Back in 2007, the UK positioned itself at the forefront of global payments when it took the lead in the implementation of instant payments – but the EU is catching up. In this article, we explore what this means for European banks and how the UK can keep its lead.
While the UK has focused on leading the payments race, European banks have been delivering innovation in other areas such as customer experience. However, the focus on front-end improvements has left European banks on the backfoot when it comes to transitioning to instant payments, which in turn, has created critical vulnerabilities in light of SEPA Instant.
What are instant payments?
Instant payments are set to become the ‘new normal’ following the EU Parliament’s decision to require payments service providers offering SEPA credit transfers to also offer instant credit transfers to their customers at the same price.
Introduced for the first time in 2017, SEPA instant payments were created to allow the transfer of money between accounts in Europe (up to EUR 100,000) in less than 10 seconds, 24/7/365. This marked a further step in European payments integration and was intended tobring a paradigm shift to the region’s payments habits: instant payments were expected to become the norm.
In 2024, despite the relatively good coverage, with 71% PSPs in the euro area offering instant payments, the share of instant payment transactions in all SEPA payments has only reached 17%. This has led to regulatory intervention to facilitate further adoption of instant payments.
Under the new regulation, PSPs will be expected to implement instant payments in a short timeframe or adjust the implementation of existing instant payments infrastructures:
- all PSPs offering SEPA payments will be mandated to offer SEPA instant payments; and
- charges applied by PSPs in respect to instant credit transfer transactions in euro cannot be higher than the charges applied to non-instant credit transfer transactions in euro.
All PSPs in the eurozone will be required to enable their clients to:
- receive SEPA instant payments by 09 Jan 2025; and
- send SEPA instant payments by 09 Oct 2025.
The instant payments legislative proposal is designed to make transfers faster, more secure and affordable. It is a significant step towards creating a more streamlined and efficient payment system that benefits both businesses and consumers.
Preparing for an operational overhaul
We know that updating back-end systems and processes will be a gradual process, mostly due to the bureaucratic inertia large banks face, but also because catching up to instant payments requires an overhaul of a bank’s entire infrastructure – it must consider operations, IT, compliance and product.
And aside from the technology pressures, this transition will also require rethinking of staffing, including the introduction of around-the-clock shifts and faster operational pace – a change that could significantly disrupt the current banking culture that employees have become accustomed to.
What is next for banks?
The EU’s move to accelerate the adoption of instant payments in Europe puts pressure on banks that haven’t yet implemented instant payments to assess their readiness to comply and prepare for the upcoming implementation.
There is less than a year to go before the go-live, so we expect banks have already begun significantly ramping up investment in their IT infrastructure and human resources to prepare for this change.
Banks will also need to brace themselves for a reality where issues must be resolved not in a day, but in minutes, and service availability stretches to 24/7. Coupled with the bureaucratic inertia large banks have become associated with, it’s likely that we’ll see lots requesting extensions to the deadline.
Can the UK stay ahead?
While the UK’s reliance on instant payments has allowed fintechs to flourish and grow in the gaps UK banks refuse to enter, as Europe catches up and pulls ahead of UK banks, with additional services and enhanced customer experience, it will become increasingly more difficult for the UK to keep its leading position.
This is where programmable payments come into play. An example of this is the introduction of intelligent bank accounts with built-in personalised logic. It is these types of simple automations that will give customers access to faster, more secure payments, and equip UK banks with a competitive differentiator that allows them to retain and grow their customer base.
How Quant can help
