As we have already hinted at in our Fintech predictions for 2022, the Commission yesterday published its legislative proposal to require all payment service providers that offer credit transfers in euro to offer instant payments in euro to their customers.

Pan-European “instant” payments have been part of the payment landscape since November 2017 when the EPC SEPA Instant Credit Transfer (SCT Inst) scheme became operational, providing the backbone to transfers funds in euro on a 24/7/365 basis within the geographical scope of the SEPA scheme and a maximum execution time of 10 seconds. However, it was for payment service providers to decide whether to offer the service to clients and whether a fee would be charged when the customer made an SCT Inst transaction.

This, together with concerns about the risk of fraud and errors, the challenge to align instant payments with the need for transaction-for-transaction sanction screening, and the competition of instant credit transfers with other means of payment, including credit cards, might explain why at the beginning of 2022, only around 10% of all euro credit transfers in the EU were instant – a number, that the Commission considers an “underwhelming volume”.

The Commission proposal intends to change that. We had a look at some of its features.

Who will be required to offer instant payments?

All payment service providers established in the EU that offer credit transfers in euro to their clients will also be required to provide euro instant payments. It is noteworthy that the proposal excludes payment institutions and electronic money institutions based on the fact that payment institutions and electronic money institutions are not (yet) permitted to directly participate in (certain) designated payment systems and, therefore, have to rely on banks to get indirect access. This uneven playing field has been long criticised and might be one of the aspects that we might see addressed in a revised Finality Directive (which is currently under review).

What will be the impact on fees?

The proposal requires that any charges applied by a PSP on payers and payees in respect of sending and receiving instant credit transfer transactions in euro shall not be higher than the charges applied by that PSP in respect of sending and receiving other, corresponding, credit transfer transactions in euro. The proposal, therefore, puts an end to different charging structures in relation to SEPA Instant Credit Transfers that banks currently offer.

How will the proposal tackle compliance of instant payments with sanction screening?

The proposal focuses sanction screening to specific points in time to alleviate the pressure on transaction-by-transaction screening. Under the proposal, each payment service provider that offers euro instant payments, must screen its own clients at the moment when a payment account is opened and then, via at least daily updates, update its customer records against the latest applicable EU sanctions lists. PSPs are further required to conduct verification measures each time after the entry into force of any new or amended restrictive measures. Conversely, PSPs shall not carry out any sanction screening during the execution of an instant credit transfer.

Are there other noteworthy obligations?

The proposal introduces the obligation on PSPs to offer to clients the service of a fraud and error check by checking whether the name of the beneficiary matches the IBAN that has been provided. In such cases, the payer is notified of a mismatch before they authorise an instant payment transaction and receive a warning about potential negative consequences when proceeding with the transaction. The proposals allows PSPs to charge clients if they offer the new service.

When will the rules apply?

The Commission proposes a step-by-step approach to phase-in the new obligations.

  • the obligation to offer the service of receiving euro instant payments will apply six months after the entry into force of the legislation (together with the obligations related to charges for euro instant payments and the harmonised procedure to ensure compliance with obligations under EU sanctions regulations);
  • the obligation to offer the service of sending euro instant payments will apply 12 months after the entry into force of the legislation for payment service providers located in Euro Area Member States;
  • for payment services providers not located in the euro zone, all obligations will apply 24 months later than the dates that are applicable to providers located in Member States whose currency is the euro.