Big changes are coming to Europe’s banking and payment service industry. The Instant Payments Regulation, proposed by the European Commission, will ensure around-the-clock and direct transactions in the eurozone. Countries outside the zone also must implement the new regulatory framework. On the one hand, it is a welcomed proposition, as it strengthens the European market and trading amongst its countries, businesses, and citizens. On the other hand, how can instant payments also become more secure when APP fraud is at a record high? And is it even possible to make such fundamental changes to the digital infrastructure and banks’ processes in such a short time?
In this article, we dive deep into the Instant Payments Regulation and Confirmation of Payee, their background, benefits, challenges, and how to begin the work needed to solve them in time.
Digitization and globalization are the core trends of our time, affecting every aspect of everyday life, and how we communicate and conduct our business. Everything is moving faster and faster in an increasingly interconnected world. In the EU, digital cross-border payments have become second nature for customers, companies, and organizations. However, those payments have taken more time compared to domestic transactions. A domestic payment often only takes a few seconds, but an equivalent cross-border payment can take two to three business days.
Instant payments are already offered for domestic transactions in most EU countries and have also been possible between EU countries. But now, it will be mandatory for banks and payment service providers (PSPs) to offer instant payments as an option in the EU, starting with the eurozone and later, countries outside the eurozone, such as Sweden and Denmark.
Introducing the Instant Payments Regulation
The Council of the European Union has passed a new regulation to make instant payments in euros fully available across EU and EEA countries. To ensure a strong common market in the EU, with increased trade, reduced costs, and international collaborations, transactions need to occur as quickly and naturally between payers and payees in different countries as they do domestically. The EU’s Instant Payments Regulation will make it mandatory for banks in the EU and EAA to offer instant payments in euros at any time, including weekends and after business hours.
Instant payments improve efficiency and cash cashflow
The new regulation is set to benefit both customers and businesses. For one, it will enable quick payments and potential refunds between payer and payee, and when money moves faster, so do goods and services. In the long run, the ease of making cross-border payments will make foreign markets more accessible for consumers.
The IPR will give businesses more ways of dealing with customers, suppliers, and partners abroad, increasing the potential for scaling and growing an international organization. However, the most eagerly anticipated benefit for small and medium businesses is the cash flow improvement, making handling funds and incoming and outgoing payments easier than ever.
Fees for instant payments will not be allowed to be higher than the charge for a standard transfer.
Quick facts about the instant payments regulation
- The number of non-cash payments in the euro area was 126.6 billion
- But only 11% of euro transactions within the EU are instant payments
- The regulation comes into force after a transition period that will be faster in the euro area and longer in the non-euro area
Can secure transactions be assured when fraud is at an all-time high?
Sure, fast and international money transfers offer many benefits for the everyday user. Now, let’s look at the challenges posed, as criminals no longer use masks and crowbars to steal people’s money. Instead, they use the bank’s own digital tools.
APP fraud, also known as authorized push payment fraud, is one of the most common types of scams in Europe. Victims are tricked into transferring money or authorizing a payment to what they believe is a trusted receiver, but in reality, is a fraudster. In 2022, the European Central Bank estimated losses due to APP scams at €1.7 billion, a number that increased to €2.2 billion in 2023. As more and more businesses and payments are conducted online, it is easy to assume that fraud will increase when fast cross-border transactions are rolled out across Europe.
After several investigative journalistic publications, there is now a public debate in Sweden regarding criminal gangs and APP frauds. What is your responsibility as a consumer? As a company? As a bank? And what can banks, PSPS and businesses do to help combat fraud?
In February 2024, the issue reached its climax when Sweden’s prime minister Ulf Kristersson, called a meeting with the country’s leading banks and the police. His stance was that the banks should seek technical solutions to prevent APP fraud and protect their customers.
But in reality, it is not a matter of what banks should do. It is about what they must do, and a part of the solution lies within the scope of the Instant Payments Regulation.
Confirmation of Payee will make fast transactions safer
The concept of Confirmation of Payee is an important tool for combating scammers and APP fraud when payments and transactions are made. It is essentially a digital service that name-checks and verifies the intended receiving account (IBAN) before payment. It will reduce accidental, misdirected, or faulty transactions and help ensure that payments are sent to the correct person or business.
As a payer, details regarding the payee you set up are sent and checked against the intended bank’s information—that is, for example, account number, name, IBAN, and sort codes. The confirmation comes back instantly and can be a 100% match, a close match, no match, or no account available. Based on the match, you can make an informed and better decision about whether to make the payment or not. Confirmation of Payee is already in place in some European countries for domestic transactions. Still, with the Instant Payments Regulation, it will also be necessary to ensure secure cross-border euro payments.
Read more about Confirmation of Payee.
IPR and CoP pose large-scale challenges for banks’ digital infrastructure
The Instant Payments Regulation and Confirmation of Payee raises questions regarding banks’ present digital infrastructure, processes, and what capabilities they actually possess. The timeline presented by the EU is hectic, to say the least, and banks will have to move quickly to meet the highly set prerequisites for the implementation of IPR and CoP. In a short period, banks must create the ability to manage massive loads of instant payment requests across borders in real-time, with efficient screening and a high level of security for customers on every channel, such as mobile and internet banking. Banks, big or small, will have to invest in new technologies and integrate several applications to make instant payments available in euros. In short, every complementary application needs to live up to the required speed; in this case, it is instant speed.
An already complex ecosystem is getting even more complicated, and the need for interoperability between different services is more significant than ever. The Instant Payments Regulation and Confirmation of Payee can seem contradictory, as IPR calls for immediate action and CoP for secure and methodical verification. But in truth, we need the balance that the two provide together. It is critical to start planning for these inevitable changes now.
The timeline for implementation is short
In the near future, the Instant Payment Regulation and Confirmation of Payee will be mandatory for all EU and EEA countries. In other words, every PSP and bank must be able to send and receive euros instantly, even if it is not the main currency in the particular country.
Nine months after the enforcement of IPR, banks in the eurozone must be able to receive instant payments with a fee equivalent to standard credit transfers. After 18 months, they must have a system for real-time IBAN name-checking (Confirmation of Payee).
Banks in countries outside the eurozone but still part of the EU or the EEA are given 33 months to implement instant payments in euros and 39 months for Confirmation of Payee.
How prepared are you?
The clock is ticking, and it is critical to start planning for these inevitable changes now. Many banks will need help with everything from strategy and planning to purchasing systems, implementation, integration, and launch. All of this must be done without interrupting or compromising daily operations.
At 421, we have the experience, expertise, and knowledge to guide you through the entire process. Our goal is to ensure a successful implementation, whether that means helping you spread knowledge and awareness internally, lay out a strategy, interpret regulations, or choose suitable systems.
If you want to learn more about the Instant Payments Regulation and Confirmation of Payee and how we can help you get started, please contact us to book a free meeting. We look forward to hearing from you!
