The landscape of European payments is undergoing an instant transformation. The advent of the SEPA Instant Credit Transfer (SCT INST) framework, aimed at enabling real-time fund transfers across the European Union, is not just a regulatory update but a transformative move to ensure a widespread and rapid increase in the instant payment uptake in the EU. It is designed to unlock the full-scale network effects of instant credit transfers in euro, leading to benefits and economic efficiency gains for payment service users (PSUs) and PSP such as reduced market concentration, increased competition, and choice of electronic payments - in particular for cross-border payments. In essence, the regulation aims to provide the necessary standardised rules for cross-border instant euro credit transfers at Union level to increase the overall uptake of instant credit transfers in the euro.
The change is so potentially disruptive for the unprepared that we believe Payment Service Providers (PSPs) should develop a separate roadmap for preparing for these upcoming changes.
But first, some background. The provisional SEPA INST agreement, adopted by MEPs (Members of the European Parliament) on February 7th 2024, mandates that funds must be transferred instantly, ensuring they arrive in the recipient's account within ten seconds, regardless of the day or hour. Also, to avoid the risk of fragmentation of the internal market that would result in the increase of compliance costs due to different sets of national regulatory requirements and a more difficult execution of cross-border instant credit transfers, uniform rules on instant credit transfers in euro, including cross-border instant credit transfers, should therefore be introduced to prevent such obstacles from arising.
To accomplish this, PSPs are required to implement four main pillars i) obligation to send and receive instant payment in euro, ii) at the same price than non-instant payments in euro, iii) put in place services to verify the identity of the recipient, and iv) to verify whether any of their clients are subject to sanctions or other restrictive measures.
On the positive side, the initiative will foster innovation and maintain Europe's leading position in the global payments landscape. Instant Payments are poised to enhance customer experience, and position banks as innovators in financial technology.
The timelines according to REGULATION (EU) 2024/… OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL for when PSPs in a Member State who utilise the euro as their currency need to be equipped to enable all EU Citizens to receive instant payments have been set to 9 months after the entry into force of the regulation which will start 20 days after being published in the Official Journal, and being able to send within 18 months (18 months and 33 months for non-euro currency).
Adding a new payment rail in itself involves at least a nine-month project. However, there are additional requirements as well, including: fees for these new instant payments must stay in line with non-instant transfers, functionality will be in place to verify clients against sanctions list on at least a daily basis (9 months and 36 months), and match the international bank account number (IBAN) and the name of the beneficiary (18 months and 39 months).
With varying timelines for PSPs based in euro and non-euro countries, the transition presents a complex landscape of regulatory, technical, and operational challenges.
As Jessica Ramos from EBA CLEARING stated in our recent webinar SEPA Inst Mandate Ratification – Next steps to meet the requirements, the adjusted timelines for receiving and sending payments have been extended to provide PSPs with sufficient time to comply with the new mandates. Furthermore, the verification of the payee and sanctions screening requirements underscore the EU's emphasis on security and compliance in the instant payment ecosystem. However, clarification is still needed regarding how verification of payee will work.
What is your financial institution’s most significant barrier to the timely adoption of Instant Payments?
For instance, 20% of banks and FIs, when asked during our ‘live’ webinar poll, highlighted the lack of clarity on the requirements for verification of payee to be one of the most significant barriers to adopting instant payments, and 39% are waiting for further guidance before they can commence planning. Therefore, the consultation and education processes led by the European Payments Council are critical steps towards fostering a more inclusive and competitive payments market in Europe. We expect a further update at the end of September 2024/ beginning of October 2024.
To address the other barriers to adoption of Instant Payments, including legacy infrastructure, lack of IT resources, etc., PSPs must:
Whilst an official date for the signing of the mandate still needs to be confirmed, the request from key member banks and advisory bodies is to delay the publication in the Official Journal of the first deadline, so it only applies in 2025 to avoid changes during the year-end freeze period. However, the time to start planning and kickstart implementation is now.
Despite the challenges, the conversation illuminated the myriad opportunities and benefits of embracing instant payments for banks and financial institutions. Speakers highlighted the potential for enhanced customer offerings, improved working capital management, and optimised transaction costs by adopting real-time payment solutions.
Moreover, the interoperability of instant payment systems, both domestically and across borders, emerged as a cornerstone for fostering collaboration and innovation within the industry.
The shift towards SEPA Instant Payments is a landmark development in the European financial landscape, offering a unique opportunity for PSPs to redefine the future of banking and payments. By understanding the regulatory framework, addressing technical and operational challenges, and focusing on innovation and customer-centric solutions, PSPs can navigate this transition successfully. The time for action is now—to embrace change, invest in the future, and lead the charge towards a more efficient, secure, and inclusive payment ecosystem in the digital age.
To find out more, watch our recent webinar with EBA CLEARING, WSBI-EBG/European Payments Council, GEVA Group, Bottomline, and The Paypers - Watch on-demand now.
About Frédéric Viard
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