Europaudvalget 2022
KOM (2022) 0546
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EUROPEAN
COMMISSION
Brussels, 26.10.2022
SWD(2022) 546 final
COMMISSION STAFF WORKING DOCUMENT
IMPACT ASSESSMENT REPORT
Accompanying the document
Proposal for a
REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL
amending Regulations (EU) No 260/2012 and (EU) No 2021/1230 as regards instant
credit transfers in euro
{COM(2022) 546 final} - {SEC(2022) 546 final} - {SWD(2022) 547 final}
EN
EN
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Contents
1.
INTRODUCTION ............................................................................................................................... 1
1.1. WHAT ARE INSTANT PAYMENTS?
............................................................................................. 1
1.2. POLITICAL CONTEXT....................................................................................................................
2
1.3. LEGAL CONTEXT
............................................................................................................................ 4
2.
2.1
2.2
PROBLEM DEFINITION ................................................................................................................. 5
THE PROBLEM: INSUFFICIENT UPTAKE OF EURO IPS....................................................... 5
CONSEQUENCES OF THE PROBLEM ......................................................................................... 6
2.2.1 UNREALISED BENEFITS AND EFFICIENCY GAINS FROM IPS ........................................... 6
2.2.2 LIMITED CHOICE OF MEANS OF PAYMENT AT POI, IN PARTICULAR
CROSS-BORDER ..............................................................................................................................11
2.3
PROBLEM DRIVERS.......................................................................................................................13
2.3.1 DRIVER 1: INSUFFICIENT INCENTIVES FOR PSPS TO OFFER EURO IPS
(MARKET FAILURE) ......................................................................................................................14
2.3.2 DRIVER 2: DISSUASIVE TRANSACTION FEES FOR IPS .......................................................17
2.3.3 DRIVER 3: HIGH RATE OF REJECTED IPS DUE TO FALSE HITS IN
SANCTIONS SCREENING ..............................................................................................................20
2.3.4 DRIVER 4: PAYER CONCERNS ABOUT SECURITY OF IPS .................................................21
2.4
2.5
3
3.1
3.2
3.3
4
4.1
4.2
5
HOW WILL THE PROBLEM EVOLVE? .....................................................................................23
PROBLEM TREE
..............................................................................................................................24
WHY SHOULD THE EU ACT?.......................................................................................................25
LEGAL BASIS ...................................................................................................................................25
SUBSIDIARITY: NECESSITY OF EU ACTION ..........................................................................25
SUBSIDIARITY: ADDED VALUE OF EU ACTION ....................................................................26
OBJECTIVES: WHAT IS TO BE ACHIEVED? ...........................................................................26
GENERAL OBJECTIVE ..................................................................................................................26
SPECIFIC OBJECTIVES .................................................................................................................26
WHAT ARE THE AVAILABLE POLICY OPTIONS? ................................................................27
5.1. WHAT IS THE BASELINE FROM WHICH OPTIONS ARE ASSESSED? ..............................27
5.2. DESCRIPTION OF THE POLICY OPTIONS ...............................................................................29
5.2.1. INCREASE THE SUPPLY OF IPS IN THE EU ............................................................................29
5.2.2. ADDRESS DISSUASIVE FEES FOR EURO IPS COMPARED TO ALTERNATIVE
PAYMENT MEANS ..........................................................................................................................30
5.2.3. SIMPLIFY AND ENHANCE THE EFFICIENCY OF THE SANCTIONS
SCREENING PROCESS FOR EURO IPS......................................................................................31
5.2.4. INCREASE PAYER CONFIDENCE IN EURO IPS WITH REGARD TO THE RISK
OF FRAUD AND ERRORS ..............................................................................................................32
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5.2.5. OPTIONS DISCARDED AT AN EARLY STAGE ........................................................................33
6
6.1
6.2
6.3
6.4
7
7.1
7.2
7.3
7.4
7.5
7.6
7.7
8
WHAT ARE THE IMPACTS OF THE POLICY OPTIONS AND HOW THEY
COMPARE? .......................................................................................................................................35
INCREASE THE SUPPLY OF IPS BY PSPS
.................................................................................35
ADDRESS DISSUASIVE FEES FOR EURO IPS COMPARED TO ALTERNATIVE
PAYMENT MEANS
..........................................................................................................................40
SIMPLIFY AND ENHANCE THE EFFICIENCY OF THE SANCTIONS
SCREENING PROCESS OF EURO IPS
........................................................................................44
INCREASE PAYER CONFIDENCE IN EURO IPS WITH REGARD TO RISK OF
FRAUD AND ERRORS
....................................................................................................................46
PREFERRED OPTION.....................................................................................................................51
EFFECTIVENESS
.............................................................................................................................51
EFFICIENCY
.....................................................................................................................................52
COHERENCE
....................................................................................................................................53
SUMMARY OF IMPACTS OF SELECTED OPTIONS
...............................................................57
“ONE IN ONE OUT”
........................................................................................................................57
CLIMATE AND SUSTAINABILITY
..............................................................................................58
REFIT (SIMPLIFICATION AND IMPROVED EFFICIENCY)
.................................................58
HOW WILL IMPACTS BE MONITORED AND EVALUATED? ..............................................58
ANNEX 1: PROCEDURAL INFORMATION .........................................................................................60
ANNEX 2: STAKEHOLDER CONSULTATION ....................................................................................63
ANNEX 3: WHO IS AFFECTED AND HOW? ........................................................................................75
ANNEX 4: SANCTIONS SCREENING ....................................................................................................83
ANNEX 5: PAYER CONCERNS ABOUT SECURITY OF IPS ............................................................86
ANNEX 6: BACKGROUND ON FUNCTIONING OF INSTANT PAYMENTS IN EU AND
GLOBALLY .......................................................................................................................................91
ANNEX 7: EU NON-CASH PAYMENTS MARKET AND CHARACTERISTICS OF PSPS
PROVIDING CREDIT TRANSFERS IN EURO ...........................................................................99
ANNEX 8: REDUCTION OF PAYMENT FLOAT ...............................................................................102
ANNEX 9: BACKGROUND ON THE FUNCTIONING OF CROSS-BORDER
TRANSFERS IN THE EU ...............................................................................................................108
ANNEX 10: NETWORK EFFECTS IN PAYMENTS ...........................................................................110
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Glossary
Term or
acronym
AML
Meaning or definition
Anti-Money Laundering (Directive (EU) 2015/849 of 20 May 2015 on
the prevention of the use of the financial system for the purposes of
money laundering or terrorist financing)
Application Programming Interface (software allowing communication
between different applications or systems)
Authorised Push Payment fraud, a type of fraud in which the payer (an
individual or a business) is tricked into authorising a payment to a
fraudster posing as a genuine payee
Cross-Border Payments Regulation (Regulation (EU) 2021/1230 on
cross-border payments in the Union (codification)
Commission Expert Group on Banking, Payments and Insurance, a
group in which the Commission consults experts appointed by Member
States
Payment service as defined in Article 4(24) of Directive (EU)
2015/2366 (PSD2) and in Article 2(1) of Regulation (EU) No 260/2012
(SEPA Regulation)
Clearing and Settlement Mechanism
European Banking Authority
European Forum for Innovation in Payments, a platform for exchange
of views by payments stakeholders set up by the European Central Bank
and the European Commission to contribute to increased economic
efficiency and a deeper Single Market by fostering the development of
an integrated, innovative and competitive EU market for retail payments
European Payments Council, a private law association of banks and
other payment service providers, founded in 2002, which functions as a
decision-making and coordination body of the European payments
industry, and with the main task of the development of SEPA
General Data Protection Regulation (Regulation (EU) 2016/679 of 27
April 2016 on the protection of natural persons with regard to the
processing of personal data and on the free movement of such data)
International Card Schemes (e.g., American Express, Discover,
Mastercard, Visa, etc.)
Instant payment, a credit transfer which arrives on the payee’s account
within ten seconds of the sending of a payment order by the payer
API
APP fraud
CBPR
CEGBPI
Credit transfer
CSM
EBA
EFIP
EPC
GDPR
ICS
IP
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PISP
Payment Initiation Service Provider, a PSP offering the service of
payment initiation, as defined in Article 4(15) of Directive 2015/2366
(PSD2)
A single set of rules, practices, standards and/or implementation
guidelines agreed between payment service providers (PSPs) for the
execution of payment transactions across the Union and within Member
States, and which is separated from any infrastructure or payment
system that supports its operation
Payment Service Provider, a provider of payment services as defined in
Annex I of Directive 2015/2366 (PSD2), such as a credit institution,
payment institution or electronic money institution
A place where goods or services are purchased from a merchant, either
a physical point of sale (a brick and mortar shop, self-service terminals,
etc.) or an e-commerce website
Person to Person (payments)
Payment solutions (e.g. mobile phone application, instant messaging
system) which allow initiation of IPs at PoI
A physical Point of Interaction (in a brick and mortar shop, self-service
terminals, etc., but not in ecommerce)
Second Payment Services Directive (Directive (EU) 2015/2366 of 25
November 2015 on payment services in the internal market)
Payment Systems Market Expert Group, a group of stakeholders
consulted by the Commission composed of representatives of payment
service providers and users, as well as payments experts
Retail Payments Strategy, Commission Communication COM/2020/592
final of 24 September 2020 on a Retail Payments Strategy for the EU
Single Euro Payments Area (Regulation (EU) No 260/2012 of the
European Parliament and of the Council of 14 March 2012 establishing
technical and business requirements for credit transfers and direct debits
in euro and amending Regulation (EC) No 924/2009)
SEPA Instant Credit Transfer Scheme
Settlement Finality Directive (Directive 98/26/EC of 19 May 1998 on
settlement finality in payment and securities settlement systems)
The percentage of euro IPs in all euro credit transfers effected in the EU
by volume
Payment
scheme
PSP
Point of
Interaction
(PoI)
P2P
PoI solutions
Point of Sale
(PoS)
PSD2
PSMEG
RPS
SEPA
SCT Inst.
SFD
Uptake
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1. I
NTRODUCTION
1.1. What are instant payments?
Instant Payments (hereafter IPs) are a form of credit transfer, whereby the funds pass
from the account of the payer to that of the payee in a matter of seconds, at any time, day
or night, and any day of the year. This distinguishes IPs from regular credit transfers
1
,
where the funds must be credited to the payee by the end of the business day following
the day when the payer ordered the transaction and the transaction amount was debited
from the payer’s account. IPs are also distinct from card payments, in the case of which it
can take up to 48 hours for funds to be credited to the account of the payee and where a
payment guarantee is usually provided to the payee (e.g. a merchant) for this interim
period. IPs are a major technological innovation in payments, as they allow releasing
funds that are locked in the ‘back-office’ of the financial system and making them
immediately available to end users - citizens and businesses in the EU - for consumption
and investment.
IPs also offer opportunities for EU banks and fintechs to develop new Point of
Interaction (PoI) solutions (e.g. mobile payment applications on smartphones), which
would contribute to increasing the choice of available payment means, in particular for
cross-border payments at PoI. Such new payment solutions have the potential to provide
convenient and efficient additional alternatives to (i) cash in person-to-person payments
(P2P, e.g. splitting a bill in a restaurant); (ii) cash and payment cards in physical shops,
and (iii) payment cards in e-commerce.
IPs are available in approximately 60 countries worldwide and are under development in
others. In the EU, the infrastructure for IPs in euro and in all other EU currencies already
exists and is used by EU payment service providers (PSPs) to a varying degree. This
infrastructure firstly consists in a set of harmonised rules and procedures (a ‘Scheme’)
agreed by PSPs, allowing them to process payments instantly. The only scheme for euro
IPs is called SEPA Credit Transfer Instant Scheme (SCT Inst. Scheme), launched in
November 2017, managed by the European Payments Council (EPC). Most schemes for
other EU currencies have been largely based on the EPC scheme, with a licencing
agreement
2
, and are thus very similar. The second relevant infrastructure is the settlement
system: PSPs have access to various payment settlement systems, such as the ECB’s
TARGET IP Settlement service (TIPS), which ensures pan-European settlement of euro
IPs. Instant settlement systems for other EU currencies also exist, although some non-
euro IPs are settled or will soon be settled in TIPS
3
.
Within the EU the provision and use of euro IPs remains patchy. In certain Euro area
Member States, euro IPs are very popular, in particular for payments between private
1
For the purposes of this impact assessment, the expression “regular credit transfers” is used to refer to
credit transfers executed within the time limits stipulated in Article 83 of PSD2.
2
Bulgaria, Croatia, Denmark, Hungary, Romania and Sweden (see also Section 6.1 and Annex 6)
3
Annex 6 provides details on the functioning of SEPA instant credit transfers as well as IPs in other
currencies (in the EU and globally).
1
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persons (P2P transfers). In other Euro area Member States only certain PSPs can
send/receive euro IPs and the usage is limited. Finally, in yet other Euro area Member
States and all non-Euro area Member States, euro IPs are practically not available.
IPs in national currency other than euro are useful for domestic transactions within one
Member State. However, it is not possible to use them to send and receive cross-border
IPs between any two Member States (within or outside the Euro area). Being able to
make and receive cross-border payments within the EU as easily as domestic payments is
at the core of the integration of the internal market for retail payments. Thus, only IPs in
euro are the subject of this impact assessment.
The growth in the number of PSPs offering euro IPs has been too slow since the end of
2018 and the volume of euro IPs currently stands at 11% of all euro credit transfers. IPs
can bring significant benefits to citizens and businesses in the EU (summarised in box 1
and with more detail in section 2 below). These are however impeded by the slow roll-
out of euro IPs in the EU. Against this background, this impact assessment examines
whether there is a need for EU legislative action and analyses the impacts of available
solutions.
BOX 1
Benefits of IPs
Convenience for citizens and businesses, receiving due money instantly
No longer any need for a (costly) payment guarantee for merchants
Release of billions of euro locked in the financial system for productive use
("float")
Improved cash-flow for businesses and public administrations
Stimulus for innovation in the development of new solutions for merchant
sales (PoI) and electronic person-to-person payments
Potential cost savings for merchants which could be passed on to consumers
Faster dispatch of purchased goods (compared to when payment is made by
regular credit transfer)
Greater opportunities for payment fintechs to deliver mobile payment apps
More choice among payment means / services, particularly with respect to
cross–border payments at PoI (indirect benefit, subject to emergence of IP-
based PoI solutions)
Increased resilience of the EU retail payments systems
Accelerated and improved fiscal receipts and other societal benefits
1.2. Political context
In 2018, in its Communication
Towards a stronger international role of the euro
4
,
the
Commission supported IPs as a means to reduce risks and vulnerabilities in retail
payments in the EU and increase the autonomy of existing payment solutions.
In its
Retail Payments Strategy for the EU
5
(RPS), adopted on 24 September 2020, the
Commission announced that it would assess whether it is appropriate to prepare an
4
https://ec.europa.eu/info/publications/towards-stronger-international-role-euro-commission-
contribution-european-council-13-14-december-2018_en
2
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initiative aiming for a prompt, full uptake of IPs in the EU. The public consultation
carried out in the context of the development of the RPS revealed significant support for
such an initiative
6
, which was then included in the Commission Work Programme for
2022.
In its ECOFIN conclusions of 22 March 2021
7
the Council noted that “most
domestic
payment solutions based on cards or IPs currently do not work across borders, which
can constitute an obstacle for cross-border payments in shops and e-commerce”,
considered that “the
lack of interoperability between existing national solutions, schemes
and infrastructures, which is also linked to the lack of EU-wide common standards in
some areas, contributes to fragmentation in the EU retail payments market”
and in
particular highlighted “the
objectives (of the RPS) of promoting the widespread use of
IPs.”
Moreover, in its
Conclusions on the EU’s economic and financial strategic
autonomy: one year after the Commission’s Communication
adopted on 5 April 2022,
the ECOFIN Council referred to the Commission’s intention to present a legislative
initiative on IPs in 2022, recalling the objective to
“foster the development of competitive
homegrown and pan-European market-based payments solutions”,
and stressing
“the
importance of defining and effectively implementing a framework for an independent,
efficient, well-functioning, open and autonomous “European payments area.”
8
MEPs from the four largest political groups (EPP, S&D, Greens and Renew) expressed
their broad support for the RPS’ focus on the full roll out of IPs in the EU during a
FISMA webinar organised on 17 March 2021.
Universal availability of euro IPs is necessary to update and modernise the project of the
internal market integration for euro retail payments, branded as the Single Euro
Payments Area (SEPA). SEPA strives to allow European consumers, businesses and
public administrations to make and receive cross-border payments in euro as easily as
domestic payments, and to allow people to use their existing payment account in their
home Member State to receive their salary or pay bills between different Member States.
The SEPA project was launched in 2002, prompting the European banking industry to
create the EPC which, at the request of the European Commission and European Central
Bank (ECB), committed to developing, in close dialogue with all stakeholders (including
merchants and consumers), harmonised rules and procedures for executing euro
payments (so called ‘SEPA schemes’). The SEPA scheme for euro credit transfers was
launched in 2008, for SEPA direct debits in 2009 and for the instant version of SEPA
credit transfers (IPs) in 2017. Within the EU, the SEPA Regulation
9
requires all credit
transfer and direct debit transactions denominated in euro to meet conditions which in
practice only the SEPA schemes currently meet. PSP communities outside the EU may
also apply to be included in the SEPA geographical scope in order to benefit from a
possibility to execute cross-border transactions also outside the euro area more quickly
5
6
https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52020DC0592
.
See Annex 2
7
Conclusions of ECOFIN of 22 March 2021,
pdf (europa.eu).
8
https://data.consilium.europa.eu/doc/document/ST-6301-2022-INIT/en/pdf?utm_source=dsms-
auto&utm_medium=email&utm_campaign=Council+adopts+conclusions+on+strategic+autonomy+of+the
+European+economic+and+financial+sector.
9
Regulation (EU) No 260/2012
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and cheaply (if only denominated in euro)
10
. PSPs in all EEA countries and six non-EEA
countries (Andorra, Vatican City, Monaco, San Marino, Switzerland, and most recently
the UK) have seized the opportunity to join the SEPA geographical scope. Also, plans for
Ukraine to join the Scheme to facilitate cross-border payments have been announced
recently
11
.
Payment services play a key role among digital financial services, being at the cutting
edge of innovation
12
. The full roll-out of euro IPs in the EU would be consistent with
initiatives laid out in the Commission’s
Digital Finance Strategy for the EU
13
adopted on
24 September 2020, aimed at promoting digital transformation of finance and the EU
economy and removing fragmentation in the Digital Single Market, such as the European
Digital ID Wallet or digital euro.
At international level, the G20 targets
14
on payments speed include the objective of
having, by the end of 2027, 75% of global retail payments being credited within
maximum one hour. The present initiative would contribute to the EU achieving the G20
objectives.
1.3. Legal context
Regulation (EU) No 260/2012 (the SEPA Regulation), concerns only two types of
payment services (credit transfers and direct debits) denominated in euro. It set a
deadline by which all EU PSPs were obliged to offer regular credit transfers and direct
debits in euro under the same, harmonised rules. Based on a decision of the European
legislators that SEPA should extend to the entire EU, these rules also apply to PSPs in
non-Euro area Member States, if they decide to offer credit transfers or direct debits in
euro. Those rules were largely based on the schemes developed by the EPC in 2008 and
2009. The 2012 SEPA Regulation did not oblige PSPs to start offering euro IPs as they
did not exist at the time, being first launched in 2017.
Directive 2015/2366 on payment services (PSD2) concerns eight types of payment
services (credit transfers and direct debits included) in all EU currencies. It sets out, inter
alia, rules about the information that PSPs have to give to consumers and about the rights
and obligations of payment service providers and users. A review of the application and
impact of PSD2 is ongoing and the results are expected in the first half of 2023.
Regulation (EU) 2021/1230 on cross-border payments (CBPR) equalises charges
between cross-border payments in euro and the corresponding domestic payments in
national currency of an EU Member State, offered by any PSP within the EU. Thus, the
10
An alternative to SEPA for cross-border payments is SWIFT payments, which are slower and more costly
than SEPA payments. See Annex 9 for more details.
11
Ukraine Connects to SEPA - GTInvest (good-time-invest.com)
12
A 2020 Study by Deloitte Financial Advisory Netherlands found that
“Digital payments market is the
largest segment within the Fintech spectrum and accounts for more than 80% of global Fintech revenues”
(see:
https://www2.deloitte.com/content/dam/Deloitte/nl/Documents/financial-services/deloitte-nl-fsi-
fintech-report-1.pdf);
Ernst and Young finds that in the US,
“Valuations of FinTech firms in the payments
space grew at an annual compound rate of 27% between 2016 and 2020”
(see:
https://www.ey.com/en_lu/banking-capital-markets/how-banks-can-win-at-payments)
13
https://ec.europa.eu/info/publications/200924-digital-finance-proposals_en
14
Targets for Addressing the Four Challenges of Cross-Border Payments: Final Report (fsb.org)
4
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Regulation already requires that PSPs offering euro IPs apply the same charges for a
cross-border euro IPs as for the corresponding domestic IPs in national currency
(whether euro or otherwise).
