Europe simplifies instant payments, security and KYC compliance

In 2021, instant payments accounted for only 11% of transactions within the European Union. This is the reason why the European Commission has put forward a legislative proposal to promote this type of business. The goal is to make them safe and affordable while ensuring that Payment Service Providers (PSPs) maintain their integrity and continue to comply with the AML and KYC standards set by financial and regulatory authorities.

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nlike traditional money transfers, instant payments are settled in just 10 seconds, at any time of day. This type of transaction in euros is what the European Commission wants to encourage, and they are pushing for a project that aims to remove any obstacles. This way, instant payments would be easily available to all EU citizens. In mid-June the European Council approved the Commission’s text for study and approval, and if deemed appropriate will soon be approved by Parliament. 

Thanks to the implementation of Bizum, Spain is at the forefront of instant payments, with four times more usage than the European average, as it took advantage of a voluntary measure implemented in 2014. Despite this success (Bizum has 24 million users within Spain), this type of transaction is still not widespread. With the new legislation, in line with existing laws for fraud prevention and money laundering (AML), Europe aims to make mandatory what was optional and facilitate the circulation of the euro in digital transactions. 

For now, the measures will apply in the eurozone countries. The rest, those that handle currencies other than the euro, will only be required to accept these payments in offices, and the plan to generalize them will be gradually implemented later. 

Reasons for the slow progress 

Despite the technological advances and benefits of instant payments, their expansion in Europe has been hampered by several factors. Firstly, payment service providers lack incentives to offer instant payment options, limiting their availability in the market. Additionally, transaction charges associated with instant payments tend to be discouraging compared to other alternative payment methods, which deters users from adopting them. Another challenge lies in the high percentage of instant payments rejected due to errors in identifying individuals on the EU sanctions lists, raising concerns about KYC compliance. The security of instant payments has also raised doubts, generating reluctance from consumers to use this form of transaction. 

Convenience, trust, and obligations 

When the regulation reaches its final phase, instant payments will be universal and accessible to everyone. Banks and PSPs will be obliged to always offer the immediate version of these payments, up to a maximum of 100,000 euros. Moreover, they will ensure the security of the transactions by verifying the identity of the beneficiary and confirming that it matches the IBAN provided by the payer. Payment service providers and entities will thus strengthen their role within the KYC and AML framework. 

To facilitate cybercrime control, authorities will allow banks to cross-check sanction lists and transfer issuers or beneficiaries once a day, instead of with each transaction. This decision aims to increase citizens’ confidence by making fraud detection tasks more flexible, while maintaining strict compliance. 

To avoid additional costs for consumers, PSPs will not be allowed to charge commissions, and if they do, these commissions cannot exceed those charged in traditional transfers. This will limit the costs associated with instant payments, not meaning however that they will be completely free. 

Benefits for the entire European population 

The deployment of specific regulations to support instant payments may be critical to fully harness the potential of this form of transaction. However, the large-scale promotion of instant payments remains a new chapter in the fight against cash – the only payment method that cannot fall victim to hackers, cannot be traced, and preserves the independence of the free citizen. It will always depend on each user to what extent they are interested in preserving their autonomy or trusting external factors to manage their money transfers. The proposal at hand highlights multiple aspects that are considered beneficial for people and justify its defense: 

• Improving the efficiency and convenience of financial operations, streamlining payment processes and reducing waiting times to confirm fund reception. Whether for online purchases, money transfers, or bill payments, the speed and convenience of instant payments in euros enhance the user experience. 
• Supporting innovation and the digitalization of the economy by promoting the adoption of emerging technologies, such as those involving artificial intelligence and advanced methods of identification, electronic signatures, and onboarding. 
• Strengthening the autonomy and sovereignty of the EU in payment matters, providing an efficient and secure payment system within the eurozone, reducing dependence on external systems, and increasing control over financial operations within its territory, thus promoting stability and security in the European financial market. 
• Faster identification and verification through digital platforms that require customer authentication. Facial recognition, biometric verification, or other authentication methods can streamline and enforce the identification process, thereby reinforcing KYC and AML requirements. 
• Improved traceability and transaction records, leaving a complete digital trail of the transaction, including sender details, beneficiary information, date, amount, and other relevant data. This information can be valuable to regulatory authorities for tracking suspicious or illegal activities, supporting anti-money laundering (AML) and combating illicit financing efforts. 
• Enhancing liquidity for SMEs and retailers, as money is immediately credited to the corresponding account after product or service sales, avoiding the consequences of payment delays. 

Currently, only 1 in 3 PSPs offer instant payments, so the new regulation will represent a significant shift in trends. As it becomes a reality, onboarding and KYC technologies will become increasingly important to meet the new needs of the financial industry.