Instant payments becoming faster

On the 26 October 2022, the European Commission adopted a legislative proposal to make instant credit transfers in euro (the Proposal) with the purpose of making this payment instrument available to all citizens and businesses with a bank account in an EU or EEA country.

What are instant credit transfers?

The Proposal clarifies that an instant credit transfer is a sub-category of a credit transfer in euro under the SEPA Framework which can transfer funds instantaneously in accordance with the specific set of conditions under article 2(1a) of the SEPA Framework.

This new payment method will enable consumers to pay and receive funds more conveniently and efficiently. In particular, some of the benefits include:

• Citizens avoiding late payment penalties and having the ability to transfer funds in cases of emergency.
• Businesses improving cash flow management, reducing their operational cost and enhancing their customer service by offering instant refunds; and
• Banks strengthening their competitive position through the development of innovative financial services and products.

What is the importance of instant payments?

The increase of European instant payment solutions is a key pillar of the European Commission’s 2020 Retail Payments Strategy which is part of the wider Digital Finance Package that aims to remove fragmentation in the EU payments market and promote EU-based digital payment products to enhance competition and innovation in the European payments landscape.

What is the European Commission proposing?

The rules and infrastructure for instant payments already exist and have been in place since 2017 with the launch of the Single Euro Payments Area (SEPA) instant credit transfer scheme (SCT Inst. Scheme). Nevertheless, there has been a slow uptake of instant payments in the market with 70 million payment accounts in the euro area that do not allow instant payment transfers.

In an impact assessment accompanying the Proposal, the European Commission concluded that this slow update was potentially due to the following factors:

1. The majority of payment service providers are reluctant to invest in instant payments technology without the guarantee that other providers will be able to support instant transfers, as an instant payment transaction can only be successful if both the payment service provider of the payer and the payee use instant payment technology;

2. Consumers and businesses consider that the price of instant transfers is too elevated and that there is insufficient guarantee about the risk of fraud and errors with such transfers; and

3. Many instant payments fail due to the outdated sanctions screening methods used in the payments market that have not been adapted to adequately screen this new payment method.

In order to resolve the above obstacles and increase consumers’ trust, the Proposal seeks to accelerate the use of instant payments and enhance the existing SEPA, by amending the SEPA Regulation with the following set of instant payment measures:

1. Availability: payment service providers offering credit transfers in euro must also offer instant credit transfers within a defined period (as per the below).

2. Transfer Charges: price charged for instant payments in euro does not exceed the price charged for non-instant credit transfers in euro, with the exception of additional features that are at the discretion of payment service providers.

3. Verification of Payee: payments service providers must have a service in place to confirm the match between the IBAN and the name of the payee provided by the payer in order to inform the payer of a possible error or fraud before the payment is made.

4. Sanctions screening: implementation of a harmonised procedure of daily screening of account holders against the EU sanctions lists, rather than screening each transaction individually.

What happens next?

The obligations of payment service providers under the Proposal will be rolled out in stages in order to facilitate the distribution of their resources in order to optimise their costs for the implementation of instant payments.

When the legislation enters into force, payment service providers located in Member States with the euro as their currency, will have to:

1. offer the service of receiving instant credit transfers within 6 months and comply with the obligations related to charges; and

2. offer the service of sending instant credit transfers within 12 months and notifying any discrepancies between the name and the IBAN of the beneficiary.

The obligations will be applicable for payments service providers located in Member States whose currency is not the euro 24 months after the deadlines mentioned above.

In the case of both euro and non-euro Member States, the harmonised procedure to comply with EU sanctions regulations by payment service providers must be implemented 6 months after the entry into force of the legislation.