Instant payments offer huge benefits for businesses and individuals. However, there remain a number of barriers preventing them from becoming more widespread, and uptake in the EU is low and patchy. On 26 October, the European Commission adopted a legislative proposal to make instant payments in euro available to any business or individual holding a bank account in the EU. The adoption follows extensive preparatory work, which lasted almost three years and included a number of consultation exercises with a wide range of stakeholders.

Slow uptake

Speaking at the press conference announcing the proposal, Commissioner Mairead McGuinness said that a quick uptake of instant payments is something that ‘should have happened organically, but didn’t,’ adding that with the proposal ‘we are nudging this sector’ towards making instant payments the norm. Although euro instant payments (via the SCT Inst Scheme) were launched in 2017, the average uptake (measured as their share in all SEPA credit transfers) in the EU as of October 2022 was just 13%. This is significantly lower than the figures in other major international markets such as India, Brazil, the UK and Australia. In addition, there is an enormous disparity in uptake across EU Member States. So in some Member States, euro instant payments have genuinely become the ‘new normal’ way of transferring funds, and their uptake hovers around 70%. But in others (both inside and outside the euro zone) euro instant payments are still in their infancy, with uptake failing to break through the 1% mark. 

The Commission’s proposal, which aims to address the underlying problems behind such an inconsistent and sluggish pace of uptake, centres around four key measures. These aim to fuel both the supply and demand for euro instant payments.

Key measures

Instant payments will become universal: All payment services providers that offer credit transfers in euro will have to offer instant payments in euro to all their customers. This is important because payments is a network industry: if some payment services providers voluntarily adhere to the SCT Inst Scheme, but others do not, it will not be possible to reach the critical mass needed for domestic and cross-border instant payments to become the norm. This creates a vicious circle, where non-participating providers are reluctant to make the necessary investments, which in turn reduces the network benefits for participating providers. The Commission has proposed that e-money institutions and payment institutions be exempted from this requirement, although they may of course offer instant payments in euro if they wish (and many of them already do so).

Instant payments will be affordable: The charges for instant payments in euro will have to be equal to or lower than the charges for non-instant euro credit transfers. Studies and consultations have shown that consumers are very sensitive to price incentives and, when choosing between comparable payment methods, tend to go for the less-expensive one. Consequently, figures show that uptake is sluggish in Member States where instant payments in euro are priced at a premium compared to regular credit transfers in euro.

Payer protection will be beefed up: All providers of instant payments in euro have to offer the service of checking that the recipient’s name matches the account number (so-called ‘IBAN') and, before the payer authorises the transaction, warning them of any potential mistake or fraud. This should help stem the growth in authorised push payment fraud, which was estimated at €323 million in 2020 for all types of euro credit transfers in the EU.

Sanctions screening will be more efficient: At the moment, a huge majority of cross-border payments that are flagged during screening are false positives. Under the new legislation, all providers of instant payments in euro will have to follow a harmonised procedure for sanctions screening, based on daily checks of their own clients against EU sanctions lists. The proposed approach has been tested in a number of Member States and should ensure maximum vigilance, while also saving money.

Application

Payment service providers across the EU are beginning from different starting positions – for instance, many of them already comply with one or more of the four measures mentioned above. So, the ultimate compliance burden will vary from one payment service provider to another. However, an impact assessment has shown that the proposal is well balanced and proportionate. The implementation cost of individual measures also varies significantly depending on the size of the service provider. And costs arising from complying with some measures should be cushioned by cost savings linked to complying with others. The proposed implementation deadlines for individual measures have been staggered, with payment service providers operating in non-euro zone Member States being given two additional years.

Read more on the instant payments proposal