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.
On April 23, we had the privilege of attending the Finextra NextGen Nordics conference at Münchenbryggeriet in Stockholm, Sweden. This annual event brings together key players within the Nordic payments ecosystem for in-depth discussions of the latest trends, challenges, and innovations. This year’s main themes were instant payments, fraud mitigation, and cross-border payments with related conversations about infrastructure, regulations, and data, to mention a few.
In this short article, we elaborate on three main topics and our key findings: Instant Payments, Confirmation of Payee, and PSD3.
Instant Payments – a must for digital-driven generations?
We live in a time where everything goes faster, and the new generation is used to everything happening instantly. One interesting panel during the day intensively discussed how that expectation translates to payments. The European Union’s Instant Payment Regulation is set to reshape the international digital payment landscape. It could make cross-border payments take no more than 10 seconds, improving cash flow and making foreign markets more available for consumers and businesses. The main question raised during the discussion was what speed is really required, and are instant payments a new standard that will be expected in every situation, or are there use cases where there simply is no need for it? For example, salary payments are planned and scheduled well before the transaction is made, and in theory, do not need to be covered by instant payment.
In Sweden, banks must be able to receive instant payments through Riksbankens RIX-INST by November 2024. However, they are not yet obliged to send instant payments. This could pave the way for the natural development of products within instant payments in Sweden. If you would like to learn more about instant payments on a European level, we elaborate more about the Instant Payment Regulation in our in-depth article; you can read it here.
While banks, PSPs (payment service providers), and businesses mutually agree that instant payments are an absolute necessity to meet the expectations of a new generation of end-users, how we should combat fraud was raised as a key challenge to solve. Instant payments could turn into instant frauds, as the funds transferred by the payee are gone in seconds. The panel’s consensus was that the instant nature of transactions demands greater transparency and pre-checks to ensure safety.
Confirmation of Payee – An effective tool to combat fraud
In fact, effective and proven means already exist to ensure that instant payments are fast and secure. Confirmation of Payee (CoP) is a digital service that name-checks and verifies the intended receiving account (IBAN) to reduce accidental, misdirected, or faulty transactions. This process is done before the transfer of funds, which can make for secure payments with a smooth user experience.
During the conference, panel speakers discussed how the concept was launched at scale for domestic payments in the Netherlands and the UK. So far, it has shown positive trends. For instance, since the implementation of Confirmation of Payee, the Netherlands saw an 80% decrease in APP fraud (Authorised Push Payment fraud). In the UK, over 100 organizations have implemented CoP, and more than 1.9 million checks are completed daily. You can read more about CoP and how it works here.
When CoP is standardized on domestic markets, the next step will be making it a core part of cross-border instant payments, and initiatives are in place to ensure robust checks, safety, and compliance. However, different schemes and rulebooks must be able to work together, and there is still a need for continuous development, since fraudsters, just like everyone else, adapt to new conditions.
PSD3 – Refining open finance for increased user control
While the second payment services directive (PSD2) laid the foundation for new innovation and better ways to battle fraud, PSD3 is more of an initiative to build a bridge between PSD2 and open finance and data.
To concisely summarize the panel talks, the conference speakers discussed how PSD3 will have three significant impacts: a financial customer permission dashboard, non-banks gaining access to payment infrastructure, and the requirement for banks to share the performance of their APIs.
PSD3 will give banking customers the possibility to get a clear overview of their financials, collecting information from different sources and different kinds of accounts and financial engagements. It will also offer customers a better understanding of their data ownership and whom their account data has been shared with.
Think about it. Do you know to whom and how many you have given consent to use your account details? The question was actually asked to the participants at the conference, and here is the result:
What happens now?
Many of the regulations discussed during Finextra NextGen will become mandatory in the upcoming years and immediately impact the daily operations of banks and PSPs.
At 421, we have the experience, expertise, and knowledge to guide you through the process, from creating a common understanding to preparatory work, implementation, and follow-up. Our goal is to ensure a successful implementation, whether that means helping you spread knowledge and awareness internally, lay out a strategy, interpret regulations, migrate, or choose suitable systems.
If you want to learn more about a specific regulation and how we can support you, please contact us to book a free meeting. We look forward to hearing from you!
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