The European Parliament has now approved legislation that makes instant payments mandatory, giving a legal boost to a scheme that has been many years in the making. The new rules lay the foundation for the Single Euro Payments Area (SEPA) to be better connected, offering real-time payments so transactions in the European Economic Area can be seamless, quicker, and cost-effective. The vision is for the real-time payments infrastructure to underpin the economic bloc so that sending money to another country in Europe is as easy – and fast – as a domestic transfer.
The Instant Payments Regulation, which was passed by the European Parliament in February has been a long time coming. It follows an initial proposal in 2022, and a political agreement in November 2023. When that agreement was reached, Michiel Hoogeveen, the lead Member of Parliament on the initiative, said, “Customers will enjoy smoother payment options, businesses will face lower costs and the EU payments systems as a whole will become more competitive.”
Under the rules, banks – and other payment providers – will now have to offer instant payments in under ten seconds for transactions under €100,000, and they have been given 18 months to comply. For some, the rules make no difference, but for others they will be scrambling to provide the service.
Instant payments are not new in Europe, but the adoption has been patchy with varying levels of enthusiasm. Instant payments, through the SEPA Instant Credit Transfer (SCT Inst), were launched in 2017 but Europe’s payments landscape remains fragmented, hence the need for legislation to get all the member countries up to speed with their payments.
When the draft regulation was first proposed in 2022, Valdis Dombrovskis, Executive Vice President of the European Commission, commented that only 11% of euro transfers were instant and, in several countries, there was “zero to minimal uptake”.
With the adoption of instant payments, moving money should become more efficient, and liquidity will be released that is currently stuck in an antiquated system. When payments take a day or two – or sometimes longer – to arrive, banks and companies need to keep funds aside to cover the transfer. Dombrovskis estimated this ‘payment float’ in the back office of the financial system on any given day amounts to €200bn.
The regulation also makes it mandatory for beneficiary details to be checked – through confirmation of payee schemes – to prevent fraud and erroneous transfers. Also, in terms of sanctions screening, payment providers must check their customers against the sanctions list at regular intervals. This is instead of the method of transaction monitoring and screening, which results in many false positive alerts and delayed payments.
For now, the €100,000 transaction limit means corporates are likely to use high-value payment rails instead. Despite this, however, the legislation puts the building blocks in place for a better-connected economic bloc.
Although SCT Inst has been in place since 2017, corporates’ experience of it has been mixed and at times frustrating. Stephanie Ekindjian, Global Head of Cash Management Products and Solutions at Société Générale, notes the transaction limit was €15,000 when the scheme was first introduced. This was later raised to €100,000, and in some countries – like the Netherlands – there is no cap to the transaction value. Where this is the case, all transactions are real-time, but treasurers have been frustrated by the transaction limits in other countries. That could be set to change as the limits may be raised further in the future.
Moving from the traditional SEPA credit transfers to the real-time system, however, is no easy task. Treasurers and their organisations need to think ahead and Ekindjian comments, “it has to be embedded in a strategy, with use cases that bring value to themselves or their customers.”
