On October 26, 2022, the European Commission published a proposal to accelerate the rollout of instant payments for citizens and businesses holding a bank account in the EU/EEA. Instant payments allow funds to be transferred at any time of any day in a matter of seconds. While the technology to process instant payments exists since 2017, up until now their share of the total number of credit transfers remains very low. In addition, payments not executed instantly lead to funds ‘locked up’ in the transit of the financial system corresponding to almost EUR 200 billion on any given day. The European Commission has identified four main problems which hinder the development of instant euro payments:
- the requirement for payment service providers to be equipped with the technology;
- the high price of instant payments;
- the concern of users with regard to the security of the transactions; and
- the high number of failures of instant payments due to transaction-by transaction sanctions screening methods.
The Commission proposes to tackle these issues by way of four corresponding measures aimed at increasing the availability and use of instant euro payments. With little exaggeration, the proposal has been compared with the switch from mail to email.
Although the proposal provides for some specific exceptions, payment service providers who already provide credit transfers in euro will need to provide instant credit transfers to all their customers, i.e. payers and payees. Instant payments will be defined legally as requiring, amongst others, that the payee’s payment account be credited with the amount transferred within ten seconds. Further, payment service providers will need to comply with additional requirements when carrying out instant payments.
When providing instant euro payments, payment service providers are allowed to charge payers and payees for this service, but such charges may not be higher than those they would apply in respect of sending and receiving other, corresponding payments in euro.
Under PSD 2, payments executed in accordance with the payee’s IBAN supplied by the payer are assumed to have been executed correctly and payment service providers are not liable for payments executed in accordance with incorrect IBAN’s provided by the payer.
In order to enhance the security of and trust in instant payments, the proposal intends to oblige payment service providers offering instant euro payments to verify whether the payee’s name and IBAN match and, in case of discrepancies, to warn the payer.
Where transaction-by-transaction sanctions screening may hamper instant payments, the proposal introduces a daily sanctions screening obligation together with a screening obligation in case of new or amended sanctions. In fact, the large majority of flagged transactions currently turn out, after verification, not to involve any persons or entities mentioned on sanction lists. This new screening procedure for instant payments should significantly reduce, or even eliminate, those cases where instant payments are wrongly rejected.
The European Commission underscores that the provision of instant payments should not undermine the obligation of payment service provider’s to perform AML/CFT checks and, if necessary, to notify the national financial intelligence unit of suspicious transactions. These requirements are in fact ex-post obligations. Likewise, the proposal should not affect the effectiveness and timeliness of the examination by the financial intelligence units of suspicious transactions reported to them.
The proposal provides for a phased implementation of the new obligations. Depending on the specific obligation and on whether the payment service provider is located or not in the eurozone, the new obligations will apply six to thirty-six months after the entry into force of the proposal.