSMs for a meaningful reach across Europe.
Although the Dutch banks have decided to offer Instant Payments to all their customers as the default way to pay and receive single electronic credit transfers, other EU-banks may offer Instant Payments as an option, both for outgoing and incoming payments. For Instant Payments to really prosper across Europe, all SEPA payment accounts should at least be reachable for incoming Instant Payments.
Instant Payments as the default, normal method for credit transfers, combined with PSD2 Open Banking, will trigger the development of innovative payment experiences. This can lead to new business models and revenue models for entrepreneurs.
Obvious use cases vary from safe and reliable pay-on-delivery for used items between consumers, to a more efficient treasury management with large value corporate Instant Payments. However, creative banks, fintechs and users may very well come up with unexpected and innovative other applications.
More Dutch banks will join in 2020 and some banks may start to offer Instant Payments for business batch payments, for monthly salary payments, among others. Already, some banks support Instant Payments for standing orders, scheduled during nights and weekends.
The lack of interoperability keeps most Instant Payment implementations domestic for now. The recently launched TIPS settlement system from the ECB offers relief but it remains crucial for CSM’s to work on mutual interoperability. Full interoperability and full reachability for Instant Payments within SEPA, via a single CSM connection, will advance the harmonisation of payments and trade in Europe.