Dear European Banks: We Need to Talk About Bulk Instant Payments

First came SEPA instant payments. Is bulk instant payments legislation next for banks in Europe?

 

The news from Brussels this past February 7 came as something of a shock to many financial institutions. We’re talking, of course, about European Parliament legislation on Single Euro Payment Area (SEPA) instant payments. Specifically, the stringent timelines for deploying instant-payment receive capabilities struck like a bolt out of the blue.

In retrospect, we can see legislators were destined to mandate instant payments for all banks offering their customers SEPA payments. And yet, many of us thought it unlikely the European Union (EU) would summon the political will to set hard-and-fast deadlines.

Now we must ask ourselves, what’s the next front in the EU’s instant-payments campaign? And how ready will we be?

 

The signs point to bulk instant payments

The EU has left a clear paper trail signaling its intentions for bulk instant payments (which refers to the ability to process each transaction in a bulk payment file through the instant service).

In May 2022, the European Central Bank (ECB) issued a communique focused on bulk instant for SCT Inst, the pan-European payment scheme. The ECB summarized its views on bulk instant as follows:

"As businesses would benefit from the ability to send instant payments in bulk, banks should be encouraged to offer their clients these services.… It is expected that banks would be proactive in responding to their corporate customer’s demand."

In October 2022, the European Commission affirmed the ECB’s guidance. In November 2023, the Council of the EU indicated clearly that it will require EU financial institutions to offer bulk instant by the end of 2025.

 

Now what?

After the shock of 2024’s SEPA instant payments legislation, how will the banking industry respond to the prospect of bulk instant mandates?

Now is the time to ask ourselves:

• When bulk instant legislation arrives, how will we receive the news?
• Will we have done everything possible to have shaped the legislation so that we, as an industry, benefit as much as our customers and corporates surely will?
• Will we have been active participants in the legislative process, such that we can comply with any bulk instant mandates with the least disruption possible?
• Will we have approached bulk instant as a strategic opportunity and not just a compliance burden?  

 

How will we look back on our actions – or inaction?

If we want to answer the questions above satisfactorily, now is the time to start talking about bulk instant and how we as an industry wish to see it manifest. To that end, here are some of the points we should start talking about right now:

• What kinds of banks need to start thinking about bulk instant?
  To begin answering this question, first we need to ask what type(s) of entities would benefit from bulk instant. Large corporates come to mind as the most likely candidates. Large corporates are, of course, typically customers of large banks. Moreover, the costs associated with the processing of bulk instant are still to be determined, but those costs are not expected to be small. Will bulk instant, therefore, make sense only for large banks? How will the EU see it?
• What’s the relevance of bulk instant to banks doing business in the European Union but not based there?
  This is where we start going beyond compliance and thinking about growth strategy. Consider non-EU-based banks looking to capture market share in the EU. Would a rapidly deployed bulk instant product offering be a strong unique selling proposition (USP)? Banks with experience in other instant payments markets may be best positioned to start thinking about the offering. What’s more, bulk instant could give these non-EU-based banks a USP they could offer their non-EU-based clients that do business in Europe.
• What kinds of corporate customers stand to gain from bulk instant, and how?
  Bulk instant offers value, but the use cases need to be carefully evaluated and prioritized. For instance, could bulk instant be the right solution for logistics and trade, as opposed to being a more generalized offering? To take another possible example, could the insurance sector attract more clients by executing instant payment of benefits? What about offering corporates a just-in-time payments solution? This would enable better cash management by eliminating the need to have cash parked at the central bank to cover for a bulk file.
• What are likely to be some of the challenges of deploying bulk instant?
  The regulation is still unclear on some of the requirements, including:
  • The response SLAs of 10 seconds – when the SLA starts and when it ends will need to be determined
  • The IBAN-name check is mandatory, but this will be challenging in a bulk instant setting
  • Regarding the obligation to perform AML/OFAC, more clarity is needed, especially around which entities bear responsibility
  • At a higher level, how will the costs of offering bulk instant be distributed and absorbed?
• What are the feasible use cases now and in the near term?
  If bulk instant needs a “proof of concept” example, we can look to European banks already offering it, such as BNP in Spain. Spain is among Europe’s most enthusiastic adopters of instant payments, so it makes sense that bulk instant would already be available there. For those banks not based in early-adopting countries, it may be useful to study markets such as Spain. We’ve already mentioned the insurance and logistics and trade sectors. Manufacturers and their suppliers could benefit, too, by receiving payments immediately after delivering goods, thus accelerating the cash cycle while elevating trade and wealth growth.
• What should banks expect from their technology partners when it comes to bulk instant?
  Technology providers need to be ahead of the game to support banks with bulk instant. Likely priorities include:
  • Technology platforms with a focus on performance and speed
  • Technology architectures that allow banks to use processing power on demand
  • Technology architectures that understand payments and have the capability to simultaneously establish priorities and run process – 24/7/365
  • Deployment of bulk instant with minimal disruption to existing business processes
  • Avoiding drastic changes to the legacy infrastructure is highly desirable

 

Will we embrace the possibilities?

When it comes to bulk instant and its looming mandates, banks might be asking themselves, in some anguish, “How can the EU be doing this to us once again?”

From the EU’s perspective, however, the logic is clear: Bulk instant legislation is consistent with EU policy that prohibits banks from discriminating against channels. In other words, since SEPA instant payments are now required for individual accountholders, they must also be offered to corporates and other entities.

Will we resist the inevitable, or will we embrace the possibilities? The choice is ours.

For more information on how Fiserv can help with bulk instant payments, go to our website.