Regulatory Influencer: Adapting to Speed — The Instant Payments Regulation’s Impact on Payments Across Europe

The Instant Payments Regulation (Regulation (EU) 2024/886 - IPR) came into effect in April 2024 across the European Union to make instant payments in euro fully available to consumers and businesses throughout the EU. The digitalisation of the global economy has increased the demand for instant payment services that are available at all times. To keep up with the increased demand, the IPR aims to accelerate the rollout of instant payments in Europe and covers credit transfers denominated in euro within the EU.

Out of the 27 member states obliged to transpose the implementing measures of the IPR into their national framework, to date, only 14 members have officially transposed the regulation in time for the first deadline of January 2025, which required payment service providers to allow customers to receive instant credit transfers to their accounts. Member states such as Denmark, Latvia and Malta have changed their national framework by amending or introducing new legislation. In contrast, other member states, such as Portugal, have implemented the regulation through a less formal process; for instance, by opening their national payment systems to payment and e-money institutions.

The Bigger Picture

The IPR introduces requirements for bank and non-bank payment service providers (PSPs), including payment institutions (PIs) and e-money institutions (EMIs) within the euro area, such as:

• Instant credit transfers: This requires PSPs that offer the service of sending and receiving credit transfers to also provide the service of sending and receiving instant payment transfers.
• Equality of charges: This requires that any charges levied by PSPs for instant payment transfers must not be higher than the charges for sending and receiving other corresponding types of credit transfer.
• Verification of payee: This requires PSPs to offer the payer a free service, ensuring payee verification of whom the payer intends to send a credit transfer to.
• Simplified sanction screening: This requires PSPs offering instant payment transfers to verify periodically, at least daily, whether any payment service users are persons or entities subject to targeted financial restrictive measures.

Implementation deadlines also accompany these requirements:

Why should you care?

The implementation of the IPR and the requirements it places on PIs and EMIs creates opportunities and challenges for these institutions. The IPR levels the playing field for PIs and EMIs with banks regarding infrastructure demands and creates new expectations for speed, security and compliance.

Impact of requirements on PIs/EMIs

1. With the introduction of the mandatory provision of instant payments, PIs and EMIs offering credit transfers in euros must provide the service for sending and receiving instant payments by the deadline of April 9, 2027. This requirement would require technical upgrades to these institutions' business operations, including real-time processing systems and 24/7 service availability.

The benefits of this requirement include:

• New revenue opportunities can be created by enabling value-added services such as embedded finance, request-to-pay and real-time lending.
• Improved customer experience with instant fund availability can improve user satisfaction and trust, and enabling 24/7/365 services aligns with consumer expectations for real-time digital services.
• Instant payments reduce the need for traditional batch processing and overnight clearing, resulting in operational efficiency and lower costs.

2. Introducing the requirement for equal charges means that the instant payment services offered by PIs and EMIs cannot be more expensive than any standard credit transfer they already provide. They could then potentially lower their revenue from “premium” instant payment services, while increasing the cost of providing the service.

The benefits of this requirement include:

• Increased competitive pricing with banks, as PIs and EMIs can compete more effectively on real-time payment services without being undercut by banks' pricing strategies.
• Introducing faster, low-cost payments to their customers, just like banks.

3. The verification of payee service informs the payer of any discrepancies between the payment account identifier given and the name of the intended payee before initiating the payment to mitigate the risk of fraud. PIs and EMIs that do not currently offer this service would need to implement new tools, customer interface changes and liability management if payment service providers ignore mismatches to provide this service successfully. 

The benefits of this requirement include:

• Stronger fraud mitigation and security posture as the mandatory implementation of payee verification reduces fraud, and improved sanction screening enhances risk management and regulatory compliance.
• Increased trust and market credibility as compliance with the IPR signals maturity and reliability, while enhancing reputation among clients, partners and regulators.

A key opportunity of the IPR 

As instant payments become the standard, changing the competitive landscape of payment services, PIs and EMIs are required to match the capabilities of banks, who have had a head start in providing instant payments and access to national payment and settlement systems previously unavailable to PIs and EMIs; otherwise, they risk losing customers to faster services.

The requirement of providing instant payment transfers provides PIs and EMIs with access to designated payment systems that they were previously shut out of. These institutions are now eligible to participate in these national payment systems, subject to conditions, previously only accessible to banks. Countries such as Latvia and Lithuania have amended their national frameworks to allow PIs and EMIs to participate in their national clearing and settlement systems in preparation for the April 9, 2027 deadline. 

From October 2025, non-bank PSPs meeting specific requirements will be able to access TARGET, the European payment system, including T2 for settling payments and TIPS for settling instant payments. 

Having direct access and participation in the payment system allows PIs and EMIs to:

• Settle transactions without intermediaries like the banks they compete with, reducing reliance on third-party institutions.
• Enhance the speed and reliability of their payments by bypassing extra settlement layers.
• Gain operational independence, which supports innovation and flexibility in service provision.

Although this provides opportunities for PIs and EMIs, it also increases their regulatory burden, as the requirements that currently apply to credit institutions will apply to them.

Cost of non-compliance

Under the IPR, EU member states are required to impose penalties for infringements pertaining to the sanction screening requirement of the regulation by legal entities. The penalties imposed shall be effective, proportional and dissuasive and could be up to 10 percent of the institution’s total annual turnover from the preceding business year.

Besides financial penalties, non-compliance with the IPR can lead to client loss and reputational damage. Failure to comply with the provision of instant payment may result in a loss of clients looking for safe and secure instant payments, at the exact cost as a standard credit transfer, that are completed within ten seconds of initiation and available 24/7/365. In addition to losing clients to other institutions, such as traditional banks that provide instant payment services, failure to offer these services would render the PI or EMI non-competitive in the payments sector. The opposite of one of the aims of the IPR, which is to increase competition, increase the choice of electronic payments and reduce market concentration.

The reputation of PIs and EMIs that do not comply with the IPR may be damaged due to multiple factors, such as reduced confidence in their ability to reduce fraud, imposed financial penalties for inadequate sanction screenings and non-competitive services.

The IPR presents an opportunity for PIs and EMIs to break into a market dominated by banks. Overall, early movers can leverage the regulation to improve customer retention, reduce fraud, and offer differentiated services by implementing the requirements placed on PIs and EMIs before the 2027 deadline.