2. P
ROBLEM DEFINITION
2.1 The problem: insufficient uptake of euro IPs
As of the fourth quarter of 2021, four years into operation of the SCT Inst. Scheme, the
estimated uptake of euro IPs
15
was only 10.97%. It varied considerably by Member State,
as shown in the chart below.
Chart 1 - Uptake of euro IPs by volume as % of all euro credit transfers by Member State
16
70
60
50
40
30
20
non Eurozone MS
10
Negligible
0
EE
LT
ES LV NL
FI
BE EU LU PT DE FR
Avg
SI
AT
IT
CY
IE MT SK
EL
BG DK PL
SE RO CZ HR HU
Negligible
Thus, only around one in ten euro credit transfers effected in the EU is an IP. In terms of
overall transferred value, the percentage is even lower, only around 2% (EUR 1.6
trillion) in 2020.
17
The current uptake level reflects mostly the high level of domestic
euro IP transactions in some Member States.
Importantly, the dispersion of the uptake of euro IPs across Member States is markedly
wide, underscoring the untapped potential to achieve a considerably higher uptake at
European level. Whereas in May 2021 the uptake of euro IPs in five Member States
exceeded the EU average significantly (i.e., Estonia 67%, Lithuania 45%, Spain 38%,
Latvia 29% and the Netherlands 24%); in a number of other Euro area Member States
(France, Portugal, Germany
18
, Slovenia) the uptake was only between 1% and 4%, it was
negligible in Austria, Italy, Cyprus, Ireland, and Malta, and non-existent in Greece and
Slovakia.
15
16
The percentage of euro IPs in all euro credit transfers effected in the EU, by volume
Estimates for May 2021 based on data provided by National Payments Committees (EFIP
questionnaire). EU average represents the uptake for Q4 2021 (EPC estimate). For Greece, Slovakia,
Romania, Croatia, Hungary and Czechia, there were no PSPs adhering to SCT Inst. Scheme in May 2021.
Uptake for Belgium reflects only IPs processed in the main domestic retail payment system.
17
Source: ECB, National Payments Committees, European Commission calculation.
18
The current level of uptake in Germany reflects the fact that approximately 50% of all credit transfers
are submitted by corporate customers in batch mode and, therefore, are not processed as IPs. Hence, the
uptake mainly reflects IPs initiated by users via online banking or mobile banking applications.
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Considered as a percentage of all electronic payment transactions in the EU (i.e. not only
credit transfers but also including other payment means), the share of IPs is even lower.
Even in Member States with relatively high uptake of IPs, usually carried out via
dedicated online or mobile banking apps such as Bizum in Spain, retail purchases at PoI
using electronic means of payment remain dominated by card-based payments. Card
transactions represented approximately 50% of all non-cash payment transactions in the
EU in 2020.
19
In 2018, the two most commonly used International Card Schemes (ICS),
Visa and Mastercard, handled 69% of card payment transactions in Europe. Moreover,
ICS card payments constitute almost all of the cross-border card payments in the EU.
20
More information on the shares of various non-cash payments instruments in the EU
payments market can be found in Annex 7.
2.2 Consequences of the problem
Two consequences are discussed in this section: (i) unrealised benefits and economic
efficiency gains from the wider use of euro IPs, and (ii) limited choice of means of
payment at PoI, especially cross-border. Regarding these consequences, it is important to
distinguish two types of situations in which IPs can be made. The first situation is where
IPs are initiated by the payer (consumer or corporate user) through online banking or in a
branch, for a variety of reasons (P2P payments between individuals, payment of invoices
etc.). The second is IPs at PoI made for the purpose of consumers purchasing goods or
services from a merchant; they can take place online or in a physical point of sale.
The first consequence discussed below concerns both situations, while the second applies
particularly for IPs at PoI. The development of cross-border solutions for making
payments at PoI (such as mobile payment applications) or the interoperability of existing
national solutions is facilitated, but not directly dealt with, in the present initiative. The
wider availability and use of IPs, which the present initiative aims to achieve, should,
together with other relevant initiatives discussed in Section 7.3, act as a catalyst and
stimulant for the development of such PoI payment initiation solutions.
2.2.1
Unrealised benefits and efficiency gains from IP
S
Macro level unrealised benefits
Funds which are in transit in a payment system between the payment accounts of the
payer and the payee (known as ’float’) are not available for spending or investment by
payment service users. It is estimated that at any given day, an amount of 187 billion
euro is locked in the financial system in this way, using regular euro credit transfers or
cheques
21
(see Annex 8 for further analysis of payment float and impacts of its
reduction). If IPs were to become universally used, these funds would become
immediately available for economic use, either consumption or investment, thus
contributing to growth.
19
20
Source: ECB. See Annex 7.
Source: ECB,
Card payments in Europe – current landscape and future prospects: a Eurosystem
perspective (europa.eu).
21
Source: ECB, National Payments Committees, Commission calculation. As shown in Annex 7, the annual
value of regular euro credit transfers and cheques in 2020 was EUR 68 161 billion, equivalent to average
daily float of non-settled funds of EUR 187 billion.
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Unrealised benefits for EU citizens
Citizens can benefit from IPs directly, in their capacity as senders or beneficiaries of
credit transfers, and also indirectly, in so far as other economic actors, such as merchants,
fintechs or PSPs, can pass on to them some benefits from IPs which accrue to them, or
use IPs for the development of new goods and services.
As regards the direct benefits for citizens, as payers or payees of credit transfers, the
growing digitalization of modern societies has led consumers to expect everything to be
available in real time. This behavioural change concerns also payments. It is no longer
commonly accepted that a bank transfer can take up to two business days to be credited
to the beneficiary
22
, not counting additional delays due to weekends and public holidays.
As society moves towards real-time, digital ways of interacting in all spheres of life, EU
citizens expect payments to match this new reality.
Thanks to the near immediate speed (less than 10 seconds), with which the funds are
transferred, users of IPs can see their real-time account balance before and after making a
payment (helping with better management of finances and avoiding falling into
overdraft), or meet last-minute financial obligations (e.g. pay a forgotten bill in time to
avoid late payment penalty), which is in particular important for low-income households.
This expectation of immediacy is underlined by the consumer feedback to the open
public consultation on IPs
23
. All consumer organisations and an overwhelming majority
of individual consumers who responded expect credit transfers to be credited to the
beneficiary within seconds (88%) and at any time, i.e., 24/7/365 (90%). The demand for
round-the-clock credit transfers is confirmed by the fact that already now, as many as
33% of all euro IPs are requested by payers between 6pm and 6am, time during which
regular credit transfers are not processed by PSPs
24
. The same trend can be observed
outside the Euro area.
25
The call of the European consumer organisation BEUC on the industry and regulators
“not
to promote slow finance”
26
, and to ensure that IPs
“become the new normal for
credit transfers”
and are “adapted
to different use cases, such as payment in shops”
27
reflects the expectations of EU citizens when it comes to payments.
22
PSD2 requires credit transfers to be effected by the end of the next business day which can be
extended by another business day for paper-initiated transfers.
23
IPs (europa.eu). See Annex 2 on public consultation.
24
https://www.europeanpaymentscouncil.eu/sites/default/files/infographic/2022-
02/SCT%20Inst%20today%20%20%281%29.pdf
25
For example, the data on the volume of submitted (and instantly settled) IP in PLN orders in the Express
Elixir system (in Poland) shows that in the first quarter of 2021 48,7% of payment orders were credited to
the payee between the hours of 16:00 and 8:00 and 19.6% over weekends (when regular credit transfers
are not credited to the payees). The corresponding figures for another Polish IP settlement system,
BlueCash, were 38.1% and 11,3%, respectively. Source: Informacja o rozliczeniach i rozrachunkach
międzybankowych w I kwartale 2021 r. (nbp.pl)
26
FISMA webinar on IPs:
Webinar: Exploring the potential of IPs for EU consumers and businesses |
European Commission (europa.eu).
27
A retail payments strategy for the EU | www.beuc.eu.
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IPs can also enable the governments and public authorities to provide support to
households in crisis situations in near real time, including on weekends (e.g., see Annex
6 regarding experiences in Australia).
The indirect benefits to consumers of IPs would arise from the availability of more
efficient and affordable payment solutions available to merchants, on the hypothesis that
PoI solutions would be developed to allow the use of IPs for purchase of goods and
services, including cross-border. There are concrete examples of industry efforts to set up
such solutions based on IPs
28
. Currently, merchants do not usually receive real-time
electronic payment for goods and services and consider fees for acceptance of ICS
payment cards to be high (see following section). Merchants’ potential cost savings
resulting from more affordable payments could be passed on to consumers in the form of
lower retail prices, while the improved cash-flow enabled by IPs could enable merchants
to improve services to consumers, such as expedited refund services.
Unrealised benefits for EU merchants
The full realisation of the benefits of IPs to merchants are to a large extent contingent on
the development of IP-based PoI solutions by the market, which would work for both
domestic and cross-border transactions. The wider use of IPs which the present initiative
aims to achieve is expected to trigger the development of such solutions, or to promote
interoperability of the existing ones, within a short timescale.
The potential benefits to merchants from using IPs fall into two categories: higher speed
and lower cost of receiving payments for goods and services sold.
As regards speed, with the currently available means of payment (cash, cards, cheques,
regular credit transfers), liquidity management for merchants is a major issue and can
hinder management of stock and other assets. Currently, the only way the merchant can
send goods or provide services immediately after payment is by means of card payment
schemes or Payment Initiation Service Providers (PISPs) offering a payment guarantee or
similar service to the payee, although actual funds reach the merchant's bank account on
average one to two days later. If merchants were to receive the funds immediately on
their accounts, it would improve their liquidity and cash flow management, and enable
them to, for example, immediately re-invest the funds received from customers in
restocking, buying the necessary materials, and so on.
As regards costs, 92% of merchant respondents to the open public consultation stressed
the importance of the potential cost savings that would result from lower fees on IP PoI
solutions compared to other alternatives (e.g. cards). The payment means currently
widely used with merchants all have very high costs:
28
The European Payments Initiative (EPI) aims to launch a digital payment wallet which would run on IPs
and, based on information available as of April 2022, would be offered in at least 5 Member States,
including
cross-border
(Germany,
France,
Belgium,
the
Netherlands,
Spain);
https://www.epicompany.eu/;
EU PISPs have been investigating the setup of PoI solutions (including in
physical shops) based on IPs, called European Retail Payments Framework (ERPF);
https://www.etppa.org/news.
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Cash comes with substantial costs related to theft, human error, handling (need to
manually reconcile cash payments at the end of the day); transporting and
depositing it safely, etc.
29
;
Cards (in particular provided by ICS), as well as ICS-based mobile payment
applications are expensive for merchants to accept. According to merchants, the
costs associated with accepting ICS cards have been increasing due to the
increasing scheme fees (see section 2.2.2). ICS-based mobile payment
applications may result in higher merchant fees than regular card payments as
they can add their own margin on top of interchange and scheme fees and
acquirers’ margins. For instance, PayPal merchant fees can reach up to 3% of the
transaction value processed
30
. According to a recent research of the Irish and UK
markets, costs are among the top three concerns for merchants associated with
card payments
31
.
Cheques are by far the most expensive payment instrument still in use in several
European countries (e.g., France, Italy, Spain, Portugal, Malta): 1 386.4 million
cheques were issued in the euro area in 2020 (and 1 387.4 million in EU27), with
an estimated average cost to the society of EUR 3.55 per transaction, compared to
EUR 1.92 for credit transfers
32
. Moreover, cheques cannot be used in other
Member States as there is no cross-border mechanism to settle them.
The potential for cost savings for merchants resulting from the use of IP-based PoI
solutions is confirmed by other countries’ experience. For example, the Brazilian PoI
solution based on IPs, PIX (see Annex 6) costs an average of 0.22% of a transaction’s
value for merchants, whereas debit cards cost slightly above 1% and credit cards reach
2.2%.
33
.
Unrealised benefits for corporate users related to liquidity management
Similarly to merchants, all corporates can benefit from better liquidity management as a
result of receiving payments instantly instead of with a delay of hours or even days.
Studies show that over 50% of payments to EU companies are delayed by 10 days or
longer
34
and that the issue is in particular acute for SMEs as they tend to get paid later
than large companies. 95% of SMEs in Western Europe and 89% in Eastern Europe say
that they are paid late.
35
While these delays are first and foremost caused by late payment
by debtors, the slower processing of multiple successive regular credit transfers by PSPs
could further exacerbate the problem of late payment to an ultimate beneficiary at the end
of a long supply chain. IPs or IP-based solutions would not remove the root cause of the
delays, but would contribute to mitigating their impacts.
29
Study by Fidelis Consulting;
https://op.europa.eu/en/publication-detail/-/publication/735d5b9d-0c5e-
11ec-adb1-01aa75ed71a1/language-en/format-PDF/source-228716981.
30
https://ec.europa.eu/competition/publications/reports/kd0120161enn.pdf.
31
TrueLayer Blog | 5 reasons the checkout is changing – ecommerce payments after the pandemic.
32
A third of cheque costs and half of credit transfer costs are attributable to merchants.
The social and
private costs of retail payment instruments: a European perspective (europa.eu).
33
BIS Bulletin no.52: Central banks, the monetary system and public payment infrastructures: lessons
from Brazil’s Pix
34
https://ec.europa.eu/growth/smes/sme-strategy/late-payment-directive_en
35
Business-to-business transactions: a comparative analysis of legal measures vs. soft-law instruments for
improving payment behaviour, VVA, Milieu, 2018;
ET0118678ENN.en.pdf.
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As a result of delays in the availability of funds to the beneficiary, an average of 63% of
businesses in the EU maintain a cash contingency to cover the time it takes to receive
payments
36
. The relevance of this issue was confirmed by the majority (77%) of retailer
respondents to the open public consultation who noted the importance of ensuring
instantaneous availability of funds 24 hours a day, any day of the year. Similarly, 77% of
all respondents to the consultation thought that IPs would enable corporates to manage
their cash flows more efficiently.
Unrealised benefits for Payment Service Providers and payment fintechs
Under-utilisation of IPs can lead to considerable untapped gains for EU PSPs. On the eve
of the development of the SCT Inst. Scheme, the EPC, which represents the EU PSP
community, stated that
“Payment Service Providers (PSPs) could use their instant
payment infrastructure (where available or planned) as a springboard to develop other
24/7/365 financial services and products to serve their customers better and attract new
clients”
37
.
In a similar vein, ECB argued that
“since the early announcement of IPs, it
has been argued that the main economic incentives for PSPs to bear their investment cost
is to strengthen their competitive position and to introduce cost efficiencies by replacing
existing payment instruments that are more costly, e.g. cheques”
38
.
90% of respondents to the open public consultation on the provider side (PSPs, technical
service providers, payment systems) who expressed their opinion on the matter
considered that IPs could positively impact PSPs’ ability to preserve their existing
customer base, while 88% thought that IPs could help them attract a larger customer
base. Moreover, without a reduction of the volumes of cash and cheques usage thanks to
wider use of IPs, PSPs will continue to incur significant cash and cheque management
costs. A study conducted by Deloitte
39
showed that having more IPs would lead to a
significant decrease in the volume of cheque transactions per capita. Hence, given that
1.4 billion cheques were issued in the Euro area in 2020, a full substitution of cheques
with IPs could potentially lead to up to EUR 2 billion in annual savings for PSPs.
40
Those substantial savings would be in addition to benefits for society arising from
elimination of losses arising from the absence of a payment guarantee on cheques and the
costs of the various procedures required for the beneficiary to be credited.
41
Other potential benefits for PSPs of wider use of IPs would be increased opportunities to
innovate thanks to greater economies of scale for developing new payment services and
PoI solutions, based on IPs. The ECB observes that combined with the development of
mobile payment services, IPs are an innovation providing a competitive technology in
36
Fidelis Consulting study;
https://op.europa.eu/en/publication-detail/-/publication/735d5b9d-0c5e-
11ec-adb1-01aa75ed71a1/language-en/format-PDF/source-228716981
.
37
EPC Report to the ERPB on Instant Payments, 4 June 2015. Available
here.
38
Are instant payments becoming the new normal? A comparative study (europa.eu).
(hereafter ECB
2019)
39
Economic impact of real-time payments, July 2019 (deloitte-uk-economic-impact-of-real-time-
payments-report-vocalink-mastercard-april-2019.pdf
).
40
The ECB has estimated that the cost for the society of a cheque transaction is EUR 3.55 (2/3 of which
attributable to PSPs), compared to the cost of a credit transfer of EUR 1.92 (50% of which attributable to
PSPs).
The social and private costs of retail payment instruments: a European perspective (europa.eu)
.
41
1.4 million French citizens were registered on the “Fichier Central des Chèques” for having issued
cheques without provision in 2017. Statistics from Banque de France, 21 December 2018.
10
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the race for retail payments markets dominated either by cash or cards
42
. Indeed,
complementary services (e.g. mobile payment solutions based on IPs) have the potential
to provide convenient and efficient alternatives to cash in person-to-person payments
(P2P, e.g. splitting a bill in a restaurant); to cash and payment cards in physical shops,
and to payment cards when paying online. It should however be noted that developing
new solutions based on euro IPs risks being unprofitable if their uptake is too low.
The higher uptake of IPs at EU level would also create greater incentives for EU fintechs
and non-bank PSPs, such as Payment Initiation Service Providers (PISPs), to engage in
developing IP-based PoI solutions which would work not only domestically but also
cross-border (in the same way as ICS work). Today, there are no IP-based PoI solutions
that work in shops cross-border (see Annex 6). With the reduced opportunities to expand
beyond national markets, EU providers of IP-based solutions cannot gain the economies
of scale on the cost side necessary to innovate and compete with the large, international
incumbents.
Attempts to develop pan-European solutions have been made by EU providers. In
2020/2021, EU PISPs assessed the opportunity of designing a European Retail Payments
Framework (ERPF), with the aim of ensuring availability of pan-European IP solutions
in physical shops. The objective of ERPF was to provide solutions for payments in
physical shops. However, the limited use of euro IPs was identified by the ERPF’s
promoters as one of the main stumbling blocks to the project
43
.
Wider use of IPs would also allow PISPs to fulfil their tasks more efficiently. Banks do
not have any obligation to provide the confirmation of account balances to PISPs
44
. As
part of their service of payment initiation, PISPs must then estimate the likelihood of
sufficient funds being available on the payer’s account to cover the payment to the
retailer. There is therefore always a risk for the PISP that the payment that is initiated
based on a regular credit transfer will not be executed. IPs would remedy such risk as the
payment execution can be instantly verified. A large EU PISP reported to the
Commission that the rate of successful transactions it initiated in 2020 had been 10
percentage points higher for IPs than for regular credit transfers. Greater uptake of euro
IPs by PSPs would allow further leveraging on the Open Banking policy enshrined in
PSD2, which is aimed at opening up the market for more competition and innovation.
Unrealised benefits for public administrations and others
Public administrations which collect fees, fines or taxes would benefit from improved
cash flow management similarly to merchants and corporates. In addition, a greater take
up of IPs could reduce tax fraud and tax evasion, leading to fiscal benefits in the range of
EUR 0.25-1.59 billion per year (see section 7.3). With IPs, NGOs and charities could
make use of contributions more quickly, which is of particular benefit when funds are
urgently needed, particularly in times of international crisis.
2.2.2
Limited choice of means of payment at PoI, in particular cross-border
As indicated above, the use of IPs for retail (PoI) payments is very limited in the EU,
with the exception of certain merely domestic systems, mostly located outside the Euro
42
43
ECB 2019, report
referred to in footnote 35 above.
Bilateral communication between ERPF and Commission services.
44
Unlike in the case of cards (Art 65 PSD2).
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area and limited to payments denominated in national currency
45
. As a consequence, the
vast majority of electronic PoI payments, in particular cross-border ones, in the EU are
carried out or facilitated by a very limited number of ICS and BigTechs providing mobile
payment applications based on ICS, including Apple Pay, Google Pay
46
and PayPal,
except for national card transactions in Member States with domestic card schemes in
place. Obstacles to access to certain technologies developed by ICS can make entering
the card market for cross-border payments difficult for new players. For example, some
market players allege that they have difficulties in using the ICS' contactless ‘kernel’
47
in
physical shops, which is necessary for offering contactless card payments and which, for
cross-border payments in Europe, is deployed by ICS.
Compared to electronic payments in physical shops, in e-commerce there are more
payment solutions available, as in addition to ICS, solutions based on credit transfers or
direct debits are provided by international (e.g., PayPal
48
, Tink, Plaid
49
) and EU
providers (e.g., Klarna/SOFORT, Trustly). Card-based solutions offered by ICS or
BigTech service providers are most widely accepted by merchants. For example, in 2018
in Europe, over 72% of online merchants accepted PayPal, 54% accepted Visa, and 48%
accepted MasterCard. By comparison, Klarna/SOFORT was accepted by 8.6%
50
.
