Revolutionising European Payments: The Rise of SEPA Instant
The adoption of the EU’s Instant Payments Regulation (IPR) earlier this year is a gamechanger for European payments and the effect of the new rules will be keenly watched worldwide.
The regulation mandates that Payment Service Providers (PSPs) that offer standard SEPA Credit Transfers must also offer their customers the option of sending and receiving payments via SEPA Instant Credit Transfer, effectively making instant account-to-account payments universally available to consumers and businesses.
It is a positive move that not only will drive payment modernisation, but will also increase competition by providing an alternative to card schemes and reduce transaction fees for businesses.
Instant Payments Regulation
SEPA Instant Credit Transfers were first launched by the European Payments Council (EPC) in 2017.
However, there was no obligation for PSPs to sign up to the service and uptake across member states has been mixed. The IPR seeks to address this by requiring all bank PSPs in the eurozone to receive SEPA Instant Credit Transfers by January 2025 and to offer their customers the option of sending them by October 2025.
The timelines extend to 2027 for bank PSPs in non-eurozone member states and for non-bank PSPs such as electronic money institutions and payment institutions. The regulation also stipulates that transaction fees for instant transactions cannot exceed those of standard SEPA Credit Transfers.
Benefits of SEPA Instant Credit Transfers
SEPA Instant Credit Transfers offer several benefits over standard SEPA Credit Transfers, which are batch processed and take two to three days to clear and settle.
In contrast, transactions using SEPA Instant, up to a limit of €100,000, must be processed and settled within 10 seconds any time, any day! Not only that, when combined with QR codes for in-person transactions, SEPA Instant Credit Transfers can prove a legitimate alternative to card payments.
Payee verification
While instant payments are highly attractive for consumers and businesses alike, because they provide instant access to funds and improve liquidity; there is also a heightened risk of fraud, as the payments are irrevocable.
For the service to function seamlessly, therefore, the IPR requires PSPs to have in place services to ensure the verification of the payment beneficiary. These services are crucial for validating payee details in real-time before funds are released, thus mitigating fraud risks and ensuring system integrity.
In practical terms, this means that there needs to be substantial infrastructure changes across the payment’s ecosystem. PSPs must adapt their product roadmaps, infrastructure, and regulatory compliance strategies to meet the new requirements.
And while the regulation currently only applies to the EU, there is ongoing debate about whether the UK should align itself with these standards, given the need for seamless instant payments to and from EU companies and institutions.
A positive change
The mandated adoption of SEPA Instant Credit Transfers across the Eurozone is a positive development that will drive payment modernisation.
By offering an alternative to card schemes, SEPA Instant Credit Transfers will foster increased competition, ultimately reducing transaction costs for businesses. Additionally, it will enable innovative real-time payment services for consumers, enhancing the overall payment experience.
This shift aligns closely with the broader open banking movement, which aims to create modern, real-time payment systems that reduce the reliance on traditional cards and their associated costs. The result will be a more efficient, cost-effective, and customer-centric payments landscape.
PSPs should embrace the change, which will pave the way for a future of faster, safer, and more efficient euro transactions, setting a new standard for the global financial ecosystem.
