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Instant payments in the euro are standard in many countries of the Eurozone. But now, the European Commission is planning the mandatory introduction of these for all banks in the Single Euro Payments Area (SEPA). In addition, in July 2023, the FedNow system for instant payments in dollars was launched. It is already planned that the Eurozone will be connected to this American area, and it will be possible to deliver funds overseas in seconds. How will instant SEPA payments impact payment service providers, and what will this service bring to ordinary users? We will answer these questions in our new series of articles.

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Part One: Instant Payments Across Europe

Payment transaction innovation is faster in the euro area and other parts of the world. Banking institutions are shortening and speeding up, increasing transparency, and simplifying payment processes. The term instant or instant payment is becoming more and more common. Immediate processing of payments in Czech crowns is gradually gaining ground in the Czech Republic. We get used to instant transfers even on days off, at night, and whenever needed. However, not all local banks provide this service. The same applies to euro-area countries with payments in euros. However, the situation will soon improve dramatically.

Statistics show an average share of SEPA instant payment providers in countries with the euro as a local currency of 71%. In non-euro area countries, the share is only 9%. However, this will change with the new regulation for processing euro payments within the European Economic Area (EEA).

At the end of October last year, the European Commission proposed to amend Regulations (EU) No. 260/2012 and (EU) No. 2021/1230. This proposal will have an impact on the immediate processing of SEPA payments. The proposal foresees the mandatory availability of the SEPA instant payment processing service, in addition to additional obligations and harmonization of related services. 

Until 5 January 2023, SEPA payment service providers had the opportunity to comment on the proposed changes. These suggestions are now being processed, waiting for the final statement of the European Commission and confirmation of the final form of the regulation. The proposal is that banks in the EEA will have six months to implement availability for SEPA Instant and must be able to send SEPA Instant payments within 12 months. In countries where the euro is not a local currency, this obligation will apply within 30 months for incoming payments and within 36 months for outgoing SEPA Instant payments.

In addition, the regulation also brings other rules and changes. Service providers will be obliged to verify the accuracy and accessibility of the payee's account number in the IBAN (International Bank Account Number) format before the payment order is processed. At the same time, the obligation of AML (Anti Money Laundering) screening of the entire client portfolio daily is introduced. The regulation also sets the maximum fee for SEPA Instant payments at the level of standard SEPA payments.

What will this mean for banks and SEPA service providers?

Their systems will have to operate 24 hours a day, 7 days a week, 365 days a year, all with zero tolerance for service unavailability. The investments will undoubtedly be considerable. Therefore, it is now necessary to think about their use as efficiently as possible.

These changes are a unique opportunity to simplify payment infrastructure and a large part of payment processes. These will be newly based on modern architecture and rules for instant payments (concerning the uncertainty of migration to the euro in the Czech Republic, SEPA Instant is offered as a suitable basis for a standardized architecture).

There are many topics to think about:

– Instant payments necessarily call for full automation because there is no time for manual repairs.

– Daily AML screening of the entire client portfolio will be required by European regulation. This will make it possible to limit screening at the transaction level to standard (non-instant) payments only.

– There will be an obligation to verify the correctness and accessibility of the beneficiary's account number. However, it is not yet clear whether there will be a central database of accounts at the level of the EBA (European Banking Authority) accessible through the API.

– The mandatory transmission of a structured address within the ISO format of payment messages will affect the processes of transmission and validation of payment orders and the provision of enriched transaction data within electronic statements.

– Immediate payment processing will also lead to the need to inform clients about payments made in real time and the further development of Open Banking.

– The significant expansion of instant payments will certainly significantly increase the demands on high availability and throughput of the communication infrastructure and application architecture. This expansion will also require detailed operational monitoring and securing resources for 24/7 support.

The specialized Payments Transformation Services team at Trask helps our clients navigate the upcoming mandatory changes in the area of Payments and analyze the impact of these changes on bank systems and payment processes. We are engaged in the design of a strategy for the development of payment systems using a reference architecture and the preparation of a transformation road map. Recently, we have successfully implemented several challenging transformation projects.

Michal Šustr, Business Consultant, Payments

Michal has been working in the field of foreign payments for 26 years. In Trask, he oversees Payments consulting focusing on cross-border payments of all kinds – SWIFT, SEPA, T2, ISO20022, Instant payments, local clearing in CEE countries, FX, and many others.


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