As indicated above, in terms of volume, in 2018, the two most commonly used ICS
handled 69% of card payment transactions in Europe.
51
They are continuously expanding
to new payment areas, as demonstrated by the purchase of the Swedish Fintech Tink by
Visa, or the launch of Visa’s own IPs service
52
. This could reduce growth prospects for
new entrants and make it harder for them to raise capital
53
.
The current situation creates significant vulnerabilities for the European PoI payments
ecosystem in terms of choice, innovation and the emergence of pan-European payment
solutions. With the low uptake of IPs, the unique opportunity for EU PSPs (bank and
non-banks) and fintechs to develop and promote new pan-European payment solutions,
which would not need to rely on the infrastructure provided by the incumbent providers,
will remain unrealised.
The limited choice of payment methods, in particular for cross-border transactions,
means that merchants have very little, if any, bargaining power when dealing with the
handful of available providers, even if accepting those few payment methods is costly for
them. A study by EY
54
showed that during the years 2015-2017, scheme charges paid by
45
46
E.g. in Swish in Sweden, Blik in Poland, MobilePay in Denmark.
Currently, Apple Pay and Google Pay can be used to make payments through a debit or credit card.
47
Kernels are the set of functions that provide the necessary processing of data between a point of
interaction and a card/mobile device to perform contact or contactless transactions.
48
PayPal allows for cross-border payments through ICS or through a credit transfer.
49
In France, Spain, Ireland and the Netherlands.
50
Ecommerce News Europe has gathered the data from Dataprovider on payment methods offered by
over 900,000 ecommerce websites across Europe in 2018; see
this link.
51
Source: ECB (see
this link)
.
52
VisaDirect is based on IPs. Visa is also developing a Request-to-Pay service based on IPs. MasterCard
acquired IP service provider BLIK in Poland and NETs account-to-account business in Denmark.
53
https://www.bis.org/publ/qtrpdf/r_qt2109c.pdf
.
54
Commissioned by the Commission (DG Competition) from Ernst & Young (available at
this link
or
this
link).
Published 4 August 2020.
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acquirers (but later passed onto merchants) for card transactions increased by
approximately EUR 560 million and were driven mainly by increases in charges paid to
ICS, with particularly steep increases for cross-border transactions. Eurocommerce
estimates that ‘merchant service charges’, including scheme fees, interchange fees and
acquirers’ margins, increased in the EU from 2015 to 2020, by EUR 876 million in
total
55
. Higher fees on card transactions incurred by merchants tend to be passed (fully or
partially) onto consumers via higher prices.
Merchants, as well as corporate users, including SMEs, need to be able to make and
accept cross-border payments. This is confirmed by the responses to the open public
consultation, where merchants stated unanimously (100% of merchants’ responses) that
ensuring the ability to accept payments from customers from other Member States was
very important. They have therefore little choice but to accept Visa and Mastercard, and
mobile wallet solutions incorporating these, since only they enable payments from other
Member States.
Greater choice of payment means and providers available in shops, in addition to cards,
would also benefit users, including SMEs.
56
Currently, users can only benefit from
mobile payment solutions based on IPs in certain domestic markets (see Annex 6). A
consumer who is used to making payments by using a popular and widely-acceptable
domestic payment solution that allows initiation of IPs at PoI is compelled to rely on
another payment instrument, most likely an ICS card or cash, purely for the purpose of
making payments in other Member States. This is both inconvenient and costly for the
consumer
57
. The pertinence of this concern is confirmed by 85% of consumer
respondents to the open public consultation who stated that it was important to be able to
pay with IPs not only in their own Member State but also abroad.
A wider uptake of IPs is thus a necessary – although not sufficient in itself - prerequisite
for the development of new IP-based retail payment solutions that work at pan-European
level, in order to bring more choice of payment methods at PoI.
2.3 Problem drivers
Four key problem drivers hindering the uptake of euro IPs have been identified: (i)
insufficient incentives for PSPs to offer euro IPs (market failure); (ii) dissuasive
transaction fees for IPs; (iii) high rate of rejected IPs due to false hits in sanctions
screening; and (iv) payer concerns about security of IPs (in terms of fraud and errors).
Two (i and iii) are on the supply side (affecting PSPs and providers of technical services)
and two (ii and iv) on the demand side (affecting consumers and other types of payers).
The supply and demand side drivers affect and mutually reinforce each other, and taken
together are largely responsible for the insufficient uptake of euro IPs.
There are other factors that could be considered to potentially influence the uptake of IPs
and contribute to the apparent differences in the current use of IPs in individual Member
States. These could include the competitive environment (such as market structure, entry
55
56
Excluding UK [CMSPI
Zephyre - Scheme Fee Study final.pdf (eurocommerce.eu)].
BEUC position paper on the RPS.
57
Even if there are no ‘per transaction’ costs for consumers related to paying with cards, holding a
payment card is not free (annual cardholder fees). In addition, higher merchant fees on card transactions
are passed onto consumers via higher prices.
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barriers, competitive pressure from non-banks, switching costs, etc.); specific consumer
payment preferences (e.g. cultural preferences for cash or cheques), business strategies
(such as transaction-based or package pricing for retail financial services), wired and
mobile internet penetration (necessary for online or PoI transactions)
58
, etc. Nonetheless,
it was concluded that in the current context these factors are either of a secondary
importance, do not apply equally in all Member States, or are not in the regulator’s
control, hence are outside of the scope of the present initiative.
2.3.1
Driver 1: Insufficient incentives for PSPs to offer euro IPs (market failure)
As explained in detail in Annex 10, payments are a network industry exhibiting
significant economies of scale. Network externalities lead to undersupply, and the
resulting unexploited scale economies may prolong higher prices reducing demand that
in turn creates disincentives to increase supply. In order to overcome market failures and
help the industry reach critical mass, coordinated efforts are frequently taken in
payments, either based on industry initiative or by some sort of government intervention.
For an IP transaction to take place, both a payer and a payee need to have a PSP which
offers such service. PSPs’ decisions to adhere to the SCT Inst. Scheme are, however,
impacted by the presence of network externalities. Network externalities occur in a form
of circular interaction whereby the more PSPs and users (both payers and payees) of a
certain payment method (such as IPs) there are in a network, the more attractive it is for
other PSPs to join the network and start offering that payment method. This is, inter alia,
because a high volume of payments brings a better chance of recouping PSPs’
investments necessary to offer that new payment method.
In this regard, three levels of initial investment are needed
59
: a common scheme, a
common settlement infrastructure and, finally, investments by individual PSPs. The first
two types of investments have already occurred: the EPC launched the SEPA Inst.
Scheme in 2017, while the ECB has already ensured the existence of a pan-European
settlement infrastructure, TIPS, and its interconnection with national clearing and
settlement infrastructures. Therefore, the necessary fixed investment cost for offering
euro IPs is now limited to PSPs’ individual investments (see Box 2).
However, a high number of PSPs (about one in three) across the EU do not see sufficient
incentives to make such investments to join the network, as they deem its current scale,
in terms of other participating providers, payments services users and the IP volume, to
be too low to justify such investments (see Annex 10 for more analysis of network
effects). However, the participation of the vast majority of PSPs offering regular euro
credit transfers is a precondition to achieving such volume.
As of February 2022, over four years into the operation of SCT Inst. Scheme, only 2 308
EU PSPs
60
have adhered to it, thereby committing themselves to be able to send and/or
receive
61
euro IPs. This represents 66.8% of the 3 454 PSPs in the EU that are able to
send and receive ‘regular’ credit transfers in euro. Within the Euro area, this percentage
58
ECB Occasional Paper Series
Are instant payments becoming the new normal? A comparative study
(europa.eu),
Monika Hartmann, Lola Hernandez-van Gijsel, Mirjam Plooij, Quentin Vandeweyer, 2019
59
As discussed in section 1.1. and Annex 6.
60
Some SCT and/or SCT Inst. Scheme participants may not be authorised as PSPs under PSD2.
61
Approximately ten of those PSPs are only able to receive IPs.
14
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was slightly higher at 70.5% (2 299 out of 3 260), while outside the Euro area, it was
significantly lower at 4.6% (9 out of 194).
There are significant differences between national markets within the EU. In 8 Member
States (Austria, Estonia, Finland, Germany, Italy, Latvia, Slovenia and Spain), as of
February 2022, a majority of PSPs offering regular euro credit transfers to customers also
offered euro IPs. In four other Member States (Belgium, Greece, Portugal and the
Netherlands), even though the PSPs able to offer IPs did not constitute a majority of
PSPs, these PSPs held more than 90% of payment accounts in their respective countries.
However, in as many as twelve national markets (eight outside the Euro area and four
within the Euro area: Cyprus, Ireland, Slovakia, Malta) only a handful of PSPs have
made the investments necessary to enable the payment accounts they hold to send and
receive euro IPs. The below chart provides a breakdown per Member State.
Chart 2 – Share of PSPs offering euro IPs and share of payment accounts enabled to send and
receive euro IPs by Member State
62
The real number of EU payment accounts with the ability to send and/or receive euro IPs
is lower than the number of accounts held by PSPs adhering to the SCT Inst. Scheme.
This is because not all PSPs with the capability to send and/or receive IPs offer this
service to all of their account holders. Moreover, certain PSPs adhere to the SCT Inst.
Scheme only in the capacity of a receiving PSP. It is estimated that holders of at least 70
million payment accounts in the euro area alone still cannot receive or send euro IPs.
62
Source: EPC. Data on the share of PSPs offering IPs is as of February 2022. Data on the share of
payment accounts enabled to receive and send IPs is as of November 2021 (data not available for Cyprus,
Ireland, Sweden, Bulgaria, Poland, Denmark, while for Slovakia and Czechia it was 0% as in November
2021 no local PSPs adhered to the SCT Inst Scheme).
15
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As regards the trend, the participation rate of EU PSPs in the SCT Inst. Scheme has been
stagnant, as shown in the chart below. After the initial adherence to the SCT Inst.
Scheme at its launch in 2017 of those PSPs that saw a business case in offering IPs, the
rate at which new PSPs have been joining has been very slow since Q3 2018. Recently
this rate plateaued, increasing only by 2.4 p.p. from 64.4% in February 2021 to 66.8% in
February 2022, in correspondence with the fact that 1 146 PSPs still did not adhere to the
SCT Inst. Scheme (see chart 3 below).
63
Chart 3 - Adherence gap to the SCT Inst. Scheme, number of PSPs (EU27)
64
The uptake of euro IPs in a cross-border context lags behind the uptake of domestic
transactions (i.e. where the payer’s and beneficiary’s PSPs are based in the same Member
State). For instance, in Spain, the volume of cross-border credit transfers accounted for
1.8% of all credit transfers in 2020
65
, while the share of cross-border euro IPs in all euro
IPs was six times lower, i.e., 0.3%
66
; the respective figures for the Netherlands were
3.9% and 0.2%, almost twenty times lower for cross-border IPs.
Based on informal feedback from PSPs, it is clear that in order to expand the supply of
euro IPs cross-border, PSPs want to be confident that if the customer requests an IP, it
will be possible to execute that payment regardless of where the payee is based in the
EU. In this regard, there is zero or close-to-zero chance that an IP will be successful if the
payment is addressed to a payee in a Member State with no or very few PSPs enabled to
receive euro IPs. Offering an IP service to customers without being able to guarantee that
the payment will actually be instant can expose a PSP to customer dissatisfaction and
reputational risk. Therefore, for many PSPs that already offer euro IPs, it is safer to stick
to domestic transactions and not offer the service at all for cross-border payments. This
63
64
The decreasing number for SCT can be explained by PSP consolidation.
Source: EPC.
65
Source: ECB, European Commission calculation. This figure also includes extra-EU transfers but these
are likely to be a small minority of cross-border transfers, most of which will be within the EU.
66
Data provided by National Payments Committees.
16
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represents an important obstacle to meeting the objectives of a Single Euro Payments
Area for IPs.
To sum up, for PSPs that do not yet offer euro IPs at all, and given the relative stagnation
in participation in the SCT Inst. Scheme, it is preferable to wait for other PSPs to
generate sufficient volumes, which the latter cannot achieve when participation in the
network of the PSPs is lagging behind. This creates an impasse that is not easy to
overcome by the industry itself.
However, there is an indication that where market coordination exists, the disincentives
arising from network externalities can be, to a varying degree, dealt with. This is
reflected by the experience of some Member States where the vast majority of PSPs
joined the SCT Inst. Scheme at the same time (e.g., Belgium
67
, Spain
68
), which was due
to a coordinated approach of the industry towards adopting euro IPs. It is naturally much
more challenging to achieve the same market coordination at EU level.
In other Member States, National Central Banks or National Payment Committees played
a very important role in promoting the uptake of euro IP technology. For instance, in
Lithuania, a Memorandum of Understanding between six largest PSPs and the national
central bank was concluded in 2017, aiming at ensuring that euro IPs are offered to
customers.
69
In the Netherlands, the four largest banks committed in early 2015 to build
an IP infrastructure under the programme guidance of the Dutch Payments Association,
and all relevant stakeholders, including the Dutch Central Bank, have been involved from
the start.
70
In this regard, a number of studies (see Annex 10) suggest that involvement of public
authorities is necessary to help address the failure of the market participants to take a
coordinated action to achieve a synchronised adoption of a new payments technology and
realise the full scale of network benefits. Such interventions have been key for a
successful adoption of IPs in other jurisdictions. Also, this is why the migration of EU
PSPs to the – new at the time – euro regular credit transfers and direct debits was made
mandatory under the 2012 SEPA Regulation after years of unsuccessfully waiting for the
industry to complete that migration on a voluntary basis.
2.3.2
Driver 2: Dissuasive transaction fees for IPs
The economic theory implies that demand for euro IPs, as a network-based service, is
impacted favourably by the number of users participating in the network and,
particularly, once ‘the critical mass’ of users is attained (see Annex 10). Yet, users are
sensitive to the pricing of payment services which appears to dampen their demand for
67
68
See the report available
here.
A very early adopter of the SEPA Instant Credit Transfer scheme tells us about the Spanish experience |
European Payments Council
69
Instant payments in Lithuania: standardisation and developmental directions, 2019,
https://www.lb.lt/en/media/force_download/?url=%2Fuploads%2Fdocuments%2Ffiles%2Fmusu-
veikla%2Fmokejimai%2FApie-mokejimu-rinka%2FMokejimu-
taryba%2FInstant+payments+in+Lithuania.pdf
70
Instant payments are the new normal in the Netherlands; who will follow? | European Payments
Council
17
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euro IPs and delay the attainment of that critical level of IP turnover (as well as its
expected impact).
The data presented in Table 1 shows that there is a strong negative correlation between
pricing of IPs and levels of uptake.
Table 1: Impact of transaction fees on the uptake of euro IPs
Member
State
PSPs charging the same level of
transaction fees for IPs and regular
credit transfers
% of PSPs
Average level of
which offer IPs
transaction charges
applying the
for IPs and regular
same
credit transfers, in
transaction
EUR
charges as for
regular credit
transfers
100%
From 0 to 0.38
100%
0 or
0.41 (where there is
no package fee for
all services)
30
PSPs, 0 (when initiated via
covering 95% Bizum), otherwise a
of market share, fee may apply
via
Bizum
solution
100%
100%
100%
65%
7%
A minority
0.40
0
0
0
PSPs charging a different level of
transaction fees for IPs and regular
credit transfers
Average
Average transaction
transaction fee
fee of regular credit
of euro IP, in
transfer, in EUR
EUR
Uptake of IPs
Estonia
Lithuania
Not applicable
Not applicable
Not applicable
Not applicable
67%
45%
Spain*
Not available
Not available
Latvia
Netherlands
Finland
Belgium
Portugal
Germany
France*
0.90
0.38
1%
2.80 (average)
0.45 (average)
0.1%
1.60 (median)
0.70 (median)
Source: Ministries of Finance, National Payment Committees, BEUC, Bizum
* In these Member States, a PSP may offer free IPs when initiated via a payment solution jointly offered by multiple
PSPs, but charge for IPs when initiated in a different way
Slovenia
Italy
11
PSPs
participating in
Paylib
P2P
payment
solution
14%
0%
Not applicable
Not applicable
Not applicable
0.88
EU average uptake: 10,97%
0.25
1.59
Not available
Typically
priced
as
premium
products,
(from 0.50 to
2.50)
0 (when initiated via 0.76
(when
Paylib), otherwise a initiated
fee may apply
online)
Not applicable
Not applicable
Not applicable
0
0.81
in most cases 0
38%
(almost
entirely driven
by 510 mln
transactions
initiated
via
Bizum)
29%
24%
19%
17%
3%
3%
0
3%
0.395
Not applicable
Currently, there appears to be a great variety of approaches to transaction fees for euro
IPs. Some PSPs and even entire PSP communities (e.g. in the Netherlands) have adopted
a no-transaction fee policy or apply equal (Lithuania) or very comparable (Estonia,
18
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Latvia) fees for IPs and regular credit transfers. Other PSPs apply relatively high fees per
IP transaction, which many times exceed those for regular credit transfers
71
. For instance,
based on a stock-take carried out by BEUC, in Italy, the fee per IP transaction may be as
high as EUR 30. The overview of the transaction fees for IPs for most national payment
markets is presented in the table below.
The impact of fees policy on demand for IPs is evidenced by the uptake rate of IPs in
Member States where the fees of the two transfer types is at the same or comparable
level. For instance, as shown in Table 1, in Estonia, the share of euro IPs in the volume
of all credit transfers in euro in May 2021 was equal to 67%, in Lithuania 45%, in Latvia
29%, in the Netherlands 24%, and in Finland 19%, i.e., significantly higher compared to
Member States where PSPs have adopted “premium” fees approaches, even with the
same broad levels of participation in SCT Inst. Scheme. The impact of the pricing policy
of IPs on their uptake is confirmed by the feedback to the targeted consultation and the
data at Member State level. That data shows a healthy growth of the uptake in Member
States where the pricing of euro regular credit transfers and euro IPs is comparable, and
stagnant uptake in Member States where IPs are priced at a premium for the period May
2020 to May 2021.
72
A study
73
by the ECB analysing the impact of the level of
transaction fees on the uptake of IPs in other international jurisdictions also concluded
that higher fees limit the uptake of instant retail payments.
It can be observed that in a number of Member States where the fees charged by PSPs for
IPs and regular credit transfers are currently comparable, this was facilitated or
encouraged by the national authorities (see section 3.2). Similarly, the most successful, in
terms of the number of users and transaction volumes, domestic IP solutions offered
today by EU banks (e.g., Swish in Sweden or Bizum in Spain) have no transaction fee.
Fee differences do not seem to be justified by the differences in transaction costs (though
theoretically this may reflect the intention of some PSPs to recover one-off costs
gradually via transaction fees). The available evidence on the average recurring cost per
transaction for IPs and regular credit transfers shows that the level of the two is rather
close
74
. In some cases, PSPs reported that the average cost per transaction of IPs is lower
than that of a regular credit transfer. In cases where the average cost of an IP was
reported to be higher than that of a regular credit transfer, the difference in euro cents
was typically in single digits and was dependent on the volume of IPs.
Some may argue that higher fees on IPs may be applied to obtain a compensation for the
elimination of the one-day payment float when moving from a regular credit transfer to
an IP (see Annex 8). However, it needs to be acknowledged that interest rates for
investments with such a short horizon have been extremely low, or even negative, in the
71
Usually, fees apply to transactions made outside the PSP’s network (i.e. where the payer and payee
hold accounts with different PSPs). Transfers within the PSP’s network (on-us transactions - where the
payer and payee hold accounts with the same PSP), are often priced at zero.
72
Over the 12 month period up to May 2021, the uptake of IPs in Spain increased by 19 p.p., in Lithuania
by 16 p.p., in Finland by 8 p.p. while in Member States where PSPs apply ‘premium pricing’ the annual
growth in uptake was minimal: 1.6 p.p in France, 1.2 p.p. in Germany, 0.4 p.p in Portugal and 0.1 p.p in
Italy (Data source: National Payment Committees).
73
Are instant retail payments becoming the new normal? (europa.eu)
74
Feedback from PSPs via targeted consultation and on a bilateral basis.
19
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recent years and, therefore, this impact is not considered to have had a major impact on
the pricing of euro IPs.
As regards the competitive environment in Member States where premium pricing is
applied it should be noted there is a relatively high number of PSPs adhering to the SCT
Inst Scheme
75
. Furthermore, in those Member States a variety of pricing models for IPs is
present, i.e., while the majority of PSPs charge a high premium compared to regular
credit transfers, there are also some PSPs that are not charging any premium or any fees
for IPs
76
.
Charging transaction fees for IPs equal to 200% or 600% of the transaction fee for a
regular credit transfer tends to reflect the positioning of IPs as a ‘premium service’
77
.
However, consumers do not consider IPs a premium service. According to the feedback
from consumers and consumer representatives to the open public consultation, 87% of
them stated that fees are an important factor when deciding whether to use IPs.
