How Will the EU Commission’s New Regulation Change Instant Payments?

On October 26, 2022, the European Commission published the proposal for a Regulation on Instant Payments (IPs), thus fulfilling its commitment to the 2020 EU Retail Payments Strategy. This initiative suggests important changes to the 2012 SEPA Regulation and has the potential to redefine the way IPs in euros operate.

This guide will take you through the key points of the EU Commission’s new regulation on IPs and explain what to expect from it in the foreseeable future.

Definitions Developed by the New IPs Regulation

To achieve this goal, the document introduces four new definitions in the SEPA Regulation on IPs in euro, namely:

• Instant credit transfer - this term is applied to a sub-category of credit transfers performed in euros and defines the key tech requirements for them;
• Payment service user interface (PSU interface) - this definition clarifies the right of payment service users to initiate IPs via the same channels as other credit transfers and defines the charges for corresponding transactions in euros;
• Payment account identifier - the document clarifies that this term mentioned in Article 5, point 1(a) of the SEPA Regulation and in Article 5c of the new proposal, should be regarded as the unique identifier referred to in Article 88 of the Payment Services Directive 2 (PSD2) and defined in its Article 4, point (33).
• Listed persons or entities - this definition elaborates that PSPs must follow the procedure explained in Article 5d of the new proposal to ensure compliance with EU sanctions that oblige them to freeze the assets of individuals or entities and not to make economic resources or funds directly or indirectly available to them.

The EU Commission’s proposal also amends the “retail payment system” definition to reflect the different ways of settling retail payment transactions, from non-batch settlement to round-the-clock execution of IPs in real time.

These definitions are set to play a critical role in unifying and governing IPs in the EU, and understanding them is crucial to interpreting the key points of the new legislative proposal.

5 Key Points of the EU Commission’s Proposal

However, if explained in a nutshell, this legislative piece could be narrowed down to five key points, namely:

1. All account servicing payment service providers (ASPSPs) that can send and receive credit transfers must offer an ‘instant’ alternative. Note that PIs and EMIs are an exception to this rule due to limited payment system access.
2. The capability to receive instant payments needs to be set up within six months of the regulation’s adoption. The deadline for establishing the sending function for IPs is 12 months.
3. The charges applied to IPs cannot exceed those for non-instant credit transfers. For instance, where SCT or domestic transactions are free, IPs should also not entail commission.
4. Banks must aim to prevent payments from missing by letting clients know about any discrepancies between beneficiary IBAN and name before finalizing the initiation process unless the users have opted out of this service.
5. The sender and receiver banks must conduct sanction checks at least daily. However, this practice should not be a part of instant payments themselves.

These actions will help streamline the process of the EU’s transitioning to a standardized, safe, and accessible instant payment environment, promising more convenient experiences for both financial entities and users.

What’s Next for This Legislative Piece?

The draft of the IPs Regulation is now to go through the legislative procedure. But are there any forecasts regarding its implementation?

Given the varying starting point of PSPs across the EU, with many players already being in sync with one or more of the measures listed above, experts predict the eventual compliance burdens to vary respectively. However, the preliminary assessment of the proposal’s impact has shown that it is safe to expect it to be proportionate and well-balanced.