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In 2024, the European Parliament is expected to adopt new legislation that will level the playing field for instant cross-border payments, opening up new opportunities for networks such as Thunes.
In early November, European commissioner for financial services Mairead McGuinness announced that the European Council and Parliament have reached an agreement on new instant payments regulation.
“Instant payments: across the finish line,” McGuinness wrote on X. “Great to see agreement on the new regulation on instant payments, to make them universal, affordable and secure.
“Fantastic news for everyone who wants their payments processed in seconds, not days.”
Despite the celebrations, the European Parliament will first need to vote to adopt the regulation — a formality that will take place in 2024.
Once the regulation is adopted and published in the Official Journal of the EU, its individual provisions will enter into force four to 36 months later.
The more straightforward provisions, from a compliance perspective, will come into effect sooner, whereas more complex provisions will come into effect later.
For example, payment service providers (PSPs) that are electronic money institutions (EMIs) and are located in euro countries must offer sending and receiving of euro instant credit transfers within 18 months.
However, PSPs located in non-euro countries must offer receiving of euro instant credit transfers within 30 months and sending within 36 months.
Accelerating adoption through regulation
The overall aim of the regulation is to stimulate a “widespread and rapid increase” in the use of euro instant payments, leading to increased efficiency, competition and consumer choice.
At present, according to the Parliament, at least one third of PSPs in the EU do not offer instant payments in euros.
Thunes, a provider of cross-border payments infrastructure and a rival to Swift, said it will benefit from the measures agreed by the EU to improve instant payments take-up.
“The legislation and improvements to instant and cross-border payments ultimately create more efficiency and lower costs for consumers and businesses,” said Bogdan Dinu, chief product officer at Thunes.
“The ruling also opens up more opportunities for fintechs, open banking and banking as a service (BaaS), as they help PSPs to lower their costs and meet their obligations for faster payments.”
Thunes specialises in enabling direct connections to instant payment networks, as well as alternative payment methods, such as digital wallets.
Like Swift, Thunes supports transactions to bank accounts; unlike Swift, it also supports transactions to non-bank end-points.
Harmonising compliance burdens
In the agreement, the European Parliament notes that several national regulatory solutions have already been adopted or proposed to increase the uptake of euro instant payments.
However, differences in those solutions and the absence of a common EU framework pose fragmentation risks, therefore, increasing compliance costs.
The regulation aims to introduce uniform rules on instant payments in euros, including for cross-border transactions.
For example, the regulation will aim to level the costs associated with instant euro credit transfers compared with non-instant euro credit transfers.
Specifically, charges applied to either payers and payees using instant euro credit transfers must not exceed the equivalent charges when using non-instant euro credit transfers. This also applies in the cross-border context.
Similarly, the regulation will ensure that PSPs in non-euro countries do not charge a premium for handling cross-border transfers in euros.
One of the “key objectives” of the regulation, the Parliament notes, is to steer consumers towards instant payments in euros.
Anti-fraud measures built in
The regulation will also include a requirement for the payer’s PSP to provide a service for “matching” the account identifier of the payee with the name of the payee.
Upon request, the payee’s PSP must verify whether the payment account identifier and the name of the payee match.
Where they do not match, the payer’s PSP must notify the payer and inform them that authorising the transfer may lead to a misdirection of funds.
“Under the upcoming rules, instant payment providers will need to check that the beneficiary’s IBAN and name match, in order to alert the payer about potential mistakes and fraud,” said Dinu.
“It’s a sensible precaution that Thunes already offers to increase trust and help mitigate against rising fraud.”
Swift has also voiced its support for the proposal, describing it as a “great opportunity” to facilitate interoperability between domestic confirmation of payee (CoP) systems.
“Connecting domestic CoP schemes with Swift Payment Pre-Validation will enable institutions to comply with this legislation by checking beneficiary details across the Eurozone without needing to reinvest in a new product,” said Swift.
According to the network, 72 percent of Swift payments requiring manual interventions are the result of avoidable errors such as formatting issues, incorrect account numbers and invalid data.
“This regulation seeks to drive that percentage down,” Swift added, “helping to keep funds safe and moving on their way.”
