The digital payments landscape in Europe is undergoing a seismic shift as banks prepare to implement SEPA Instant, the regulation mandating instant payments in euros across the Single European Payments Area.
The push toward real-time financial transactions represents not just an infrastructural overhaul but a reimagining of how businesses and consumers interact with money.
However, new research from RedCompass Labs reveals that 58% of European banks that do not currently offer instant payments believe the timelines set out by the EU in the new SEPA Instant payments legislation are unrealistic.
The report, “So, you think you’re ready for SEPA instant?” includes findings from a survey of 200 senior payment professionals at European banks which examined their views on the EU’s new instant payment legislation and where they are on their journey to instant payments.
The research reveals that nearly one-third (33%) of banks that don’t currently offer instant payments were unsure or not confident they would be able to receive instant payments by 9th January 2025, as set out by the legislation.
It also found that European banks are underestimating how many payments they will need to process per second.
On average, European banks are aiming to be capable of processing between 101 and 300 payments per second by the end of 2025, while just 5% said they were targeting above 1,000.
Given bulk payment files can contain hundreds of thousands of payments that need to be processed as soon as possible, banks should aim to be able to process at least 1,000 payments per second.
The top five challenges facing banks in offering instant payments are making adaptations to customer channels, including offering a confirmation of payee service (25%), implementing KYC and sanctions screening provisions (21%), processing more volumes and scaling throughput (22%), creating a business case for value-add instant payment offerings (20%) and 24/7 availability (20%).
What Is SEPA Instant?
Adopted in February 2024 by the EU Parliament, SEPA Instant requires banks and payment service providers to offer euro-denominated instant payments at no additional cost compared to traditional credit transfers.
Payments must clear within 10 seconds, 24/7, with obligations for receiving banks by January 2025 and sending banks by October 2025.
This regulation aligns with broader EU goals to enhance the euro’s international role and reduce dependency on foreign payment systems like Visa and Mastercard.
The Promise of SEPA Instant
The benefits of SEPA Instant are wide-ranging:
- Faster Transactions: Instant payments eliminate the days-long delays of traditional credit transfers, enabling businesses to optimise cash flow and individuals to access funds immediately.
- Enhanced Customer Experience: Real-time payments align with consumer expectations in a digital-first world, fostering trust and loyalty.
- Cost Efficiency: By displacing card payments, SEPA Instant offers a more economical alternative, avoiding interchange fees and other associated costs.
- Financial Inclusion: With accessibility as a cornerstone, SEPA Instant promises to extend banking services to underserved communities, fostering economic growth.
Challenges Facing European Banks
Despite its potential, implementing SEPA Instant poses significant hurdles:
- Infrastructure Scalability: Real-time processing demands banks scale their systems to handle thousands of transactions per second. Current capabilities in many banks fall far short of this benchmark.
- Verification of Payee (VoP): Banks must ensure that funds are directed to the correct account through stringent VoP checks, a feature not previously mandatory in SEPA credit transfers.
- 24/7 Availability: Unlike traditional systems, which operate during business hours, SEPA Instant requires uninterrupted uptime. This necessitates robust backup systems to ensure business continuity.
- Bulk Payments Processing: Large-scale transactions, such as payrolls, can overwhelm existing infrastructure. Banks must prepare for these high-volume demands without compromising speed or accuracy.
- Regulatory Timelines: The ambitious deadlines leave little room for error, pushing banks to overhaul their systems within a tight timeframe.
Investing in Readiness
The survey revealed that 76% of banks plan to invest in technology to meet SEPA Instant requirements.
Yet, the scale of investment varies, with most banks budgeting €1 million to €3 million.
Some are underestimating the processing capabilities needed, risking bottlenecks as instant payment volumes grow by an expected 50% to 100% by the end of 2025.
Stand-in modules, a critical tactical solution, offer banks a way to handle instant payments while upgrading their core systems. These modules act as temporary backups, ensuring transaction continuity even during outages.
By integrating these solutions, banks can deliver seamless payment experiences while meeting compliance requirements.
The Corporate Perspective
Businesses stand to benefit enormously from SEPA Instant.
Key advantages include:
- Certainty in Payments: Knowing precisely when payments will clear helps businesses manage supplier relationships and cash flow.
- Cost Savings: The elimination of interchange fees makes SEPA Instant a cost-effective alternative to card payments.
- Operational Efficiency: Instant payments streamline treasury operations, enabling better resource allocation and strategic planning.
A Game-Changer for the Payments Industry
SEPA Instant also challenges the status quo of the payments ecosystem. The EU’s vision to disrupt the Visa and Mastercard duopoly could spur competition and innovation, creating a more diverse and resilient financial landscape.
The journey to SEPA Instant represents a turning point for Europe’s payments industry.
While the challenges are daunting, the rewards – both for consumers and businesses – are transformative.
For consumers, businesses, and financial institutions alike, the era of waiting for payments to clear will soon be a relic of the past. With SEPA Instant, the promise of a seamless, efficient, and inclusive payments landscape is closer than ever.
The post European banks think SEPA instant timelines unachievable appeared first on Payments Cards & Mobile.
