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The urgent need for SEPA Instant compliance and its challenges for non-European banks

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

The SEPA Instant initiative is a transformative step in the European banking landscape aimed at facilitating real-time Euro payments across borders. Introduced as part of the Single Euro Payments Area (SEPA) initiative, SEPA Instant seeks to modernize financial systems by enabling cross-border transactions to be processed within seconds, at any time of day, on any day of the year.

While SEPA Instant presents exciting possibilities for improving the speed and integration of Euro payments, it also imposes significant implementation challenges for both European and non-European financial institutions. The urgency to comply with the SEPA Instant mandate is particularly acute for non-European banks with branches within Europe, many of whom face additional obstacles due to the non-Euro nature of their core operations.

The compliance burden for non-European banks

For non-European banks with European branches, complying with the SEPA Instant mandate can be a monumental task. These banks–smaller Tier 2 and 3 banks–may not have Euro instant payments as part of their core proposition, which means compliance introduces new operational and technological complexities.

Key challenges include adapting legacy infrastructures to support real-time payments, implementing robust fraud detection and screening systems, and ensuring continuous liquidity management in real-time.

Technological complexity

One of the most significant hurdles banks face is technological complexity, especially for institutions that still rely on legacy systems. A recent survey revealed that 23% of financial institutions view legacy infrastructure as the primary barrier to meeting the SEPA Instant deadline. More specifically, the following could pose obstacles:

24/7/365 operational model: Traditional batch processing systems are incompatible with SEPA Instant’s demand for continuous, real-time operation. Legacy systems, deeply integrated with core banking functions, will need significant overhauls to handle the always-on nature of SEPA Instant transactions.

Data processing speed: Real-time payments require fast, accurate data verification, including fraud and sanctions screening, which legacy systems may struggle to deliver.

ISO 20022 compliance: Many banks are still transitioning to the ISO 20022 standard, further complicating SEPA Instant adoption, as these standards are integral to the new payment formats.

Managing liquidity risk

With SEPA Instant, real-time payments dramatically increase the speed at which cash positions change. For banks, this raises liquidity management concerns. Unlike traditional payments, which can be delayed in managing liquidity, SEPA Instant demands that liquidity always be available to settle transactions.

Banks must ensure they always have sufficient funds across their settlement accounts (nostros), including overnight and on weekends, which may require significant restructuring of their liquidity management processes.

Regulatory compliance challenges

Findings from a recent survey that asked 200 senior payment professionals at European banks about their journey to instant payments highlighted that many believe the EU SEPA Instant deadline of January 9, 2025, is unrealistic. In truth, the tight deadlines for non-European banks also pose challenges.

Regulatory compliance is another major concern. The timelines for SEPA Instant are significantly tighter than those of previous initiatives, such as SEPA Credit Transfer, which took 14 years to implement. Failure to meet these deadlines could result in fines and regulatory intervention.

The time to act is now

The SEPA Instant initiative represents a significant leap forward for European financial systems, promising faster, more integrated payments. However, the challenges for non-European banks are substantial, particularly in adapting legacy technology, managing liquidity, and ensuring compliance. For these banks, the time to act is now. Investing in the right expertise and technological solutions allows financial institutions to meet the SEPA Instant mandate while positioning themselves for success in the future of digital payments.

For more on changes in the SEPA Instant mandate, download our whitepaper “Instant payments require instant action,” in association with Valentia Partners.

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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