The views expressed in this article are solely those of the author and should not be attributed to the European Payments Council.

On 26 October the European Commission (EC) adopted a legislative proposal on instant payments in euro, fulfilling its commitment of the 2020 Retail Payments Strategy for the European Union (EU). This proposal essentially takes the form of an amendment to the 2012 ‘SEPA Regulation’, which already contains general provisions for all credit transfers in euro, adding specific provisions for instant credit transfers in euro. The adoption was preceded by an extensive, three-year long preparatory analytical, legal and consultative work, comprising a large number of consultation exercises with a wide spectrum of stakeholders.

The European Payments Council (EPC) provided the foundation for instant payments in euro by launching the SEPA Instant Credit Transfer (SCT Inst) scheme at the end of 2017. Unfortunately, the Commission believes that four and a half years later, the uptake of SCT Inst, measured as a share in all SEPA Credit Transfer (SCT) and SCT Inst together, did not take off as much as expected. With an average uptake of around thirteen percent in October 2022, the EU lags significantly behind other major international markets (India, Brazil, United Kingdom (UK), Australia). This figure conceals a large variation in uptake across Member States.While, in some Member States, instant payments in euro have become a true ‘new normal’ way of transferring funds and their uptake hovers around seventy percent in other Member States (from both inside and outside the euro zone) instant payments in euro are still in their nascence with the uptake failing to break through the one percent mark.

To unlock the full-scale network benefits of instant payments for EU consumers, businesses and public authorities, the European Commission opted for a legislative route.

The Commission’s proposal centres around four key measures that aim to fuel both the supply and demand for instant payments in euro. 

First, all payment service providers that offer SEPA Credit Transfers will be required to offer SEPA Instant Credit Transfers to all their customers. This is necessary because payments is a network industry: if some payment service providers voluntarily adhere to the SCT Inst scheme, but others do not, a critical mass of domestic and cross-border instant payments in euro cannot be reached. This perpetuates the reluctance of non-participating providers to make the necessary investments which in turn also curbs the network benefits for the participating providers. E-money institutions and payment institutions are proposed to be exempted from this requirement for the time being, but they may offer instant payments in euro on their own initiative, which many of them already do.

Second, the charges for SEPA Instant Credit Transfers will have to be equal to or lower than the charges for SEPA Credit Transfers. Studies and consultations have shown that consumers are very sensitive to price incentives and that any difference in price between substitutable payment methods steers them away from the payment method that is more expensive. Our analysis has shown a stagnant uptake in Member States where instant payments in euro are priced at a premium to regular credit transfers in euro.  

Third, all providers of instant payments in euro will be required to offer a service which checks the ‘match’ between the account number ‘International Bank Account Number’ (IBAN) and the name of the payment beneficiary and, before the payer authorises the transaction, warns the payer about any detected discrepancy as it could suggest a fraud or a mistake. This is expected to help reduce ‘authorised push payment’ fraud, which was estimated in 2020 at EUR 323 million for all types of euro credit transfers in the EU. 

Fourth, all providers of instant payments in euro will be required to follow a harmonised procedure for sanctions screening, based on daily checks of their own clients against EU sanctions lists. This should effectively deal with the high rate of unnecessarily rejected euro instant payment transactions which is the consequence of the current transaction-by-transaction sanctions screening practices, which are not easily reconcilable with this new type of fast payments. Some payment service providers have reported to the Commission that about nine percent of their cross-border instant payments in euro are currently rejected. The proposed approach has been tested by payment service providers in a number of Member States. It will ensure continuous effective compliance of providers with their EU sanctions screening obligations.

Given the varying starting position of payment service providers across the EU, with many already complying with one or more of the above four measures, the eventual compliance burden is expected to vary accordingly. The assessment of the proposal’s impacts has shown that it is proportionate and well balanced. The implementation cost of individual measures varies significantly with the size of the payment service providers. Costs arising from complying with some measures should be cushioned by cost savings linked to complying with others. The proposed implementation deadlines for individual measures have been staggered over time, with the deadlines for payment service providers operating in Member States outside the euro area extended to two additional years.