As Treasury Today reported last week, the European Parliament has adopted new rules to ensure EU retail customers and businesses can access instant credit transfers in euro. So, what could the new rules mean for businesses and corporate treasurers?
Driving adoption of real-time payments
Under the new regulation, banks and other payment service providers (PSPs) will need to ensure that money is received within ten seconds, and the payer is informed whether or not the funds transferred have been received in the same timescale. PSPs will not be able to charge more for instant credit transfers in euro than they do for non-instant euro credit transfers.
The new rules enter into force 20 days after being published in the EU Official Journal. Eurozone PSPs will need to be ready to receive instant credit transfers in euro within nine months, and to send them within 18 months. A longer transition period will apply to non-euro member states.
As Alla Gancz, UK Payments Leader at EY, comments: “The upcoming EU instant payment regulation is expected to help drive adoption of real-time payments throughout Europe across retail and wholesale businesses, creating new opportunities and tangible benefits for corporate treasurers.
“Instant payments allow people to send and receive money any time of day within seconds, but currently they make up just 13% of all euro (credit) transfers in the EU despite the existence of rules and infrastructure to facilitate these transactions. This is due largely to the current lack of incentives, high transaction fees and fraud risk.
“To address these challenges and boost uptake of instant payments across Europe, the new regulation aims to make them universal, more affordable and safer.”
Impact for businesses
As such, the new rules are poised to help businesses in a number of ways. As Gancz comments, “Instant payments offer several crucial benefits to businesses, from improving liquidity and cash flow management, to allowing round-the-clock transfers of funds to firms operating out of hours, across weekends, on bank holidays and across time zones. They also deliver an enhanced customer experience, which is especially important in the 24/7 ecommerce space, and provide real-time and streamlined data analytics and reporting.”
Gancz notes that as with all regulatory changes, there will be work and cost involved in making the necessary operational modifications. “However, the new Instant Payments Regulation is expected to have a universally positive impact on businesses and the wider European payments landscape.”
On another note, the new regulation stipulates when a payment order for an instant euro credit transfer is received from a non-euro payment account, the payer’s PSP should immediately convert the transaction into euro. As such Enrico Camerinelli, Strategic Advisor at Datos Insights, argues that the real value of the SEPA Instant Credit Transfer (SCT Inst) is “not so much in the ‘real-time’ component but – rather – in the possibility it gives to execute non-euro denominated payments, and have the immediate conversion of currency.”
According to Camerinelli, this is very important for corporate users – “more so than the immediate execution of the transaction.” He adds: “As a matter of fact, our research across 1,030 corporate users of mid-to-large corporations in 11 countries demonstrates that for some payment types (such as payroll and direct material purchases), a batch payment is ‘good enough’. In many cases, the respondents say they cannot execute instant payments because their suppliers are not ready to accept them.”
As such, Camerinelli argues that the possibility of running immediate B2B payments is of value to corporate users due to the immediate currency conversion capability that PSPs must ensure. “This helps to reduce settlement risk, one of the biggest critical factors for companies that run B2B cross-border (and cross-currency) payments,” he concludes.
