Vulcan Insight | EU set to accelerate the rollout of instant payments in euro

On Wednesday, the European Commission unveiled a long-awaited legislative proposal to make instant payments in euro available to all citizens and businesses with a bank account in the EU and EEA countries. The move will allow people transfer money 24/7, 365 days of the year, within just 10 seconds. Announcing the new measure, Commissioner for Financial Services, Mairead McGuinness, said that the bill would have a “seismic” impact, arguing that it was “comparable to the move from mail to email”.

According to the Commission, at the beginning of 2022, just 11% of all euro credit transfers in the EU were instant, meaning the majority of payments were still being carried out in the traditional way, leaving consumers and businesses waiting up to three days to receive the payment, despite a number of global FinTech having offered instant payments for years at this point.

Some banks across the EU currently charge substantially more for an instant payment transfer, as much as €30 in some cases, than they do for traditional transfers, resulting in a very slow uptake in instant transfers to date.

After building on a number of voluntary market initiatives on developing instant payments in the past, the Commission’s proposal now seeks to finally enforce a modernisation of payments. It is also part of the EU’s ongoing attempt to reduce its reliance on foreign payment companies like Mastercard and Visa.

Instant payments significantly increase speed and convenience for consumers and are of great benefit to businesses, especially SMEs, as they improve cash flow, bring cost savings, and free up money in the so-called payment float, which can be used quicker for investment or consumption. According to the Commission, on any given day, approximately €200 billion is locked in transit in the financial system – in the so-called payment float. Under this proposal, this substantial sum could be freed up and reinjected at a quicker pace back into the wider economy.

The proposal places the following four obligations upon banks:

• Make instant euro payments universally available, with an obligation for EU payment service providers that already offer credit transfers in euro to offer also their instant version within a defined period.
• Ensure instant euro payments are affordable. In order to do so, payment service providers will be obliged to ensure the price charged for instant payments in euro does not exceed the price charged for traditional, non-instant transfers.
• Increase trust in instant payments, with an obligation on providers to verify the match between the bank account number and the name of the name provided in order to alert the payer of any possible fraud.
• Remove friction in the processing of instant euro payments while preserving the effectiveness of screening of persons that are subject to EU sanctions.

Announcing the measure, Commissioner McGuinness stated that there is no reason as to why citizens and businesses across the EU should not be able to send and receive money immediately, arguing that “the technology to provide for instant payments has been in place since 2017.”

Together with contributing to the Commission’s wider objectives on digitalisation and open strategic autonomy, this proposal will offer significant support to innovation and competition in the EU payments market. It also comes as the Commission prepares to reopen the holy grail of payments legislation next year: the revised Payments Services Directive (PSD2) and propose a legislative framework on Open Finance.

Compliments of Vulcan Consulting – a member of the EACCNY.