Payments in real time are becoming more popular in Europe



It is planned that at the end of 2017, real-time payments will be introduced in several euro area countries, but Estonia has not yet fixed a date for this to happen. The experience of the United Kingdom and Denmark shows that real-time payments are very popular with clients of banks.

There is currently no system in the euro area for real-time payments, but several projects are in hand that would let client payments move between banks in real time, like they do now within banks. A real-time payments service will be available in the euro area from the end of 2017 and the commercial banks in each country will decide whether and when to introduce the service. Several euro area countries will launch the service at the end of this year. The commercial banks in Estonia are also making preparations to provide the service, but no date has yet been set for when the service will be launched.

The experience of the United Kingdom, Denmark and Sweden shows that there is a lot of demand in the market for real-time payments. The instant payments system was first launched in the United Kingdom in 2008 and around four million payments a day are made through it, accounting for one fifth of all cashless payments. A similar payment system was started in Denmark in 2014 and from the very start it was handling 100,000 payments a day, out of a little over one million payments made each day in Denmark. The six biggest banks in Sweden started using a real-time payments system in 2012. The system has over five million users, meaning more than half of all Swedes.

Payments within banks are currently made in real time in Estonia, while payments are made between banks five times a day from Monday to Friday. As the banking sector in Estonia is highly concentrated, two thirds of payments are within banks. A daily average of 123,000 interbank payments with a total turnover of 145 million euros were made last year.

Payments in real time would be good news for merchants who are waiting to receive money. People in Estonia pay by card a great deal, but paying by card can mean that the merchant only receives the money the next day. The money from card payments made on a Friday evening only reaches the merchant on Monday morning in most banks. This means that both bank clients and merchants would benefit from interbank payments in real time.

Number and speed of domestic payments in Q1 2017
 number of payments per day, thousandshare of all paymentsWhen does a payment made on Wednesday morning reach the payee?When does a payment made on Friday evening reach the payee?
payments within banks27825%usually immediatelyusually immediately
interbank payments12311%2–5 hours laterMonday morning
card payments72064%the next dayon Saturday or on Monday, depending on the bank

The role of Eesti Pank in the Estonian payments market has changed since the euro was introduced. When the currency was the kroon, the central bank provided an interbank retail payments service to all the banks, and payments were settled between banks ten times during the working day. After the euro was introduced, the commercial banks in Estonia decided to start using a pan-European system for retail payments, where payments are settled five times during the working day. Eesti Pank’s role is now to give advice and recommendations on the operation and development of the payments market in Estonia.