Keeping pace with changes in the payments sector: European Commission publishes a legislative proposal to accelerate the rollout of cross-border instant payments in euro

Instant payments (IP) in euro shall become available to all citizens and businesses holding a bank account in the EU and in EEA countries. IPs allow people to transfer money at any time of any day within ten seconds. The proposal aims to ensure that euro IPs are affordable, secure, and processed without hindrance across the EU.

PSD2 and the Regulation (EU) 2021/1230 on cross-border payments already apply to IPs and will continue to do so after the entry into force of this proposal.

To reflect innovation and market developments in payments, a necessary part of updating and modernising the single euro payments area (SEPA) is the universal availability of instant payments (IP).

Four years after the necessary technology was put in place to process euro payments instantly, it is apparent that the efforts of the European payments industry or member states will not be sufficient to remove obstacles for adopting on scale such euro IP in the EU. Therefore, the EU Commission concluded that legislative intervention is necessary to unlock the full-scale network effects by connecting all payment service providers (PSP) to instant payment technology, tackling high prices and frictions, and mitigating the risk of fraud or errors.

On 25 October 2022, by fulfilling a key commitment undertook in the Retail Payment Strategy for the EU as of 2020 (first pillar – increasingly digital and instant payment solutions with pan-European reach), the EU Commission issued a proposal regulation aiming to accelerate the rollout of cross-border IPs in euro.

IPs in euro shall become available to all citizens and businesses holding a bank account in the EU and in EEA countries. IPs allow people to transfer money at any time of any day within ten seconds. The proposal aims to ensure that euro IPs are affordable, secure, and processed without hindrance across the EU.

PSD2 and the Regulation (EU) 2021/1230 on cross-border payments already apply to IPs and will continue to do so after the entry into force of this proposal.

What is being proposed?

Euro credit transfers (including non-instant credit transfers) are regulated by the SEPA Regulation no. 260/2012. As IPs represent a new category of credit transfers in euro, the current proposal amends that Regulation by introducing additional requirements reflecting the specific characteristics of euro IPs. It also specifies which types of PSP must comply with the new rules.

The focus of the proposal is to ensure that all consumers, businesses, and public authorities in the EU that wish to pay and be paid instantly can do so. The proposal contains phased implementation deadlines, modified for the different components of the initiative and to allow for euro area and non-euro area member states to comply with the new requirements.

What is an instant credit transfer?

Instant credit transfers are a new sub-category of credit transfers, whereby funds pass from the payer’s account to the payee’s in a matter of seconds, at any time, day or night, and any day of the year. The proposal sets out certain key technical requirements regarding instant credit transfers. Other categories of credit transfers are processed by PSPs only during business hours, with the funds credited to the payee only by the end of the following business day.

Who is obliged to provide the service of receiving and sending instant credit transfers?

PSPs providing to their customers a regular credit transfer service shall also provide the service of sending and receiving cross-border IPs. The obligation to provide the service of euro instant payments will apply only to banks that operate both inside and outside the Euro area, as long as they already offer credit transfers in euro. The obligation does not apply to payment institutions (PI) and e-money institutions (EMI), given their restricted access to payment systems, Nevertheless, PIs and EMIs may offer euro IPs to their clients on a voluntary basis.

The compliance burden for those providers located outside the Euro area will be alleviated by longer deadlines to apply the new rules, compared to the deadlines applicable to the providers located inside the Euro area, allowing them to spread their implementation efforts over a longer period.

PSPs in the euro area (i.e., located in a Member State whose currency is the euro) shall offer:

• the service of receiving IPs in euro within 6 months after entry into force of the new Regulation;
• the service of sending IPs in euro within 12 months after entry into force of the new Regulation.

PSPs outside the euro area (i.e., located in a Member State whose currency is not the euro, such as Romanian credit institutions) shall offer:

• the service of receiving IPs in euro within 30 months after entry into force of the new Regulation;
• the service of sending IPs in euro within 36 months after entry into force of the new Regulation.

Technical specifications for the service

A few technical specifications are laid down for this service, including the requirement for IPs to be available 24 hours a day, 365 days a year, without any possibility to set up cut-off times or limit the processing of IPs to business days only. Customer (PSU) interfaces via which orders for credit transfers may be submitted must also allow the submitting of orders for IPs. Where a PSP provides the option of submitting multiple payment orders for credit transfers packaged together in bulk, it must offer the same service for euro IPs.

