SEPA Instant Payments – The countdown has begun…

7 February 2024 was the day. The EU parliament votes on the regulation on SEPA instant payments, which has been the subject of lengthy debate. Following the favorable decision of the EU parliament, the regulation is published in the Official Journal of the EU and comes into force 20 days later.

This means that the clock started ticking for many payment service providers (Banks) that have not yet introduced SEPA instant payments (SEPA Inst). Even Banks that already have SEPA Inst in their product range have a lot to do.

What does this mean in concrete terms, and who is affected by this EU regulation?

According to the legal text, all Banks that already offer classic SEPA credit transfers (SCT) today are also obliged to offer SEPA Instant to their customers Payment Service Users (PSUs) – and it must not cost more than a classic credit transfer. No institutions are exempt from this and thus even e-money institutions are affected. The implementation deadlines have now been defined in the final version. Just 9 months remain for the introduction of passive accessibility, i.e. for Banks to be able to receive SEPA Inst.

For the significantly more complex active accessibility, i.e. for Banks to be able to send SEPA Inst, the legislator stipulates a time frame of 18 months. The EU regulation even defines sanctions and penalties to ensure that Banks actually comply with the time limits. 10 % of the net turnover of the previous fiscal year are estimated for such cases. And that is only the minimum. The specific interpretation of the sanctions is left to the individual member states in the SEPA area. 

Workflow process - Sanctions screening

The introduction of SEPA Instant is not the only challenge for Banks. The EU regulation also introduces changes that affect even Banks that already have SEPA Instant in their portfolio. This includes sanctions screening. In order to standardise and simplify it, the previous transaction-based check shall be discontinued. Instead, every Bank is obliged to check its customer directory against EU sanctions lists at least once a day. This in turn means a continued adaptation/addition of the workflow process.

It sounds simple at first, but challenges arise when the first dependencies between the individual workflow processes become recognisable. The adaptation of the check is to be implemented within the first 9 months.

Service - IBAN/Name check

The most discussed topic remains the IBAN/name check or payment account verification (PAV). This is a free service for the end customer. The name of the payment recipient is matched with the specified IBAN. This should give the ordering party of the payment greater certainty that the payment is going to the right recipient. But what happens if the specified name is not 100 % as stored in the recipient bank's customer directory?

The legislator even stipulates that the recipient bank should disclose the full name to the ordering party of the payment if the name is very similar. Is this compatible with the GDPR? Who defines when a name is very similar to the original? In addition, this service must be available for every submission channel through which SEPA Instant can be executed, i.e. this check must be carried out in online banking, at the transfer terminal and even at the counter. The Banks have 18 months for implementation. 

Real-time Fraud Detection

With instant payments, fraud detection must also be near instantaneous. Banks now operate under short time windows (often down to seconds) to analyze transactions and flag suspicious activity. This requires:

• Advanced analytics: Utilizing machine learning, behavioral modeling, and sophisticated rules engines to spot deviations from normal patterns. 
• Data integration: Drawing from customer profiles, transaction history, device fingerprinting, and external threat intelligence databases. 

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