Is the EU market ready for instant payments?
What are Instant Payments again?
First, let me briefly explain to you the concept of Instant Payments. Instant payments, also called sometimes real time payments are electronic payments solutions (typically credit transfers) that are processed in real time, 24 hours a day, 365 days a year, where the funds are made available immediately for use by the recipient. Overall, instant payments are a fast and convenient way to transfer funds electronically, making them an increasingly popular payment method for individuals and businesses alike.
Now back to the panel debate in Brussels.
It’s worth noting that the European Commission (EC) recently adopted a legislative proposal on instant payments in euro, as part of its commitment to the 2020 Retail Payments Strategy for the EU.
Eric Ducoulombier, Head of the Unit Retail Financial Services & Payments at the European Commission, emphasized that the EC’s proposal aims to accelerate the adoption of instant payments, as currently only 13% of SCT (SEPA Credit Transfers) in Europe are instant, and some banks are not yet connected to the system. The EC believes that if they don’t regulate, it will take over 10 years for all payments to be instant.
Requirements of the regulation
The proposed regulation has several key components. Firstly, it aims to standardize the use of instant payment schemes for euro payments across the EU. Secondly, it includes provisions for IBAN name verification, requiring payment service providers (PSPs) offering euro instant payments to check the match between the account number (IBAN) and the name of the payment beneficiary, and to alert the payer of any discrepancies that may suggest fraud or error before the transaction is authorized. Thirdly, the proposed regulation also stipulates that fees for instant euro transfers should not be higher than those charged for non-instant credit transfers in euro. Finally, PSPs providing instant payments in euro must follow a harmonized approach to EU sanctions, and will be required to verify daily whether any of their customers are subject to EU sanctions. This requirement will go into effect six months after the projected regulation is implemented.
The proposed EU regulation will be mandatory for all banks, with some exceptions potentially being made for custodian banks and savings banks. Payment institutions and e-money institutions, on the other hand, will not be subject to this requirement.
Questions regarding the proposed regulation
There are still a number of questions that need to be addressed.
For example, how to handle bulk payments? These are less time-sensitive and could potentially lead to network congestion if processed instantly. However, it is considered important that bulk payments should also foresee a same-day settlement.
And there are questions regarding the investigation phase for the IBAN name checks which is currently ongoing, as the proposed EU regulation does not impose a method. Currently, this is limited to instant payments, but according to Saar Carré of Febelfin, this should be extended also to other payments. For your information, this service already exists in the Netherlands, Italy, France and the UK.
There is also an ongoing debate about the transition period. Some national banking associations advocate for an additional 18-month delay beyond the 12 months currently specified in the regulations, as this requires banks that do not yet provide this service to adapt their architecture. What will happen if a bank is not ready yet? In this case, they may face sanctions, which could drive consumers to seek out other providers.
Conclusion
Overall, the proposed EU regulation is expected to support the development of payment initiation services (PIS) under the PSD2 provisions on Open Banking by enabling immediate confirmation of the availability of funds, rather than just a “yes” or “no” response from account servicing payment service providers (ASPSPs). The proposed EU regulation will (in my view) provide a European market-based payment solution that could be a viable alternative to dominant players like Visa and Mastercard. While the potential benefits of this regulation are significant, the path to implementation will still be a challenge.
Update as of February 9, 2024: The EU Parliament has adopted Instant Payment Regulations. Stay informed by reading more about it here.
Thank you for reading!
François de Witte
- Founded in Brussels in 1983, CEPS is a leading think tank and forum for debate on EU affairs, with an exceptionally strong in-house research capacity and an extensive network of partner institutes throughout the world.
- ECRI: European Credit Research Institute
