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- UK could be affected by instant payments proposal
- UK banker warns EU "not to leave anything to interpretation" with CoP
- Data privacy issues prove a challenge for CoP implementation in Belgium
A senior banking official has said that the UK is keenly watching the work happening with instant payments in the EU, especially considering the country’s access to SEPA, which could be compromised depending on the final law.
In October last year, the EU launched its proposal for instant payments. This was a long time coming and is a priority for Brussels as it attempts to promote alternative payments and competition in the region, as well as wrestle back payments sovereignty from the international card schemes.
One of the topics that has alarmed some payments insiders is the rule that mandates all SEPA banks to do instant payments. This would currently include those who are located outside the EU, such as in the UK.
Although the regulation will not automatically apply to the UK, there was a sense from NatWest’s Laura McDermott that it could pose an impact on business as usual.
“For the UK, we will be waiting for the final text of the regulation and then look to the EPC [European Payments Council] to see what that means for a SEPA eligibility criteria, as that is where it may come into play,” she said while speaking at the "Exploring The New Normal In European Payments" event, which was organised by RedCompass Labs.
SEPA is hugely significant to the UK industry, suggested McDermott, who serves as head of European payment schemes at the bank.
“We are keeping a very close watching brief on this,” she said.
What UK entities are currently considering is the equivalence between the EU and UK and what comes into play in that space, McDermott pointed out.
“We’re in a unique position where we’re having this discussion nice and early as it is a draft, and plenty of feedback has gone back on it. We will wait for the final draft to see what it means for the UK.”
The UK was an early adopter of instant payments, launching nearly ten years before the SEPA Instant Payment services went live. According to Pay.UK, the UK’s Faster Payments system processed 3.4bn instant payments worth a total of £2.6trn in 2021.
Confirmation of Payee (CoP) a must
One area of learning that the EU could take advice from the UK’s experience is the setting up of CoP.
Suggesting that the EPC could be mandated with the setting up of scheme rules for CoP, McDermott advised that it should ensure that nothing is left up to interpretation. “This is what gets us all into trouble.”
McDermott also recommended a central simulator. For example, there is no pan-EU solution at the moment, so an issue could be ensuring individual solutions meet the same specification.
“Name matching goes without saying”, she noted for both personal and corporate users, but also that the EU should not underestimate the problems that can occur, such as with trading names: “We had a lot of businesses opt out until that was fixed.”
Customer communications are also important, according to McDermott. “Clear instructions on how to actually input the data.”
McDermott also noted improvements for misdirected payments. “Fraudsters are always one step ahead, and we’ve seen huge improvements here.”
Her fellow panellist, Kristine Lepeleire, who heads Belgium's Centre for Clearing and Exchange (CCE), spoke about her own experiences of setting up a CoP scheme.
In 2021, Belgian politicians legislated to introduce a form of IBAN check, which the CCE became responsible for.
“It will address part of the fraud, with authorised push payments, as well as misdirected payments,” she said, adding that the clearing house started last year at the request of politicians.
The focus of this is domestic payments, she added.
“Then, oops, all of a sudden, along came the SEPA regulation proposal for instant payments,” she quipped.
As a result, Belgium has been caught in the middle.
“We are working on the domestic part and we don’t have a legal basis so we are working on the basis of legitimate interest. Then will come the EU regulation for which we want to be interoperable and compliant,” she noted.
Lepeleire added that although the EU-level work is focused on instant payments, Belgian CoP is focused on all payments. “We are on the edge of a project that is already running while the legislation is still to come.”
Speaking about the main challenges that the project has faced, she said that they include the balance between data privacy on one hand and fraud prevention on the other hand.
“We don’t have a legal basis and there is a very strong hand of the data privacy authorities on what you can and cannot share,” she said, adding that this was “especially with regard to consumer accounts as there you have a lot of public data”.
She added that the current proposal sets out that CoP should either determine a match, no match or a close match, with the latter being difficult to answer.
“It is only a project that has value if the whole community works together,” she continued. “We need to move with the whole community and get the project on the agenda of all the banks, and there I think we have a big challenge.”
For now, the EU’s instant payments regulation is being analysed and negotiated by the likes of the European Commission, the European Parliament and member state governments.
With this in mind, it will be some time before the regulation enters into force.
However, sources so far have suggested to VIXIO that there is more chance of the instant payments proposal passing into law before the end of this parliamentary term in 2024 than the PSD2 overhaul.
