What is the outlook for instant payments in Europe?

The SEPA Instant Credit Transfer scheme (SCT Inst), which operationalised euro-based Instant Payments, first went live in late 2017. Several years later, Instant Payments have not seen widespread adoption across Europe.

While there are many explanations for this, most boil down to a combination of differing degrees of cooperation by financial institutions (FIs) in each market (i.e. the Netherlands versus Germany or France), business models that discourage end user adoption due to high prices, and some attitudes of “wait and see” by banks.

In countries like the Netherlands, the Nordics, and Spain, real-time payment adoption has been very high across consumer and business use cases. In contrast, the rates of adoption in France and Germany, even just for P2P transactions, have been much lower.

According to the European Central Bank (ECB), only 14% of all euro credit transfers were instant by the end of 2022. This is thought to be even lower for cross-border credit transfers.

Indeed, despite the success of instant payment apps like Bizum in Spain, Swish in Sweden, or e-commerce payment buttons like iDEAL in the Netherlands, they only operate domestically.

This has led to a reliance on international card networks and “Big Tech” solutions to facilitate cross-border European payments, which has become a major policy issue from the perspective of European payments autonomy.

Ongoing initiatives like the European Payments Initiative (EPI) are attempting to push back against the dominance of these players but have made little headway thus far.

In the future, a digital euro could potentially enable instant and low-cost transactions across the euro area, but the project is at least several years away from going live if it moves forward.

Taking steps to standardise the availability of Instant Payments throughout the Single Euro Payments Area (SEPA) can enhance the services available to a wide range of customers (consumers, retailer, corporates etc.) and promote innovation in the cross-border space, enhancing Europe’s strategic independence in this area.

This is why in October 2022 the European Commission (EC) proposed a new amendment to existing regulations specifically aimed at addressing fragmentation issues that have impacted the adoption of Instant Payments across Europe.

The proposed amendment puts forth several changes to existing Instant Payments regulation, including requiring that payment service providers (PSPs) that offer traditional credit transfers in Euro to EU customers must enable their customers to send and receive Instant Payments.

The transition is a phased approach, but the timeline starts immediately from the actual date of legislation.

The extent of PSP readiness for this new regulation, should it come into force, is likely to vary considerably by market.

In markets with low Instant Payment adoption PSPs will need to shift their mindset as they reassess Instant Payments as a compliance requirement rather than a business opportunity.

PSPs in markets with high adoption, however, largely stand to benefit from these rule changes.

Given the EC’s typical legislative timeline of around 18 months, most industry actors expect that the proposed amendments will likely go into force by the end of 2024.

With the relatively short-implementation timelines planned – between six months and one year, depending on the issue – banks should begin thinking about the implications of these changes sooner rather than later.

PSPs will need to quickly assess compliance gaps as well as likely impacts on profits and organizational strategy.