EU Council Adopts Instant Payments Regulation

The Council of the European Union has adopted a new regulation that will make instant payments fully available in the euro currency to both consumers and businesses, across all EU and EEA countries.

The new regulation has been introduced to improve the strategic autonomy of Europe’s economic and financial sectors, reducing what the bloc calls ‘excessive reliance’ on third-country financial institutions and infrastructures. This would include the likes of Visa and Mastercard, US firms that have worldwide dominance in the payments processing landscape. 

Regulating instant payments: Benefits for Europeans

Indeed, this sweeping regulation will also help foster faster and more efficient cash flows, in turn bringing greater benefits for citizens and companies with the creation of new innovative value-added services. 

The EU Council says new instant payments regulation will allow citizens to transfer money within ten seconds at any time of day, even outside business hours, not only within the same country but also across EU member states. 

While transfers will predominantly focus on the euro (€), they will also take into consideration the particularities of non-euro area entities.

Now the regulation has been adopted, all payment service providers – with banks chief among these – will be required to expand their standard euro credit transfers to include sending and receiving instant payments. 

Money transfer fees must not be higher than the charges that apply to current, standard credit transfers.

The EU Council says these new regulations will come into force after a transition period – with the timeframe expected to be faster in the euro area and longer in the non-euro area, which needs more time to adjust.

Laurent Descout, Founder and CEO of Neo, reacts to the EU Council’s announcement: “The move in Europe to ensure euro money transfers arrive within ten seconds can enable merchants and corporates to optimise their liquidity, resulting in more efficient cash management. 

“It means businesses can also lower their transaction and working capital costs through a reduced settlement lag and smoother reconciliation process.

“This new regulation is ultimately good news for European consumers and businesses, as it means there will be greater convenience and choice. Instant cross-border payments for corporates will help simplify access to many more markets with considerable chances of scaling and growing businesses.

“With the right partners, businesses of all sizes will be able to benefit from new technology to improve their treasury operations and reap the rewards of instant payments.”

New requirements for PIEMIs

Specifically, the regulation grants access for payment and e-money institutions (PIEMIs) to payment systems, by changing the settlement finality Directive (SFD). 

As such, these entities will be lawfully covered by an obligation to offer the service of sending and receiving instant credit transfers, after a transitional period. 

The EU Council stresses the regulation includes appropriate safeguards to ensure that the access of PIEMIs to payment systems doesn’t carry additional risk to the system.

What’s more, per the regulation, instant payment providers will be required to verify that the beneficiary’s IBAN and name match, so they can alert the payer to possible mistakes or fraud before a transaction is made. This requirement will be extended to regular transfers too.

The latest regulation comes with a review clause requiring the European Commission to present a report containing an evaluation of the development of credit charges.

Kjeld Herreman, Head of Strategy Advisory at RedCompass Labs, gives his take on the regulatory update: “This is a welcome development by the European Union Council to adopt instant payments in the euro currency. 

“It means banks and payment service providers will soon have to offer the sending and receiving of instant payments in euros at no extra charge within ten seconds.

“This is great news for European consumers and businesses but the technical implementation within a very ambitious timeline is set to be an enormous challenge for banks. 

“It will require them to rapidly assess their digital capabilities and to work together with their counterparts and service providers to address these challenges in a short period.

“Banks must soon enable file-based instant payments without surcharges for their business clients. This means that even payment service providers that are already capable of processing instant payments will massively need to scale their throughput.

“Banks will also need to figure out how to facilitate an immediate currency conversion when the beneficiary’s account is not denominated in Euro. 

“With FX markets not suited for a 24/7 environment, the technical feasibility will be extremely challenging for banks to address outside of business hours.”

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