‘I want it all, I want it now’, European consumers and businesses have spoken: they want payments that are instant, secure, user-friendly, and, ideally, free.
Responding to this demand, industry leaders and policymakers in Brussels and Strasbourg took a significant step in March 2024 with the adoption of the Instant Payments Regulation (IPR). This legislation aims to accelerate the rollout of instant payments across the European Union, focusing on euro-denominated credit transfers within the SEPA (Single European Payments Area) framework.
The IPR set ambitious milestones to bring instant payments to life across Europe. The first major checkpoint has just passed: as of 9 January 2025, all banks within the EU must be capable of receiving SEPA Instant Payments. But this is only the beginning. By 9 October 2025, banks and payment service providers (PSPs) will need to implement the ability to send instant payments and verify payees in real-time. Looking ahead, compliance will extend to banks outside the Eurozone between 2027 and 2028.
While the regulation sets a clear roadmap, implementing instant payments has proven to be a daunting challenge for many banks. A study by RedCompass Labs revealed that 58% of European banks currently not offering instant payments believe the EU’s timelines are overly ambitious.
Here are some key findings:
Uncertain readiness: Nearly 33% of banks expressed doubts about their ability to meet the January 2025 deadline for receiving instant payments.
Underestimated processing needs: Many banks anticipate processing 101–300 payments per second by the end of 2025, yet only 5% are preparing for volumes above 1,000 payments per second. Given the sheer scale of bulk payment files, this may not be enough.
Top challenges: Banks are grappling with significant obstacles, including adapting customer channels with services like confirmation of payee (25%), implementing KYC and sanctions screening (21%), scaling for increased payment volumes (22%), building a business case for instant payments (20%), and ensuring 24/7 availability (20%).
Among the many challenges, sanctions screening stands out as a critical and complex area impacted by the shift to real-time payments. Unlike traditional payment systems, where there’s often a delay between initiation and settlement, real-time payments leave no room for error or delay in compliance checks.
What happens when payments occur in seconds, but screening takes longer?
The biggest challenge with real-time payments lies in the very thing that defines them: real-time processing. In Europe, legislation now requires payments to be processed within 10 seconds. From a technological perspective, this might sound feasible—modern systems can screen payments in milliseconds. But the true hurdle isn’t the tech; it’s the human element.
Even the most experienced sanctions expert would struggle to complete a thorough screening in under 10 seconds. This creates a significant shift in how financial institutions must approach screening, prioritising customer screening at the source bank over payment screening at the receiving bank.
To align with the legislation, banks are expected to focus on preemptive measures—ensuring that their customers aren’t sanctioned before initiating a payment. This reduces the need for real-time intervention during the payment process, as there’s no time for back-and-forth blocking and releasing of funds in a 10-second window.
In Europe, Know Your Customer (KYC) requirements are among the strictest globally, with rigorous monitoring, audit, and compliance expectations. This contrasts with other regions where regulations may be less stringent or inconsistently enforced, often tied to weaker legislative frameworks or corruption concerns.
One key feature of the European sanctions screening framework is the equivalence test. This test ensures that payments entering or exiting the EU adhere to the same high standards. For instance, if a payment originates from a country with weak regulatory oversight—such as one on the FATF grey list—the equivalence test is likely to fail. In such cases, European institutions cannot rely on the originating bank’s assurances and must apply stricter scrutiny.
Notably, the 10-second rule generally applies only to transactions between EU Member States, while payments involving non-EU jurisdictions continue to follow traditional screening standards.
To maintain compliance, European regulators have introduced other two critical requirements:
Delta screening: Banks must screen their customer base against updated watchlists at least once a day. If a list is updated multiple times a day, customer profiles must be screened immediately after each update. This demands robust technology capable of continuous monitoring and real-time adjustments.
Immediacy test: This aspect has sparked some nervousness in the industry. The regulation requires organisations to act ‘immediately’ after a watchlist update—but what does ‘immediately’ actually mean? Is it within one second? Ten seconds? The ambiguity leaves room for interpretation until enforcement sets a precedent, making it essential for organisations to invest in cutting-edge technology to minimise delays and ensure compliance.
To meet these stringent requirements, banks must integrate systems that can:
Monitor watchlists in real time and detect changes instantly.
Screen entire customer databases within seconds of a list update.
Adjust seamlessly to new regulatory expectations without disrupting operations.
However, the lack of clarity around terms like ‘immediately’ adds complexity. Can today’s technology truly achieve these goals without any grey areas?
The shift to real-time payments has pushed financial institutions into uncharted territory, particularly when it comes to sanctions screening. Traditionally, payment screening involved a straightforward process: transactions would be flagged if they matched a watchlist, blocked for further investigation, and released hours (or even days) later. However, real-time payments don’t allow for this level of delay. To comply with the 10-second rule, financial institutions may need to turn off traditional blocking mechanisms for inbound payments—an approach that feels counterintuitive and disrupts decades of established norms.
Without the ability to block and investigate transactions as before, institutions must shift their focus to proactive, pre-payment customer screening. This requires not only faster systems but also a fundamental rethink of risk management strategies.
The transition to real-time compliance starts with a comprehensive risk assessment. Institutions need to evaluate:
Current capabilities: Does your existing technology support immediate list updates and delta screening?
Processes and policies: Are your screening practices aligned with the requirements for instant payments?
Gaps in readiness: Where do you need to upgrade your systems, and how can your people and processes adapt?
For many organisations, the answer is clear: modernisation is non-negotiable. If current systems can’t handle real-time requirements, upgrading isn’t just an option—it’s a necessity. Compliance may often be seen as a cost centre, but the cost of inaction—potential fines, reputational damage, and customer trust—far outweighs the cost of investment. Convincing stakeholders to allocate budget for compliance upgrades can be a challenge, especially when ROI isn’t immediately visible.
As financial institutions race to meet the demands of the legislation, the next 18-24 months will be pivotal. How quickly will banks adapt? Will regulators begin issuing fines for non-compliance, and how will that reshape the industry?
One thing is certain: this isn’t just a technological shift—it’s a cultural and operational transformation. Real-time payments demand a reimagining of compliance strategies, and the stakes have never been higher. The institutions that embrace innovation and adapt quickly will emerge stronger, while those that lag may face significant consequences.
The question remains: is your organisation ready to meet the real-time compliance challenge?
About Mirela Ciobanu
Mirela Ciobanu is Lead Editor at The Paypers, specialising in the Banking and Fintech domain. With a keen eye for industry trends, she is constantly on the lookout for the latest developments in digital assets, regtech, payment innovation, and fraud prevention. Mirela is particularly passionate about crypto, blockchain, DeFi, and fincrime investigations, and is a strong advocate for online data privacy and protection. As a skilled writer, Mirela strives to deliver accurate and informative insights to her readers, always in pursuit of the most compelling version of the truth. Connect with Mirela on LinkedIn or reach out via email at mirelac@thepaypers.com.
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