Impact of New Instant Payments Regulation

On February 7, 2024, the Instant Payment Regulation (IPR) was approved by a majority of MEPs. The regulation is the result of an October 2022 European Commission proposal to make so-called "instant payments" available throughout the EU.

Key Pillars of Instant Payments

• Guarantee an instant payment service in euros.
• Making instant euro payments affordable for everyone.
• Removing obstacles of adopting an instant transfers system.
• Make instant payments easier to process.

Timeline Expectations

• January 2024: the final version of the regulation was published.
• The IPR was published in the EU official journal on 19 March 2024.
• Banks should initiate projects as of now to meet the new regulatory requirements within the imposed deadlines:
  • January 2025: Daily verification of customer base on lists (sanction screening) & Receiving SCT Inst in euro, 24/7, from eurozone banks.
  • October 2025: Sending SCT Inst in euro, 24/7, from eurozone banks.
  • April 2027:
    • Receiving and sending SCT Inst in euro, 24/7, from Eurozone-based EMIs and PIs.
    • Receive SCT Inst in euro, 24/7, from non-eurozone based EMIs and PIs.
  • January 2027: Receive SCT Inst in euro, 24/7, from non-eurozone-based PSPs other than EMIs and PIs.
  • July 2027:
    • Sending SCT Inst in euro, 24/7, from non-eurozone-based PSPs other than EMIs and PIs.
    • Sending SCT Inst in euro, 24/7, from non-eurozone-based PSPs other than EMIs and PIs.

The regulatory framework has led to the following four major innovations.

Customers will pay based on the same conditions between SCT Inst & SCT standard.

These new regulations will bring about an important increase of Instant Payments. This increase in volume had to be considered as soon as possible to best capitalize on the industrialization of this service.

The obligation to adapt to the use of Instant Payments introduced by the new European regulation will require adjustments of a technological, normative and organizational nature. The impacts will involve many structures within the organization that will need to review their current processes.

The new Instant Payments Regulation fits neatly within a regulatory framework that is already filled with numerous regulations that, taken together, are intended to regulate the entire payments and financial sector.

• Retail Payment Strategy: Aim to achieve a higher level of efficiency, strategic autonomy and resilience in retail payments, as well as supporting digitalisation and innovation.
• Digital Finance Package: Supports the EU’s ambition for a recovery that embraces the digital transition.
• PSD3: Prioritizes enhancing payment services, boosting customer protection, and establishing equal conditions for payment service providers.
• PSR: Emphasizes the regulation of payment systems to maintain transparency and security

The new rules also require payment service providers to verify that the IBAN code matches the payee's name to prevent errors or fraud. The Regulations also introduce new and specific ways for PSPs to sanction screenings of PSUs for the purpose of verifying that payers and payees are not subject to restrictive financial measures.

Financial institutions should consider adopting a holistic approach to combating fraud, particularly in cases where existing anti-fraud solutions and processes may be based on batch processing or manual intervention. Below is an overview of the actions financial institutions should take.

A. Model 

1. Construction of a centralized Competence Center for Instant Payments, to handle system reports 24/7 by unlocking customer operations.
2. Introduction of additional checks, meeting regulatory requirements, in case of periodic Instant Payments (e.g., for salaries).

B. Customer Care

1. Call Center Management as external companies not associated with banking or credit contracts. They are handled by vendors with specific contracts (e.g., KPIs and on-call compensation).
2. 24/7 Call Center operations.

C. Fraud Management 

1. Significant reduction in the number of frauds on Instant Payments by digital native banks, for three reasons:

   -generally younger consumer base;

   -more advanced fraud prevention tools;

   -better customer contact through digital channels.

D. Awareness for Customers 

1. Education and awareness around fraud, high budget spent on this issue.

2. Free training via webinar to describe how the service works and define how to reach out in case of fraud (to limit stolen identity and app compromise).

E. Operational effectiveness

1. Initial investment in a fraud management model: customer-facing with organizational interventions started earlier.

2. Pre-screening and list checks will remain active in addition to new controls required by regulations.

F. IT Investments

1. Evaluation of the adoption of new Open Finance tools (such as CBI services for Italy for example) to foster collaboration with other PSPs.

2. Enhance the use of AI tools to recognize fraud patterns. To date, positive effects are noted where they are introduced.

3. Change in solutions, from a reduced proportion of peers. Alternative applications are sought that enable predictive fraud insights (e.g., CLEAFY).