Introduction

The digitisation of the economy means customers are making internet purchases at anytime, anywhere. This has meant payments need to be almost immediate.

The European Commission recently issued a legislative proposal that includes new mandatory obligations for banks and payment services providers to be able to provide an instant version of credit transfers without extra costs compared to traditional credit transfers that take multiple days to deposit payments.

This POV will explore and explain the SEPA regulation.

Infrastructure enabling instant account-to-account payments have been in use for several years but consumers and banks in the EU have been fragmented with national schemes in use. The European Commission has proposed changing the law to drive adoption. The plan requires nearly all banks to provide affordable instant payment services to their EU customers.

The SEPA Regulation

The Single Euro Payments Area (SEPA) Regulation creates and harmonises standards for cross-border and domestic payments in Europe, categorised as “credit transfers” and “direct debits”. The proposed SEPA Regulation intends to make the provision of “instant credit transfers” in Europe a mandatory deliverable. The regulation allows up to 100,000 euro to be transferred to another account in under ten seconds.

What Changes are Proposed?

The legislative proposal puts new additional obligations on payment service providers relating to instant credit transfers. These obligations include:

Mandatory Instant Payments

All payment service providers (PSPs) who offer credit transfers in EUR to their customers in the EU will be required to provide Instant Payments, 24/7, 365 days a year.

PSPs that offer instant credit transfers, either by mandate or choice, will have to ensure that the service:

• is available on the same user interface as the one that provides non-instant credit transfers
• is reachable every day and at all times
• conducts verification and settlement immediately

Affordable Charges

PSPs will have to provide Instant Payment transactions at no extra cost compared to traditional credit transfers in EUR.

For PSPs that are in countries with a no-euro domestic currency to comply with this requirement, there has been a suggestion by the Commission to make cross-border payments an exception. Particularly, “the charge for a cross-border instant credit transfer will not have to be the same as a domestic transfer if doing so would result in a higher charge than allowed by the latest legislative proposal”.

Security Checks

PSPs will need to perform IBAN checks, to verify whether the payment account identifier and the name of the payee provided by the payer match. If a discrepancy is identified, PSPs will have to immediately notify the payer and inform on the risks of authorizing this transaction. PSPs will have to provide customers with the option to opt-out from this service. This can be a chargeable service.

Sanctions Screening

PSPs continue to be bound by all existing sanctions screening requirements. However, PSPs will now not need to screen instant payments on a transaction-by-transaction basis, rather they will have to recognise if any of their customers are subject to EU sanctions at least once per day. This would happen immediately when a new person is designated as a sanctioned person in the EU.

However, if a PSP fails to operate daily screening and implements an instant credit transfer involving a sanctioned person, it will be liable (and the other PSP involved) for financial damage resulting in penalties.

What Next?

Originally, the Commission’s proposal was published in autumn 2022 and the legislative process usually takes around 18 months. This means there should be time to pass the law before the end of the current parliamentary session in 2024.

Once passed, the requirements will be initiated in phases, depending on the location of the PSP. For those in the euro area, the requirements are expected to start from the end of 2024.

Though the UK is a member of the SEPA, these proposed developments to the Regulation will not automatically apply but will most likely be adopted. Though the UK is still a member of the SEPA, these proposed enhancements to the SEPA Regulation will not automatically apply in the UK but are most likely going to be adopted.

How should Banks and in scope PSPs prepare?

The priority for PSPs is to perform a gap analysis between upcoming requirements and existing processes. In particular:

• Review of existing sanction screening systems, rules, and scope
• Review end-to-end architecture to assess real time compatibility and then adapt batch-based processes to real time processes.
• Assess how to boost fraud detection systems
• Assess the impact of 247/365 Instant Payments on system resilience
• Implement matching systems between IBAN and name of the beneficiaries and the option to deactivate the services

In addition to challenges with implementation, PSPs should also assess the influence on profits and strategy, considering the resulting increased competition and effects on price. Therefore, banks should map out their capacities immediately. This is even more urgent due to the compliance timelines and work that will be needed for some EU markets.

Responsiv can help both with readiness assessment, SEPA solution provision and SEPA transactions validation. Don’t hesitate to contact our dedicated teams if you wish to discuss potential consequences on your business!