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European Council Rolls Out Instant Payments Regulations, Eyeing EU Single Market for Capital

The European Council has introduced new regulations to make instant payments fully available in euros to consumers and businesses in the European Union (EU) and European Economic Area (EEA) countries.

By ushering in the new instant payments regulations, the European Council hopes to improve the strategic autonomy of the EU economic and financial sector, by helping to reduce any excessive reliance on third-country financial institutions and infrastructures. Improving the possibilities to mobilise cash-flows will also bring benefits for citizens and companies and enable for innovative added value services.

The instant payments regulation will enable people to transfer money within ten seconds at any time of the day, including outside business hours, not only within the same country but also to another EU member state. The regulation takes into consideration particularities of non-euro area entities.

Payment service providers such as banks, which provide standard credit transfers in euro, will be required to offer the service of sending and receiving instant payments in euro. The charges that apply (if any) must not be higher than the charges that apply for standard credit transfers.

The new rules will come into force after a transition period that will be faster in the euro area and longer in the non-euro area, that needs more time to adjust.

The regulation grants access for payment and e-money institutions (PIEMIs) to payment systems, by changing the settlement finality directive (SFD). As a result, these entities will be covered by the obligation to offer the service of sending and receiving instant credit transfers, after a transitional period. The regulation includes appropriate safeguards to ensure that the access of PIEMIs to payment systems doesn’t carry additional risk to the system.

Tackling fraud in a single market

Under the new rules, instant payment providers will need to verify that the beneficiary’s IBAN and name match in order to alert the payer to possible mistakes or fraud before a transaction is made. This requirement will apply to regular transfers too.

This initiative comes in the context of the completion of the capital markets union. The capital markets union is the EU’s initiative to create a single market for capital across the EU; aiming to get investment and savings flowing across all member states for the benefit of citizens, businesses, and investors.

Kjeld Herreman, head of strategy advisory at RedCompass Labs, a payment and financial crime service provider, explained the significance of the regulations: “It means banks and payment service providers will soon have to offer the sending and receiving of instant payments in euros at no extra charge within ten seconds.

Kjeld Herreman, head of strategy advisory at RedCompass Labs
Kjeld Herreman, head of strategy advisory at RedCompass Labs

“This is great news for European consumers and businesses but the technical implementation within a very ambitious timeline is set to be an enormous challenge for banks. It will require them to rapidly assess their digital capabilities and to work together with their counterparts and service providers to address these challenges in a short period.

“Banks must soon enable file-based instant payments without surcharges for their business clients. This means that even payment service providers that are already capable of processing instant payments will massively need to scale their throughput.

“Banks will also need to figure out how to facilitate an immediate currency conversion when the beneficiary’s account is not denominated in Euro. With FX markets not suited for a 24/7 environment, the technical feasibility will be extremely challenging for banks to address outside of business hours.”

Increasing convenience and choice
Laurent Descout, founder and CEO of Neo
Laurent Descout, founder and CEO of Neo

Laurent Descout, founder and CEO of Neo, an FX corporate risk management firm, also offered his take: “The move in Europe to ensure euro money transfers arrive within ten seconds can enable merchants and corporates to optimise their liquidity, resulting in more efficient cash management. It means businesses can also lower their transaction and working capital costs through a reduced settlement lag and smoother reconciliation process.

“This new regulation is ultimately good news for European consumers and businesses, as it means there will be greater convenience and choice. Instant cross-border payments for corporates will help simplify access to many more markets with considerable chances of scaling and growing businesses.

“With the right partners, businesses of all sizes will be able to benefit from new technology to improve their treasury operations and reap the rewards of instant payments.”

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