Are You Ready for The EU Instant Payments Regulation ?

Key Takeaways:

The Instant Payments Regulation (IPR), adopted by the European Parliament and Council in March 2024, is set to take effect in January 2025, bringing a paradigm shift to payment processing in the European Economic Area. By mandating instant fund transfers of up to €100,000 within just 10 seconds, the regulation aims to enhance payment speed and convenience for retail customers and businesses. 

However, this ambitious regulation also poses significant challenges for the financial industry. Banks and non-banking payment service providers (PSPs) across the Single Euro Payments Area (SEPA) must adapt their systems to receive instant payments by 9^th January 2025 and send them by 9^th October 2025.¹ 

Given the tight timeline and broad implications, many financial institutions are struggling to implement the necessary changes to meet the compliance requirements. 

So, are you ready? Let’s dive into the challenges and see what it takes to answer that question. 

The Broader Implications of the EU Instant Payments Regulation 

With the Instant Payments Regulation, Europe is aiming to catch up with global peers. Over 100 countries worldwide already have instant payment schemes in place, including the UK, which enacted Faster Payments in 2021. The IPR is set to make EU members more competitive, streamline transactions for users, and support the growth of the EU’s embedded finance economy, which is expanding at a CAGR of 14.5%.² 

Initiatives like Open Banking and PSD3, P2P (peer-to-peer) payments, banking apps, and FinTechs with mobile payment focus are driving the adoption of instant payments, projected to account for 22% of all global transactions by 2028.³  

With customers and businesses increasingly expecting transactions to occur in real time, the pressure is mounting on financial institutions to not only process payments instantly but also detect and prevent financial crimes in real time. 

For banks and payment service providers, this dual challenge of implementing real-time payment solutions and ensuring robust, instant financial crime prevention systems represents a significant shift in operational priorities.

The Immediate Changes Mandated by the EU Instant Payments Regulation and Their Repercussions 

The European Central Bank has outlined the following changes that all banks and non-banking PSPs must comply with¹: 

1. The 10-Second Rush: All PSPs must send and receive instant credit transfers. From transaction initiation to payment receipt, PSPs have 10 seconds to complete the entire payment workflow, ensure proper validation, and prevent financial crimes.  

2. No Extra Charge: PSPs cannot levy any more fees for instant payment transactions than any other credit transfers. The additional cost of enabling instant payments 24/7/365 will be borne entirely by the PSPs. Hence, controlling the cost of adopting the new regulation will be vital to remain efficient. 

3. Free Payee Verification: PSPs need to offer payee verification free of charge to the payer. They need to ensure the payee name matches the IBAN before payment authorization. This is a crucial step in curbing potential payment fraud.  

4. Not-So-Simplified Sanctions Screening: PSPs are required to screen their entire customer list against all active EU sanctions daily. Failing to do so could mean paying fines to the other provider involved in an instant payment. The regulation’s implementation may also vary across EU jurisdictions. In some jurisdictions, clients will be screened against the EU sanctions list once per day while in others, client lists must be checked against the most recent available watchlist, requiring multiple daily re-screening. 

5. Hidden Peaks and Troughs: PSPs must shift from traditional batch payments and future-dated payment processing to instant processing, which makes it harder to predict peak transaction volumes and timings. So, they need systems that can handle large volumes of transactions at speed and scale as required.  

You Are Ready for the EU IPR If Your System Can Handle the Following

The EU IPR is a clear signal to banks and PSPs to reinforce their internal systems to handle robust volumes of transactions at speed while reducing downtimes, integrating data across the payment system, and fighting financial crimes in real time. The system also needs to be scalable, resilient, secure, and easy to use and maintain. 

This is a major challenge, as industry research shows: across the EU, 33%⁴ of banks don’t offer instant payment services, only 13%³ of EU banks have the technology capabilities warranted by the Instant Payments Regulations, and only 5%³ of the banks can be considered “instant payment adoption leaders.” 

Being ready to comply with the imminent EU instant payment regulation from January 2025 means your system can handle the following: 

• Create Risk Profiles for All Customers: Every customer is assigned a risk score at onboarding based on their profiles and risk scores are updated dynamically as new information becomes available – including data from transaction history, behavioral analytics, updated watchlists, and country risk ratings. 

• Trigger-Based Perpetual KYC: Taking a risk-based approach includes enabling dynamic KYC that is triggered whenever risk profiles are updated, or risk scores changed.  

• State-of-the-art Name Matching to Reduce False Positives: With false positives accounting for up to 95% of alerts, name matching is a major challenge for instant payments, especially within the strict 10-second processing window. AI-powered Intelligent Name Screening solutions are critical in this context, enabling PSPs to swiftly filter out irrelevant alerts, accurately identify genuine matches, and perform name screening with unprecedented speed, helping to minimize disruption while ensuring compliance obligations are met. 

• Continuous Monitoring: Monitoring transactions 24/7/365 as the default means discrepancies can be caught instantly, fraudulent transactions stopped, and financial crimes prevented.  

• Integrated Data: Data is synchronized between payment systems and other verticals and is integrated with static customer profile data as well as live data based on the latest watchlists and adverse media information. 

• Contextual Information for Each Transaction: Contextual information based on transaction history, dynamic risk scores, and integrated data is available easily in one place, allowing you to understand a transaction beyond numbers and make the correct decision within seconds.  

Taking a Proactive Approach to IPR and All Future Regulations 

The volume of work required by the EU Instant Payments Regulation, from monitoring transactions 24/7/365 to scanning customer lists against sanctions daily should make the need for advanced technology in regulatory compliance obvious. 

Legacy systems can neither be scaled to meet the increase in instant transaction volumes nor can they complete sanctions screening daily without tremendous human resources. Outfitting traditional systems to achieve current regulatory mandates will also lead to prohibitively high total cost of ownership. Banks and PSPs will need cloud-based, modular, containerized, and flexible regulatory compliance solutions that deploy AI, machine learning, and other advanced technologies to meet current and future regulatory requirements.

Beyond bridging the ‘technology gap’, banks also need to evolve their work processes to adopt a more proactive, risk-based approach to meet real-time consumer demands as well as combat financial crime in real time. In an interview with IT Web, South Africa, IMTF co-CEO Dr. Sebastian Hetzler points out that “What we should assume is that financial crime has gone real-time too, and that criminals will find loopholes and exploit new infrastructure.”⁵ To operate in real-time, banks and PSPs need to “build context around a single transaction within the moment – you have to connect a lot of dots in real-time” because “a transaction alone doesn’t carry much information about risk associated with it,” explains Dr. Hetzler. 

To meet the demands of real-time compliance, financial institutions need solutions that go beyond traditional monitoring. This includes the ability to continuously analyze transactions as they occur, integrate data from multiple sources, and provide actionable insights – all within the narrow timeframe required by instant payments. 

Siron^®One is designed with these challenges in mind. By combining advanced AI-powered transaction monitoring with seamless data integration, it enables institutions to assess risk in real time. Contextual information, drawn from dynamic risk scores, historical transaction data, and up-to-date watchlists, equips compliance teams to make accurate decisions within seconds. 

Learn more about IMTF’s Real-Time AML solution to get ready for the challenges of the EU Instant Payments Regulation.