Will SEPA Instant Payments Finally Become the “New Normal”?

Some banks have been offering SEPA instant payments in the euro area for five years. Today, one in four banks in the EU can be reached via the SEPA Instant Credit Transfer Scheme and a good 13% of transfers are paid immediately. As a result of the slow growth in market penetration, the European Commission decided to adapt the existing regulation in view of the EU Retail Payments Strategy. The currently proposed regulation requires most payment service providers to offer their customers instant payments for euro transfers. The implementation should be gradual but swift. The requirement to receive instant payments in euros will apply from 6 months, the requirement to send instant payments will apply from 12 months after the regulation comes into force. For payment service providers outside the euro area, including Liechtenstein, transitional periods of 30 and 36 months respectively apply. This is ambitious and represents a major challenge for the payment service providers involved.

Of course, payment service providers must continue to take necessary and appropriate measures to combat money laundering and terrorist financing or to prevent fraud. The biggest challenge is that it now has to be done in ten seconds. To achieve this, payment service providers need to break new ground. For example, under the current draft regulation, payment service providers will no longer be required to perform transaction-based screening on individuals and entities on European sanctions lists. Rather, the receiving bank can rely on the fact that the sending payment service provider has already performed this check. This will be achieved through consistent sanctions screening specifications across the customer base.

Another major challenge for payment service providers is the new requirement to match the payee account identifier (e.g., IBAN) with the name of the payee (Confirmation of Payee). This verification shall be performed by the payer’s payment service provider immediately before the payment is authorized. The provider must inform the paying party of the result (“close” or “no match”) and at the same time allow it to execute the payment even if there is no match.

It is clear that the integration and implementation of such an additional payment channel is time consuming, costly, and technically challenging. In order for SEPA instant payments to achieve the desired reach, the fees must not be higher than those for traditional euro payments. For the banks, the EU’s timetable for implementation is very ambitious. For customers, instant payments mean faster and more efficient cashless payment transactions.

Susanne Höhener
Liechtenstein Bankers Association