Banks and corporate treasurers will soon have to deal with a dramatic step change to their technical processes to implement 24/7 instant payments. The Instant Payments Regulation, effective 8 April 2024, mandates that European banks and payment service providers (PSPs) offer instant euro transfers at the same cost as regular transfers. The first implementation deadline requires Eurozone-based banks to receive instant credit transfers by 9 January 2025.
Not only does this not give much time for European banks and corporate treasurers to make changes to systems, the regulation will have far-reaching operational implications that need to be rectified with.
On 3 March 2024, Regulation (EU) 2024/886 on instant credit transfers in euro, often called the ‘Instant Payments Regulation’ (IPR), was adopted. Instant credit transfers are defined as credit transfers which are executed immediately, 24 hours a day, and on any calendar day. And by ‘immediate execution’, it means within 10 seconds or less.
Carlos Cuerpo, Spain’s Secretary General of the Treasury and International Financing and Minister for Economy, Trade, and Companies, said that the legislation will ‘unleash an enormous potential.’ The European Council is of the view that the new instant payment rules will improve the EU's economic and financial autonomy, reduce dependence on non-EU financial entities, and provide citizens and businesses with improved cash flow management and innovative services. Currently, only 11% of the EU’s euro money transfers are categorised as ‘instant’, and according to the European Commission’s impact assessment, almost EUR 200 billion is locked in the financial system daily. Instant payments are meant to unlock this liquidity, paving the way to economic growth.
The regulatory mandates will aim to eliminate the concept of banking days by requiring payments to clear and credit within 10 seconds, 24/7, through all channels (including FX) with cost neutrality. There will be no volume or amount limits, provided that transaction limits per day must be of at least EUR 25,000.
In addition, payments can be initiated across any channel at any time, with mandatory real-time checks for account holder information, AML, and sanctions. The receiving bank must provide services to verify and confirm the recipient's information before transaction initiation, ensuring compliance, and transparency.
By making instant payments in euros fully available to consumers and businesses across the EU, several existing treasury practices will need either updating or restructuring. These include:
Structured address information: treasuries will need to present, tag, send, receive, and interpret address data correctly, affecting all account-holding systems.
Verification of Payee (VoP): to prevent misdirected payments, EU banks must implement VoP, which ensures the account name matches the number before executing transfers. This requires 24/7 availability, rapid response times, improved APIs and name-matching algorithms by October 2025.
Liquidity monitoring: to avoid excessive buffers, monitoring liquidity will become a year-round activity. Effective from January 2025, euros and other currencies will need to be balanced and an automated back-to-back FX process implemented, with a 10-second execution runtime for instant transfers.
ISO 20022: compliance with ISO 20022 payment messaging for both sending and receiving will be mandatory.
AML obligations: transaction monitoring and AML processes should be updated across all payment channels (including SWIFT), ensuring continuous monitoring, even at night.
FX automation: quoting and trading currencies will become even more time-critical to avoid excessive currency exposure. Full back-to-back trading capabilities will become the norm over time.
Treasurers must look into the full end-to-end payment process to ensure that all the information needed for payment processing is readily available and updated accordingly. They will also have to examine their liquidity forecasting models to avoid either running dry or being overly allocated in liquidity and currency, which further drives costs.
Moreover, a portfolio view on compliance will need to be adopted to optimise processes and reduce costs. This will ultimately mean an integration of the IPR with other regulations, such as the Wire Transfer Regulation (WTR), Payment Services Directive 3 (PSD3), and Anti-Money Laundering Directive 6 (AML6). Finally, treasurers will need to evaluate and future-proof their systems platforms, addressing key structural components.
The requirement to comply with the Instant Payments Regulation will follow a series of key implementation deadlines. Banks will need to receive instant payments by January 2025, with full initiation capabilities mandated for June 2025. Non-euro countries have until January and July 2027 respectively for receiving and initiating payments.
It is important to note that non-compliance can lead to potential penalties of up to 1% of annual turnover for serious violations. Immediate action is therefore necessary, especially for those with a 2025 deadline, to avoid penalties and ensure seamless compliance. For those with a 2027 deadline, early preparation is crucial to avoid last-minute complications.
To successfully implement the transition to accept instant transfers and facilitate the free movement of capital, the regular payments system must accelerate its preparation. Banks and corporate treasurers need to get started as quickly as possible, not only to modernise their payment systems but also to appropriately handle crucial client and customer information. The clock is ticking.
Lars Frösslund, Head of Strategy & Transformation at SkySparc, is a global management consulting expert and advisor in financial services and IT. With over 30 years' experience, he has advised several of the major industry players and held key roles in consulting and entrepreneurial ventures. Lars specialises in transaction-intensive businesses, payments, banking, capital markets, and insurance. He excels in multicultural team environments and brings fresh perspectives to every project.
About Skysparc
SkySparc is a business consultancy with a focus on driving value for corporates and financial institutions. For over 20 years SkySparc has been helping its customers achieve efficiencies through progressive software, domain expertise, and technological excellence. It is through tried-and-tested methodology, client commitment, and independence that SkySparc continues to bring innovations to support its clients.
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