SEPA Instant Payments: A Must for Ambitious and Modern Banks

The European Union's Instant Payments Regulation is reshaping the financial landscape for payment service providers (PSPs) within the Single Euro Payments Area (SEPA).

As of 9 October 2024, providers are mandated to have the capability to send instant payments, following the requirement to accept them, which was introduced in January. This regulation stipulates that immediate transfers must be priced in line with traditional, slower credit transfers.

Banks are also required to offer a ‘Verification of Payee’ service, a measure designed to combat fraud.

For non-EU financial institutions in the European Economic Area, the deadline for compliance is 2027. Other regions, such as the UK, which is part of SEPA but outside the EU and EEA, currently face no set deadline.

However, the operational and competitive pressures that stem from SEPA compliance are likely to create a major impact on them regardless. For financial leaders, this regulatory change presents not just a compliance challenge but a strategic inflection point.

Beyond regulatory compliance

Forward-thinking financial institutions may view the new regulation as more than a mere compliance exercise.

Rossana Thomas, Vice President and Head of Payment Solutions at Fiserv, suggests that financial institutions can thrive in this new landscape.

“Regulation and standards should be treated as more than a compliance box-tick – they provide the foundations for service levels that all providers should aim to function at, whether they are compulsory or not,” Rossana explains.

Disregarding the move towards instant payments could create commercial risks for providers operating in a multinational context.

Rossana continues: “Regardless of location, PSPs with multinational customers will be at a competitive disadvantage if they disregard SEPA instant payments.”

Modernising legacy systems

The transition to instant payments necessitates a fundamental move away from legacy systems, which are often ill-equipped for a real-time environment.

The new landscape demands a strategic reassessment of core infrastructure, prioritising investment in modernisation to maintain a competitive edge.

“PSPs that thrive will be the ones that prioritise regulatory compliance while updating legacy systems, including cloud migration and real-time fraud monitoring tools,” explains Rossana.

The move to real-time payments also renders traditional, batch-based fraud prevention methods obsolete. A new approach to risk management is required to protect both the institution and its clients.

Rossana suggests that “banks ought to consider adopting adaptive machine models that adjust to new fraud patterns. These models differentiate genuine transactions from abnormal ones by analysing contextual signals like location device and transaction history rather than static parameters.”

Future-proofing through customer experience

This regulation could also signal a change in focus from the transaction itself to the wider customer experience. Providing seamless, secure and instant services is becoming a key differentiator in a crowded market.

“This new regulation calls for a change in focus – from the transaction itself to the wider customer experience. As a result, PSPs must strive to future-proof their solution,” says Rossana.

She advises that this can be achieved through a centralised global payment hub. This approach streamlines processes to handle a wide range of transactions and integrates existing applications, such as account processing and anti-money laundering, with new payment initiatives.

This investment in infrastructure caters to the evolving needs of the customer.

“Such a hub helps financial institutions fulfil the demand for secure and flexible real-time payments both domestically and internationally,” she adds. This focus on innovation is reflected in industry recognition; Fiserv is fifth in the Top 100 Fintech Companies by FinTech Magazine, a list that highlights organisations setting a benchmark for excellence.

As the financial world moves towards a 24/7 operational model, participation in instant payments is becoming a necessity for survival and growth. Rossana concludes: “As 24/7 instant payments increasingly become standard practice, it is essential for all PSPs to participate if they are to thrive.”