Instant payments are on their way to becoming the new normal. Customers demand swift and seamless experiences across all touchpoints, particularly in payment transactions. Simultaneously, the emergence of innovative payment providers and fintech startups intensifies the emphasis on immediate, real-time services, amplifying the need for rapid adaptation within the industry.
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 default limit of EUR 100,000 is considered too low for many treasury transfers. All this is set to change, however, following the European Parliament’s adoption of the new Instant Payment Regulation (IPR), which impacts the existing SEPA Instant Credit Transfer (SCT Inst) regulation. By 9 January 2025, any banks and payment service providers (PSPs) located in a member state that uses the euro must offer instant credit transfers at any time of the day and year (24/7/365 availability), and at a cost that is no more than the fee charged for sending or receiving non-instant euro credit transfers.
The new regulation will play a critical role in boosting adoption. But with tight deadlines ahead, it’s clear that banks will need to act quickly in order to comply.
EU banks and payment service providers (PSPs) must offer instant credit transfers to customers at a cost equivalent to or less than non-instant transfers. Instant transfers must arrive in the recipient's account within 10 seconds and institutions must notify the payer of success within the same time frame. PSPs must also allow customers to submit multiple payment orders as bulk transfers if already offered for other credit transfers.
Where fraud prevention and anti-money laundering (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 Verification 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.
The timeline for adoption is aggressive. For banks and PSPs in EU member states that use euros, the deadline for receiving SCT Inst is 9 January 2025, which is nine months after the regulation entered into force. The deadline to send is nine months after this on 9 October 2025, 18 months following its entry into force.
For member states where the currency used is non-euro, the deadline to receive SCT Inst is 9 January 2027, 33 months after the entry into force of the regulation, and to send is 9th July 2027, 9 months after this.
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.
Many large 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-sized banks that already offer instant payments (likely through indirect access).
Many mid-sized 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, at the time of writing 2,288 PSPs (62% of European PSPs and 71% of PSPs in the euro area) have 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 January 2025. They will therefore need to act fast in the next 2-3 months to meet the regulation deadline, ensure that they can execute instant payments, achieve the required level of compliance, and support 24/7 service availability.
For banks that 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-sized financial institutions, Finastra Payments To Go is a cloud-based, Payments-as-a-Service (PaaS) offering which enables financial institutions to fully comply with the new regulation quickly and easily. Get in touch to learn more.
Amelia is a Senior Director at Finastra with over 20 years’ experience in the payments industry and leads the global Solution Consulting organisation for Finastra’s Payments business. Amelia and her team design and develop solutions to help clients respond to business and regulatory requirements in the bank-to-bank payments ecosystems while enabling their payments modernisation and transformation journeys. As an industry leader in cloud-native solutions, Amelia also helps drive payment innovation at Finastra. Amelia is equally passionate about her clients' success as she is about payments.
Finastra is a global provider of financial software applications and marketplaces, and launched the leading open platform for innovation, FusionFabric.cloud, in 2017. It serves institutions of all sizes, providing award-winning software solutions and services across Lending, Payments, Treasury & Capital Markets and Universal Banking (Retail, Digital and Commercial Banking) for banks to support direct banking relationships and grow through indirect channels, such as embedded finance and Banking-as-a-Service. Its pioneering approach and commitment to Open Finance and collaboration is why it is trusted by over 8,000 institutions, including 45 of the world's top 50 banks. For more information, visit finastra.com.
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