25.03.2024
Instant payments refer to transactions made from one account to another, available 24/7 and completed within seconds. On February 26, 2024 the Council of the EU adopted a regulation that will make instant payments fully available in euro to consumers and businesses in the EU and in EEA countries. Payment service providers (PSPs) which provide standard credit transfers in euro, will be required to offer the service of sending and receiving instant payments in euro.
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Instant payments, also known as SEPA instant credit transfers (SCT Inst), are Euro transfers within the 34 countries of the Single Euro Payments Area. These transactions enable the transfer of funds within seconds – anytime, around the clock and 365 days a year. While instant payments are processed within ten seconds, standard transfers can take one or more days to complete.
ACTICO Payment Screening Software: Sanctions Screening check for instant payments within milliseconds.
To meet the needs of bank customers who have to make funds immediately available to recipients, many banks offer instant payments, but only some of them extend the scope to include incoming payments too.
Payment service providers such as banks, which provide standard credit transfers in euro, will be required to offer the service of sending and receiving instant payments in euro. The charges must not be higher than the charges that apply for standard credit transfers.
Under the new rules, PSPs will need to verify that the beneficiary’s IBAN and name match in order to alert the payer to possible mistakes or fraud before a transaction is made.
PSPs should periodically, and at least daily, verify whether their PSUs are persons or entities subject to targeted financial restrictive measures, and should no longer apply transaction-based screening in that specific context. The obligation of PSPs to periodically verify their Payment Service Users (PSUs) is related only to persons or entities subject to targeted financial restrictive measures. Other types of restrictive measures adopted in accordance with Article 215 TFEU or restrictive measures that are not adopted in accordance with Article 215 TFEU fall outside the scope of that obligation. The obligation of PSPs to periodically verify whether their PSUs are persons or entities subject to targeted financial restrictive measures does not interfere with actions that PSPs should be able to take to comply with EU law on the prevention of money laundering and terrorist financing.
Financial institutions operating in multiple countries or regions, decide which payments to examine depending on the regulatory context and their risk appetite. Relevant factors here include the type of payment (domestic vs. international), unusual patterns (e.g. pass-through transactions), transaction value and the payment’s origin/destination (e.g. country/region, recipient type).
Screening via sanctions lists has to be conducted before the payment is executed. But since sanctions lists screening comprises just one part of the payment process, only a limited timeframe – between 500 milliseconds and one second – is available. A window this tight requires efficient IT infrastructure and bringing all available technical solutions into play, such as interface adjustments, storage of hits and clarifications, cache optimisation and workflow and GUI adaptations.
Instant payments generally align well with banks’ digitisation strategies. That said, the risks are higher and IT systems must facilitate decision-making within fractions of a second, for which thorough preparation is a must.
Banks having rolled out instant payment projects to a greater extent report needing a lead time of around half a year for analyses, bringing various areas on board and clarifying IT infrastructure.
Questions like these are quite likely to come up along the way:
Execution of a real-time transfer requires payment service providers (PSPs) adhering to the same rules, practices, and standards (“Scheme”) to be present on both sides of the transaction. In 2017, the European Payment Council introduced the Single Credit Transfer (SCTInst) Scheme for Euro instant payments within SEPA. Broad participation by PSPs in this scheme is an essential prerequisite for the wide availability of Euro instant payments throughout the EU.
Market participants in Switzerland will have to wait a bit longer. The Swiss Interbank Clearing (SIC) payment system, operated by SIX on behalf of the Swiss National Bank, connects bank accounts. Technically, SIC is capable of processing real-time payments. However, to make Instant Payments work across the entire payment chain, adjustments are needed in both the operation and organisation of interfaces between banks and SIX. With the launch of the fifth generation of SIC at the end of 2023, SIX layed the foundation for instant payments, similar to the European SEPA Instant Credit Transfer standard.
Instant payments will become mandatory for Swiss financial institutions in two phases:
By late summer 2024, at least 50 banks, which together cover around 98% of customer payments in Switzerland, will be able to receive instant payments and process them in seconds.
How is system availability defined?
A 24/7 round-the-clock service year-round, with zero downtime
What is the maximum tolerable response time?
A maximum of 10 seconds, which is extendable to 20 seconds in exceptional circumstances
What does this mean in the context of sanctions screening?
PSPs should periodically, and at least daily, verify whether their PSUs are persons or entities subject to targeted financial restrictive measures, and should no longer apply transaction-based screening in that specific context. However, they must comply with Union law on AML and CFT.
Which data does the sanctions screening check for instant payments?
The sanctions screening checks transaction data, such as IBAN, purpose of use, blocked banks or countries.
What is the difference between screening of standard bank transfers?
The instant payment screening function compares remittance data with sanctions and blacklists and as soon as a “hit” is found, the payment is rejected. Manual clarification, as with a standard bank transfer, is not possible. To keep customer satisfaction high, it becomes even more crucial to reduce false positives via screening of instant payments than with SEPA credit transfers.
What role must an IT system fill in instant payment screening?
Instant payment screening and the need to perform the checking mentioned within 500 milliseconds and no more than a second has a massive impact on the IT infrastructure and requires interface adjustments. The storage of hits and clarifications must also be adapted to the strict time regime and the cache, workflow and GUI all have to be further optimized.
Going forward, experts envision a world where real-time transfers cease to exist, giving way entirely to instant payments.
Banks have already recognised the growing trend toward instant payments and have begun adapting out of self-interest, providing these services for both incoming and outgoing transactions, with the momentum behind this shift apparently unstoppable.
In February 2024 the EU adopted a regulation that will make instant payments fully available in euro to consumers and businesses in the EU and in EEA countries. The new rules will come into force after a transition period. Banks have to act now!
The Swiss National Bank wants to do all that is needed for instant payment to become the new normal in Switzerland. This requires the expansion of the technical infrastructure and the participation of the banks in the new process. By 2026 at the latest, instant payment will allow bank customers to transfer money from their bank account to another account in Switzerland within seconds.
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