Charges for euro IPs

All PSPs offering euro IPs (including PIs and EMIs) shall ensure that the price charged for IPs in euro does not exceed the price charged for traditional, non-instant credit transfers in euro. This rule shall apply for PSPs in the euro area as from 6 months after entry into force of the new Regulation, and for PSPs outside the euro area as from 30 months after entry into force of the new Regulation.

For cross-border euro IPs executed by a PSP located outside euro area, the application of Regulation (EU) 2021/1230 on cross-border payments, in its current form, would have led to a higher charge than required by the proposed regulation. Thus, in addition, the proposed amendments will ensure that a cross-border euro IP should be priced at the same or a lower level than a corresponding regular cross-border euro credit transfer, even if this means that the price for such cross-border euro IP is not the same as the price for a corresponding domestic IP in the national currency.

Ancillary services increasing trust in IPs

All PSPs offering the service of sending of euro IPs shall provide their payment service users with a service:

• checking that the IBAN (the payment account identifier) of the payee matches the name of the payee; and
• notifying the payment service user of any detected discrepancy. This notification must be given before the payer finalizes the IP payment order and before the PSPs executes the IP. PSPs may charge a fee for the use of such a service.

In all cases, the PSU may freely decide whether to submit the payment order for an IP. The use of such a service by a user does not affect the PSP’s liability for non-execution, defective or late execution of IPs, as laid down in Articles 88 and 89 of PSD2.

The PSPs shall inform their payment service users that they have the right to opt out from (and, later, opt in) receiving this service.

This requirement will apply to PSPs in the euro area as from 12 months after entry into force of the new Regulation, and for PSPs outside the euro area as from 36 months after entry into force of the new Regulation.

Screening of customers with regard to EU sanctions in case of IPs. Sanctions for breaching this obligation

PSPs are required to verify at least once a day whether any of their customers are designated persons or entities subject to EU sanctions, and in any event immediately after the entry into force of any new or amended designations. This requirement will apply to all relevant PSPs starting with 6 months after entry into force of the new Regulation.

Where a payer or payee’s PSP fails to carry out the required verification and is subsequently involved in executing an IP for a payer or a payee subject to EU sanctions, it is liable for any financial damage to the other PSP involved in the IP resulting from penalties under EU sanctions regulations.

Minimum levels for the penalties which national authorities may impose to PSPs for failing to comply with EU sanctions obligations are:

• in the case of a legal person, administrative fines of up to not less than 10% of the total annual net turnover of that legal person in the preceding business year;
• in the case of a natural person, administrative fines of up to not less than EUR 5,000,000, or in the Member States whose currency is not the euro, the corresponding value in the national currency on the date of entry into force of the new Regulation.

Penalties for PSPs’ non-compliance with legal requirements in the new Regulation are the responsibility of Member States

Member States must lay down rules on the penalties applicable to PSPs in case of infringements of the provisions of the new Regulation, within 4 months after the entry into force of the new Regulation, and shall notify the Commission of the applicable penalties in their jurisdiction, within 8 months after the entry into force of the new Regulation.

What will be the impact for EU payment service providers?

PSPs that have not yet embraced IPs may incur greater costs arising from compliance with the proposed measures. More specifically, compliance costs will pertain to becoming ready to offer the service of receiving and sending euro IPs, as well as implementing the new service of checking the match between the name and IBAN of the beneficiary.

At the same time, PSPs are expected to make significant operational savings in the area of compliance with sanctions screening obligations as the proposed harmonisation of screening practices of euro instant payments will make this process more efficient and less dependent on manual work. Operational savings are also expected due to the reduced need to investigate fraud and errors related to instant payments, once the service checking the match between the name and IBAN of the beneficiary is implemented.

Next steps

The Commission has launched a public consultation inviting feedback on its proposal via its Have Your Say website. The current closing date is 5th January, 2023.

All feedback received will be summarised by the European Commission and presented to the European Parliament and Council with the aim of supporting the legislative debate. Before becoming law, the new Regulation will need to be reviewed, likely amended, and approved by both the European Council and the European Parliament.

The new Regulation provides that it will enter into force 20 days after publication in the Official Journal of the EU.