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With the EU’s Instant Payments Regulation (IPR) now firmly on its way to becoming enforceable, payment service providers (PSPs) across Europe are readying themselves for a step change in how they provide payment services to consumers.
The IPR is set to revolutionise payments in the EU. It requires all PSPs to offer the possibility to send and receive euro payments within seconds, 24/7, across the continent.
In addition, any charges that apply must not be higher than the charges that apply for standard credit transfers.
Under the new rules, instant payment providers will also need to verify that the beneficiary’s IBAN and name match, to alert the payer to possible mistakes or fraud before a transaction is made — a requirement that will apply to regular transfers too.
Kjeld Herreman, head of strategic advisory at RedCompass Labs, told Vixio that was part of “a constant evolution” in requirements on banks to offer services in real time.
“In the past we’ve seen the Payment Services Directive’s API requirements, and now we see instant payments,” he said. “In the near future banks will have to deal with the digital euro and the rules in the open finance framework.”
The deadlines
The IPR will apply in two phases, depending on whether the PSP is sending or receiving instant payments. For receiving instant payments, the PSP will have nine months from the date of enforcement to comply with the IPR — in other words, January 9, 2025.
Nine months later on October 9, 2025, all PSPs designated as banks within the eurozone must provide their customers with the capability to send instant payments.
For bank PSPs in non-eurozone member states, the deadlines are as follows: receiving instant payments by January 9, 2027; and sending instant payments by July 9, 2027.
Additionally, non-bank PSPs, including electronic money and payment institutions, must adhere to the same requirements for both receiving and sending instant payments by April 9, 2027.
The tight deadlines are pushing banks to take a “tactical” approach, Herreman said, with solutions that “aren’t necessarily addressing the underlying technological challenges such as outdated core banking systems, but … pragmatic workarounds to be able to address the regulatory challenges”.
Craig Ramsey, head of real-time payments at ACI Worldwide, agreed that the IPR will be challenging to implement.
“The receive-only deadline will certainly be a challenge,” he said. “Instant payments aren't new, but financial institutions have largely minimised investment in them.”
Sending is often more complex still, Ramsey said, and requires much more resilient and capable payment systems. “We are now seeing banks actively assessing those systems, and even those that have had access to instant payments previously will still need to evaluate the future-proof needs of their payment systems.”
“If they've only achieved minimum compliance, it probably won't be resilient enough for the rapid growth in payment volumes, neither for receiving only nor for sending,” he said.
He continued that consumers are used to expecting payments, such as SEPA credit transfers, to be free to the customer, but that some banks can charge several euros to send an instant payment.
This could mean that the new regulation is going to affect banks’ ability to make money from payment services and put the ability to invest in new capabilities under even more pressure.
New standard
“PSPs now need a robust plan for instant payments,” said Nihit Ahuja, sales lead in Europe and Africa for Volante Technologies. “It's crucial not to perceive it merely as a temporary measure. Rather, real-time payments are set to become the standard moving forward.”
Here, he pointed to the trajectory of Faster Payments in the UK. “Initially, it handled low transaction values, but now, it can process transactions worth millions. There's a notable shift in traffic from traditional rails to instant payments.
“PSPs should focus on strategic planning and adopt the appropriate technology to facilitate instant payments effectively,” he said. “Handling fraud is a critical aspect that needs attention to preempt potential risks. This underscores the importance of careful planning and technological investment to navigate the challenges associated with real-time payments."
“I anticipate that instant payments will become the primary rail for low-value transactions, while high-value transactions will be processed through a different rail,” he said, adding that he predicts a consolidation where one rail handles all low-value transactions and aspects like direct debits, such as request-to-pay.
If this consolidation occurs, Ahuja said that existing rails and new infrastructure will inevitably experience increased transaction volumes. “I believe that this integrated rail system represents the future of payments."
Andrea De Matteis, founder of De Matteis Law, said that as premium pricing will not be possible anymore for instant payments, there will be competition between regular and instant credit transfers.
“Security will be one of the drivers of this internal competition,” he said. “Consumers may still prefer regular transfers if they're not in a rush, as this allows them to have time to address any mistakes and prevent possible fraud. With a regular transfer, there's still time to revoke the initiation within certain cut-off times.”
This is something you cannot currently do with an instant payment, and this has led to massive fraud in those markets, like the UK, where instant payments have already become the new normal.
Although the card ecosystem has built risk engines and EMV 3DS to prevent fraud, De Matteis warned that without a similar infrastructure, there will likely be an increase in fraud throughout the EU.
