More widely available instant payments are coming to Europe: How Banks and PSPs can prepare for IPR

Instant payments being universally available within the SEPA zone is a watershed moment. While we have seen phenomenal adoption of instant payments in some parts of the world, the adoption of SEPA Instant Credit Transfer (SCT Inst) has presented challenges, and there have been barriers to sending and receiving euro instant payments. The low uptake of instant payments in the region was the primary trigger to introduce the IPR, which allows instant account-to-account fund transfers made available in less than 10 seconds.  

There is a lot more to this impending mandate than just making participation mandatory for banks and PSPs. It is the European Commission’s attempt to bring a significant transformation to the digital payments landscape and an attempt to offer diverse payment solutions, limit the barriers to entry, enhance safety and security around euro instant payments, and then expand to cross-border use cases.

The new regulation has the potential to lower barriers to entry, which will significantly increase participation and simplify access to existing and new members — which is fundamental to the success of an instant payments scheme, as seen in the world’s most successful markets. The instant nature of payments will not only improve liquidity but will also promote the introduction of new digital services that will generate new revenue streams for the PSPs.

Another barrier to adoption was premium pricing of instant payments in the SEPA region, and one of the objectives of the IPR is making euro-based instant payments affordable for end users. Instant payments being priced at par or lower than the existing payment methods is a positive step in reducing sensitivity of users to pricing of newer alternative payments, which is also key to driving adoption.

Digital services like Request to Pay or eInvoicing solutions piggybacking on top of instant payments will open a plethora of opportunities for participants and augment the payments experience of end users. Over time, we will see these use cases and services expand from being pan-European to cross-border between other major economies, fostering interoperability and solving some of the existing pain points around traditional cross-border payments.

Instant payments around the world have been widely targeted by fraudsters, and the IPR aims to fortify security mechanisms around digital payments by mandating a Verification of Payee service that will provide robust defense against authorized push payment and other types of fraud. The IPR also focuses on harmonizing the sanction screening mechanism with an attempt to make it both effective and efficient and lower the number of rejected transactions due to “false positives” that hit the screening system.

The IPR, along with the European Payment Council’s One-Leg-Out Instant Credit Transfer scheme (OCT Inst), will ensure wider availability and accessibility of cross-border instant payments. The OCT Inst scheme, which went live toward the end of 2023, will enable payments to and from Europe to be processed 24/7 by interlinking existing real-time rails. While SCT Inst facilitates instant credit transfers within the Eurozone, OCT Inst aims to broaden access to euro account holders outside the SEPA zone who can pay account holders in the SEPA zone. With more markets adopting the ISO 20022 standards for instant payments, there is an accelerated push toward payments standardization and the benefits that come with it, like ubiquity, standard payments data across markets, better payments visibility, simplified reconciliation, and so on. There is an increasing push toward the cross-border arena globally, and countries realize the role that instant payments will play — not only in interoperability but also solving some of the existing pain points around speed, cost, transparency, and traceability. Several other initiatives in the region — such as the revised Payment Services Directive (PSD2), European Payments Initiative (EPI), ISO 20022 adoption, and the forthcoming digital euro — are all showcasing the industry’s concerted efforts toward simplified and instant cross-border payments.

Now more than ever, PSPs need to think beyond regulatory compliance and treat the IPR as an opportunity to maximize the value they deliver to their end customers through domestic and cross-border use cases. Although we have seen the presence of value-added services in the market, the uptake of those services has been very low, and with the IPR, participants can leverage existing and new services to drive innovative customer experiences and bring in new digital form factors. With a greater number of diverse participants potentially entering the space, the IPR will create a sustainable ecosystem for innovation and competition to thrive. This will also require banks to be more aggressive with their speed to market and keeping up with emerging trends and market requirements.

There will likely be a shift toward cross-border interoperability in the SEPA zone, and the next phase of instant payments will see proliferation beyond the Eurozone and enabling services and real-time use cases with markets like the U.S., Asia Pacific, and other non-European countries. The ability to support instant payments for domestic use cases will lay the foundation for participants to push beyond boundaries and make real-time cross-border interoperability a reality. To uncover real-time payments by the numbers and end-to-end use cases in Europe and beyond, download the 2024 Prime Time for Real-Time report.

ACI Worldwide provides payments technology that supports financial institutions and PSPs embarking on their real-time payments journey. ACI is IPR experienced, and we already have a compliant solution in Europe today.  

Explore how payments modernization, better fraud prevention, and improved security of payments in Europe can improve efficiency and remove friction for all users and suppliers in our latest Policy Guidance, Advancing European society through payments. We welcome an open and constructive dialogue with industry and regulatory stakeholders in Europe to discuss our recommendations about how the European Commission can, in this new legislative term, advance the payments ecosystem and achieve payments that are affordable, secure, and processed without hindrance across the SEPA countries.