.svg)
The European Central Bank (ECB) has said it may offer a verification of payee (VoP) service, sparking frustration across the industry.
On August 2, the Eurosystem announced that it was exploring the introduction of a new service aimed at verifying the payee before the initiation of instant payments.
The step has prompted a frustrated response in some quarters, partly because private initiatives are already in development, and partly due to a sense that the plans are unrealistic.
The initiative, known as the "Verification of Payee" (VoP) service, is part of the broader EU’s Instant Payments Regulation (IPR), which mandates enhanced security measures for euro credit transfers.
The proposed VoP service would allow payment service providers (PSPs) to notify payers of discrepancies between the payee's name and the account number.
The verification results would be classified as “match,” “close match,” “no match,” or “other”, helping payers decide whether to proceed with the transaction.
By October 2025, all PSPs in the euro area must offer this service, and many in the market, including infrastructure providers, have already begun developing VoP services as value-added features.
Industry response
According to Geertjan van Bochove, co-founder of iPiD, which offers VoP services, the announcement from the ECB is “not unexpected”.
"I encourage that they are moving forward with this initiative. From an ECB perspective there didn’t seem to be a strong desire to take up the initiative,” he said. “The TIPS [TARGET Instant Payment Settlement] users have asked for a change request, and the ECB is further exploring the implications. But it may be too late to implement a solution before the deadline."
"TIPS has a lot of participants that are direct and indirect, but also many more PSPs are not. How will they technically and legally cater for that? Will firms need to become members of TIPSs? Does it really make business sense to procure part of your VoP from the ECB?” he said.
According to van Bochove, “careful industry considerations” will need to be made to ensure the best outcome for all stakeholders.
Netherlands-based van Bochove also cautioned that “implementing a matching algorithm that handles the diversity of languages across the EU is a complex task”.
“Achieving this within a year is ambitious, and clear guidelines on liability will be essential"
The reaction from the market so far has been displeasure. “What non-communication, ‘considering offering’? What is a bank supposed to do with that?” said one payments advisory source speaking to Vixio.
The source added that they thought the ECB would likely go through with this plan, and do it after the industry has already settled on other solutions, before making it mandatory.
“Screw the ECB for pulling this kind of crap.”
Another payments infrastructure insider expressed disappointment, “this is a competitive space, and companies have made massive investments”.
They described the move as “very unsettling”.
“The ECB are coming into spaces where the private sector is already addressing.”
Anti-competitive measures
Part of the reason for the concern expressed is what the Eurosystem has already done with the TIPS, a market infrastructure service launched in November 2018.
Many felt that the TIPS service undercut the market, and was ultimately anti-competitive due to its pricing and the fact that it became mandatory.
During a recent Eurosystem meeting, representatives of clearing and settlement mechanisms apparently showed little enthusiasm for the proposed VoP service.
As the notes from the meeting show, a representative raised concerns about the pricing of a potential VoP service by TIPS, emphasising the importance of cost recovery to maintain a level playing field.
The ECB clarified that the Eurosystem is still determining the best approach to implement the VoP requirement and that an external provider could be integrated into TIPS.
It added that the pricing and billing for the service are under consideration, with the possibility of manual invoicing by national central banks during the first year as a temporary measure.
The Eurosystem also said it intends to recover the costs of any implemented VoP solution, similar to TIPS.
A payments advisory source Vixio spoke with said that whereas instant payments with TIPS were introduced due to an alleged market failure, the same allegation cannot be made here.
“It's very interesting to see how they're forcing themselves into the verification of payee space. This move is by all means not in line with previous practices."
The source concluded that if the ECB goes ahead with this move, it could spark “uncertainty and fragmentation”.
“This is very detrimental for the industry, and all of it using taxpayer money.”
Some advantages
In spite of market pushback, van Bochove was more diplomatic about the situation.
"I think it's good that more options will be available,” he said. “The challenge will be to avoid undermining clearing providers across the continent.”
He described the competitive landscape as “intense”.
“Fostering healthy competition is vital. The ECB building a VoP service does not mean it will necessarily succeed in creating something that the market will widely adopt,” he said.
Although the ECB's previous initiatives like the TIPS proxy database have had limited uptake, van Bochove said that “there's potential for the new solution to address specific market needs, such as in Germany, where a centralised scheme is lacking".
"There are already domestic ACHs developing solutions across the EU. The big question is whether this will displace that or if there will be a focus on interoperability,” he said, adding that ensuring interoperability and consistent interpretation of European Payments Council guidelines is crucial.
“When considering what the ECB wants to do, it's crucial to provide an endpoint accessible by any PSP or RVM [routing and verification mechanisms]. The ECB will need to be able to drive this as an open and collaborative set-up."
