Following the EU’s provisional instant payments agreement, Laurent Descout, Founder and CEO of TMI Innovation Lab entrant Neo, takes a closer look at the legislation, exploring its implications for corporates.

The European Council and European Parliament struck a provisional agreement towards the end of 2023 requiring all payment service providers (PSPs) operating in the EU and in EEA countries to offer the service of sending and receiving instant payments in euro. Any charges applied for this service must not be higher than the charges that apply for standard credit transfers.

Laurent Descout
Founder and CEO, Neo

The new legislation aims to unify systems and experiences across the Single Euro Payments Area (SEPA. It positions the continent as a major player in all-for-one payment innovation. This will certainly put pressure on traditional banks to update their systems so they can process and deliver instant payments, but what will it mean for corporates?

Need for speed

Currently, only 11% of the EU’s euro money transfers are instant and Visa and Mastercard remain the most prevalent payment options for consumers in Europe. The EU has consistently been transparent about its intention to challenge this duopoly in the payments industry, introducing initiatives like EPI (the European Payments Initiative), and now instant payments.

The new legislation has been provisionally agreed by the EU to make instant payments in euros mandatory for PSPs, and improve the availability of instant payments options denominated in euros across the EU. It requires banks to offer instant payments across all channels without surcharge and paves the way for more innovation.

The European Commission’s impact assessment revealed that nearly €200bn is locked in the financial system every day. Instant payments have the potential to free up this liquidity, unlocking economic growth.

Carlos Cuerpo, Spain’s Secretary General of the Treasury and International Financing and Minister for Economy, Trade and Companies, said that the legislation will “unleash an enormous potential.” In addition, with more detailed customer profiles, PSPs can improve fraud monitoring, strengthen control and mitigate AML risks. Indeed, under the new rules, instant payments providers will need to verify that the beneficiary’s IBAN and name match – in order to alert the payer to possible mistakes or instances of fraud before a transaction is made.

Long time coming

The mechanisms currently in place for instant payments are fragmented across Europe. Countries have different protocols and differing agreements with other jurisdictions, which adds complexity, cost, and processing time. Fees for international payments currently average 1.5% for corporates.

For some time now, the technology has existed to enable instant payments across borders in the SEPA region, via schemes such as SEPA Instant Credit Transfers (SCT-Inst). This permits transfers between registered entities in under 10 seconds to a value of up to €100,000.

Given that this limit is usually far too low for many treasury transfers, it’s not surprising that uptake of schemes such as SCT-Inst has been sluggish, with only 56% of Europe’s more than 5,500 PSPs registering for SCT-Inst, and just 14% of all transfers by value using the scheme.

Linking the multitude of systems across Europe will make transferring money cheaper, faster, and more transparent. Enabling B2B payments to be completed within seconds and at low costs enables merchants and corporates to optimise their liquidity, resulting in more efficient cash management.

Businesses can also lower their transaction and working capital costs through a reduced settlement lag and smoother reconciliation process.

Friction free

The legislation is ultimately good news for European consumers and businesses, as it means there will be greater convenience and choice. Instant cross-border payments for corporates will help simplify access to many more markets with considerable chances of scaling and growing businesses.

That said, there are many technical implementations. Banks will have to update their systems to cope with a high volume of payments and to be available 24/7, while corporates will have to look to integrated treasury management solutions to ensure a smooth transition.

With the right partners, businesses of all sizes will be able to benefit from new technology to improve their treasury operations and reap the rewards of instant payments.