Furthermore, 67% of consumers stated that they would not be willing to pay a premium
fee for IPs. Of the 25% who would be open to paying more, all indicated that an
acceptable difference would be between 1% and 50% more than for regular credit
transfers, which is far from the practice of charging up to six times more, as shown in
Table 1. Studies also indicate that consumers are sensitive to price incentives, regardless
of their actual payment preferences, and that price differentiation can be used to steer
consumers towards or away from a certain payment method
78
.
Consumer organizations
79
have on several occasions brought up the issue of transaction
fees and called for legislation equalizing the level of fees for regular credit transfers and
IPs. During the 2021 FISMA webinar on IPs and the PSMEG
80
discussion, consumers
were joined by merchants, PISPs and some banks, who agreed that offering IPs to
consumers for a premium fee was not appropriate.
In addition to creating disincentives for consumers and businesses from using IPs, high
transaction fees for IPs imposed by PSPs may create obstacles to the emergence of
payment solutions at PoI offered by payments initiation service providers (PISPs), by
making them unattractive in terms of fees compared to alternative payment means at PoI,
such as cash or cards, which do not have a transaction fee for consumers.
2.3.3
Driver 3: High rate of rejected IPs due to false hits in sanctions screening
Currently, EU legislation does not prescribe the ways and means for PSPs to ensure
compliance with their obligations to apply EU sanctions such as asset freezing against
designated persons and entities. Thus, for cross-border IPs, PSPs apply transaction-based
screening, which generates a high number of alerts that the payee or payer is a designated
75
For instance, as of February 2022, 1 214 PSPs adhered to SCT Inst Scheme in Germany, 282 in Italy and
130 in France.
76
In France for example, the Banque Postale recently removed fees for Ips. See
this press report in French.
77
Reported by consumers (see
this report from BEUC),
studies (see
this report made for the ECB)
and
PSPs (bilateral exchanges, position letters).
78
How Do Consumers Make Their Payment Choices? (ssrn.com).
79
beuc-x-2021-027_consumers_and_instant_payments.pdf.
80
Commission Payment Systems Market Expert Group, meeting of 16 December, 2021 (available at
this
link).
20
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person on an EU sanctions list. Based on PSP feedback to the targeted consultation, this
proportion falls in the range of 0.4% to 9.4%, compared to close to 0% for regular credit
transfers.
Such alerts are the main reason for the rejection of initiated euro IPs, given that the time
needed to verify the alert does not allow for executing the transaction instantly. The
payment is therefore either not executed, or it can be executed but no longer as an IP (but
as a regular credit transfer). This is highly inefficient considering that in as much as
99.8% of such cases
81
, the alert is a false positive. At the current level of uptake of IPs,
each percentage point of rejected cross-border transactions is equivalent to some 150 000
IPs that did not reach the intended payee and this figure would only increase in
proportion with the expected growth in the uptake of euro IPs. Moreover, the same
problem is also applicable in the context of domestic euro IPs where the transaction-
based screening is applied by PSPs.
The high volume of inaccurately ‘flagged’ and subsequently rejected IPs arising when
transaction-based sanctions screening is applied creates operational challenges for PSPs’
who wants to offer IPs to their customers. Some PSPs across various Member States
have indicated that those challenges contributed to their decision to delay a provision of
IPs on a cross-border basis. It also limits the reliability and predictability of IPs in the
perception of users (consumers, merchants, corporates), having a negative effect on the
level of uptake of IPs (see the Problem Tree in section 2.5).
More details on the different approaches to sanctions screening and their impacts on
processing of IPs are included in Annex 4.
2.3.4
Driver 4: Payer concerns about security of IPs with regard to fraud and
errors
Credit transfers (regular or IPs) may
82
end up being sent to a payee not intended by the
payer. This can be due to mistakes made by the payer (e.g. mistyping the payee’s account
number) or as a result of fraud. The latter can involve illegal impersonation (e.g. a
fraudster makes the payment instead of a genuine payer as a result of a cyberattack or
theft of the payment instrument)
83
, or a criminal activity which occurs before the
payment is made by a genuine payer (pre-payment fraud).
Pre-payment fraud can take the form of an invoice fraud (e.g. where invoices are
intercepted and the merchant account number is substituted for that of the fraudster), or
more sophisticated APP frauds involving manipulation of the payer through direct
interaction (e.g. manipulation of the payer into believing he is dealing with a genuine
payee or even with his bank’s representative). Such type of fraud precedes the execution
81
82
PSP responses to the targeted consultation and industry feedback.
This is unlikely to happen in case of IP-based PoI solutions, working similarly to card schemes, where
both payer and payee (merchant) undergo prior verification at onboarding process to be able to use the
PoI solution and which often use proxies for the IBAN number (e.g. telephone numbers or email
addresses). This means the payer does not need to manually input the IBAN number of the payee when
making a payment.
83
Payment fraud is addressed in the EU payments legislation (PSD2), and in particular regarding Strong
Customer Authentication (SCA) and PSP liability for unauthorised transactions (e.g. Article 73 and 74
PSD2)
21
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of the payment transaction. Currently the EU payments legislation does not envisage any
specific provisions to protect payers from such criminal practices, neither with respect to
more traditional payment methods (regular credit transfers, cards, direct debits) nor more
novel ones, such as IPs. Likewise, EU payments legislation does not provide for any ex-
post remedies for possible errors made by payers when inputting the IBAN
84
of the payee
to place a payment order for a regular credit transfer or IP.
However, a common perception of payers is that even in case of pre-payment fraud, as
well as for the possible errors in inputting the IBAN, when using regular (‘slower’) credit
transfers, they will be able to cancel or reverse such transactions, while with IPs (‘faster’)
credit transfers, they will not be able to do so. In fact, in order to ensure stability and
certainty of payments, PSPs have no legal obligation to stop, cancel or reverse a payment
order placed by the payer (such revocation can only be agreed upon contractually,
possibly against a fee
85
). This needs to be distinguished from a refund, which can be
offered as a new transaction paid from the original payee back to the original payer.
Certain payment means come with such refund options, which are provided either on a
commercial basis by card schemes or IP-based PoI solutions, or by law in the case of
direct debits
86
.
Even if, in terms of the risk of fraud or errors occurring, and in terms of the legal
guarantees
87
of recovering the funds, the difference between regular credit transfers and
IPs is not materially significant, the novel nature of IPs, their speed and perceived
reduced margin for reaction to fraud and errors may lead to payer concerns about the
security of IPs and lead them to choose a slower form of payment, thus reducing the
uptake of IPs even in cases where they are available. These concerns, whether justified or
not, seem to be a driver of suboptimal uptake in situations where supply of IPs exists,
alongside premium pricing. The need to enhance consumers’ and businesses’ trust, is
generally recognised by stakeholders as a key element to facilitate a greater uptake of IPs
88
.
The more technical explanation of the types and extent of pre-payment fraud affecting all
credit transfers, the different refund rights specific to different payment methods granted
by law or on a commercial basis, and the rules on the irrevocability of payments are
included in Annex 5.
84
85
The standardised account number for payments in euro, International Bank Account Number (IBAN).
Under Article 80(5) PSD2, the payment order may be revoked only if agreed between the PSU and the
relevant PSPs. If agreed in the framework contract, the relevant PSP may charge for revocation. For
example, contractual arrangements under which the payer may request revocation of a payment order
until the end of the same business day are possible with some PSPs in Italy.
86
The only refund right laid out in the law (PSD2) concerns direct debits, because here the payee deducts
the funds from the payer’s account who has little control over when and how much will be deducted.
87
Which are without prejudice to various possible contractual arrangements between PSUs and PSPs.
88
E.g. Council in its conclusions of 22 March 2021
“welcomed the priority given to enhance consumers’
and businesses’ trust, especially in instant payments, notably by assessing consumer protection aspects, in
particular a confirmation-of-payee functionality”
[pdf
(europa.eu)];
BEUC [beuc-x-2022-
035_how_to_make_instant_payments_the_new_normal.pdf]
22
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2.4 How will the problem evolve?
In the absence of EU action, as regards supply of IPs, the number of PSPs offering IPs
will gradually increase, but the process will remain slow. Even where there is supply of
euro IPs, with premium transaction fees for them being applied, the user uptake would
remain limited. This would be further exacerbated by any unaddressed payer concerns
about security of IPs. Finally, with sanctions screening procedures remaining inefficient,
the rate of rejection of a notable portion of euro IPs, especially cross-border, would
remain significant. The consequences of this “baseline scenario” are discussed more in
detail in section 5.1 below.
In that case, the benefits of euro IPs for EU consumers, merchants, corporates, fintechs,
PISPs, banks and the society as a whole will remain largely untapped. The inability of
the market to achieve, by itself and in a timely fashion, the critical mass of euro IPs in the
EU will have a negative effect on new pan-EU product offerings by PSPs and fintechs.
The market for IPs, especially at PoI, will remain fragmented. Without an EU initiative
to promote euro IPs, the best possible future evolution would be the development of
bilateral or multilateral interconnections between domestic IP solutions that exist in
certain Member States.
23
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2.5 Problem Tree
<----------Supply
side drivers----------->
Problem Drivers
<---------Demand
side drivers--------->
Dissuasive
transaction fees
of IPs
(compared to
alternative payment
means)
High rate of
rejected IPs due
to false hits in
sanctions
screening
Insufficient
incentives for
PSPs to offer
euro IPs
(market
failure)
Payer
concerns
about security
of IPs
(with
regard to fraud and
errors)
Problem
Insufficient uptake of euro IPs
Consequences
Unrealised
economic benefits &
efficiency gains from
IPs
Limited choice of
means of payment at
PoI in particular
cross-border
24
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3
W
HY SHOULD THE
EU
ACT
?
3.1 Legal basis
Article 114 of the Treaty on the Functioning of the European Union (TFEU) confers on
the European institutions the competence to lay down appropriate provisions that have as
their objective the establishment and proper functioning of the Internal Market as
announced in Article 26 TFEU.
Payments are an enabler of the Internal Market, which encompasses the free movement
of goods, persons, services and capital. The limited choice of cross-border payment
methods creates effective barriers to cross-border activities of consumers (buying
goods/services in another Member State) and businesses (using suppliers located abroad,
reaching clients in another Member State) that restrict their access to the Internal Market
by imposing additional costs.
Article 114 TFEU is the legal basis of the SEPA Regulation concerning direct debits and
credit transfers in euro. Euro IPs are a sub-category of euro credit transfers.
For all the above reasons, it is appropriate that the present initiative be introduced via an
amendment to the SEPA Regulation.
3.2 Subsidiarity: Necessity of EU action
Member States acting alone are not able to ensure a high level of uptake of cross-border
euro IPs. Only through an EU intervention can all relevant EU PSPs be required to offer
the sending and receiving of cross-border IPs. The fact that in several Member States
there are not more than a handful of PSPs able to send and receive euro IPs means that
cross-border IPs cannot effectively work, given the network effects described in section
2.3 above. This remains true even despite the fact that a relatively high uptake of
domestic IPs has been achieved within some Member States.
Members States could theoretically take actions to ensure a high level of uptake of
domestic IPs. However, in practice there are no indications to suggest that the Member
States where the current level of uptake of IPs is low have any immediate plans to adopt
effective measures to increase that level. Only a few
89
Member States have developed a
national strategy for retail payments aiming at promoting the use of IPs, but without
stipulating any obligations or target dates for PSPs to engage in offering euro IPs.
Moreover, Member States alone cannot provide for harmonized EU rules regarding
cross-border IPs, be it on sanctions screening or the protection of the payer in case of
fraud or errors. If Member States do take action at national level, this would only
accelerate the already emerging regulatory fragmentation. For instance, in Lithuania, a
Memorandum of Understanding between PSPs aiming at ensuring that IPs are offered to
customers and at the same transaction fee as regular credit transfers has been concluded
at the initiative of the national central bank. In Portugal, a law
90
imposes limits on the
89
90
Five according to the ECB.
Law 53/2020, of 26 August 2020, which stipulates that PSPs may charge commissions only when
transactions exceed EUR 30 per transaction and EUR 150 per month, or 25 bank transfers per month.
25
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collection of fees by PSPs for payment services, including IPs-based PoI solutions. In
Belgium, a law has been proposed to make the provision of a service ensuring a check
between the name of the beneficiary and the IBAN of the beneficiary mandatory for all
PSPs, and laying out the main design features of a solution
91
. In France, specific
provisions prescribe the procedure applicable to PSPs in the context of sanctions
screening of payment transactions
92
. It cannot be excluded that more such initiatives will
be taken by Member States, raising the compliance costs for PSPs offering services in
multiple Member States and making the execution of cross-border IPs more difficult.
3.3 Subsidiarity: Added value of EU action
Given the network nature of the payments industry, only European level action, co-
ordinated on the supply and demand side, can unlock the full potential of the network
benefits of IPs for EU consumers, merchants, corporate users, fintechs, banks and the EU
economy. The alternative to an EU-wide approach would be divergent national
legislation and at best a patchwork of purely domestic IPs solutions, unable to inject in
the EU retail payments market the much needed increased diversity and choice of
payment methods for both domestic and cross-border payments. Compared to individual
action by Member States, EU intervention would also ensure a greater synchronisation of
implementation of the relevant measures. This would not only create positive overall
network effects, but also reduce the operational costs (e.g. due to economies of scale) for
the PSPs that already provide euro IPs and for those that would start providing them in
compliance with such EU-level measures. The EU-level action would also support the
competitiveness of more PSPs and fintechs vis-à-vis the large incumbents.
4
O
BJECTIVES
: W
HAT IS TO BE ACHIEVED
?
4.1 General objective
Under the Commission Work Programme objective of “An economy that works for the
people”, the general objective of this initiative is to significantly increase the uptake of
euro IPs in the EU, in order to improve the efficiency of the retail payments market and
unlock their benefits for EU citizens and businesses. This would also contribute to
facilitating cross-border trade within the EU, leading to deeper integration of the Single
Market and Digital Single market and supporting the recovery of the European economy.
4.2 Specific objectives
The specific objectives of this initiative are to:
1. Increase the supply of euro IPs in the EU;
2. Address dissuasive fees for euro IPs compared to alternative payment means;
3. Simplify and enhance the efficiency of the sanctions screening process for euro
IPs; and
91
92
Proposal of 27 October 2021, available
here.
Decree (arrêté) of 6 January 2021 regarding internal control measures for anti-money laundering and
terrorism financing, and regarding asset freezing prohibition to supply funds or economic resources:
https://www.legifrance.gouv.fr/jorf/id/JORFTEXT000042992976.
26
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4. Increase payer confidence in euro IPs as regards risk of fraud and errors.
5
W
HAT ARE THE AVAILABLE POLICY OPTIONS
?
5.1. What is the baseline from which options are assessed?
Under the baseline, the EU would not develop any new regulatory or non-regulatory
action to increase the uptake of euro IPs. The provision of IPs in euro would remain
voluntary for PSPs, which would also have full discretion in terms of pricing of euro IPs.
There would be no EU harmonised rules laying out the process of sanctions screening
with respect to euro IPs and there would be no measures to address payers’ concerns
about security of IPs.
Given that Member States are expecting EU action in these areas, inaction at EU level
could prompt measures to be taken at national level. However, uncoordinated measures
would lead to inconsistent approaches to retail payments and unfinished Single Euro
Payments Area integration project and, more broadly, a fragmented Single Market. In
any case, such uncoordinated approach would not increase the uptake of cross-border
IPs. Also, the PoI payment market would remain concentrated, especially for cross-
border transactions and efficiency gains from the wider use of IPs would not be fully
exploited. Many problem consequences described in section 2.2 would not be tackled.
Regarding supply of euro IPs, based on recent evolution of the number of PSPs able to
send and receive euro IPs, full coverage of all PSPs offering euro regular credit transfers
would be attained in about 14 years, even if accompanied by ‘soft’ measures undertaken
by EU institutions to promote the uptake (as they have proven to be ineffective with one
third of PSPs)
93
. Varying speed of progress can be expected within Member States, with
those with only a handful of PSPs adhering today being more likely to lag behind (given
that some PSPs consider that joining the scheme makes sense only if a sufficient
domestic level of uptake of IPs is already ensured).
New provision of IPs by PSPs would also not be synchronised. As a result, PSPs that
already offer IPs would continue to incur various costs arising from the inability of other
PSPs to receive/send IPs, such as costs linked to liquidity management (given that it is
possible that more outgoing transfers would leave a given PSP instantly while a share of
the incoming funds would continue to arrive with a delay of at least one business day). In
view of the network nature of the service, for them it would also be more difficult to
quickly grow the volume of IPs in order to realise positive network effects and
economies of scale.
Regarding fees, dynamics in the level of fees would be entirely market-driven. However,
it is unlikely that a significant reduction in transaction fees for IPs would be
implemented/pursued by PSPs themselves given that: (i) a significant share of PSPs (in
certain Member States) tend to position IPs as a ‘premium service’, setting a transaction
93
For instance, the concluding statement of November 2019 of EFIP called on all relevant stakeholders to
“ensure pan-European reach of instant payments as soon as possible, and at the very latest in 2020” (EFIP
- statement from the 2nd meeting (europa.eu)).
See also Section 7.3.
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fee at a considerable premium to a fee for regular credit transfers, and (ii) fees are
considered as a stable source of revenues for PSPs.
Given the high sensitivity of consumers, regardless of their actual payment preferences,
to the fees of substitute payment means, it is unlikely that there would be any significant
increase of uptake of euro IPs, either in the form of online account-to-account transfers or
at PoI, if the premium pricing of euro IPs by some PSPs is not addressed. In addition,
transaction fees for IPs greater than transaction fees for alternative payment means (such
as regular credit transfers), would hinder the development and competitiveness of IP-
based PoI solutions offered by third party providers who would be unlikely to cover
themselves the disproportionate transaction fees for IPs charged by PSPs. This would
make these solutions too expensive for the end users (compared to other PoI payment
means, such as cash or cards).
Regarding sanctions screening, according to PSPs, through their own efforts (e.g. by
improving their automated screening tools or data quality), they could reduce the number
of ‘false positive’ hits for cross-border and domestic IPs only to a limited extent. Those
efforts would not be sufficient to lower the proportion of rejected cross-border IPs to the
rate of rejections experienced by PSPs for (i) domestic and cross-border regular credit
transfers (since in this case PSPs have more time for a follow up investigation, as
crediting of the funds to the account of the beneficiary must be completed at the latest on
the following business day), or (ii) domestic IPs of those PSPs that comply with their
sanctions screening obligations by regularly and frequently updating their customer lists
(in lieu of transaction-based screening).
Moreover, the potential use of IPs at PoI would also be severely undermined as it would
not be acceptable for consumers and merchants to have such a high rate of rejections in
shops and in e-commerce. This would reduce the attractiveness of IPs at PoI, given that
the competing payment options (cards and cash) would not suffer from the same
problem.
Regarding payer confidence in the security of IPs, the issues described in section 2.3.4
and Annex 5 would persist, affecting consumers’ and corporates’ trust and demand for
euro IPs. Pre-payment fraud, such as social engineering scams and other APP fraud, as
well as consequences of errors made by payers, would continue to be unaddressed
through the existing EU payments legislation. With the increased use of e-commerce
94
and digitization of all kinds of personal and organizational activities it is likely that
payers would become even greater targets of such scams.
In addition, with the upcoming initiatives of several national communities of PSPs
95
or
public authorities in some Member States, to offer or require some kind of an IBAN-
name verification service for domestic euro IPs only, and designed in diverging fashions,
the attention of fraudsters would likely shift to cross-border credit transfers, where the
combined rate for all types of fraud is already 20 times higher than that of purely
domestic transfers. Postponing the introduction of additional payer protection for cross-
border IPs could imply two rounds of investments for PSPs (first for domestic
94
In the EU alone, 15 million new e-shoppers appeared in 2020 vs 2019. Source: Europe 2020 Ecommerce
Region Report, Ecommerce Europe and EuroCommerce, July 2020.
95
E.g. in Belgium: see
this press release from the Belgian Finance Association.
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transactions on the basis of non-harmonised local initiatives, and again for ensuring
coverage of cross-border transactions).
5.2. Description of the policy options
5.2.1. Increase the supply of IPs in the EU
The following policy options are considered:
Option 1.1. Legal obligation for PSPs to be able to receive euro IPs
This option would make it mandatory for PSPs offering euro regular credit transfers to be
able to receive euro IPs but would leave it to them to voluntarily offer their users a
service of sending a euro IP.
Option 1.2. Legal obligation to offer sending and receiving of euro IPs for PSPs offering
the service of regular euro credit transfers to users (with targeted exclusions)
Wide availability of IPs would be ensured through a legal obligation imposed on PSPs
that offer regular credit transfers in euro to offer both the sending and receiving of IPs in
euro.
Proportionality would be embedded in this option by ensuring that only PSPs that
execute euro regular credit transfers for their clients (consumers and businesses), i.e. as a
payment service offered to users and not for own account, are covered by this obligation.
