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Outlook for instant payments in Europe: Impact of EC’s regulation and compliance needs will vary greatly by market

Nihit Ahuja
Global Business Head - Platform, Volante Technologies

Impact of EC’s Regulation and Compliance Needs will Vary Greatly by Market

After relatively slow implementation in recent years, the instant payments landscape in Europe is due for an overhaul via the European Commission’s (EC’s) 2022 proposed amendments to regulation. And with many expecting new requirements to take force by the end of 2024, payment service providers (PSPs) must now take a variety of swift and focused actions to ensure compliance.

In our last blog, we drew from Volante’s recent white paper to highlight the four distinct measures contained in the EC’s proposal. In this follow-up, we’ll take a closer look at current levels of adoption in different markets throughout the continent, as well as the impact this may have on compliance initiatives in the coming months.

PSPs in High-Adoption Markets Should Fare Well on Their Compliance Journeys

Although compliance will undoubtedly be a top priority for all PSPs operating throughout Europe, the specific changes brought about by the EC’s regulations will be far less burdensome for those already successfully offering instant payments services within their respective regions.

For example, thanks to a significant level of cooperation among Dutch banks, the Netherlands has steadily emerged as a clear leader in instant payments adoption in Europe since first implementing the service in 2019. In fact, not only do virtually all Dutch PSPs today offer SCT Inst functionality by default for all digitally initiated single transfers, but their coordinated zero-cost policy around instant payments makes them uniquely well-positioned to comply with the EC’s pricing mandate.

Moreover, IBAN Name Checks have been available in the Netherlands since 2017 and currently cover nearly all single domestic instant payments and credit transfers. This means that rather than starting from scratch, Dutch PSPs will simply need to extend their existing processes to cover cross-border transactions, assuming the EC’s IBAN Name Check mandate actually comes into force in alignment with the current proposal.

Similar advantages exist for PSPs operating in Spain, where the first domestic interbank infrastructure for Instant Payments in the EU was launched in 2017 by IberPay. Thanks to early implementation in the country, as well as the popularity of consumer-facing P2P platform Bizum, IberPay reports that SCT Inst-enabled transactions represented 43% of total daily credit transfers in 2022, significantly higher than the 14% reported across the entire continent.

Much like in the Netherlands, Spanish PSPs have very few compliance gaps to be concerned about as regulation approaches. Consumers already benefit from free instant payments through Bizum, for example, which also leverages its own IBAN Name Check service. While this service might need to be adjusted pending further guidance from the EC, Spanish banks will likely be focused on making a one-off shift to accommodate the requirement of daily transaction screening.

Business Process Outsourcing (BPO) Likely Necessary in Low-Adoption Markets

Unlike in Spain and the Netherlands, PSPs operating in regions with particularly low instant payments adoption are likely to face a much higher compliance burden in the coming months.

Take Germany, for example. While nearly all German banks currently offer SCT Inst functionality, consumer adoption remains extremely low due to a combination of entrenched consumer habits around cash usage and traditional transfers, as well as the persistence of high premium fees. Moreover, many German PSPs still only offer “receive” functionality, while only very few have enabled reliable IBAN Name Check services.

PSPs in France and Italy face similar challenges, as many in both regions must also contend with entrenched consumer habits, high pricing, and an overall need to update infrastructure and operational systems. Moreover, Italy currently has no country-wide solution for IBAN name checks, and in fact, the Association of Italian Banks (ABI) has been particularly outspoken in its criticism of this aspect of the EC’s proposal.

Given that regulations could take effect by the end of next year, PSPs in these low-adoption markets will need to take near-immediate action to achieve compliance. And in most cases, this is bound to require the utilization of business process outsourcing (BPO), or the use of third-party solutions to ensure that modernization efforts are timely, cost-efficient, and scalable.

Fortunately, BPO can provide numerous and expedient advantages to PSPs going forward. For example, PSPs can utilize outsourced solutions to strategize around revenue generation in light of the pricing mandate, helping to harness indirect benefits such as increased transaction volume and enhanced customer experiences. Similarly, centralized fraud scoring solutions have become increasingly available, allowing PSPs to better address compliance around IBAN Name Checks and daily sanctions screening.

Want to learn more about the outlook for instant payments in Europe, including the potential impact of PSPs in non-eurozone markets? Click here to review Volante’s white paper in its entirety.

Nihit Ahuja
Nihit Ahuja
Global Business Head - Platform, 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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