The payments landscape in Europe is poised for a shift as new regulations mandating support for instant payments go into effect in 2025.
That’s no guarantee that consumers and businesses will automatically take advantage of them, but it will have implications for banks as well as consumers and present opportunities for businesses across the region.
Oliver Northern, director and treasury product manager at Bank of America, told PYMNTS that new rules taking effect in Europe as early as next year will move the needle on instant payments’ wider acceptance and use. Consumer and corporate expectations of payments themselves are changing, and corporates especially are shifting to digitally native workflows.
“We have a number of clients that offer workflows that benefit from instant payments and instant checkout activity,” Northern told PYMNTS. “Through the use of APIs, real-time payments integrate well into those business workflows and offer a real value proposition to the client.”
The ability to use real-time rails to make and receive urgent payments can help shield companies from cash flow and liquidity shocks, Northern said.
The new regulations in the European Union, which debuted in February, mandate that by January of next year, money can be transferred within 10 seconds 24/7/365, no matter if that money is being sent domestically or across borders. The account “reachability” will be extended, and the costs tied to instant transactions must not be higher than the charges levied on standard credit transfers.
But, as Northern recounted, not all corporates are ready for that always-on functionality. The payment service user interfaces will have to be as “available” for instant payments as they are for credit transfers.
In terms of the mechanics, Northern noted that banks’ corporate clients will be able to make use of file “channels” that are already set up for existing payment types. The file will be shredded into individual payment messages that are sent by the bank to the real-time payment clearing. Users can also be connected via an API channel.
With the rise of instant payments, client firms have been cognizant of the “real value add” that credit confirmation brings to day-to-day transactions, he added.
“When you send an instant payment, within 10 seconds you will know if money has been credited to the account or if it’s been rejected,” Northern said.
For the back-office operations, the data-rich detail inherent in ISO 20022 messaging helps improve transaction reporting and reconciliation of those transactions, which can be done in real time, he said.
“We’re talking about fields like end-to-end IDS, the beneficiaries IBAN, all remittance information … these now all have structured and fairly lengthy fields that prior formats just didn’t carry,” he said. “I’ve been speaking to clients about real efficiency gains in those areas.”
Among the most immediate advantages of new data flows is the use of addresses. Regulators across the globe are examining their clearing and payment system mechanisms and how addresses can be used generically across wire transactions, ACH transactions and real-time payments, he said.
“Corporates can structure their client databases in such a way that they’re able to service all the different payment rails more efficiently,” Northern noted.
Asked by PYMNTS about the costs tied to transactions — the actual monetary costs associated with getting the payments done and the costs of fraud — Northern said that the real-time networks allow corporates to validate beneficiaries’ names and account numbers before sending money.
“That gives us a real degree of comfort to whoever is making the payment that they are paying the correct consumer or business,” he said.
Looking ahead, Northern said that as the new rules take effect in the EU, “we’re going to see the reach of the instant payments scheme increase massively, which will lead to a higher number of receipts coming in.”
The current data indicates that 14% of traffic is real-time, and the percentages will surge through the next year.
“For those clients that want to offer a full, real-time experience, the scheme reach is now going to be there,” Northern said.
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