The Council of the European Union has adopted a new regulation that will make instant payments fully available in euros for consumers and businesses in all EU and EEA countries.
The new regulation was introduced to improve the strategic autonomy of European economic and financial sectors, reducing what the EU calls “excessive reliance” on third-country financial institutions and infrastructures. This would include institutions such as Visa And MasterCardAmerican companies that dominate the world of payment processing.
Regulating instant payments: benefits for Europeans
Indeed, this far-reaching regulation will also help to promote faster and more efficient cash flows, thus bringing greater benefits to citizens and businesses through the creation of new innovative value-added services.
The EU Council said the new instant payments regulation will allow citizens to transfer money within ten seconds at any time of the day, even outside business hours, not only within the same country but also between EU member states.
While the transfers will focus mainly on the euro (€), they will also take into account the specificities of entities outside the euro zone.
Now that the regulation has been adopted, all payment service providers – first and foremost banks – will have to extend their standard euro transfers to include sending and receiving instant payments.
Money transfer fees should not be higher than the fees applicable to current standard bank transfers.
The EU Council said the new rules will come into force after a transition period – the timeframe is expected to be shorter in the eurozone and longer in the non-eurozone, which needs more time to adapt.
Laurent DescoutFounder and CEO of Neoreacts to the announcement of the Council of the EU: “The decision taken in Europe to ensure that money transfers in euros arrive within ten seconds can allow traders and businesses to optimise their liquidity, resulting in more efficient cash management.
“This means businesses can also reduce their transaction and working capital costs through reduced settlement time and a smoother reconciliation process.
“This new regulation is ultimately good news for European consumers and businesses, as it means greater convenience and choice. Instant cross-border payments for businesses will help simplify access to more markets, with significant opportunities for business development and growth.
“With the right partners, businesses of all sizes will be able to benefit from new technologies to improve their treasury operations and reap the rewards of instant payments.”
New requirements for PIEMI
More specifically, the Regulation grants access to payment systems for payment and electronic money institutions (PEMIs), by amending the Settlement Finality Directive (SFD).
As such, these entities will be legally subject to the obligation to offer the service of sending and receiving instant transfers, after a transitional period.
The EU Council stresses that the Regulation includes appropriate safeguards to ensure that access by PIEMIs to payment systems does not entail additional risk for the system.
In addition, under the regulation, instant payment service providers will have to verify that the IBAN and the beneficiary name match, so that they can alert the payer of possible errors or fraud before a transaction is made. This requirement will also be extended to classic transfers.
The latest regulation is accompanied by a review clause requiring the European Commission to present a report containing an assessment of the evolution of credit costs.
Kjeld HerremanHead of Strategic Consulting at RedCompass Laboratoriesgives his opinion on the regulatory update: “This is a welcome step forward by the Council of the European Union to adopt instant payments in the euro currency.
“This means that banks and payment service providers will soon have to offer the sending and receiving of instant payments in euros without additional fees within ten seconds.
“This is great news for European consumers and businesses, but the technical implementation within a very ambitious timeframe is shaping up to be a huge challenge for banks.
“This will require them to quickly assess their digital capabilities and collaborate with their counterparts and service providers to address these challenges in a short period of time.
“Banks must soon enable their business customers to benefit from instant file-based payments at no additional cost. This means that even payment service providers already capable of processing instant payments will have to significantly increase their throughput.
“Banks will also need to find ways to facilitate immediate currency conversion when the beneficiary’s account is not denominated in euros.
“Since foreign exchange markets are not suited to a 24/7 environment, the technical feasibility will be extremely difficult for banks to manage outside of business hours.”