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Europe’s instant payments integration: a strategic roadmap for financial unity

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4 minute read 08 Feb 2024

What banks and payment service providers need to do now to comply in time.

Imagine sending and receiving money to and from anyone within Europe – as quickly as a text message, at any time of day or night, and at no extra cost.

That’s the promise of the European instant payments proposal agreed by the European Council and Parliament. The groundbreaking set of regulations – slated to apply from Spring 2025 in euro countries and later for non-euro EU countries – marks a pivotal shift towards an interconnected financial landscape focused on efficiency, speed and consumer convenience.

In this article, we explain what the regulation means for banks and payment service providers (PSPs) in the EU and the steps they can take to ensure compliance in time.
 

What are instant payments?

Instant payments (IPs) ensure that money can be sent and received round the clock, with the recipient's account credited within just ten seconds. Also known as real-time payments, IPs have surged in popularity amid growing demand from consumers and businesses for immediate financial transactions.

The UK led the way in 2008, with India, Sweden, Australia and Mexico quickly catching on. As of early 2023, just 14% of Single Euro Payments Area (SEPA) credit transfers were being processed instantly. The new regulations, set to remove barriers to the widespread use of IPs across the European Economic Area (EEA), aim to facilitate cross-border transactions to boost connectivity and economic unity across the EU.

What are the requirements?

The agreement introduces four key obligations for banks and PSPs that participate in a payment system, i.e., payment institutions (PIs) and electronic money institutions (EMIs):

  1. Mandatory instant payments: Send and receive IPs and ensure they are available to all customers at any time.
  2. No additional fees: Ensure IPs in euros are not more expensive than standard euro credit transfers.
  3. IBAN verification: Check alignment between the payee’s name and their international bank account number (IBAN) before executing transactions and alert customers to any discrepancies.
  4. Sanction screening compliance: Conduct daily sanctions screenings in line with AML (anti-money laundering) regulations.



Challenges to consider

1. For retail banks

Channel availability: Banks must analyze gaps between their current practices and the new EU requirements. Even those currently offering IP through their online and/or mobile channels will need to expand their IP offering to be available for all their payment channels and customer segments.

Value date: The proposal removes the distinction between business and non-business days. This affects interest calculations for all banks regardless of their IP capabilities.

10-second window: The proposal stipulating a maximum of 10 seconds to conduct IBAN checks and process IPs conflicts with the SEPA Credit Transfers instant rulebook, which allows for a 20-second window under certain circumstances. This compressed processing time may be especially challenging for batch and bulk payments.
 

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2. For private banks and wealth managers

 

Digital banking consideration: Private banking, traditionally more offline, should review whether to offer online interfaces or dedicated smartphone apps to offer the most appropriate user experience to their customers.

 

Client transactions: The €100,000 capped transfer amount may interfere with wealthier clients customarily making larger transactions. To accommodate this, banks will need to maintain two separate operational processes.

 

Uninterested customer base: Private banking clients, typically older and less tech-savvy, might initially be less open to the concept of instant payments.

 

3. For corporate banks

While IPs can significantly benefit treasury management for corporates, such as by improving cash flow management, the €100,000 capped amount will pose a constraint for corporate clients usually processing larger transactions to pay major customers and suppliers.  

 

 

4. For existing PSPs

 

New product development: To support IPs in euros, PSPs need to develop a new product offering, impacting organizational operations and customer relations.

 

Fee restructuring: As PSPs cannot charge more for IPs than for regular credit transfers, they will need to review their pricing strategies and evaluate the financial implications of offering IPs.

 

Mismatch notifications: PSPs need to implement systems for alerting customers about discrepancies between payee names and IBANs, necessitating the development of new tools and robust processes with a focus on cross-border transactions.

 

Enhanced sanctions screening: To conduct transactions within seconds while adhering to AML and fraud prevention standards, PSPs will need to make adaptations in transaction monitoring and daily sanctions screening practices.

 

How should banks and PSPs prepare?

  • Prioritize a gap assessment between existing procedures and upcoming requirements. This includes evaluating end-to-end architecture for real-time capabilities and adjusting batch-based processes to real-time processes.
  • Review current sanctions screening systems and consider how to enhance fraud detection, leveraging existing fraud transaction monitoring.
  • Evaluate resilience and potential updates to systems. Reassess service offerings and product portfolios to ensure future compliance with SEPA Credit Transfer (SCT Inst) schemes.


How EY can help

Adopting instant payments is a monumental shift for any organization, impacting product development, treasury management, fraud risk management, IT infrastructure and compliance.

At EY, we help firms navigate the complexities of instant payments with services that span:

  • Strategic product planning and business case development
  • Comprehensive gap analysis, project management and organizational transformation
  • IP scheme adoption and user testing
  • Regulatory compliance across AML/CTF, PSD2/3, PSR and more
  • IT strategy, including architecture redesign, re-platforming, cybersecurity enhancements and SWIFT ISO 20022 migration support

Summary

The European Parliament officially adopted the instant payments rules on 7 February 2024. It is due to be published in the Official Journal of the European Union, after which the legislation will become effective 20 days later – with EU Countries required to implement within one year.  The rules also include the ability to impose fines on companies that fail to comply.

Banks and PSPs must proactively address the challenges outlined in this paper. Adapting systems and practices to enable real-time, no-cost payments focused on efficiency, speed and user convenience requires time and resources.

With thoughtful planning and strategy, these challenges can be managed – advancing Europe’s journey toward deeper financial integration and unity.

About this article

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Related topics
Financial services
Open banking
Payments

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