Unlocking the Potential of Instant Payments in Europe

Your Blueprint to Payment Modernization – Omdia Universe Payments Hub report 2024

About The Author

Yusuf Bhanpurawala

Yusuf Bhanpurawala is a seasoned Product marketer with nearly 16 years of industry experience and a strong background in management. Throughout his career, he has had the privilege of working across a diverse range of industries, including Banking & Insurance, Communications, Manufacturing, Engineering services, Utilities and Geo-spatial. With a keen eye for industry trends and a knack for storytelling, Yusuf collaborates with subject matter experts and industry leaders to distil their knowledge and insights into thought-provoking articles, whitepapers, case studies, and Points of View.

About The Author

Arya Sundar

Sales Manager Europe iGTB Intellect

Seasoned sales professional with 5 years’ expertise, currently driving European sales at Intellect Design Arena. Formerly a dynamic Partner Manager at Freshworks for the APAC region, and a skilled Relationship Manager (MSME Lending) at ICICI Bank. Passionate about sales, committed to embracing technology trends in this ever-evolving landscape.

02-Jan-2024

6 Mins

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In a significant development that promises to revolutionize the world of payments, the European Payments Council and the European Parliament have reached an agreement on an instant payments proposal. The agreement encompasses a series of key provisions that will reshape the payment landscape in Europe.

Let's take a closer look into the details of this ground breaking move and explore its implications.

Key Provisions

• Compulsory Instant Payments: All banks operating in the European Union, must offer    instant payment services

• Affordability: Cannot cost more than regular credit transfers. Until now, there have been    significant cost disparities, with instant transfers sometimes costing up to €12

• Enhanced Security: Banks to verify that the account number matches the name of the    beneficiary, prevents potential mistakes or fraudulent

• Sanctions Screening: Providers will be obliged to perform daily screenings of their clients   against EU sanctions lists to ensures compliance

• Direct Access for Payment Institutions: Banks will no longer serve as gatekeepers to EU   payment systems

Implementation Timeline

The implementation of these new rules will undergo a transition period, with a faster adoption expected in the euro area compared to non-euro countries like Poland and Sweden. Experience suggests that full implementation may take between 6 to 36 months after final approval from the EU Parliament and council, which is anticipated in early 2024.

Benefits of Instant Credit Transfers for Consumers and Businesses

Businesses can look forward to sending and receiving instant credit transfers at the same price as regular credit transfers, often for free. The 10s SLA ( which in some countries like Belgium is 5s for domestic instant payments) will mean consumers and business will have instant access to liquidity. The float that the banks enjoyed will now be with the clients. Clients and businesses will of course face some friction in having to verify / confirm the beneficiary name but this will be in their interest as it aims to thwart scams like authorized push payment fraud, where individuals are manipulated into sending large sums to bogus accounts while believing they are making legitimate payments.

Need to move Beyond Instant Payments

Financial institutions concerned about pricing mandates for instant payments should also consider the broader relationship value. Attracting and retaining business customers requires robust payment capabilities that extend beyond instant transactions. Banks will need to consider offering value added products such as Request to Pay, Cash Flow Forecasting, Deliver-vs-Pay to their clients. Transaction Banking product managers could think of offering real time intra-day sweeps and investment sweeps to their business clients to maximise interest earnings using instant payments. Banks can partner with fintechs and third party apps like Ride hailing companies, e-commerce merchants etc to ensure payout occurs instantaneously using SEPA Instant. Such Value added solutions will ensure banks remain the principal banker and are able to cross-sell other asset / liability products which bring in income that offsets the loss in fee based income from the new pricing rules around SEPA instant.

Another such innovation is Transaction Limits Management (TLM), a real-time liquidity sharing system. Developed by iGTB TLM processes corporate payments by checking client balances and limits in real-time. It provides pay/no-pay/refer decisions based on corporate cash and liquidity structures, reducing limit breach risks while enhancing client experience and straight-through processing. Corporate entities can benefit by borrowing limits from parent or subsidiary entities, saving potentially millions in interest costs and avoiding the need for high balance or exposure limits. Systems like TLM will help banks reduce risk and reduce operational cost for real time payments.

Payments Technology

Payment Hub vendors need to ensure that their payment platforms are available 24 by 7 by 365/366, are ISO20022 compliant, elastically scalable and highly resilient. The systems will need to be able to support deployment without downtime. This has huge implications for IT operations / Devops. Business Operations in a bank also need to be prepared to address queries and provide support if clients are making payments 24 by 7.

In conclusion, the agreement on instant payments in Europe marks a significant step toward financial independence, efficiency, and accessibility. It represents a strategic move to compete on the global stage and harness the full potential of digital payments. As these changes take shape, iGTB Payments solution helps bank transition to this instant payment infrastructure in the EU by providing a comprehensive, cloud-native, and scalable platform that supports all aspects of instant payments, including:

● Real-time processing: 24x7x365 Instant Payment
● ISO 20022 compliance: Seamlessly exchange instant payments with other banks in the EU
● Regulatory compliance: Compliant with all relevant EU regulations, including the PSD2 directive
● Fraud prevention: Fraud prevention features, such as real-time fraud detection and machine learning-based fraud modelling
● Scalability: Highly scalable, as the volume of instant payments is expected to grow significantly

References:

https://www.euronews.com/business/2023/11/08/eu-seeks-to-make-10-second-bank-payments-a-reality
https://www.europeanpaymentscouncil.eu/
https://www.euronews.com/
https://ec.europa.eu/finance/docs/law/221026-proposal-instant-payments_en.pdf