Moreover, the option would not impose a mandatory offering of euro IPs on certain types
of PSPs (payment institutions and electronic money institutions), given that under the
current EU law
96
, they have no right to participate in certain key payment systems
(including systems settling IPs, such as TIPS) and have to rely on banks to get (indirect)
access to such systems.
This option would apply to PSPs in both Euro area and outside for the following reasons:
(i)
(ii)
ensuring coherence with the present scope of SEPA (see section 7.3);
the need to provide the same right of receiving and sending cross-border IPs to
citizens regardless of their place of residence in the EU, which is possible only by
means of cross-border euro IPs (see Annex 9), and
the share of euro cross-border credit transfers sent from non-Euro area Member
States in the overall volume of euro cross-border credit transfers within the EU is
material (around a quarter
97
).
(iii)
96
The Settlement Finality Directive (Directive
98/26/EC)
excludes such institutions from participation in
settlement systems which are "designated" under that directive, including many EU settlement systems
which are widely used for credit transfers and IPs. As part of a review of that Directive, a public
consultation took place during the first half of 2021, including a question on this exclusion. If this
exclusion in SFD were to be removed in future, then the corresponding exclusion in this initiative on IPs
could be reconsidered during the first review of this initiative.
97
Source: ECB, Commission services calculation.
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This option would entail transitional provisions to ensure that the obligation is introduced
gradually, initially for PSPs within the Euro area, followed by those outside the Euro area
at a later stage.
The obligation to be able to receive IPs would need to be complied with by PSPs within a
specific deadline, while the obligation to be able to send IPs would have to be complied
with by PSPs within a longer deadline (e.g. with several months more time). This would
allow PSPs to stage their efforts, since being able to only receive IPs is linked to a
reduced implementation burden (e.g. there is no need to update online banking interfaces
and channels in order to only receive IPs, the same IT resources can be used to ensure
consequent stages of implementation, etc.).
Option 1.3. Legal obligation for all PSPs carrying out euro regular credit transfers to
carry out euro IPs
Universal availability of IPs would be ensured through a legal obligation imposed on all
PSPs that carry out regular credit transfers in euro to carry out their instant version. This
option would entail no carve-out of PSPs as described in option 1.2, and would include
all PSPs that offer regular credit transfers in euro as a service to payment services users
as well as those that carry out such transfers exclusively on own account
98
. This option
would cover both sending and receiving of euro IPs. It would still include staggered
compliance dates (i) for being able to receive and send euro IPs or (ii) based on the
currency area of the Member State where PSPs offer their IP services.
Under options 1.2. and 1.3., entities subject to the obligation to offer IPs would be free to
decide whether they wish to continue to offer or carry out regular euro credit transfers in
parallel.
Option 1.4. Mandatory migration for all PSPs from regular euro credit transfers to euro
IPs
This option would require that as of a certain date, all euro credit transfers must be
carried out as instant, i.e., that PSP clients would no longer have the option to initiate
regular credit transfers. Euro IPs would legally replace regular transfers, and the SCT
Scheme of the EPC would be ended and entirely replaced by SCT Inst Scheme.
5.2.2. Address dissuasive fees for euro IPs compared to alternative payment
means
The following policy options are considered:
Option 2.1: Obligation for PSPs to apply fees for IPs in euro that are not higher than fees
for regular credit transfers in euro
Under this option, euro IPs could not cost the user more than euro regular credit
transfers. This means that where, for example, PSPs would choose not to charge
customers a per-transaction fee for a euro regular credit transfer, they could not charge
98
See Annex 7 for details on the characteristics of PSPs carrying out regular and instant credit transfers in
euro.
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for a euro IP either. PSPs that do apply transaction fees for regular credit transfers in euro
would be obliged not to charge higher fees for euro IPs. PSPs would maintain full
discretion as to their pricing structure and levels, as long as the fees for IPs that a given
PSP charges are not higher than the fees that the same PSP charges for euro regular credit
transfers.
The obligation would apply to fees applicable to both sending and receiving euro IPs.
The date of application of this obligation would be consistent with the dates of
application of the obligations for PSPs to offer euro IPs in the Euro area and outside the
Euro area respectively.
In non-Euro area Member States, PSPs which currently charge more or the same for euro
cross-border regular credit transfers than for corresponding domestic IPs denominated in
the national currency, this option will have no impact on the level of fees for cross-border
euro IPs, because such fees are already regulated under CBPR and must be the same as
the fees for corresponding domestic non-euro IPs. Only if a PSP located in a non-Euro
area Member State currently charges more for domestic non-euro IPs than for cross-
border regular euro credit transfers, would they be required to lower the fee for cross-
border euro IPs at least to the level of the fee for cross-border regular euro credit transfer.
99
.
Option 2.2. Obligation for PSPs to offer euro IPs free of charge
Under this option, PSPs would be prohibited from applying fees per euro IP transaction,
regardless of transaction fees that PSPs apply for euro regular credit transfers.
The obligation would apply to fees applicable to both sending and receiving euro IPs.
The date of application of this obligation would be consistent with the dates of
application of the obligations for PSPs to offer euro IPs.
As regards cross-border euro IPs carried out by a PSP in a non-Euro area Member State,
the same impacts and approach with respect to CBPR as in the case of Option 2.1. would
be applicable.
5.2.3. Simplify and enhance the efficiency of the sanctions screening process for
euro IPs
The following policy options are considered:
Option 3.1: Eliminate overlaps in transaction-based screening
This option would consist in adjusting and harmonizing the way in which the transaction-
based screening is to be carried out to remove inefficiencies and duplications. The
99
Article 3.1 of CBPR provides that
“Charges levied by a payment service provider on a payment service
user in respect of cross-border payments in euro shall be the same as the charges levied by that payment
service provider for corresponding national payments of the same value in the national currency of the
Member State in which the payment service provider of the payment service user is located”.
This means
that if a domestic IP in national currency costs (the equivalent of) EUR 5, a cross-border euro IP must cost
exactly the same, i.e. EUR 5, even if the cross-border regular euro credit transfer costs less (e.g. EUR 2). In
such cases, the requirement of the present initiative would apply instead of that under CBPR, which
would mean that such cross-border euro IP must cost no more than EUR 2.
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current duplication of screening of the same elements of a given transaction by a payer
PSP and a payee PSP would be removed, with the tasks (elements to be screened, lists
against which the screening to be performed, etc.) being clearly allocated between the
two of them. For EU sanctions lists, the transaction screening of both a payer and a payee
would be carried out only by the payer PSP before a payment is sent to the payee PSP.
Option 3.2: Replace transaction-based screening with regular updates by PSPs of own
customers lists against applicable EU sanctions lists (‘SEPA domestic’ approach)
This option would consist in each PSP which offers IPs (whether under a requirement to
do so or voluntarily) being responsible for screening its own clients both at the moment
when a payment account is opened and via regular and timely updates of customer
records vis-à-vis the latest applicable EU sanctions lists. In doing so, the payer’s PSP and
the payee’s PSP will be able to clarify which payment accounts truly belong to persons
and entities that are designated on EU sanctions lists and which ones belong to clients
whose name is only very similar to the name of sanctioned persons or entities (so that
such clients are able to initiate IPs and have access to funds received, with no need to
carry out transaction-based screening).
Mutual trust of PSPs and national authorities in the ‘SEPA domestic’ approach and in its
uniform and effective application would be aided by a possibility to impose a penalty on
a PSP that fails to comply with its obligations underlying such harmonised screening
process.
5.2.4. Increase payer confidence in euro IPs as regards risk of fraud and errors
The following policy options are considered:
Option 4.1: An obligation for PSPs to ensure the availability of a service allowing a
payer to have an immediate check of the ‘match’ between the IBAN and the name of a
payee, before confirming an IP
This option would imply an EU-wide obligation for PSPs offering euro IPs (whether
under a requirement to do so or voluntarily) to provide a service to payers, ensuring that
before they authorise the payment, they are informed of the degree of a match between
the name and IBAN of the payee as provided by the payer. The payer would maintain the
final control and, based on the feedback received from the PSP, would decide whether to
proceed with the IP. The liability regime of PSPs under PSD2 would remain unchanged.
The service would be required in respect of both domestic and cross-border euro IPs.
PSPs would be free – but not required – to offer the same service with regard to regular
credit transfers, which are targeted by the same type of pre-payment fraud and can be
affected by errors made by the payer in the same way as IPs.
Option 4.2: Grant payers the right to ask for a refund under certain circumstances (e.g.
where a payer can prove that there was a pre-payment fraud or a mistake)
This option would consist in granting payers a right to obtain a refund of an authorised
and executed euro IP within a certain period of time. This right would apply where a
payer can prove that their intention was to send the payment to a different payee (e.g. by
providing a copy of the invoice or evidence of a contractual agreement with the payee
from which the payment obligation derived).
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Option 4.3: An obligation for the payee’s PSP to temporarily ‘freeze’ funds credited to
the payee’s account
This option would consist in crediting the funds received through a euro IP to the account
of the payee within maximum 10 seconds, but making them available for spending by the
payee only after a certain period of time (e.g. 1-2 days). This would allow the payer some
limited time to realise the occurrence of a potential error or pre-payment fraud, and could
facilitate a returning of these funds to the payer by the PSP of the payee.
5.2.5. Options discarded at an early stage
Option 1.1 (Legal obligation for PSPs to be able to receive euro IPs) would only partially
respond to the problem driver 1 of
insufficient incentives for PSPs to offer euro IPs
(market failure).
PSPs which have not so far decided to offer euro IPs on a voluntary
basis are likely to limit their euro IP offering to the bare legal minimum and refrain from
offering the service of sending IPs, given that investments required to offer sending of
IPs represent a material, often larger
100
, share of the total investment costs needed to be
able to offer euro IPs. Some of those PSPs may consider offering the sending of euro IPs
but many would have a preference to wait for higher volumes of euro IPs to be achieved
in the network. Requiring that all PSPs are only able to receive euro IPs would generate
only limited increase of euro IP volumes since a significant share of users, holding more
than 70 million payment accounts in the Euro area alone (see section 2.3.1), would still
not be able to send a euro IP. As a result, this would significantly impair the achievement
of full network benefits. Due to the lower overall uptake of euro IPs, this option would
also be ineffective in promoting the emergence of IP-based PoI payment solutions such
as mobile apps.
As regards liquidity management within PSPs, in the case of an obligation for PSPs to
both send and receive payments instantly, the impact on their liquidity needs and
management would be rather symmetric given that each PSP acts both as a payer’s PSP
and a payee’s PSP (and funds would simply move quicker – from the moment of the
payment order initiation - between PSPs without materially impacting their liquidity
position). Similarly, all PSPs would be impacted rather evenly in terms of foregoing the
revenues arising from the float. Under option 1.1, however, these impacts would become
rather asymmetric and would create significant liquidity disadvantages for PSPs offering
the sending and receiving of euro IPs, compared to PSPs only receiving euro IPs. Only
the PSPs offering both sending and receiving euro IPs would face higher liquidity needs
in their settlement accounts with payment systems and forego any payment float–related
revenue
101
, while the only receiving PSPs could continue to benefit from the float, which
in turn may create disincentives for them to offer the sending of IPs on a voluntary basis
(see Annex 8). On grounds of the above considerations, this option was discarded at an
early stage.
Option 1.4 (Mandatory migration for all PSPs from regular euro credit transfers to euro
IPs) would fully achieve the general objective of
significantly increasing the uptake of
euro IPs,
as it would not only require all PSPs that carry out regular euro credit transfers
100
101
Based on PSP responses to targeted questionnaires and bilateral discussions with PSPs.
See Annex 8.
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to carry out euro IPs (as in option 1.3), but it would automatically absorb all the current
volume of regular credit transfers in euro. However, it was discarded at an early stage as
disproportionate.
From the user perspective, rather than providing incentives for uptake of IPs through
removing dissuasive fees and alleviating concerns over fraud or errors, it would
effectively force consumers and businesses to use IPs in all circumstances. From the PSP
perspective, the prohibition of processing of any euro credit transfers as non-instant
could cause undesirable consequences arising from the lack of capacity and preparedness
by the industry to ensure an uninterrupted provision of euro IPs in the current volumes of
SEPA credit transfers (22.5 billion transactions in 2020) and to prudently manage the
associated risks which, in turn, may have negative spill-over effects for the stability of
the EU payment and financial system. While this concern could be addressed through a
sufficiently long transitional period, it would delay the application of the obligation to
offer euro IPs in the first place, ultimately rendering the effectiveness of this option
lower than that of options 1.2 and 1.3.
Moreover, many stakeholders (users, PSPs, authorities) consider that regular credit
transfers should be phased out by the industry itself based on the evolution of customer
demand and, also, in view of the pace of uptake of IPs globally (as the provision of
international or non-SEPA regular credit transfers would have to be continually
supported by EU PSPs).
Option 4.3. (An obligation for payee’s PSP to temporarily ‘freeze’ funds credited to the
payee’s account) would have several serious intrinsic shortcomings and therefore was
discarded at an early stage. First, it would be incompatible with the nature of credit
transfers, including instant ones, as a credit transfer, once authorised, cannot normally be
revoked
102
. This is a matter of stability of and trust in financial transactions.
Second, freezing of the funds for a short period of time would have a limited benefit in
terms of protecting the payer from losses since, based on feedback received from a PSP,
the average time to discover that a transaction was made to a fraudster can range between
2 and 6 weeks.
Third, the immediate availability of the funds to the payees is one of the key features of
IPs that makes them attractive to users. As mentioned in Section 2.2.1, all consumer
organisations and a majority (88%) of individual consumers who responded to the open
public consultation deemed it important that the funds reach the payee immediately.
Importantly, this feature of IPs also enables the payees to realise important associated
economic benefits of having funds immediately available for investment or consumption
(see Annex 8). Removing this feature by way of requiring a freezing of the funds on the
payee’s account (even if only for a day or two) would make IPs effectively the same as
regular credit transfers and eliminate their key distinctive advantage for users. The full
certainty of having been paid (as the funds arrive on the payee’s account in a few
seconds) is as effective as the payment guarantee offered by cards schemes for a fee and,
therefore, is key for a successful and widespread adoption of IP-based payments at PoI.
The feedback received from across the industry, banks and fintechs alike, has been that
102
Article 80, Recitals 78 and 79 PSD2
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any payer protection measure must not jeopardise the essence of IPs which is payment
certainty and finality.
6
W
HAT ARE THE IMPACTS OF THE POLICY OPTIONS AND HOW THEY COMPARE
?
6.1 Increase the supply of IPs by PSPs
Option 1.2 (Legal obligation to offer sending and receiving of IPs in euro for PSPs
offering the service of regular euro credit transfers to users (with targeted exclusions)
would ensure that the vast majority of PSPs that offer the service of sending and
receiving regular credit transfers in euro would be added in a timely and synchronised
manner to the network of PSPs offering euro IPs. This option would ensure that IPs in
euro, both domestic and cross-border, become a widely available method of payment
across the EU much sooner than under the baseline. This option would entail a number of
features aimed to ensure that the obligations are proportionate and are phased in
gradually.
Proportionality would be embedded by not covering by the abovementioned obligation
the following two groups of PSPs:
(i)
PSPs that do not offer regular credit transfers as a payment service to their
customers (i.e., consumers and corporates), but carry out such transfers
exclusively on own account. Examples of such PSPs may include certain clearing
and custody institutions, investment or securities firms or bank holding
companies
103
. Their exemption would be contingent on them not providing
regular credit transfers, as a payment service, to customers.
Electronic money institutions and payment institutions would be excluded due to
their current ineligibility to become participants (directly or indirectly) of
payment systems designated under the Settlement Finality Directive (SFD)
104
.
These PSPs need to secure their access to the payment system via another
participant (such as for example a credit institution), which makes offering of IP
services for them more complex process-wise and potentially more costly,
compared to other PSPs that are credit institutions and qualify as participants of
designated payment systems under the SFD
105
.
(ii)
These two types of exemptions, in total, would apply to approximately 300 PSPs that
today carry out regular credit transfers in euro
106
, leaving 800-900 PSPs that would fall
under the obligation (about a quarter of PSPs carrying out credit transfers in euro).
103
104
See also Annex 7
Directive 98/26/EC on settlement finality in payment and securities settlement systems.
105
Inclusion of e-money institutions and payment institutions in the scope of this obligation could be
revisited if their eligibility as participants of designated payment systems were to change.
106
Based on (i) the assessment of the trade description (provided in ORBIS database) of PSPs that
currently do not adhere to the SCT Inst Scheme and (ii) identification of payment institutions and e-
money institutions on the basis of the EBA register (https://www.eba.europa.eu/risk-analysis-and-
data/register-payment-electronic-money-institutions-under-PSD2).
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The total one-off compliance costs are reported by PSPs to fall in the range of EUR
10 000 to EUR 1.3 million per PSP. This cost would vary in relation to the size of a PSP,
i.e., it would be higher for larger PSPs and lower for smaller PSPs, with the overall
estimated cost for the industry in the range of EUR 36 million and EUR 477 million
107
.
Box 2
Actions necessary for a PSP to be able to send and receive euro IPs
A. Join SCT Inst. Scheme (i.e., ensure internal compliance with scheme
requirements).
B. Integrate IP module in internal IT system, adjust online and mobile banking
interfaces and APIs in order to, e.g., (i) receive euro IPs, (ii) provide users
with means of submitting instructions for sending euro IPs; (iii) provide
immediate feedback on screen if the payment failed or was rejected by the
beneficiary bank.
C. Update terms and conditions and other legal documentation (e.g. the notion of
a banking business day would not be applicable).
D. Connect to a relevant Clearing and Settlement Mechanism (CSM) in order to
fulfil the instant settlement obligations.
E. Set up 24/7/365 operability with IT support capabilities (e.g. customer support
based on artificial intelligence, such as chatbots).
Moreover, in Member States outside the Euro area credit transfers in euro are much less
common than in the local currency
108
and the volume of euro IPs is also expected to be
lower. Thus, the potential revenue for PSPs outside the Euro area is expected to be lower
compared to the Euro area. Nevertheless, a number of market factors and deliberate
proportionality measures are expected to provide a counter-balancing mitigatory effect.
Firstly, the obligation would be introduced gradually: firstly, for PSPs in the Euro area,
and at a later stage
109
, for those outside the Euro area. Such a later deadline for non-Euro
area PSPs will enable them to optimise their implementation efforts and resources by
107
The quoted range reflects one-off implementation costs incurred in order to be able to provide IPs as
reported by PSPs whose size, in terms of total assets, is comparable to the size of PSPs that would be
captured by this obligation. The reported implementation costs were as follows: EUR 10 000 (a PSP with
total assets of 240 million), EUR 25 000 (a PSP with total assets of 67 million), EUR 55 000 (a PSP with total
assets of EUR 14 million), EUR 143 000 (a PSP with total assets of EUR 138 million), EUR 100 000 (a PSP
with total assets of EUR 5 billion), EUR 343 000 (a PSP with total assets of EUR 59 billion), EUR 1 million (a
PSP with total assets of EUR 4 billion) and EUR 1.3 million (a PSP with total assets of EUR 93 billion). On
this basis, the overall costs for PSPs were estimated for 2 buckets of PSPs depending on their balance
sheet size: PSPs whose assets are below EUR 1 billion (255) and PSPs whose assets are greater than EUR 1
billion (311), using ORBIS database. PSPs that did not have their assets identified (258), were assumed to
have total assets below EUR 1 billion. For the lower bucket, the range of one-off compliance costs was
EUR 10 000 to EUR 143 000, while for the upper bucket the range was EUR 100 000 to EUR 1.3 million. On
this basis, total one-off compliance costs are estimated to fall in the range of EUR 36 million to EUR 477
million.
108
For instance, in 2020, non SEPA credit transfers (i.e. in EU currencies other than euro) represented
98.8% of all credit transfers in Bulgaria, 98.7% in Czechia, 99.6% in Denmark, 99% in Croatia, 99.1% in
Hungary and 86.6% in Romania (ECB data).
109
In line with the approach in the SEPA regulation with respect to regular credit transfers and direct
debits, the adherence deadline may be delayed by 24 months compared to the deadline applicable for
the Euro area PSPs.
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spreading them over a much longer period of time. The later implementation deadline
would also further mitigate any negative or disproportionate effect on non-Euro area
PSPs by virtue of the fact that greater euro IP network benefits would be set in motion by
then (as a greater volume of euro IPs is expected to be attained due to earlier
implementation deadline applicable to Eurozone IPs).
Secondly, proportionate impact of this option on non-Euro area Member States also is
based on the estimation that 13% of all PSPs offering payment services in Member States
outside the Euro area would fall in the scope of this policy option (see Annex 7). This is
because (i) a large majority of them are not carrying out regular credit transfers in euro
and thus would not be covered by the obligation, while others either (ii) already offer
euro IPs on a voluntary basis, or (iii) carry out regular credit transfers in euro only on
own account, or (iii) are e-money or payment institutions excluded from the
obligation.
