On 3 March 2024, the EU Council and Parliament approved Regulation 2024/886 on instant credit transfers in euro, also called the Instant Payments Regulation (IPR). It was published in the Official Journal of the European Union on 19 March 2024 and entered into force on 8 April 2024.
The regulation aims to make instant payments widely available in euros to consumers and businesses across the EU. It introduces new requirements for instant credit transfers, verification of payee, sanctions screening, and changes to existing EU payments regulations. To do so, it amends several existing EU regulations, namely:
- Regulation EU 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro (SEPA Regulation), by introducing new requirements for instant credit transfers, verification of payee, and sanctions screening.
- Regulation EU 2021/1230 on cross-border payments (CBPR2), by clarifying the equality of charges obligation in the context of instant credit transfers.
- Directive EU 2015/2366 on payment services in the internal market (PSD2), by introducing modifications on PSD2 safeguarding requirements and rules on access to payment systems.
- Directive 98/26/EC on settlement finality in payment and securities settlement systems (SFD), by introducing a new right for payment institution and electronic money institutions to access SFD designated payment systems.
Instant credit transfers
The IPR establishes uniform rules for instant credit transfers in euros, both for national and cross-border transactions (amending the SEPA Regulation). Payment Service Providers (PSPs) that offer payment services for sending and receiving credit transfers must also provide services for sending and receiving instant credit transfers.
An "instant credit transfer" is defined as a transfer that is executed immediately (within 10 seconds), 24 hours a day, and on any calendar day (Article 1(1)(a)(1a) of IPR). PSPs offering instant credit transfers must ensure that all payment accounts maintained for their users are reachable at all times (24/7/365).
However, PSPs located outside the Eurozone may obtain a temporary derogation from their national regulator, allowing them not to offer instant credit transfers in euros beyond a certain limit per transaction from non-euro-denominated payment accounts but only during the time when these PSPs neither send nor receive non-instant credit transfer transactions in euros with respect to such payment accounts. This permission is valid for one year and can be extended upon reassessment by the national regulator.
Some requirements on the execution of credit transfers under PSD2 and the SEPA Regulation have been amended or added to reflect the particular characteristics of instant payments.
The IPR sets specific implementation deadlines based on the categories of PSPs and the types of service provided. The deadlines to offer instant credit transfers are as follows:
Eurozone-based PSPs (excluding electronic money institutions (EMIs) and payment institutions (PIs)):
- Receiving instant credit transfers: 9 January 2025
- Sending instant credit transfers: 9 October 2025
Eurozone-based EMIs and PIs:
- Receiving and sending instant credit transfers: 9 April 2027
Non-eurozone-based PSPs (excluding EMIs and PIs):
- Receiving instant credit transfers: 9 January 2027
- Sending instant credit transfers: 9 July 2027 (with a possible some exemption until 9 June 2028)
Non-eurozone-based EMIs and PIs:
- Receiving instant credit transfers: 9 April 2027
- Sending instant credit transfers: 9 July 2027
Charges on instant credit transfers
Charges on payment service users (PSUs) for instant credit transfers should not exceed the charges for other corresponding types of credit transfers levied by the PSP.
The IPR sets different implementation deadlines based on the categories of PSPs. The deadlines are as follows:
- Eurozone-based PSPs: 9 January 2025
- Non-eurozone-based PSPs: 9 January 2027
Verification of payee
The IPR introduces a mandatory "verification of payee" (VoP) service for all credit transfers, including both instant and non-instant transfers.
That service requires the payer's PSP to verify that the IBAN matches with the name of the payee/intended recipient of the funds (it could be the name/ surname for a natural person, or the commercial/legal name for a legal entity) to whom the payer intends to send a credit transfer.
That service will have to be provided to PSUs free of charge.
Different levels of VoP matches are notified to the payer, who can then authorise or decline the payment based on that information. VoP must be offered regardless of the payment initiation channel used by the payer, except when the payment order is placed through a payment initiation service provider (PISP). In that case, the PISP has an obligation to ensure itself the correctness of payee information.
Payment Service Users (PSUs) can opt-out from the VoP service if they do not qualify as consumers and in relation to multiple payment orders submitted as a package (which makes the scope of that opt-out narrow).
PSPs' compliance with VoP will also affect their potential liability in case of non-execution, defective execution, or late execution of payment transactions under PSD2 requirements. If a payer's PSP fails to fulfil its VoP obligations and that failure results in a defective execution of a payment transaction, that PSP will be held liable and will have to refund the payer and, where applicable, restore the debited payment account in its pristine condition had the defectively executed transaction not taken place.
Timeline for VoP
The IPR sets different implementation deadlines based on the categories of PSPs. The deadlines are as follows:
- Eurozone-based PSPs: 9 October 2025
- Non-eurozone-based PSPs: 9 July 2027
Sanctions screening
PSPs operating in the EU (even without any physical presence) are required to conduct sanctions screening to comply with EU sanctions laws when doing business with other parties, including when executing payment transactions (for example, sanctions screening the payer, but sometimes also the payee). This screening aims to identify and avoid doing business with individuals or entities subject to targeted financial restrictive measures.
The IPR introduces specific sanctions screening obligations in the SEPA Regulation, requiring PSPs offering instant credit transfers to verify if any of their PSUs are subject to targeted financial restrictive measures. PSPs must perform sanctions screening periodically, immediately after the entry into force of new measures or amendments, and at least on a daily basis. Given the nature of instant payments, transaction-by-transaction sanction screening is replaced by a daily screening obligation (only for instant credit transfers though).
All PSPs, including EMIs and PIs, must comply with the new sanctions screening obligations by 9 January 2025.
Changes to access to SFD-Designated Payment Systems and safeguarding
To be able to offer efficient and competitive euro-denominated instant credit transfers, PIs and EMIs will have direct access to SFD-designated payment systems. Currently, they can only access these systems through participating credit institutions, which creates an uneven playing field.
To address this, the IPR introduces changes to Article 35 of PSD2 and adds a new Article 35a setting out specific conditions for PIs and EMIs requesting participation to SFD-designated systems.
Additionally, Article 10 of PSD2 is amended to allow EMIs and PIs to safeguard their PSUs funds directly with a central bank, as an alternative to safeguarding funds with credit institutions (subject to the discretion of central banks).
EU Member States must transpose and apply these requirements into 9 April 2025.
Osborne Clarke comment
This regulation will be positive news for European PSUs, both consumers and businesses as they will be able to transfer funds in matter of seconds, allowing them manage payments in a more efficient manner. However, its implementation within the required deadlines represents a huge operational challenge.
That challenge extends beyond the mere provision of instant payments. PSPs already providing instant payments will have to brace for the upcoming surge in transaction volumes (both for single and bulk instant payment transactions), while the whole market will need to be ready to apply new VoP and screening requirements in that context.
For PSPs already providing instant payments, the challenge will be to adapt their processes to meet the increase in credit transactions volumes.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.