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Outlook for instant payments in Europe: Implications of the European Commission’s regulations for PSPs

Nihit Ahuja
Regional Sales Head - Europe & Africa, Volante Technologies

Despite euro-based Instant Payments being operationalized by the SEPA Credit Transfer scheme (SCT Inst) back in 2017, Europe has yet to truly realize the widespread adoption of these services. However, in light of the European Commission’s (EC’s) provisionally agreed regulations on Instant Payments announced recently, significant changes for the industry are now on the horizon.

Drawing from Volante’s broader white paper on the Outlook for Instant Payments in Europe, this blog will briefly highlight the four measures contained in the EC’s proposal, as well as what each might ultimately mean for payment service providers (PSPs) operating in the EU.

Mandate to send and receive payments.

Under the EC’s proposal, any PSP offering credit transfers to EU customers in euros (€) will be required to offer the ability to both send and receive Instant Payments. This means that many PSPs will need to reconfigure their back-end infrastructure to support 24/7 operations, in addition to updating all payment initiation channels. In most cases, this will either be done through considerable investment in new technology or the utilization of a third-party solution. For smaller institutions, the need to integrate new processes to manage liquidity will be even more urgent, particularly concerning times during which settlement accounts can’t be topped up (i.e., nights, weekends, and holidays).

Pricing

With high pricing being one of the biggest barriers to the adoption of Instant Payments in Europe and around the globe, the EC’s second measure requires all PSPs to offer these services at no extra cost to consumers compared to batch credit transfers. In short, banks would no longer be able to justify premium pricing on Instant Payments as a means of offsetting operational costs and ensuring return on investment. This means that without the ability to generate additional revenue from consumers, PSPs would need to focus more closely on merchant and business-initiated use cases.

IBAN name check

The third measure proposed by the EC is the mandated use of International Bank Account Number (IBAN) name checks. Put simply, IBAN name checks allow PSPs to compare the name and IBAN of the beneficiary account holder with those provided by the payer, ensuring funds are sent to the correct recipient. If any discrepancies are identified in the process, PSPs would then need to notify the payer and inform them of the risks of authorization.

This would require PSPs to reconfigure all payment channels to enable non-payment messaging capabilities and allow for IBAN name check requests to be received from parties across Europe. However, the EC will need to consider a number of issues related to this process, such as the lack of interoperability between IBAN name-check services, and the challenge of identity and name verification across differing languages throughout the continent.

Sanctions Screening

Finally, the fourth measure would require all PSPs to perform daily screenings on clients against EU sanctions lists, as opposed to the current process of screening at the time of payment execution. Fortunately, this would only require one-off changes for many PSPs and should lead to a significant reduction of Instant Payments being mistakenly rejected, which has become a considerable burden in recent years. Importantly, however, PSPs should also be aware of potential increased fraud risks resulting from such a change and may need to take action to strengthen their fraud detection and monitoring processes.

Interested in learning more about the current outlook for instant payments in Europe? Click here for free access to the full white paper.

Nihit Ahuja
Nihit Ahuja
Regional Sales Head - Europe & Africa, Volante Technologies

Nihit has extensive experience in assisting start-ups and mid-size companies achieve sustainable growth, specializing in low code / no code platforms, open banking, payments (high value, low value, immediate/real-time and cross border), cash management, corporate payments, financial supply chain / open account trade, and migrant worker remittances.

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