110
Thirdly, two Member States (Bulgaria and Croatia) will have adopted the euro by the
time this initiative will apply;
And finally, domestic IP systems in national currencies exist in all non-Euro Member
States. For PSPs already offering IPs in national currencies, investments in these systems
can be leveraged for providing euro IPs, thus reducing the initial adjustment costs, in
view of the fact that the domestic approaches are often heavily based on the rules of the
SCT Inst. Scheme, and in some of those Member States the same settlement system
would be used for IPs in euro and national currencies (e.g., Sweden and Denmark intend
to use TIPS). Similar synergetic effects are expected with respect to ongoing costs, such
as providing 24/7/365 customer support for both types of IPs. Thus, actions listed in Box
2 above would be to a large extent already covered:
A
B
C
D
E
Largely covered in 6 non-Euro area Member States where national schemes
are based on the SCT Inst. Scheme (Bulgaria, Croatia, Denmark, Hungary,
Romania, Sweden)
Already covered in all non-Euro area Member States for IPs in national
currency
Largely covered in all non-Euro area Member States for IPs in national
currency
Already covered for 4 non-Euro area Member States: two using TIPS for non-
euro IPs (Denmark, Sweden), two which will join the Euro area (Bulgaria,
Croatia)
Already covered in all non-Euro area Member States for IPs in national
currency
See Annex 6 for detailed description of IP systems in national currencies in non-Euro
area Member States.
In addition, the staging of the obligations for all PSPs covered by this option (within and
outside the Euro area), by requiring PSPs first to be able to receive euro IPs and only
from a later date to be able to also send them, would allow PSPs to spread the
110
According to the ECB, at the end of 2020, there were 1 333 institutions in eight non-Euro area Member
States that provided payment services. Of them, only some 170 (13%) are expected to fall in the scope of
option 1.2, since 85% of them did not carry out regular credit transfers in euro, while additional 2% are
estimated to fall in one of the categories (ii)-(iv).
37
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implementation costs of the project over time, which could be of particular usefulness for
smaller PSPs that do not have extensive internal IT resources
111
. At the same time, such
sequencing would still ensure a greater reachability of payees across the EU from the
beginning of the intervention and enable PSPs that already offer IPs, to both achieve
greater customer satisfaction and benefit themselves from the rising volumes of IPs due
to expanding network effects.
The synchronised addition of the majority of the currently non-adhering PSPs to the SCT
Inst. Scheme, and any resulting increase in the volume of euro IPs, would decrease the
average transaction cost of an IP at a PSP level due to economies of scale. It would also
make it easier for the PSPs that already offer euro IPs to manage their (intraday) liquidity
risk, as the overall speed with which funds flow out and flow in a PSP would become
more balanced and predictable. The impact on the amount of liquidity that PSPs would
have to hold in their settlement account in the relevant payment systems is not expected
to be material. In this regard, a study conducted by the Bank of Finland
112
looked into the
additional liquidity that PSPs would have to hold under the scenario of a full migration
from regular credit transfers to IPs (i.e., 100% uptake of IPs). The study estimated that
the aggregate increase in daily liquidity needs for Finnish PSPs in their settlement
accounts would be small, i.e., on average 2.7%. Under the IP uptake assumptions
considered by this impact assessment (50%-70%), an accordingly lower increase of
liquidity needs in settlement accounts can be reasonably assumed. The study also
observed that the timing for a transition to IPs might be favourable as the high liquidity
currently held by PSPs could accommodate any temporary increases in liquidity needs
(for more implications of a higher uptake of IPs on PSPs’ liquidity and its management
please see Annex 8).
The PSPs would forego any current revenues generated by placing the funds arising from
the payment float in short-term investments. It is estimated that at the industry level such
revenues would represent less than 0.3% of the total annual net operating income (see
Annex 8). However, this is not seen as an unintended consequence, as from the
regulation point of view the payment float is considered as an inefficiency in payments to
the detriment of payment services users (to whom the related economic benefit, as a
result of this policy option, would be redistributed), rather than a deliberate policy
targeted to aid PSPs’ profitability. Moreover, the possibility for PSPs to generate
earnings from the payment float creates disincentives for PSPs to innovate and improve
the efficiency of payments.
The extent of the increase of the volumes of euro IPs would be even greater if problems
identified on the demand side, such as dissuasive fees of euro IPs and risks related to
fraud and errors, were also addressed.
A legal obligation for PSPs to offer IPs in euro was supported by 56% of all respondents
to the open public consultation leading up to the Retail Payments Strategy and by two
thirds of respondents to the consultation on the inception impact assessment
113
, including
111
Industry feedback shows that in some markets up to 50% of PSPs currently adhering to the SCT Inst.
Scheme have taken such an implementation route.
112
Instant payments as a new normal: Case study of liquidity impacts for the Finnish market (helsinki.fi)
113
https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12931-Instant-
payments_en.
38
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67% of PSPs and fintechs (albeit in a number of cases the support of the latter group was
subject to the abovementioned features that ensure a proportionate approach). Among the
provider community, the leading supporters of such obligation tend to be PSPs that
already adhere to the SCT Inst. Scheme and PISPs/fintechs for whom a widespread
reachability of IPs is key in order to develop viable and commercially successful service
offerings to payment users. Some PSPs that currently do not offer IPs in euro may
oppose such an obligation, however, the above-described proportionality features of this
option would ease their compliance costs and efforts. At the same time, the overall
impact of the initiative may accelerate the achievement of the critical mass of euro IPs in
the EU and thus fully unlock the benefits of euro IPs also for those PSPs.
The legal obligation for PSPs to offer IPs in euro is very strongly supported by the
payment services users, i.e., consumers, corporates and merchants, including SMEs
114
. In
terms of political feasibility, the overwhelming majority of Member States’ experts has
been supportive of the need to introduce an obligation to offer euro IPs, with the type of
proportionality and transitional features contained in this option
115
. This policy option is
also very much supported by the ECB.
No administrative burden (such as reporting obligations for example) is expected to
derive from this option for the private sector.
Option 1.3 (Legal obligation for all PSPs carrying out euro regular credit transfers to
carry out IPs in euro) would be also highly effective in achieving the specific objective 1
aiming to
increase the supply of euro IPs in the EU,
as it would cover all PSPs that carry
out regular credit transfers in euro, without exceptions (i.e., 1 146 PSPs as of February
2022). However, it would be less efficient than option 1.2, since its compliance burden
would be disproportionate for the types of PSPs that would benefit from the
proportionality features incorporated under the previous option (approximately 300
PSPs).
As regards the coherence of the above options with other policies of the EU, while both
options 1.2 and 1.3 would be coherent with the Commission’s agenda of promoting
digital transformation of finance and the EU economy and the objective of updating the
project for integration of internal market for euro retail payments, branded as the Single
Euro Payments Area (SEPA) as set out in the RPS, option 1.3 is deemed not fully
compatible with the current treatment of e-money institutions and payment institutions
under the SFD and, therefore, in relative terms, is less coherent than option 1.2.
On the basis of this analysis, option 1.2 is selected as a preferred policy option in terms
of achieving the specific objective 1 aiming to
increase the supply of euro IPs in the EU.
114
115
Instant payment can become an attractive option for SME merchants | SMEunited
In the CEGBPI meeting of 30 November 2021, the majority of Member States’ experts agreed with
carving out from this obligation of PSPs depending on whether they carry out euro regular credit transfers
as a retail payment service offered to end users (i.e., consumer and corporates). ECOFIN conclusions 22
March 2021 [pdf
(europa.eu)],
inter alia, highlighted the objectives of the Commission’s Retail Payment
Strategy which promote the widespread use of IPs.
39
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Comparison of options aimed to increase the supply of euro IPs in the EU
Option
1.1 Legal obligation for
PSPs to be able to receive
euro IPs
1.2 Legal obligation to offer
sending and receiving of IPs
in euro for PSPs offering the
service of regular euro credit
transfers to users (with
targeted exclusions)
1.3 Legal obligation for all
PSPs carrying out euro
regular credit transfers to
offer IPs in euro
Effectiveness
Efficiency
(cost-effectiveness)
Coherence
Overall
score
Rejected at an early stage (see Section 5.2.5)
++
Overcomes
network
externalities
issues, ensures
wide user access
to euro IPs
++
Overcomes
network
externalities
issues, ensures
wide user access
to IPs
1.4 Mandatory migration for
all PSPs from regular euro
credit transfers to euro IPs
+
+
Covers only PSPs
Scope based on
which offer
SEPA Regulation
payment services to
with 1 targeted
customers and have
exclusion (PIs &
direct access to
EMIs)
payment systems
-
≈
Inefficient as it
Would require
includes PSPs
extension of
carrying out
scope of SEPA
payments only for
Regulation and
own account and
changes to SFD
those without direct
access to payment
systems
Rejected at an early stage (see Section 5.2.5)
++
+
Magnitude of impact as compared with the baseline scenario (the baseline is indicated as 0): ++ strongly positive; +
positive; – – strongly negative; – negative; ≈ marginal / neutral; ? uncertain; n.a. not applicable.
6.2 Address dissuasive fees for euro IPs compared to alternative payment means
Option 2.1 (Obligation for PSPs to apply fees for euro IPs in euro that are not higher than
fees of regular credit transfers in euro) would mean that PSPs that currently do not apply
transaction fees for regular credit transfers in euro would be obliged not to apply
transaction fees on IPs either. Those that do apply such fees would need to ensure that
fees for euro IPs are not higher. Therefore, this option, by design, would be considerably
more effective than the baseline in attaining the relevant specific objective 2 aiming
to
address dissuasive fees for euro IPs compared to alternative payments means.
In view of the above-mentioned sensitivity of consumers to the level of transaction fees
of substitute payment means, this option would ensure that euro IPs are priced in a way
that is reasonable and conducive to promoting a widespread and significant increase in
the uptake of euro IPs across the EU and, in particular, in those Member States where
PSPs currently tend to apply differentiated transaction fees for IPs and regular credit
transfers in euro.
In terms of euro IPs at PoI specifically, the effectiveness of this option could be
somewhat dampened by the fact that in cases where PSPs currently apply a transaction
fee for euro regular credit transfers, they will have discretion to set the fee for euro IPs at
that same level. If that were the case, it would leave euro IPs still more expensive for
consumers than alternative payment means for PoI such as card or cash payments that do
not have any transaction fee. For euro IPs to become a viable alternative that could
compete with ICS cards, in particular in the cross-border payment segment, any such
remaining transaction fee would have to be absorbed either by PSPs themselves (by
40
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making IPs at PoI cost-free, as is currently the case in some national markets
116
) or by
third party providers, such as PISPs, whose solutions would be used to initiate/facilitate
IPs at PoI. Feedback from third party providers indicates that they could accept
absorption of the cost reduced in this way
117
.
This option therefore is expected to contribute materially to the increase in uptake of euro
IPs, both in general and at PoI. Available data (see Table 1 in section 2.3.2) shows that
already today, the uptake in Member States where the fees of IPs and regular credit
transfers are equalised can be as high as 70%.
The cost impact of this option on PSPs is expected to vary notably by national euro IP
markets. As discussed in section 2.3.2, in at least five Euro area Member States (Estonia,
Lithuania, the Netherlands, Latvia and Finland) PSPs already charge the same transaction
fees for euro IPs and regular credit transfers (which for most payment accounts is set at
zero). Hence, no direct impact is expected on PSPs active in those Member States.
Indirectly, they would benefit from greater network effects as a result of (i) a greater
volume of cross-border euro IPs coming in from other Member States where PSPs
currently apply differentiated pricing or where provision of euro IPs is only starting in
general and (ii) expected decline in average transaction cost per euro IP (as explained
below).
PSPs active in Euro area Member States where premium pricing of euro IPs is applied
may experience a negative impact in the form of lower fee revenue. The extent of this
impact eventually will depend on the interaction between variables such as: (i) the share
of PSPs active in a national market which offer euro IPs at a premium to regular euro
credit transfers, (ii) difference between the level of current transaction fees for euro IPs
and regular credit transfers applied by those PSPs, and (iii) the average cost per
transaction of IPs and its variation in relation to changing IP volume. Given that the data
on variables (i), (ii) and (iii) are not systematically available at a PSP level across all
Member States, the impact of this policy option on the PSPs that currently apply
‘premium’ fees for euro IPs is difficult to estimate in quantitative terms. Having said that,
the following qualitative observations could be made as regards each of them:
-
With respect to variable (i): all else equal, the lower the percentage of PSPs in a
certain Member State applying the same transaction fees for IPs and regular credit
transfers, the greater the expected impact of this measure in that Member (see the
second column of Table 1 in section 2.3.2).
With respect to variable (ii): all else equal, a greater impact of this measure is
expected in those Member States (and PSPs), where the fee ‘premium’ for IPs
compared to fees for regular credit transfers charged by PSPs is greater (please refer
to the 4
th
and 5
th
columns in Table 1 in section 2.3.2).
With respect to variable (iii): feedback from PSPs
118
shows that, all else equal,
average transaction cost of an IP declines with an increase in the volume of IPs at the
-
-
116
117
Such as Bizum in Spain.
Presentation by ETPPA (European Third Party Providers Association) at the PSMEG meeting of 16
December 2021.
118
Based on bilateral feedback from individual PSPs. The extent of reported decline in average cost per IP
transaction varied, with greater declines indicated by PSPs where the starting difference between the
transaction cost for an IP and a regular credit transfer was greater.
41
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level of a PSP, to the extent that some PSPs report its convergence with the average
cost of a regular credit transfer. As a result of this initiative, which aims to
significantly increase the uptake of euro IPs, this effect is expected to materially
mitigate any negative impact of this measure on the profitability of PSPs.
In light of the PSP input referred above, the decline in the average transaction cost of an
IP due to the expected increase in the overall uptake of IPs in the EU would also improve
the profitability of PSPs that already provide IPs and regular credit transfers at the same
transaction fee.
With respect to Member States outside the Euro area, the global impact of this policy
option on the local PSPs will be mitigated by the fact that only 13% of them would be
covered by this initiative (under option 1.2). The PSPs that currently offer regular credit
transfers in euro will have to ensure that fees for euro IPs are not higher. The impact of
this policy option on those PSPs will depend on the pricing strategy they will adopt once
they start offering euro IPs. In this regard, PSPs based in such Member States generally
do apply transaction fees for euro credit transfers. This provides some room for
recovering cost for offering euro IPs.
As regards the expected impact on payment service users, customers of PSPs currently
charging premium prices for euro IPs are expected to experience a fall in transaction fees
for euro IPs. For customers of PSPs which currently do not charge premium prices for
euro IPs, there should be no change. Customers of PSPs which do not offer euro IPs at all
are unlikely to experience a high level of transaction fees for euro IPs, since PSPs would
need to significantly increase the fees for regular euro credit transfers in order to charge
the same level of fees for euro IPs.
To mitigate any possible impact of this measure on the profitability of PSPs, it may be
that PSPs may raise general payment account maintenance fees or transaction fees for
regular credit transfers (which would then allow them to charge the same fees for IPs),
which this option does not disallow. However, raising transaction fees for regular credit
transfers may prove to be very unpopular with PSPs’ customers and, in particular,
consumers..
Regarding PSPs which currently or in the future choose to offer euro IPs as the only form
of credit transfer, option 2.1 would, in principle, leave full freedom of pricing of IPs.
However, such PSPs would still be expected to compete with their peers, in terms of the
pricing that the latter set for both euro IPs and euro regular credit transfers. This seems to
be confirmed by the fact that, the small number of PSPs that are currently in this situation
all offer IPs for free. Also, analysis of certain national markets shows that PSPs may face
difficulties introducing fees for private customers once the IP service is initially offered
for free.
119
Hence, it can be expected that PSPs that in future would cease to offer non-
instant credit transfers would offer IPs at a very competitive price, and most likely for
free.
The advantage of option 2.2 (Obligation for PSPs to offer euro IPs at no transaction fee)
compared to option 2.1 would be that it could generate greater volume of IPs and, in
particular, IPs at PoI, due to a greater offering of services by third party providers such as
PISPs whose solutions are used to initiate/facilitate IPs at PoI. Hence, this option would
119
Are instant retail payments becoming the new normal? (europa.eu)
42
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be marginally more effective than option 2.2 in contributing to the specific objective 2
aiming to
address dissuasive fees for euro IPs compared to alternative payments means,
and, in turn, the general objective to
improve the efficiency of the retail payments market
so as to unlock the benefits for EU citizens and businesses by significantly increasing the
uptake of euro IPs in the EU.
Option 2.2 would have the same impact as option 2.1 on PSPs which currently do not
charge for regular credit transfers, but would have a greater impact on PSPs which
currently charge for regular credit transfers. As regards PoI payments facilitated by third
party providers, those PSPs would have to bear a significantly higher cost of compliance,
as the operational costs underlying IPs that would be transferred to third party providers
under option 2.1 would under option 2.2 effectively remain with PSPs. On the other
hand, this option would be extremely favourable for the business model and profitability
of third party providers.
This option, compared to option 2.1, may lead to a greater possibility of PSPs attempting
to offset the decline in revenue by raising general fees or cutting costs in other
operational areas. However, this option would not introduce cross-subsidisation in the
payments sector, as it is already well-established practice. For example cross-
subsidisation of different products is common practice in the banking sector, where a
material part of the revenue is generated from the interest rate differential between the
interest rate offered on savings accounts and that charged on loans. Currently, many
PSPs offer credit transfers for free, although the transaction costs are not zero, thus
necessarily subsidising them from other revenue sources. Estimating a more precise
impact of this policy option on cross-subsidisation in quantitative terms was not feasible
given that the cross-subsidisation could take a number of different paths and forms.
Most Member States are expected to be supportive of an intervention on transaction fees
for euro IPs. In the context of discussions with national experts
120
, representatives from
12 Member States expressed support for option 2.1, while three more Member States
were also open to some form of quantitative limit on the pricing of IPs. Only four
Member States stated their disagreement with any intervention in the area of pricing with
remaining Member States reserving their position. Consumers and merchants, like
fintechs/third party providers, have expressed a very strong preference for option 2.2 in
the long run, but could be willing, in the medium run, to settle for option 2.1
121
.
As regards the coherence of the above options with other policies of the EU, both options
2.1 and 2.2 are seen as being coherent with the Commission’s agenda of promoting
digital transformation of finance and the EU economy, and supporting open strategic
autonomy, with option 2.1 being marginally more coherent from the point of fostering
competition in the internal market.
Option 2.1 is therefore selected as a preferred policy to achieve the specific objective 2
aiming to address dissuasive fees for euro IPs compared to alternative payment means.
120
CEGBPI of 30 November 2021, minutes available here:
https://ec.europa.eu/transparency/expert-
groups-register/screen/meetings/consult?lang=en&meetingId=33915&fromExpertGroups=true
.
121
PSMEG
meeting
of
16
December
2021,
minutes
available
here
https://ec.europa.eu/transparency/expert-groups-
register/screen/meetings/consult?lang=en&meetingId=38474&fromExpertGroups=true
.
43
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Comparison of options aimed to address dissuasive fees for euro IPs compared to
alternative payment means
Option
2.1 Obligation for PSPs to
offer IPs in euro at fees not
higher than fees for regular
credit transfers
Effectiveness
Efficiency
(cost-effectiveness)
Coherence
Overall score
++
Given the price-
sensitivity of users
to payments, it
should achieve
higher uptake of
IPs
≈
Creates possibility
of cross-
subsidisation
between products
but this is already
common practice
in banking
++
Permits
price
competition
between
PSPs on
euro IPs
++
2.2 Obligation for PSPs to
offer euro IPs at no
transaction fee
++
Given the price-
sensitivity of users
to payments, it
should achieve
higher uptake of
IPs
–
Goes beyond the
minimum
necessary to
achieve greater
uptake of IPs
+
Eliminates
any
possibility of
price
competition
on euro IPs
+
Magnitude of impact as compared with the baseline scenario (the baseline is indicated as 0): ++ strongly positive; +
positive; – – strongly negative; – negative; ≈ marginal / neutral; ? uncertain; n.a. not applicable.
6.3 Simplify and enhance the efficiency of the sanctions screening process of
euro IPs
Option 3.1 (Eliminate overlaps in transaction-based screening) could potentially bring
about some reduction in the rate of ‘flagged’ (and therefore rejected) IP transactions as it
would remove the current duplication of screening, whereby each cross-border (and, in
some Member States, domestic) IP transaction is screened twice with regard to the names
of a payer and a payee, i.e., first, by the payer PSP and, again, by the payee PSP.
With the removal of the duplication of screening of the same data elements, the chances
of generating a flag would be naturally reduced as well. However, as soon as the payer
PSP would be faced with a flag, the transaction would need to be rejected since there
would not be sufficient time to ensure manual verification. Theoretically, a potential
solution to this could be to start the 10 second timer only upon the completion of the
sanctions screening verification of ‘flagged’ transactions by the payer PSP. However, it
would still be impossible for the payer PSP to manually review them in a time short
enough to ensure that the transaction is completed fast enough to be considered instant.
