The SEPA Instant Payments regulation, effective from January 9, 2025, marks a transformative shift in Europe’s financial ecosystem. With the mandate requiring all banks and payment service providers (PSPs) in the eurozone to process instant payments, the regulation accelerates Europe’s move towards faster, more efficient financial transactions.
The key feature of SEPA Instant Payments is the 10-second rule, ensuring that transactions settle within 10 seconds, 24/7, across participating countries. This brings immediate benefits to businesses, particularly in the B2B sector, by offering faster payment settlement and improved cash flow management. Suppliers can now expect prompt payments, while buyers gain flexibility in managing liquidity. This is especially valuable amidst the pressure on global supply chains, where liquidity management is critical.
The global volume of real-time transactions reached 266 billion in 2023 and is expected to more than double by 2028, with Europe playing a significant role in this growth.
Transforming Liquidity and Treasury Operations
Corporate treasurers are facing a paradigm shift. Traditional batch processing systems, previously used for end-of-day reconciliation, are no longer viable. With continuous payment flows, firms must update their enterprise resource planning (ERP) and financial management systems to accommodate instant transactions. Liquidity management, especially during off-peak hours, is emerging as a key concern. PSPs need to maintain reserves and adapt forecasting models to manage demand around the clock.
To address these challenges, some institutions are exploring pre-validation techniques for bulk payments to reduce friction, although this shift away from batch processing requires significant operational adjustments.
Fraud Prevention and Compliance Challenges
The instant processing timeline creates challenges in fraud detection and compliance checks. With limited time for manual intervention, banks and PSPs are increasingly relying on artificial intelligence (AI) and machine learning (ML) systems to screen transactions in real time. This is essential given that the fraud risks associated with instant payments are up to ten times higher than traditional transfers, according to the European Banking Authority.
In addition, PSPs must meet sanctions screening requirements to identify restricted entities swiftly without delaying transactions, posing further operational difficulties for smaller institutions.
Financial and Strategic Implications
The SEPA Instant Payments regulation also carries significant financial implications. PSPs are prohibited from charging a premium for instant payments, forcing institutions to absorb compliance costs. While this may challenge some, the long-term prospects are positive. Real-time payments are poised to fuel Europe’s embedded finance market, expected to surpass €86 billion by 2033, and bolster the continent’s competitiveness by reducing reliance on global payment giants like Visa and Mastercard.
In 2024, instant payments made up just 20% of euro credit transfers, a significant increase from 0.08% in 2018. With the new regulation, adoption is expected to accelerate rapidly. However, non-compliance with the regulation comes with steep penalties, up to 1% of annual gross revenue, emphasizing the importance for institutions to meet the new requirements.
Overall, SEPA Instant Payments herald a bold step forward for European finance, providing benefits in speed and efficiency but also posing considerable operational challenges for institutions to navigate.
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