Background: keeping pace with changes in the payments sector
The Commission’s proposed Regulation ties in with the first pillar – ‘increasingly digital and instant payment solutions with pan-European reach’ - of its September 2020 Retail Payments Strategy, which confirmed its objective of encouraging the full adoption of instant payments in the EU. The Strategy was adopted at the same time as, but separately from, the Commission's Digital Finance Strategy. This was in recognition of the need for targeted policy measures relating to retail payments beyond the scope of the Digital Finance Strategy, in light of the speed and scale of technological change in the payments sector.
In March 2021, the Commission consulted on a roadmap for an EU-wide instant payments scheme and indicated that it was considering adopting a Regulation on instant payments (at that point the timing for this was Q1 2022). The draft roadmap was followed by two more consultations in the same month: a targeted consultation aimed at payment service providers (PSPs) accompanied by the Commission’s consultation strategy for the initiative on instant payments in the EU, and a public consultation on ways to ensure that instant payments are widely available and used in the EU. Both consultations closed in the summer of 2021.
What’s being proposed?
The Regulation would amend the Single Euro Payments Area Regulation ((EU) 260/2012) and the Cross-Border Payments Regulation ((EU) 2021/1230) and consists of four requirements:
- Making instant euro payments universally available, with an obligation on EU PSPs that already offer credit transfers in euro to also offer an instant version within a defined period.
- Making instant euro payments affordable, with an obligation on PSPs to ensure the price charged for instant payments in euro does not exceed the price charged for traditional, non-instant credit transfers in euro.
- Increasing trust in instant payments, with an obligation on PSPs to verify the match between the bank account number (IBAN) and the name of the beneficiary provided by the payer to alert the payer of a possible mistake or fraud before the payment is made.
- Removing friction in the processing of instant euro payments while preserving the effectiveness of screening for persons that are subject to EU sanctions. PSPs will verify their clients against EU sanctions lists at least daily, instead of screening all transactions one by one.
What’s the current position on instant payments in the UK and some key EU member states?
The Faster Payments System (FPS) was launched in 2008, putting the UK ahead of the curve on instant payments. FPS is operated by Pay.UK, the recognised operator and standards body for the UK’s retail interbank payment systems.
FPS was designed to help enable mobile, internet, telephone and standing order payments in UK sterling to move quickly and securely between UK bank accounts, 24 hours a day and 365 days a year. Before this, funds would take about 3 days to move between bank accounts.
The service facilitates real-time payments of up to £1m, but firms offering the service can set their own limits, depending on how the payment is sent and the type of account their customer is sending from.
According to information on Pay.UK’s website, in 2021 FPS processed 3.4 billion transactions with a value of £2.6 trillion, representing a year-on-year volume increase of 568 million payments, or 20%, and a 24% jump in values (up from £2.1 trillion in 2020).
Following the launch of a new access programme in 2014, the number of direct FPS participants has more than tripled, with more still in the pipeline. In 2018, the launch of new rules allowing non-banks to open a settlement account at the Bank of England resulted in the first non-bank joining as a direct participant. A list of the current FPS participants is available here.
Pay.UK is now developing the UK New Payments Architecture (NPA) for the clearing and settlement of retail interbank payments which will replace Faster Payments (and Bacs) in the next few years. The aim of the NPA is to create a system that is easily accessible and easy to upgrade and innovate on. One of the guiding principles for the design and delivery of the NPA is to develop a real-time payment capability, creating more choice for those who make and receive payments.
The Bank of England (BoE) operates the CHAPS payment system, which is a sterling same-day system that is used to settle high-value wholesale payments but also time-critical, lower-value payments like buying or paying a deposit on a property. Payments are settled over the BoE’s Real Time Gross Settlement (RTGS) system. There are over 30 direct participants and over five thousand financial institutions that make CHAPS payments through one of the direct participants. A list of CHAPS direct participants can be found here.
Ireland does not currently have an industry-wide instant payments solution. Irish retail banks are working on an instant mobile payments service through an account-to-account mobile-based solution built on the SEPA infrastructure, with the mobile payment app joint venture to be launched imminently, having received approval from the Competition and Consumer Protection Commission. Revolut also provides SEPA instant credit transfers in Ireland and Cash App has entered the market but is not yet available.
SEPA instant credit transfers are offered by a number of PSPs in the French market on the basis of the SEPA Instant Credit Transfer rules which were published in 2017. This being said, (i) there are still some PSPs (including credit institutions) that still do not offer this service to their clients and (ii) there is no market practice on fees that are charged for the provision of the service (i.e., while certain PSPs are offering the service free of charge, some others can charge up to €1 per instant credit transfer).
SEPA Instant Credit Transfers are offered by a number of credit institutions and PSPs in the German market on the basis of the SEPA Instant Credit Transfer rules which were published in 2017. Implementation of SEPA Instant Credit Transfers can be complex depending on the existing platform of the bank. Transaction monitoring, including under Regulation (EU) 2015/847 (Wire Transfer Regulation), the German Anti-Money Laundering Act (Geldwäschegesetz) and Commission Delegated Regulation (EU) 2018/389 (Strong Customer Authentication Regulatory Technical Standards under PSD2) as well as sanctions will have to be enhanced to address the specific risks of instant credit transfers.
SEPA Instant Credit Transfers would also fall within the scope of open banking, meaning that third party providers (TPPs) can also offer instant credit transfers; adding further to the complexity of implementing the new requirements.
It remains to be seen whether instant credit transfers will be widely used by consumers and merchants.
SEPA Instant Credit Transfers are offered in Italy by the majority of PSPs. PSPs offering regular euro credit transfers to customers usually also offer euro instant payments. As indicated by the European Payments Council, currently more than 280 PSPs offer instant payments in Italy.
Transaction fees for instant payments vary among different PSPs and are higher compared to fees applied to regular credit transfers.
The Bank of Italy also has a proactive role in the development of instant payments activity in its role as provider for developing and operating the pan-European instant payment settlement platform, TARGET Instant Payment Settlement (TIPS).
The Commission has launched a public consultation inviting feedback on its proposal via its Have Your Say website. The current closing date is 26 December 2022, although a note on the webpage states that the eight-week feedback period is being extended every day until the adopted proposal is available in all EU languages.
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. It also provides that it will enter into force 20 days after publication in the Official Journal of the EU.
If you would like to discuss the potential impact of the European Commission’s proposal on your business, please get in touch with us.
Authored by Eimear O’Brien, Andreas Doser, Florent Madreperla, Elisabetta Zeppieri, Rebecca Carbone and Virginia Montgomery