As in the baseline, due to the persisting presence of the significant number of ’false
positive’ flags that cannot be dealt with sufficiently quickly to ensure the successful
transmission of the transaction, the approach under this option would also remain
problematic for the successful uptake of IPs, including at PoI.
The approach described under option 3.2 (Replace transaction-based screening with
regular updates by PSPs of own customers lists against applicable EU sanctions lists
(‘SEPA domestic’ approach)) is already used by PSPs in some Member States for
domestic IPs (as well as domestic regular credit transfers)
122
. The cross-border SEPA IPs
122
The other Member States may be inspired to apply the same approach also to domestic regular credit
transfers.
44
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would be treated in the same way hence the description of this option as a ‘SEPA
domestic' approach. It would replace the approach based on transaction-based screening,
against the EU sanctions lists, of all individual domestic and cross-border euro IP
transactions.
Replacing the transaction-based screening approach with the ‘SEPA domestic’ approach
to comply with PSPs’ screening obligations vis-à-vis the EU-wide sanctions lists would
ensure that sanctions screening obligations are complied with by PSPs as effectively as is
currently the case. By accurately and timely reflecting in their systems the latest
information on all the applicable sanctions lists they would be able to i) prevent the
initiation of transactions from payment accounts belonging to designated persons or
entities, and ii) immediately freeze funds made available to them.
In terms of compliance costs, this policy option is expected to deliver significant
operational savings for PSPs, which would not occur under the baseline or would occur
at a substantially lower scale under option 3.1. Those savings, depending on the level of
IP uptake, could be estimated to fall in the range of EUR 5.5 to 7.6 billion per year (see
Annex 4).
Therefore, this approach would ensure that the compliance with the sanctions screening
obligations is more efficient. It would lead to a material reduction of ‘false positive’
hits
123
and, thus would significantly reduce the rejection rates currently observed for euro
cross-border IPs (and, in some Member States, also euro domestic IPs). Thus, this option
would be more effective than option 3.1 in contributing to the specific objective aiming
to
simplify and enhance the efficiency of the sanctions screening process of euro IPs.
It
would also be more conducive than option 3.1 to promoting the use of IPs at PoI, while
not lowering the quality of the sanctions screening overall.
Overall, this option would introduce important efficiency improvements in terms of
reducing frictions to IPs due to sanctions screening obligations, without any adverse
effect on the effectiveness of PSPs’ compliance with their obligations in terms of
sanctions screening or the tracing of transactions for AML purposes.
In terms of coherence of the above policy options with the other initiatives and policies
of the EU, options 3.1 and 3.2 would be coherent with the effective compliance of EU
PSPs with GDPR as well as the EU sanctions regulations and AML legislation, as they
would set a clear and harmonised set of rules that all PSPs would have to comply with,
and do not introduce any practices which have not been successfully tested in certain
Member States. In sum, as per the table below option 3.2 is the preferred option in this
area.
123
As evidenced by responses from PSP (that apply this approach to the sanctions screening of domestic
IPs) to the targeted consultation.
45
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Comparison of options aimed to simplify and enhance the efficiency of the sanctions screening
process for euro IPs
Option
3.1 Eliminate overlaps
in transaction screening
Effectiveness
+
It may slightly
reduce false
positive hits for
IPs
++
Likely to
eliminate false
positive hits for
IPs
Efficiency
(cost - effectiveness)
+
Creates some
limited savings for
PSPs compared with
current practice
+++
Generates major
cost savings for
PSPs compared with
current practice
Coherence
+
Fully coherent
with sanctions
screening
obligations
+
Fully coherent
with sanctions
screening
obligations
Overall
score
+
3.2 ‘SEPA domestic’
approach (replace
transaction-based
screening with regular
updates by PSPs of own
customers lists against
applicable EU sanctions
lists)
++
Magnitude of impact as compared with the baseline scenario (the baseline is indicated as 0): +++ very strongly
positive; ++ strongly positive; + positive; – – strongly negative; – negative; ≈ marginal/neutral; ? uncertain; n.a. not
applicable.
6.4 Increase payer confidence in euro IPs with regard to risk of fraud and errors
Under option 4.1 (An obligation for PSPs to ensure the availability of a service allowing
a payer to have an immediate check of the ‘match’ between the IBAN and the name of a
payee, before confirming an IP), the rate of transactions sent to a wrong payee as a result
of social engineering fraud or errors is expected to be reduced. According to the provider
of the IBAN-name check solution in the Netherlands, there has been an 81% drop in
fraud/scams taking the form of invoice fraud, and a 67% drop in misdirected payments
due to payer errors since the setup of the IBAN-name check service in 2017
124
. Given
that the extent of APP fraud in 2020 for all SEPA euro credit transfers, including IPs, in
the EU is estimated at approximately EUR 323 million, there is enormous capacity for
reduction of losses incurred by EU citizens and businesses resulting from such solutions.
In the UK
125
between Q3 2019 and Q4 2020, on a trend-adjusted basis, for the largest
PSPs offering the Confirmation of Payee (CoP) service to their clients, there has been a
31% drop of payments sent to a wrong payee in terms of number of transactions, and a
28% drop in terms of value. It is considered that the reduction would be more significant
if all PSPs implemented the service as currently, CoP checks cannot be done in around
15% of IP transfers in the UK. This means fraudsters can easily find out which
institutions currently do not offer the CoP service and direct their activities to customers
of those institutions. This confirms that for the solution considered under this option to
be effective, it must be required with respect to all PSPs offering IPs. It should be noted,
that in view of the evidence of effectiveness of the CoP service, the UK authorities are
124
https://www.surepay.nl/en/about-surepay/factsheet/;
see also brochure available here:
SurePay -
Brochure SurePay Confirmation of Payee
125
CP21/6 Confirmation of Payee call for views (psr.org.uk).
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considering to invite smaller, non-participating PSPs to start providing the service to
their clients.
126
Based on the feedback from the Netherlands and UK markets, it seems that an IBAN-
name verification service would be highly effective in preventing errors and reducing
certain types of APP scams, in particular invoice fraud. In cases of impersonation scams,
the payer is more likely to disregard the warning of no match and proceed with the
payment. It also must be recognised that there may be some instances of fraud where the
name given to the victim will match the account and the CoP service will not be able to
prevent it
127
. Despite these limitations, a service allowing a payer to have an immediate
check of the ‘match’ between the IBAN and the name of a payee, before confirming an
IP, would be an important building block in the overall errors and fraud prevention and
consumer protection efforts and very importantly, would be effective in enhancing
consumers’ and corporates’ trust in IPs.
Such a solution would respond to consumer expectations, giving them greater assurance
that they are sending payments to the intended recipient. A clear majority (93%) of
consumer respondents to the open public consultation considered it being important to
have safeguards regarding the risk of fraud or error, in the form of IBAN name check
service, either free or for a fee. This is supported by the feedback received from
consumer organisations. The absence of a solution whereby PSPs would enable
verification of the match between the name of the payee account and the IBAN was
described as “absurd” by BEUC, who considers that it is essential that such verification
be made compulsory
128
.
This solution is likely to be supported by Member States, as reflected by national experts
in the Commission expert group
129
, and also in point 16 of the ECOFIN conclusions
130
issued on 22 March 2021 which supported the idea that the Confirmation of Payee is an
important element of consumers’ trust.
Given that IBAN-name check solutions are still very rare (applied on a broader scale
only in one Member State or provided by individual banks in others), it is difficult to
provide exact estimates of the implementation cost. The costs would depend on the
implementation method opted for by PSPs, which would not be imposed in the legislative
proposal, and the level of integration of such solutions with other fraud prevention
measures of PSP.
With respect to the solution implemented in the Netherlands, the two main
implementation efforts required from PSPs involved (i) integrating an API, allowing for
account name verification, into the PSP’s online / mobile banking environment, and (ii)
adjusting own customer databases to ensure that the algorithm can match the payment
126
https://www.psr.org.uk/media/ktonkca3/psr-rp21-1-confirmation-of-payee-response-paper-oct-
2021.pdf
.
127
For example, in case of the use of money mules (innocent victims who are duped by fraudsters into
laundering defrauded money via their bank accounts; or in case of accounts opened following identity
theft).
128
https://www.beuc.eu/publications/beuc-x-2021-027_consumers_and_instant_payments.pdf.
129
Commission Expert Group on Banking, Payments and Insurance (payments formation).
130
https://data.consilium.europa.eu/doc/document/ST-7225-2021-INIT/en/pdf.
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data provided by the payer with the payee’s PSP customer data. In addition to these one-
off investment costs, the service provider charges fees per check performed (with the fee
level decreasing as the volume of checks increases). PSPs are also likely to have running
costs associated with maintenance and support.
Based on the data obtained from one UK PSP offering the CoP service and four out of
five Dutch PSPs offering the IBAN-name check service, there appears to be a correlation
between the level of the (one off and ongoing) costs and the size of a PSP. The one-off
implementation cost ranged between EUR 10 000 and EUR 2 million, which can be
explained by the fact that some of the larger PSPs tend to have many more legacy
systems that require adjustments, while smaller, challenger PSPs have newer, more agile
technological capabilities. In terms of the ongoing cost, they ranged between EUR
several thousand per year to EUR 350 000 per year, with fees paid to the service provider
per check performed constituting the largest chunk.
Under this option, EU PSPs would be allowed to decide on the best implementation
approach. Solutions already provided by fintech companies in some Member States could
be used by PSPs in other Member States, and this could open up the market for more
providers of such services. Solutions could also be collectively implemented through an
industry-wide arrangement or scheme, which could to a certain extent leverage on
advances made in the context existing industry-wide initiatives.
131
Costs of implementation of this option are expected to be eased by the fact that the PSPs
are likely to leverage on their previous investments and experience gained when
developing open banking APIs under PSD2. Those costs could be further mitigated by
extending the scope of application of the measure since the solutions put in place could
be also used for the verification of payee of regular credit transfers (representing
synergies between different products offered by the same PSP). Moreover, with the
strengthened consumer protection leading to an increased use of IPs, which carry more
detailed customer data compared to cash or cheques, PSPs would be able to develop and
use more sophisticated fraud prevention tools. Finally, costs would also be partially
offset by operational savings arising from reduced number of complaints to be processed
by PSPs which are costly to investigate and may even involve goodwill payments (e.g.
made by some PSPs to avoid reputational damage).
Approximately 3 200 PSPs would incur implementation costs, the level of which would
depend on their size as indicated above. Some compensatory internal administrative
savings can be envisaged in PSPs, due to a reduced number of complaints and requests
for refunds for fraudulent and erroneous IPs; over time, these savings can be expected to
131
Examples include potential changes to the SCT Inst. Scheme, which are currently under consultation
(https://www.europeanpaymentscouncil.eu/sites/default/files/kb/file/2021-09/ECP190-
21%20_Press%20Release_%20Public%20consultation%20on%20the%20change%20requests%20for%20th
e%202023%20SEPA%20payment%20scheme%20rulebooks_0.pdf)
and which, inter alia, include using, in
addition to IBANs, attributes such as aliases or proxies in the payment messages; the ERPB work on
increasing transparency for retail payments end-users, which includes investigation of possible solutions
to tackle the challenges related to the difference between commercial names and legal names of
companies acting as payees; or the work on the SEPA Payment Account Access Scheme, which may
include solutions related to IBAN-name check of the payer.
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offset the one-off investment cost. The reduction in fraud would be a benefit to society as
a whole.
PSPs would be free to offer the service for a fee, however, it is expected that competitive
forces, consumer expectations and a possibility of the abovementioned operational
savings (which would increase in step with a greater use of the service) would help to
keep its level low. Finally, introducing a harmonised solution at this juncture would save
the costs which would otherwise be incurred at a later stage in order to ensure
interoperability of purely national solutions that are developed by national PSP
communities or individual PSPs. Thus, the efficiency of this solution is assessed as
neutral/marginal.
This option would be coherent with the EU policy goals of ensuring effective consumer
protection and empowering consumers to effectively protect their economic interests.
Moreover, the experience with the existing solutions (offered to EU PSPs by SurePay or
SWIFT, or imposed on PSPs in the UK while it still formed part of the EU) demonstrates
that such solutions can be designed in full compliance with GDPR. This option would
thus be coherent with the EU data protection requirements.
Under option 4.2 (Grant payers the right to ask for a refund under certain circumstances,
e.g. where a payer can prove that there was a fraud or a mistake as their intention was to
authorise an IP to a different payee), payers would have the right to ask for a refund of an
IP transaction where they can prove that their intention was to send the funds to another
beneficiary.
This would be in line with the expectation of consumer representatives. Some form of a
refund right for the consumer has been called for by BEUC in its response to the public
consultation.
In cases where the payer can provide such evidence, the solution would be effective in
providing adequate protection. However, in other cases, such as person-to-person
payments without a pre-existing contractual relationship, providing sufficient evidence
could be very difficult. Moreover, in order for the solution to have any meaningful
effectiveness, the period during which the refund could be requested should be
sufficiently long to reflect the amount of time it may take a payer to discover that funds
were paid to a wrong payee in error or as a result of fraud (which can take several
weeks
132
).
In terms of efficiency, this option would not require any major upfront implementation
costs from PSPs, in contrast to setting up of a solution that would be required under
option 4.1. On the other hand, since in such cases the funds are unlikely to stay on the
account of the payee long enough for the funds to be recovered, PSPs would incur
ongoing losses, which could represent a substantial share
133
of the estimated APP fraud
for all SEPA credit transfers, estimated at EUR 323 million in 2020. Also, this figure is
132
According to the industry, the average time to discover that the transaction was made to a fraudster
can range between approx. 2 and 6 weeks.
133
According to the EBA, 80% of fraud in relation to three types of payment means (credit transfers, cash,
card payments) resulted in losses in the second half of 2020 for a sample of 14 EEA countries [Discussion
Paper on payment fraud data received under PSD2 (europa.eu)].
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likely to be under-estimated given that consumers, being aware of the onerous conditions
for a refund under current legislation, may not always complain to the PSP. Importantly,
more lenient refund conditions may give rise to greater moral hazard in the form of
unfounded refund claims (e.g. where the payer changed their mind, did not like the
product, etc.) and the associated compliance costs for PSPs.
While this option would be coherent with the EU policy goals of ensuring effective
consumer protection, it would not be consistent with the principle of irrevocability of all
credit transfers, including IPs, as laid out in PSD2. The initiative on IPs would not be
appropriate to introduce changes to the very nature of credit transfers, including IPs.
134
As clarified above, this option would not create any consequences in terms of data
protection.
Overall, this option is considered to be more effective than the baseline, but less effective
than option 4.1, both with respect to domestic and cross-border payments. Efficiency is
assessed as neutral, considering that on the one hand, unlike in case of option 4.1, there
would be no implementation costs, but on the other hand the ongoing costs could be
significant, especially if the rate of fraud increases or moral hazard is not effectively
contained. Coherence is assessed as overall neutral. On the basis of this analysis, option
4.1 is selected as a preferred policy option.
Comparison of options aimed at reducing the risk of IPs being sent to the wrong payee due to
fraud and errors
Option
4.1. Obligation for PSPs to
provide an "IBAN
verification" service, before
confirming an IP
Effectiveness
++
Positive results in
countries where
such a system
has been
implemented
Efficiency
(cost-effectiveness)
≈
One-off
implementation cost
for PSPs, but they
may charge for the
service
Coherence
Overall
score
+
4.2. Payer’s right to a refund
under certain circumstances
4.3 Obligation for payee’s
PSP to temporarily ‘freeze’
funds credited to payee’s
account
+
System already
exists and has
been tested
domestically, no
changes to other
EU legislation
needed
+
≈
≈
An ex-post
Recurrent costs for
Incoherent with
mechanism does
PSPs due to refund
the principle of
not prevent
claims.
irrevocability of
fraud/errors (ex-
Risk of moral
credit transfers
ante approach
hazard.
(incl. IPs), as laid
better)
out in PSD2.
Rejected at an early stage (see Section 2.5.2)
≈
Magnitude of impact as compared with the baseline scenario (the baseline is indicated as 0): ++ strongly positive; +
positive; – – strongly negative; – negative; ≈ marginal/neutral; ? uncertain; n.a. not applicable.
134
Issues such as the conditions for executing credit transfers, including IPs (such as the use of the name
of the payee as an additional mandatory element for correct execution of the transaction, in addition to
the IBAN of the payee), or PSP liability regime related to the execution of credit transfer transactions,
including IPs, may be further assessed in the context of PSD2 review, due in 2023.
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7
P
REFERRED OPTION
7.1 Effectiveness
The principal objective of the present initiative is to significantly increase the uptake of
euro IPs in the EU. Effective achievement of this objective should unlock the benefits
and efficiency gains for EU consumers, corporates, fintechs, banks and society in
general. It would also help increase choice for electronic payments, particularly for cross-
border payments at PoI. The initiative has strong support from the EU SME association,
SMEUnited
135
.
The proposed set of preferred options complement each other and, taken together,
constitute a powerful package of measures that would, in the most effective manner, both
boost the supply of euro IPs by PSPs and facilitate a greater demand for them by
payment service users, including consumers, corporates, merchants and public
administrations.
136
More specifically, the obligation for most EU PSPs to offer euro IPs
will ensure an EU-wide reachability and accessibility of euro IPs, doing away effectively
with disincentives for PSPs to adhere to the SCT Inst. Scheme due to the current lack of a
critical mass of participating PSPs and euro IPs in certain local markets and in the EU
more generally. The efforts of PSPs and fintechs to roll out IP-based services both as on-
line transfers and as payments at PoI will be aided by a harmonised sanctions screening
approach that is based on the requirement to update, regularly and frequently, the internal
records of a PSP's own customers against the latest information on the persons and
entities that are subject to restrictive measures. This new sanctions screening approach
will be effective in materially driving down the rate of incorrectly rejected IPs, which
generates unwarranted and significant operational burdens for the industry and weakens
the reliability of IPs from the perspective of users. The obligation for PSPs to ensure that
any fees related to IPs are not higher than fees applicable to euro regular credit transfers
is expected to be highly effective in generating user demand for IPs, in view of users'
sensitivity to the absence of transaction-based fees for substitute payments means (cash,
cards). Last but not least, user demand for euro IPs will be further enhanced by
strengthening their confidence through protection against fraud and errors, by requiring
PSPs to offer a service warning them about cases where the name on an account
identified through the IBAN provided by the payer and the name of a payee indicated by
the payer do not match.
It is reasonable to expect that with the set of the preferred options, IPs would become the
most prevalent type of euro credit transfer within 3-5 years of their implementation.
Achieving this will deliver, in addition to the benefits for specific stakeholder groups
described in this assessment, certain broader societal benefits. A mass adoption of IPs
can act as a supporting factor for a quicker post-pandemic recovery of the European
135
See
this statement on the SMEUnited website,
and the intervention by a Director of SMEunited at a
CEPS/ECRI seminar on instant payments of 5 May 2022.
136
While other combinations of policy options are theoretically possible (for instance, not taking an action
in one of the areas analysed), their effectiveness would be considerably lower. The analysis has shown
that the most effective impact on increasing the uptake of euro IPs at the EU level could be achieved only
when all identified problem drivers are addressed with directly targeted and accordingly designed
regulatory measures.
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economy as money is reinjected into the economy at a faster pace: due to their very
nature, IPs induce a higher velocity of money circulation in the economy. High velocity
of money is usually associated with a dynamic economy, whereas a low money velocity
is usually found in economies going through recessions.
137
This is connected to
inefficiencies in the payment system that are known as ‘payment float’ . In this regard,
the study by Deloitte
138
argues that those inefficiencies limit short term aggregate
economic activity as the money is locked in the financial system due to delay in
processing payments. If this money were “unlocked”, it could boost short-term
consumption and investment. Based on the analytical approach developed by Deloitte, it
is estimated that IPs, depending on the extent of their eventual uptake in the EU, could
reduce the payment float and generate the related annual economic efficiency gains for
PSP clients in the range of EUR 1.34 billion (under the assumption of 50% uptake of
euro IPs) to EUR 1.84 billion (under the assumption of 70% of uptake of euro IPs).
139
See Annex 8 for a more detailed analysis of the payment float and the impacts arising
from its reduction.
7.2 Efficiency
The preferred options have been designed to effectively achieve the relevant specific
objectives in the most cost efficient and proportionate way. Most of the implementation
costs will fall upon PSPs, however, the impact will vary significantly from one PSP to
another due to the varying level of their ‘starting position’.
The efficiency of the legal obligation to offer euro IPs rests in its focus on the estimated
800-900 PSPs whose participation in the SCT Inst. Scheme is the most needed to ensure
the widespread reachability and accessibility of euro IPs. PSPs falling in the scope of this
obligation will have discretion to alleviate their compliance burden by spreading
implementation efforts over time, by complying first with the obligation to receive, and,
later, with the obligation to send IPs. Several factors are expected to make the obligation
proportionate for PSPs operating in non-Euro area Member States (see Annex 3).
