There's been a lot of buzz about instant payments, but what's all the hype about and why does it matter? Let’s take a look.

In November of 2023, the European Parliament passed a new EU mandate to accelerate the rollout of SEPA Instant Credit Transfers (SCT Inst), more commonly known as instant payments. It requires that instant payments to be made accessible 24/7 and affordable by EU banks and payment service providers within 9 months in the Single Euro Payments Area (SEPA) and approx. 3 years within EEA due to currency exchange needs. This amendment has become known as the Instant Payment Regulation (IPR) and the set of rules contained within it aim to do the following:

• Eliminate delays in fund transfers
• Improve security
• Achieve uniform instant payments system across Europe

Why instant payments matter

For consumers and businesses, especially small to medium sized enterprises (SMEs), instant payments mean no more waiting for the money to arrive – settlement will be instant.

Here's what the IPR and instant payments aim to deliver:

• Speed: To qualify as an instant payment, the funds must move between the sender’s and receiver’s account in 10 seconds or less. ‍
• Availability: Euro-zone banks that offer regular SCTs must also offer SCT Inst and the system must operate 24/7. ‍
• Limits: Clients must be able to set a maximum limit for instant transfers in euros which can be easily modified. ‍
• Cost: The cost for SCT Inst in Euros must not cost any more than regular SCTs in Euros. SCT Inst payments are currently 5x more expensive than SEPA Credit Transfer on average. ‍
• Notification: immediate settlement, reconciliation, and notification of the fund's arrival.

To accomplish this the following safety enhancements must also be in place to support them:

• Banks and PSPs must match the IBAN with the account holder name of the recipient in real time to prevent misdirection due to fraud or error.
• The recipient must undergo AML (Anti Money Laundering), Counter Terrorism Financing (CTF), and sanctions check the same day.

Why the mandate and accelerated deadlines

The banks have actually known instant payments requirements were coming since 2017 and they have had six years to prepare for it, BUT many have either not or have been slow in implementing.  

Why? Well, within the normal scope of payments, a lot has to happen to deliver them quickly, let alone within 10 seconds or less. Plus, the demand that will come with this type of payment will present additional challenges on the existing banking infrastructure in the following ways:

• Load: According to PPI, a leading German payments consultancy, “even banks that have SCT Inst must be prepared” for an estimated “threefold increase in transactions.” (NFM, 2024) ‍
• Currency exchange: the cut off time for forex is 5 PM, so the banks will have to determine how to finalize, i.e. determine and guarantee the exchange rate of payments made in the off hours, increasing their risk. For non-euro member states, there will be a temporary exception to the 10 second rule outside of business hours due to concerns about accessing euros.‍
• Verification processing: As with the load issue, the IBAN matching must also be done in a way that does not open vulnerabilities in the system to extract matched data sets.

This caused many of the banks to drag their heels. For example:

• By mid 2022, only 2% banks in Denmark and 0% in banks in Croatia and Hungry offered SCT Inst. (NFM, 2024)
• The banks that did offer it charged exorbitant rates slowing adoption.
• Leading to only 14% of all SEPA Credit Transfers (SCT) in the EU being instant by mid 2023. (NFM, 2024)

Instant payments are a key component of the upcoming Payments Service Directive (PSD3) regulations in 2026 to facilitate uniform payments across the EU. Therefore, it was necessary to establish a delivery timeframe to ensure that any remaining roadblocks are resolved.

Beyond instant payments

While instant payments on their own will provide a significant improvement to the customer payments experience across Europe, they also lay the foundation for Dynamic Recurring Payments in the EU.

Dynamic Recurring Payments (DRP) are payments where the amount, frequency, or both can vary with each transaction, based on the user's prior consent. Unlike fixed recurring payments (e.g., a monthly subscription with a set amount), DRPs allow merchants to debit different amounts or process payments on variable schedules as agreed upon with the consumer.

For Open Banking providers, such as ourselves, and our customers – instant payments mean faster payments and settlement. In combination with DRP, they provide the ability to apply account-to-account (A2A) payments to more use cases such as utility bills, transportation, investments, and usage-based and tiered subscription payments.

Despite longer timeframes granted to banks in the EEA, several of the banks in Finland and Norway have made instant payments available through their Open Banking endpoints already, including DNB, Sparbanken Vest, Bulder, Sparebank 1, Eika, and DSS banks, which is great news for our Nordic customers as well.

Here’s to a faster, more connected future for European payments!!