New EU Instant Payment Rules to Bolster Mainstream Open Banking Adoption

The European Commission (EC) published a draft proposal on Wednesday (Oct. 26) intended to force banks and payment service providers (PSPs) to offer 24/7 instant euro payment services.

The new rules will take the form of an amendment to the Single Euro Payment Area (SEPA) legislation, which governs how banks process payments.

Read more: EU Eyes Requiring PSPs to Offer Instant Euro Payments

According to the EC, the move is needed to speed up the availability of SEPA instant credit transfers, which it argues has not been sufficiently adopted.

“Currently, at least one third of PSPs in the [European] Union do not offer instant credit transfers in euro,” the EC wrote in the proposal. “Moreover, the rate at which PSPs have been adding instant credit transfers to their services has been, over the last few years, too slow.”

Read on: What’s the Holdup With SEPA Instant Payments?

It further noted that PSPs should be able to offer all credit transfers in euros initiated by their customers “as instant by default.”

Pointing to the improved liquidity and cash-flow benefits that instant payments can bring to the eurozone, the EC is looking to release the “many billions of euros [that] are in transit in payment systems at any given time and not available for consumption or investment.”

In a press release announcing the proposal, Mairead McGuinness, the European commissioner for financial services, financial stability and capital markets union, called the transition from next-day to real-time settlement “seismic,” adding that there is no reason why citizens and businesses in the EU should not be able to send and receive money instantly when the technology to support it has been in place since 2017.

“This facility to send and receive money in seconds is particularly important at a time when bills for households and SMEs are increasing and every cent counts,” McGuinness said. “This initiative will directly benefit EU citizens and businesses.”

Faster, Cheaper SEPA Payments

The European payments industry has received the news positively so far.

In comments emailed to PYMNTS, Tom Greenwood, the CEO of Volt, called the decision “a long-awaited and much-applauded regulatory move.”

He added that there is a clear correlation between real-time payments and economic growth, and that the amendment to the SEPA regulation will have “tremendous impact for open banking payments adoption, unlocking new use cases for account-to-account payments, including in physical in-store retail settings.”

As well as forcing banks to pull their socks up when it comes to offering instant payments, the new rules will also prevent financial institutions from charging a higher rate for real-time versus regular SEPA credit transfers, as some currently do.

As Greenwood suggested, and many others have observed, with instant bank transfers set to become much faster and cheaper for consumers and businesses, the new rules could be the impetus needed to nudge open banking into mainstream use.

The ability to circumvent card schemes has long been touted as a key benefit of open banking payments, which could reduce the burden of card interchange fees for merchants. Yet to date, open banking has struggled to take market share from cards as Europeans’ preferred means of electronic payment.

Related: Card Networks Leverage Strategic Investments to Secure EU Foothold

Echoing Greenwood’s comments, the EC said in its proposal that the greater use of instant payments will “stimulate the development of new payment solutions” so that instant rails can be used at the point of sale, adding that it “will increase competition in the sector and produce cost reductions for merchants, who can potentially pass them onto consumers.”

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