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Digital Transformation in EU Gets Push From New Instant Payment Regulations

Digital transformation in the European Union got a big boost Wednesday (Feb. 7) when the EU Parliament adopted sweeping regulations aimed at improving the accessibility and utility of instant, or real-time, payments for businesses as well as consumers.

First introduced late in 2022, the regulations are aimed at mandating instant payments from all payments service providers (PSPs) in the eurozone and will start to align with other countries that have progressed much faster and further with the technology.

“The Instant Payments Regulation marks the long-awaited modernization of payments in the European single market,” said Michiel Hoogeveen, MP from the Netherlands. “Customers can now say goodbye to the inconvenience of waiting two or three working days to access their money. We are delivering on something that people and businesses truly care about: transferring money within 10 seconds at any time of the day.”

The regulations were adopted almost unanimously, with a smattering of abstentions among the 641 members of the EU Parliament. The regulations cover four main areas, all of which will have implications for banks as well as consumers.

The first two require banks to make instant payments available and affordable, ensuring that the price for an instant payment does not exceed the price charged for traditional, non-instant credit transfers in euro.

The third is a name-checking feature similar to the U.K.’s Confirmation of Payee, requiring PSPs to verify the match between the international bank account number (IBAN) and the name of the beneficiary in order to alert the payer of a possible mistake or fraud before the payment is made.

The fourth requires banks to verify their clients against EU sanctions lists on a daily basis instead of screening all transactions one by one.

The new rules enter into force 20 days after publication in the EU Official Journal, which is expected shortly. PSPs located in the euro area will have nine months to have the technology in place to receive instant credit transfers in euro and 18 months to send them. Member states whose currency is not the euro will also have to apply the rules, after a longer transition period. There will be a special consideration given to making the payment within 10 seconds outside business hours, addressing possible concerns about access to liquidity in euro.

Read more: Real-Time Payments Get Boost From New Partnerships in US and Europe

Reaction from members of parliament was positive but tempered by the fact that other countries have been more active on the real-time payments (RTP) front. According to research from ACI, India is the leader, with 89.5 billion transactions in 2022 and a year-over-year (YoY) growth rate of 76.8%. India accounted for 46% of all global real-time transactions in 2022.

Brazil was the third fastest-growing RTP market in 2022, with a YoY growth of 228.9%, and is in second place in transactions, with 29.2 billion in 2022. China, Thailand and South Korea are third, fourth and fifth on the list.

“We are not trailblazing in this area: This regulation will allow the EU to catch up with international markets like Brazil, India, Australia and the U.K., where instant payments are growing fast,” said Mairead McGuinness, the EU Commissioner in charge of financial services. The technology to provide for instant payments is well established and, frankly, uptake has been too low in the EU.”

How low? According to Societe Generale, only 11% of all transactions within the eurozone were executed instantly in the first quarter of 2022, which is the most recent data available from the bank. According to Societe Generale’s Global Head of Cash Management Products and Solutions Stephanie Ekindjian, expect to find business-to-business (B2B) as well as consumer applications as the new regulations take effect.

“For big operations, such as closing an M&A deal, treasurers would like to have the possibility to transfer the cash instantly,” Ekindjian said. “They will usually gather all the cash a few days before the operation and, rightly, try to maximize the value of this cash in their account. They won’t want to release the cash until the very last moment, on the day of the transaction. At the same time, they want to be sure that the cash will be credited to the correct person or business. This is not currently possible in most European countries.”