Speed is of the essence: Are you ready for instant payments in Europe?

It’s no secret that instant payments are on their way to becoming the new normal. Today’s customers expect speed and convenience in all their interactions, including payments. At the same time, new payment providers and fintech startups are driving a greater focus on real-time services.

In Europe, the adoption of instant payments has so far been sluggish: only 17% of euro credit transfers are currently processed instantly, not least because the current limit of €100,000 is considered too low for many treasury transfers. All this is set to change, however, following the European Parliament’s adoption of a new regulation on 7th February which updates existing SEPA regulations.

The new regulation will play a critical role in boosting the adoption of instant payments. But with tight deadlines for adoption, it’s clear that banks will need to act quickly in order to comply with the new regulations.

What do the new regulations say?

In a nutshell, banks and other payment service providers (PSPs) across the EU are required to offer their customers a payment service of sending and receiving instant credit transfers, and at a cost that is no more than the fee charged for sending or receiving non-instant euro credit transfers.

Instant credit transfers can be sent at any time of the day, and any day of the year, and will need to arrive in the recipient’s account within 10 seconds. The payer will also need to be notified within 10 seconds whether the transaction has been successfully received by the recipient.

PSPs are required to enable their customers to submit multiple payment orders as a bulk payment if they currently offer that possibility for other types of credit transfers.

Where fraud prevention and AML is concerned, banks and PSPs will need to have robust measures in place, including:

• Carrying out sanctions screening procedures at least once a day.
• Providing a Confirmation of Payee service to verify the match between the international bank account number (IBAN) and the name of the beneficiary in order to alert the payer of a possible mistake or fraud before the payment is made.

What are the timings?

The timeline for adoption is aggressive. The new regulations enter into force 20 days after being published in the EU Official Journal. PSPs in the euro area will then need to be ready to receive instant credit transfers by 9 January 2025, and send instant credit transfers in euro by 9 October 2025.

Banks and PSPs of EU non-Eurozone countries will be required to receive instant credit transfers in euro within by 9 January 2027, and send them by 9 July 2027 . There will also be a derogation from making payments within 10 seconds outside business hours.

What are the benefits of the changes?

Corporates and public administrations have long demanded improvements to their cash management capabilities so that they can manage their working capital more effectively. Under the new regulations, banks and PSPs will have the opportunity to differentiate their offerings by developing new services and revenue streams, thereby protecting and growing their client bases.

Furthermore, the new regulation, together with the broader rise of open finance standards across Europe, will help to form the basis for the development of new embedded payment business cases.

What should banks be doing now?

The impact of the new regulations will vary for different types of banks and PSPs:

• Many Large Tier 1 banks already support instant payments. However, in many cases their payments infrastructure may be outdated, and unable to scale to support the expected anticipated surge in transaction volumes and bulk instant payments. Hence these banks also need to prepare for changes and ensure they will be ready to meet the new regulation deadlines. The same applies to mid-tier banks that already offer instant payments (likely through indirect access).
• Many mid-tier banks have not yet implemented instant payments, meaning that they will need to act quickly to become instant-ready within the required timeframe. According to the European Payments Council, only 2,288 PSPs (62% of European PSPs) have already joined the scheme.
• Banks that are operating in non-euro currency countries such as the UK will also have to apply the regulations, after a longer transition period.

The bottom line: banks operating in the eurozone will need to be ready for instant payments by December 2024. They will therefore need to act fast in the next 2-3 months to meet the regulation deadlines, ensure that they can execute instant payments, achieve the required level of compliance, and support 24/7 service availability.

How can Finastra help?

For banks which have not yet taken action to adopt instant payments, the timelines for doing so are likely to be challenging. In many cases, the only way to meet these timelines and avoid penalties will be by adopting a suitable Payments-as-a-Service offering.

Targeted at mid-tier financial institutions, Finastra Payments To Go is a cloud based, Payments-as-a-Service offering which enables financial institutions to fully comply with the new regulation quickly and easily:

• Send and receive instant payments. A pre-configured best practice workflow for SCT Inst is available out of the box.
• Quick and easy onboarding. Finastra’s unique, industry-first customer onboarding portal simplifies and automates much of the implementation process, ensuring banks can be ready to launch instant services in just a few weeks.
• Charge no more for the service than for non-instant credit transfers. Fees can be configured as needed.
• Provide a scalable 24/7/365 service. Hosted on the Azure cloud in Europe, the solution provides the scalability, speed, security and availability required by the new regulations.
• Provide real-time fraud prevention and confirmation of payee. Value added services are available through our pre-integrated fintech partners including Confirmation of Payee, real-time fraud management and compliance screening.
• A field-proven solution. Finastra Payments To Go is already used by many financial institutions in the U.S. for supporting both the incumbent Real-Time Payments service by The Clearing House and the new FedNow instant payments service.

Instant payments checklist:

• Do you have everything in place to receive instant payments by December 2024?
• Does your payments platform provide 24/7 availability (or stand-in processing capabilities) and is it ready to handle the expected surge in payments volume?
• Do you support instant payments from any incoming channel?
• Are you able to process bulk payments as instant payments?
• Have you adopted the fraud prevention and AML measures needed to execute instant payments, including Confirmation of Payee?

If the answer to any of these questions is ‘no’, book a meeting with us today to kickstart your instant payments transformation and meet the new regulation.