Instant Payment regulation voted! And now?

Instant Payment regulation voted! And now?

On the 26th of February 2024, the European Council has adopted the Instant Payment regulation (Regulation EU 2024/886) which consists in amending the following regulations and directives related to instant credit transfers – aka “instant payments” – in Euro:

• Regulation EU 260/2012 on credit transfers and direct debits in euro, also known as the “SEPA regulation”
• Regulation EU 2021/1230 on cross-border payments in the Union
• Directive EU 98/26/EC on settlement finality in payment and securities settlement systems
• Directive EU 2015/2366 on Payment Services in the internal market, known as the “PSD Directive”

The new Article 5a paragraph 1 of the amended SEPA regulation introduces the obligation for Payment Service Providers (PSP) to soon provide their Payment Service Users (clients) with the service of sending and receiving instant credit transfers in euro if they are currently offering the service of sending and receiving credit transfers in euro, irrespective of the fact the PSP is located in a Member State whose currency is the euro or not.

PSPs that offer to their PSUs a payment service of sending and receiving credit transfers shall offer to all of their PSUs a payment service of sending and receiving instant credit transfers.

PSPs as referred to in the first subparagraph shall ensure that all payment accounts that are reachable for credit transfers are also reachable for instant credit transfers 24 hours a day and on any calendar day.

This single paragraph constitutes a tremendous challenge for small and medium banks which have not yet implemented a service of instant credit transfers.

Why is Instant Payment such a challenge for European banks?

Providing instant credit transfers requires major improvements:

• Availability of the service 24 hours a day and on any calendar day (24/7/365). Only short and foreseeable non-availability of the service are accepted, such as a planned maintenance.
• High performance of the service as the instant credit transfer must be settled end-to-end and confirmed to the Payer in maximum 10 seconds.
• Implementing the workflow of an instant credit transfer which is significantly different from the workflow of a credit transfer.

Many banks are currently running on a Core Banking System which is not up 24 hours a day or which is running on a technical framework that is not compatible with the performance required by instant credit transfers.

What are the options now for those banks? Which strategy will they adopt to comply with this new Instant Payment regulation?

The common options are:

• Stop offering credit transfers and by this way escape from the obligation of offering instant credit transfers. Even if this option is theoretically possible, it seems unlikely that banks will stop offering payment services to their customers.
• For local subsidiaries, relying on solutions already developed by the group.
• To reduce the impacts and the costs, opting to go through a bank already member of an instant payment market infrastructure, an approach known as the Sub-participation option.
• Implementing instant credit transfers and become a direct participant in an instant payment market infrastructure (eg: TIPS, RT1,etc.).

Probably new offers proposed by third parties will appear in the next months, extending the list of options above. But the clock is ticking and banks will have to quickly opt for a strategy given the instant payment regulation due dates:

• January 2025: PSPs located in a Member State whose currency is the euro, must be able to receive instant payments in euro for their clients.
• October 2025: PSPs located in a Member State whose currency is the euro, must be able to send instant payments in euro for their clients.

Escent’s Expertise in Payments

At ‘escent, our payment business analysts have experience supporting our clients on major transformation projects on the Payments area such as: Instant Payments, CBPR+ ISO20022 migration, T2-T2S consolidation, Co-Management services, and more.

Need payment experts on your team? Why not get in touch with us?

Reach out to us at the following address: sales@escent.eu ?

Article Credits to: Jean-François Puffet

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Our next article will focus on describing the end-to-end workflow of an Instant payment and highlighting the specificities of this service that will soon become the new standard. Stay tuned!