On October 26, the European Commission published a new proposal that would make it mandatory for banks across the continent to offer instant payments.
What does the EU’s Instant Payments proposal outline?
The draft proposal will require banks across Europe to offer and receive instant payment (IP) services. That means that, instead of payments settling within 1-2 business days, they’ll settle within 10 seconds, 24 hours a day, 365 days a year.
Notably, the fee for processing these payments must be equal to, or less than, what’s charged for traditional credit transfers. (We’d actually argue that it should be free.) This stipulation around affordability is essential. Why? Because historically, banks have charged an extortionate amount that oftentimes gets passed on to consumers.
This has - rather unsurprisingly - stifled adoption.
Are instant payments new?
The short answer: nope.
SEPA Instant was rolled out across Europe in 2017. But, as we’ve said, voluntary adoption has been slow because it’s been seen as a “premium” product. In fact, little over half of EU banks have made it available, and coverage varies significantly between Member States, from 100% in Slovenia to just 4% in Denmark.
What are the benefits?
Improved cash flow: Instead of waiting 2+ business days for funds to settle, real-time reconciliation enables businesses to instantly access funds for better liquidity control. This doesn’t just save them time, it enhances operational efficiency. With better visibility and control of their real-time cash position, businesses can make more strategic decisions around their working capital. The result? Boosted revenue.
Efficiency: Because instant payments settle within 10 seconds, 24 hours a day, 365 days a year, they’ll ensure predictability and reliability between customers and suppliers. This will foster trust and, over time, build stronger business relationships.
Money management: Just as businesses will benefit from real-time settlement, consumers will, too. Whether it’s payday, a refund, or splitting the bill at dinner, instant payments will empower consumers to better manage their money and avoid the risk of overdrafts.
Lower transaction fees: While - yes - efficiency and speed are paramount for businesses, affordability is key, especially for SMEs. The assurance that fees for instant payments will be equal to, or less than, credit transfer fees lowers the barrier to entry for businesses, and empowers merchants to adopt new payment solutions that reduce their operational costs. Bonus: these savings will be passed down to consumers.
Reduced risk of fraud: The proposal stipulates that all providers of instant payments must carry out IBAN checks and warn payers if there are any discrepancies that could suggest fraud. Given the fact that incidents of payment fraud (also known as authorised push payment APP scams) have been steadily climbing, this is an essential security measure that will save Europeans millions.
Where does open banking come in?
The mandatory adoption of instant payments will make open banking a more appealing payment method that truly solves for pain points related to cost and speed, as we’ve seen in the UK with Faster Payments.
Fun fact 🧠 According to the latest payments report by UK Finance, Faster Payments increased in worth by 23%, overtaking Bacs Direct Credit as the method most frequently used by businesses to make payments in 2021.
This proposal will elevate the European payments landscape, and the impact will be seen across dozens of open banking use cases, from ecommerce and point of sale (POS) payments to international transfers.
Want to discover open banking use cases for payment providers? Click here.
Importantly, open banking will also help address key security concerns. Because anti-money laundering (AML) and know your customer (KYC) checks are performed differently from bank to bank, there’s a lack of consistency across the European ecosystem. Open banking can help streamline these onboarding processes and reduce friction by connecting directly with banks to validate identity, wealth, and transaction history.
What happens next?
First and foremost, at this stage, this is just a proposal.
Next, this will need to be codified in the European Council and sent to Member States for adoption. Once this has been adopted, banks have 6-12 months to ensure full compliance. That means we likely won’t see mass adoption until 2025.
Of course, because most banks can already send and receive instant payments, consumers and businesses may experience the benefits sooner, and as early as 2024.
In the meantime, the Open Finance Association (OFA) will continue to offer guidance to both policymakers and Account Servicing Payment Service Providers (ASPSPs). Follow us on LinkedIn for the latest need-to-know updates.