SEPA instant payments – the countdown has begun

7 February 2024 was the day. The EU parliament voted on the regulation on SEPA instant payments, which had been the subject of lengthy debate. After the favourable decision of the EU parliament, the regulation will shortly be published in the Official Journal of the EU and will then come into force 20 days later. This means that by March/April at the latest, the clock will start ticking for many payment service providers (PSPs) that have not yet introduced SEPA instant payments (SEPA Inst). But even PSPs that already have SEPA Inst in their product range will 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 PSPs that already offer classic SEPA credit transfers (SCT) today are also obliged to offer SEPA Inst to their customers (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 PSPs to be able to receive SEPA Inst. For the significantly more complex active accessibility, i.e. for PSPs 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 PSPs 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 Inst is not the only challenge for PSPs. The EU regulation also introduces changes that affect even PSPs that already have SEPA Inst in their portfolio. This includes sanctions screening. In order to standardise and simplify it, the previous transaction-based check shall be discontinued. Instead, every PSP 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 Inst can be executed, i.e. this check must be carried out in online banking, at the transfer terminal and even at the counter. The PSPs have 18 months for implementation.

Exchange rates now also available instantly and at any time?

SEPA Inst orders from and to foreign currency accounts within the SEPA area will also be a challenge. The EU regulation states that payments to and from foreign currency accounts with the corresponding conversion into the respective currency must be carried out within 10 seconds. This would lead to exchange rates also being available for download and traded 24/7/365. Alternatively, a PSP could hedge an exchange rate, but this involves a high exchange rate risk.

We will go into further challenges in greater depth in our free webinar on 23/02/2024. The webinar will be held in German. You can register via the following website:

www.ppi.de/payments/regulatorische-anforderungen/webinar-instant-payments-verordnung/

Conclusion

PPI offers two services – the instant payments readiness check and TRAVIC-Instant-Payments-as-a-Service

The "new normal" for payments with SEPA Inst is now to become a reality. The standardisation and fee harmonisation of the payment method will lead to most customers switching to SEPA Inst altogether. Market participants expect the number of transactions to triple – at the very least. PSPs should therefore check now whether they are ready on a technical, business and regulatory level. Our instant payments readiness check reviews all relevant processes and topics within three weeks. The fields of action derived from it help to achieve compliance with the EU regulation. For a fast introduction of instant payments, we offer our cloud-based solution TRAVIC-Instant-Payments-as-a-Service.

Author: Minh Khoa Doan

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