Instant Payments for Business: Everything You Need to Know

Modern consumers expect everything to happen in seconds, including payments. Instant transactions have become mainstream for consumers, with digital wallets and open banking leading the way. However, businesses are still hesitant to fully adopt instant payments.

What Is an Instant Payment?

An instant payment, as the name suggests, is a transaction completed within seconds or minutes, in other words, in real-time. Instant payment methods include open banking payments, SEPA payments in Europe, and payments via digital wallets.

How Does an Instant Payment Work?

Regular bank transactions usually take at least a day to reach the recipient's account, but instant payments are completed within seconds.

Developed by the European Central Bank, instant payments are available in all Single Euro Payments Area (SEPA) countries.  There are four main types of SEPA money transfers: Sepa Credit Transfer; SEPA Instant Credit Transfer; Sepa Direct Debit Core and SEPA Direct Debit B2B.

Among these types, it’s SEPA Instant Credit Transfers that enable real-time transactions. The value of payment can be up to €100,000. The service allows account holders within the SEPA region to perform euro transactions instantly, any time of the day or night. Nearly all transactions (99%) are completed within five seconds and can be conveniently executed using smartphones.

Both account holders need an IBAN (International Bank Account Number) to make an instant payment. The sender enters the amount, the recipient's IBAN, and possibly other details like a payment reference.

Instant Payments & Open Banking 

Since 2018, the EU's PSD2 regulation has mandated that banks share customer data with licensed fintech firms through application programming interfaces (APIs), provided customer consent.

This secure method of data exchange has driven the growth of direct account-to-account (A2A) payments, commonly referred to as "Pay-by-Bank" or open banking payments. Users don’t need to manually enter payment details as no card networks are involved.

Costs & Fees

The cost of an instant payment depends on the provider and the instant payment services they offer. While some banks may have secure instant payments for free, others may apply a fee. It's important to compare various options and carefully review their terms to choose the most suitable service.

Recalling an Instant Payment

Instant payments have a drawback, however – they are hard to reverse. Unlike standard bank transfers, instant payments reach the recipient's account within seconds. This instant payment processing means you can't retrieve the money through the clearing process.

Cancellations, such as in cases of suspected fraud, are rare and need the recipient's consent. To reduce the risk of mistakes, it’s important to always double-check the recipient's details, like their IBAN and name.

Benefits of Instant Payments for Businesses

• Faster Bill Settlements: Outstanding bills can be paid more quickly, improving liquidity and financial management.
• Quick Payments to Partners: Payments to business partners are processed faster, enhancing business relationships.
• Low Transaction Costs: Transaction costs are typically lower despite the speed of instant payment transfers.
• Improved Cash Flow: Quick money transfers help businesses manage cash flow better.
• More Focus on Core Business: Businesses can spend less time monitoring transactions and more time on their primary activities.

Consumer Adoption

SEPA Instant payments have seen gradual adoption across the area. Despite the system being available since 2017, its uptake has been slower than anticipated. According to ECB, SEPA credit transfers amounted to 12% of the total retail payments value and 4% of the total value of credit transfers in the second half of 2022. Businesses too have yet to fully embrace instant payment options.

Challenges for Business Adoption

But what are the reasons why B2B businesses fail to adopt instant payment systems despite its obvious benefits? According to Ali Demirel, Christopher Kloß and Pim Stam from Projective Group, one of the key issues is the lack of interoperability in Europe.

“The ECB gave banks the option to choose which clearing and settlement mechanism (CSM) they wanted to use to connect to the instant payment network. The available options were the Worldline CSM (which only allows internal connectivity) and TIPS and EBA (parties that enable connectivity within Europe),” they explain.

This created a discrepancy because some banks are connected to all CSMs, while others are only linked to specific ones. As a result, a bank connected to Worldline might not be able to process payments with a bank that is only connected to EBA or TIPS.

Other constraints, according to the authors, include limited use cases and knowledge about their application. Few businesses have integrated instant payments into their processes, with digital invoicing for immediate receivables being a rare example.

How to Set-up Instant Payments

Businesses can begin by consulting with their bank or payment service provider to understand the available options. They should ensure their financial systems are compatible with instant payment infrastructure and educate their staff on the new processes. Some of the popular instant payment examples include:

• SEPA transfers
• Open Banking Payments
• Digital Wallets

Instant Payments for Businesses with Noda

​​Noda is a global open banking provider that assists online merchants with end-user KYC, payment processing, LTV forecasting and UX optimisation. We partner with 16,500 banks across 27 countries, spanning over 30,000 bank branches. Noda supports a wide range of currencies for globally-minded clients. We offer scalable plans to fuel your business growth and e-commerce plugins for easy integration.

With Noda's advanced Open Banking API, online businesses can easily integrate direct bank payments, offering their customers a seamless and secure payment experience with lower fees. Whether you're looking to enhance customer verification processes, optimise payment systems, forecast long-term value, or refine user experience, Noda is your partner in growth.