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The European Commission has suggested a new regulation requiring banks and payment services providers to offer instant payments across the EU. Bill Lumley reports.

Intended to accelerate the roll-out of instant payments, new rules are slated to be introduced by the European Commission (EC) in the form of amendments to the Single Euro Payments Area regulation and those for cross-border payments.

The proposals for a shift to instant payments will help both businesses and consumers, according to EC commissioner for financial services Mairead McGuinness. “We need this to accelerate the roll-out of instant payments in the EU. Moving from ‘next day’ transfers to ‘ten seconds’ transfers is seismic and comparable to the move from mail to email,” she said in a statement.

Instant payments have been rolled out in many parts of the world, including the EU, but voluntary take-up in the bloc has flatlined, with just two-thirds of banks offering instant payments, accounting for only about 13% of all credit transactions, says Ms McGuinness.

Fears of fraud

While the regulatory move on payments has been broadly welcomed across the industry, there are concerns that instant payments will demand increased anti-fraud measures. Enrico Aresu, head of compliance solutions DACH & CEE at Moody's Analytics, warns that while the EC’s announcement holds potential benefits for consumers, it also means compliance teams need to step up to meet the new pace this will set. 

“This a huge challenge, considering that at the start of the year only 11% of all euro transfers in the EU were instant,” he says. 

Tracking the legitimacy of financial transactions and assessing them is the cornerstone of any anti-money laundering operation, Mr Aresu stresses. “If this must now happen within a fraction of the time, due to instant transactions, there is greater scope for money laundering to go undetected, alongside challenges in fraud detection and prevention.”

And, Mr Aresu warns, compliance teams globally will have to consider adopting automation so that these customer-friendly developments aren’t exploited by those seeking to launder money.

“Risk-based automation holds the key to meeting this new speed. No human can assess the validity of a transaction instantly and flag it when necessary, yet automation can. Given changing customer requirements, the EU is not likely to be the last body to authorise these types of instant payments,” he adds.

A price worth paying

Robert Pehrson, head of products and business development at northern European bank SEB, welcomes the proposed EU instant payment regulation. He acknowledges there is a potential increase in the risk of fraud, but argues that with the right industry-wide collaboration such a risk can be managed. 

“There will still be potential risks moving over to instant payments. The [European] community and the industry need to agree on specifics regarding how to minimise that risk and to make sure that all the controls are taken care of for all parties in the value chain, fulfilling the requirements and so on,” says Mr Pehrson.

Instant payments are nonetheless inherently more secure than other payment methods such as cards, since transactions are made within banks’ secure environments and use the same security techniques and standards, according to Tom Greenwood, founder and CEO of real-time payment specialist Volt. 

The EC regulatory announcement sets the stage for a renewed wave of innovation and growth for Europe’s payments industry

Tom Greenwood

“The risk of fraud, whilst a clear and present danger, will be increasingly mitigated both by consumers becoming more used to instant account-to-account payments as they go mainstream, and by banks and [payment service providers] evolving their fraud prevention technology,” says Mr Greenwood.

Real-time payments are now at the heart of modern economies, he adds, arguing that today’s consumers and businesses are looking for a hyper-connected, fluid customer experience. “The EC regulatory announcement sets the stage for a renewed wave of innovation and growth for Europe’s payments industry, and I fully believe that safe, instant, frictionless payments should and will be the norm in Europe,” says Mr Greenwood.

Until today, only around 50% of banks in the EU have implemented instant payments via bank transfer system SEPA Instant, adds Mr Greenwood. “This leaves the other 50% opting out of instant payments and creates significant barriers to the development and adoption of open banking, to the detriment of consumers and businesses.”

Mr Greenwood believes that we are now at a turning point, with new use cases for account-to-account payments becoming available, including for in-person retail settings. “By mandating instant payments, the biggest blockers to open banking payments becoming mainstream are instantly solved,” he concludes.

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