The relative efficiency of the obligation for PSPs to ensure that any fees related to euro
IPs are not higher than fees applicable to euro regular credit transfers is based on several
factors They include the possibility for PSPs to apply fees on euro IPs that are the same
as those for regular credit transfers (instead of being obliged to offer them for free).
Moreover, the average cost per IP transaction declines with an increase in the uptake of
IPs at the level of a PSP. Finally, in a number of Member States PSPs already, by way of
their current pricing policy of IPs, effectively comply with this option.
137
Study by Fidelis Consulting;
https://op.europa.eu/en/publication-detail/-/publication/735d5b9d-0c5e-
11ec-adb1-01aa75ed71a1/language-en/format-PDF/source-228716981
.
138
Economic impact of real-time payments, July 2019 [deloitte-uk-economic-impact-of-real-time-
payments-report-vocalink-mastercard-april-2019.pdf
].
139
In the study of Fidelis Consulting these benefits are estimated to fall in the range of EUR 0.68 billion to
EUR 1.83 billion per year, due to a broader range of scenarios considered;
https://op.europa.eu/en/publication-detail/-/publication/735d5b9d-0c5e-11ec-adb1-
01aa75ed71a1/language-en/format-PDF/source-228716981
.
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Efficiency of the preferred option to offer a service allowing a payer to have an
immediate check between the IBAN and the name of the payee rests in leaving discretion
to PSPs to comply with the obligation in the most cost-effective manner, by choosing the
most appropriate implementation option, e.g., develop the service internally, outsource it
to a third party service provider or to come up with an industry-wide solution. The
efficiency of this option is further underscored by the possibility that EU PSPs may
leverage on the work already done in the context of implementing Application
Programming Interfaces (APIs) under PSD2 and development of various EPC schemes,
and by the operational savings that would arise over time from not having to handle the
prevented errors and fraud.
Compliance costs related to the proposed harmonised approach for the sanctions
screening of IPs are expected to be insignificant at the industry level due to the fact that
most PSPs already today update their customer lists against all applicable sanctions lists
on a daily basis and some Member States already apply the proposed approach for purely
domestic IP transactions. Importantly, the proposed approach would generate material
operational cost savings that are estimated to fall in the range of EUR 5.5-7.6 billion per
year, depending on the uptake of euro IPs and that should mitigate, if not offset, at the
industry level, the other compliance costs of this entire legislative initiative.
A widespread adoption of IPs is also expected to displace cheque payments. In this
regard, the study of Deloitte
140
showed that additional IP transactions lead to a
’significant decrease in the volume of cheque transactions per capita’. PSPs are expected
to realise a significant share of the total estimated savings of EUR 2.3 billion per year to
society, resulting from such displacement (please see section 2.2.1).
7.3 Coherence
In addition to the benefits of the preferred options in each of the areas (offering of IPs,
level of fees on IPs, sanctions screening and payer protection against errors and fraud) as
described in Section 6, the coherence and complementarity of the preferred options with
each other, and their benefits considered as a package should be emphasised. It is
estimated that the four preferred options when applied together will interact with each
other positively in such as a way as to magnify the benefits of each option individually.
EU action to promote the uptake of euro IPs interacts with several EU strategic initiatives
as well as sectoral policies. The coherence of the proposed package of preferred policy
options with those other EU policies and initiatives is assessed as follows:
-
The initiative is coherent with and necessary to complete the project of the internal
market integration for euro retail payments, branded as the Single Euro Payments
Area (SEPA), and with the objectives of the Commission’s RPS regarding
increasingly digital and instant payment solutions with pan-European reach, and
competitive home-grown and pan–European payment solutions supporting Europe’s
economic and financial sovereignty
141
. In particular, as stated in section 1.3 above,
140
Economic impact of real-time payments, July 2019 [deloitte-uk-economic-impact-of-real-time-
payments-report-vocalink-mastercard-april-2019.pdf
].
141
https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52020DC0592&from=EN
.
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based on a political decision taken at its adoption in 2012, the SEPA Regulation
already applies to payments in euro in all EU Member States, including non-Euro
area Member States, given the importance of the euro as the single currency under the
EU Treaties
142
, and the need for all EU citizens to benefit from the same rights as
regards payments in euro, regardless of where they live in the EU
143
. The present
initiative does not change the pan-EU geographical scope of SEPA, but reflects and
builds on it.
-
The initiative is fully coherent with statements
144
of EFIP, which stressed how critical
it is for PSPs to implement IPs quickly so that they become available to end users at
the pan-European level, called on PSPs to offer competitive pricing of IPs to
merchants and users, and most recently explicitly welcomed the European
Commission’s intention to put forward an initiative to increase the uptake of IPs in
the EU, by ensuring their full availability to consumers and businesses, enhancing
payer trust and removing operational frictions.
This initiative is coherent with the ongoing work of the Euro Retail Payments
Board
145
focused on removing obstacles for cross-border acceptance of IP solutions
at PoI, such as the work on an interoperability framework for mobile payment
solutions based on SEPA credit transfers including IPs, as well as the work of the
European Payments Council on a single standard for QR-codes, as QR solutions
today suffer from lack of standardisation at EU level. It would support industry
initiatives for developing cross-border PoI solutions based on IPs, such as for
example the European Payments Initiative (EPI)
146
. This work and initiatives have
been supported by the Commission in its RPS as having the potential to add value to
the SEPA Instant Credit Transfer (SCT Inst.) Scheme, improve the usability of
instant payment solutions and ultimately to support the uptake of instant payments.
The initiative would be fully consistent with other Commission initiatives laid out in
the Commission’s
Digital Finance Strategy for the EU
adopted on 24 September
2020, aimed at promoting digital transformation of finance and the EU economy and
removing fragmentation in the Digital Single Market, such as an EU-wide
interoperable European Digital Identity Wallet
147
or the rules set out in the Digital
Markets Act proposal
148
. The former could be used as a means to distribute IPs,
including for payments at PoI, while the latter aims to address the current issues
-
-
142
143
Article 3(4) TEU and Articles 119 and 133 TFEU
See the impact assessment accompanying the Commission’s 2010 proposal for a SEPA Regulation,
SEC(2010) 1584 final.
144
2017
EFIP
statement
[
https://www.ecb.europa.eu/paym/groups/pdf/efip/EFIP_statement_from_the_1st_meeting.pdf
]; 2019
EFIP
statement
[
https://www.ecb.europa.eu/paym/groups/pdf/efip/EFIP_statement_from_the_2nd_meeting.pdf
]; 2022
EFIP
statement
[
https://www.ecb.europa.eu/paym/groups/pdf/efip/EFIP_statement_from_the_3rd_meeting.pdf
]
145
The Euro Retail Payments Board (ERPB) is a high-level body chaired by the ECB, bringing together the
supply and demand side of the European payments industry.
146
https://www.epicompany.eu/
.
147
resource.html (europa.eu).
148
https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52020PC0842&from=en
.
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faced by PSPs and fintechs when developing IP-based PoI solutions and trying to
access near field communication (NFC) antennas available on certain mobile
platforms (such as phones or tablets) and used for effective contactless payments.
-
-
The initiative is expected to be coherent with the ongoing work on Central Bank
Digital Currency (‘digital euro’). The potential issuing of digital euro will enable the
co-existence of digital euro holdings and of commercial bank money funds. Users
will require to transfer at par funds held in payment accounts at their Account
Servicing PSP to the digital euro holdings in the ECB/Eurosystem books and make
their day-by-day payments in digital euro, and, in the opposite direction, to transfer
amounts of digital euro at par to their payment accounts. These transfers in both
directions are the equivalent digital form of the current physical convertibility that
takes place from the commercial bank euro to the central bank euro and vice versa,
for instance when banknotes and coins are credited/withdrawn to/from a payment
account at the ATM or in a branch. In practical terms, it will be necessary to set-up a
mechanism able to fund and defund the holdings in digital euro of the users in
exchange of their commercial bank payment account funds. With the evolutions in
the retail payments landscape and expectations of users, it would seem difficult to
imagine that transactions with a digital euro would not have the potential to be
instant. Other synergies between IPs and digital euro are also possible but their full
assessment depends on the final design features of CBDC.
The initiative is coherent with Member States’ efforts to limit the size of the shadow
economy by improving tax collection. To this end, a number of EU governments
(e.g., Greece, Italy, Hungary, where reliance on cash is relatively high
149
) recently
announced various measures that incentivize economic actors to use digital
payments, including IPs. 45% of all types of respondents to the open public
consultation who expressed their view on this matter, also thought that IPs would
have fiscal benefits by limiting the extent of tax fraud and tax evasion. According to
Deloitte
150
, the shadow economy accounts for about 7-12% of GDP in developed
countries. Based on the analytical model developed by Deloitte, it could be estimated
that IPs, depending on the extent of their eventual uptake in the EU, could lead to an
increase in annual tax receipts in the range of EUR 0.25 billion to EUR 1.59
billion.
151
Another study
152
of 25 EU countries estimated that 10 additional cashless
transactions per capita per year reduce the VAT gap (defined as the difference
between theoretical VAT liability and actual VAT revenue) by 0.69 percentage
points. The projections by ACI Worldwide
153
for the relative growth of various types
of payment means for a number of EU Member States broadly support such
149
A recent ECB study showed that 73% of all transactions in the Euro area were carried out using cash,
representing 48% of the total value of all payments made by consumers. ECB study on the payment
attitudes
of
consumers
in
the
Euro
area.
2
December
2020
[https://www.ecb.europa.eu/pub/pdf/other/ecb.spacereport202012~bb2038bbb6.en.pdf ].
150
Economic impact of real-time payments, July 2019 [deloitte-uk-economic-impact-of-real-time-
payments-report-vocalink-mastercard-april-2019.pdf
].
151
Study by Fidelis Consulting;
https://op.europa.eu/en/publication-detail/-/publication/735d5b9d-0c5e-
11ec-adb1-01aa75ed71a1/language-en/format-PDF/source-228716981.
152
Immordino, G., & Russo, F. F., Cashless payments and tax evasion; European Journal of Political
Economy, Volume 55, December 2018, Pages 36-43.
153
2021-Prime-Time-Report.pdf (aciworldwide.com).
55
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estimated benefits, as they predict, in relative terms, decreases in paper-based
payments by 2025 which would be offset by increases in IPs and other electronic
payments
.
-
The initiative is coherent with the other sectoral legislation in the area of financial
services (such as the Settlement Finality Directive, which currently excludes Payment
Institutions and Electronic Money Institutions from participation in payment systems
designated under that Directive and also PSD2
154
) as well as broad horizontal policies
and objectives of the Commission such as effective consumer protection, application
of EU sanctions against designated persons and entities, competition in the internal
market, broader financial inclusion
155
, enhanced public health
156
and environmental
protection. The initiative introduces a targeted and limited derogation in the
Regulation on cross-border payments
157
to ensure the achievement of the policy
objective to address the dissuasive fees for euro IPs.
The initiative is fully consistent with Commission’s Communication
Towards a
stronger international role of the euro
158
, in which the Commission supported a fully
integrated instant payment system in the EU, to reduce the risks and the
vulnerabilities in retail payment systems and to increase the autonomy of existing
payment solutions. It is also consistent with the Commission’s 2021 Communication
on
“The European economic and financial system: fostering openness, strength and
resilience”,
which reiterated the importance of its retail payments strategy and of
digital innovation in finance as means to strengthen the Single Market of financial
services and thereby reinforcing its open strategic autonomy in the macro-economic
and financial fields, as well as with the Council
Conclusions on the EU’s economic
and financial strategic autonomy: one year after the Commission’s Communication
(see section 1.2).
The initiative is coherent with fundamental rights, in particular data protection rules
in the General Data Protection Regulation (GDPR).
159
It is not anticipated that the
overall amount of personal data processing taking place will increase as a result of
this initiative, except to the extent that cash payments may be replaced by electronic
-
-
154
Directive (EU) 2015/2366 of the European Parliament and of the Council of 25 November 2015 on
payment services in the internal market.
155
IPs would enable users, especially low income households, to keep better track of expenses and
maintain a positive account balance. Low-income households who are more likely to manage their
finances from pay check to pay check would have greater visibility of their budget and are less likely to
incur penalties for late or missed payments. The benefits for financial inclusion arising from the uptake of
IPs were considered as likely by 51% of all types of respondents to the open public consultation who
expressed their view on this matter.
156
Due to IP-based payment solutions being predominantly based on contactless technology, which could
contribute to limiting the transmission of infectious diseases and provide benefits for public health in face
of future pandemics.
157
Taking into account the approach described in section 5.2.2 to resolve potential conflicts.
158
https://ec.europa.eu/info/publications/towards-stronger-international-role-euro-commission-
contribution-european-council-13-14-december-2018_en.
159
Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the
protection of natural persons with regard to the processing of personal data and on the free movement
of such data.
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transactions (which is a long-term trend in any case). PSPs already apply GDPR in
the context of all electronic payments; this initiative will not create any new
challenges for them in this regard. Regarding implementation of the preferred option
for reducing the number of fraudulent and erroneous euro IPs and increasing user
confidence in IPs (a service allowing a payer to have an immediate check of the
‘match’ between the IBAN and the name of a payee, before authorising the
transaction), PSPs will have to implement such a service in full compliance with the
applicable data protection requirements. Experience with the existing services of this
kind provided in the Netherlands and the UK demonstrates that the service can
indeed be designed and implemented in full compliance with GDPR.
The initiative would contribute to the EU achieving the G20 objectives (section
1.2)
160
.
7.4 Summary of impacts of selected options
Objectives
Policy
option
E
FFECTIVENES
S
E
FFICIENCY
(cost-
effectiveness)
C
OHERENCE
O
VERALL
SCORE
Increase the supply of euro IPs in the EU
Option 1.2
Legal obligation to offer sending and receiving of IPs in
euro for PSPs offering the service of regular euro credit
transfers to users (with targeted exclusions)
++
+
+
++
Address dissuasive fees for euro IPs compared to alternative payment means
Option 2.1
Obligation for PSPs to offer IPs in euro at fees not
higher than fees for regular credit transfers
++
≈
++
++
Simplify and enhance the efficiency of the sanctions screening process for euro IPs
Option 3.2
‘SEPA domestic’ approach (replace transaction-based
screening with regular updates by PSPs of own
customers lists against applicable EU sanctions lists)
++
+++
+
++
Increase payer confidence in euro IPs with regard to risk of fraud and errors
Option 4.1
Obligation for PSPs to provide an "IBAN verification"
service, before confirming an IP
++
≈
+
+
7.5
“One In One Out”
By means of the “one in one out principle” the Commission has committed to offset
administrative costs of new initiatives by correspondingly reducing administrative costs
of other initiatives
161
. However, the present initiative does not involve administrative
160
Targets for Addressing the Four Challenges of Cross-Border Payments: Final Report (fsb.org).
161
Administrative costs are defined as “costs borne by businesses, citizens, civil society
organisations and public authorities as a result of administrative activities performed to comply with
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costs for businesses, citizens or public authorities, as the initiative will not lead to any
increased oversight or supervision of PSPs, or to specific reporting obligations. There are
also no regulatory fees and charges arising from the initiative.
Although adjustment costs do not need to be offset according to the “one in one out
principle”, it is worth recalling that the recurrent cost savings for PSPs from the new
approach to sanctions screening are likely to more than offset adjustment costs generated
by the other components of this initiative, giving negative adjustment costs (i.e. savings)
for the initiative overall (see Annexes 3 and 4 for more details). Any fees charged by
PSPs, either for all credit transfers or for IBAN verification services, are outside the
scope of “one in one out”. It is therefore considered that this initiative is not relevant for
the "One In One Out" principle.
7.6
Climate and sustainability
No negative implications of the initiative for climate have been identified. To the extent
that euro IPs will contribute to the replacement of paper-based means of payment such as
cheques or plastic cards and chips with fully digital ones (e.g. mobile apps), or reduce the
use of paper-based invoices and receipts for companies and users that adopt IP-based
solutions and services, some environmental benefits can be expected.
The initiative will contribute to target 8.2 of the UN Sustainability Development Goals:
“To achieve higher levels of economic productivity through diversification, technological
upgrading and innovation, including through a focus on high-value added and labour-
intensive sectors”.
7.7 REFIT (simplification and improved efficiency)
The present initiative is not a REFIT initiative. Although it is effected via an amendment
to the existing SEPA Regulation, which lays down requirements for credit transfers and
direct debits in euro, it is not based on an evaluation of that Regulation and it does not
amend that Regulation beyond what is necessary to incorporate new specific provisions
regarding IPs, which are a sub-category of credit transfers and which did not exist in
2012, when the SEPA Regulation was adopted. All current provisions in the SEPA
Regulation regarding credit transfers continue to apply to IPs.
8
H
OW WILL IMPACTS BE MONITORED AND EVALUATED
?
The general objective of increasing the uptake of euro IPs relatively to euro regular credit
transfers can be monitored on an ongoing basis based on data from the EPC, the owner of
the SCT and SCT Inst. Schemes. Monitoring the uptake of euro IPs in various use cases
(incl. at PoI) and of volumes of euro IPs compared to cash or cards will require
synthesising data from a number of different sources, with the assistance of the ECB and
the EBA.
Regarding the specific objectives, the following comments on monitoring and evaluation
can be made:
administrative obligations included in legal rules”. « Adjustment costs » such as implementation costs, are
not covered by this commitment, and in any case the adjustment costs of the present initiative are overall
negative due to the savings generated by the new approach to sanctions screening. See Annex 3.
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The EPC maintains a public register of PSPs participating in the SCT and SCT
Inst. Schemes.
Regarding pricing, breaches by banks of the requirement of pricing for euro IPs
not exceeding the pricing of regular credit transfers will be sanctioned by national
competent authorities. Complaints by citizens and monitoring by consumer
organisations such as BEUC will also be a useful source of information.
The proposed solution for sanctions screening can be expected to entirely
eliminate rejection of euro IPs due to sanctions screening false hits, if it is
effectively implemented. PSPs can be expected to implement it given the
significantly reduced costs for them. The legislation will not allow Member States
to require transaction-based sanctions controls for IPs in euro.
For fraudulently and erroneously misdirected payments, the body or bodies which
organise the future IBAN-name check service can be expected to collect data
from participating PSPs on the effects of the system, although there is no legal
requirement to do so. In addition, fraud data relating to IPs will be published by
the ECB, the first year to be covered being 2022. There is no specific quantitative
target for reductions.
Indicator
% of IPs in all EU credit
transfers (by volume).
Full compliance with the
obligation for PSPs in scope
Full compliance with the
obligation for all PSPs offering
IPs
% of cross-border EU euro IPs
incorrectly rejected because of
sanctions concerns
% of IPs subject to a dispute
procedure for error or fraud
Evolution of volume and
amount of IP fraud
EPC
Source of information
Objectives
General objective
Increase the uptake of euro IPs
in the EU
Operational objectives
Increase the number of PSPs
offering euro IPs in the EU
Eliminate higher fees for euro
IPs than fees for euro regular
credit transfers
Reduce the rate of incorrect
rejections of euro IPs due to
sanctions screening
Reduce the rate of fraudulently
or erroneously misdirected euro
IPs
EPC,
national
competent
authorities
and
citizens'
complaints
National competent authorities /
citizens' complaints / BEUC
No monitoring needed other than
implementation of the new
screening approach
Organiser of the future IBAN-
name check service
ECB
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A
NNEX
1: P
ROCEDURAL INFORMATION
L
EAD
DG, D
ECIDE PLANNING
/
CWP REFERENCES
This Impact Assessment Report was prepared by Directorate B "Horizontal Policies" of
the Directorate General "Directorate-General for Financial Stability, Financial Services
and Capital Markets Union" (DG FISMA).
The Decide Planning reference is:
PLAN/2021/10249: Initiative on IPs in the EU, proposal for a Regulation.
The initiative on IPs was included in the 2022 Commission Work Programme published
on 19 October 2021.
O
RGANISATION AND TIMING
Four Inter-Service Steering Group (ISSG) meetings were held, chaired by SG, on 9
March 2021, 17 November 2021, 7 April 2022, and 6 September 2022 (the first three
meetings to discuss draft impact assessment and the fourth meeting to discuss draft
legislative text). In addition, a written consultation was held from 29 June to 4 July 2022
on the draft Impact Assessment as revised for resubmission to the Regulatory Scrutiny
Board (RSB). The ISSG consisted of representatives from various Directorates-General
of the Commission: COMP, JUST, CNECT, ECFIN, GROW, REFORM, TAXUD,
TRADE, and SJ. The contributions of the members of the Steering Group have been
taken into account in the content and shape of this impact assessment.
C
ONSULTATION OF THE
R
EGULATORY
S
CRUTINY
B
OARD
The Impact Assessment report was examined by the RSB on 24 May 2022. The RSB
issued a negative opinion on 25 May 2022. The report was resubmitted to the RSB on 8
July 2022; the RSB then issued a positive opinion (with comments) on 7 September
2022.
The principal areas in which this Impact Assessment was reinforced following the RSB
negative opinion of 25 May 2022 are the following:
More explanation about the market failures underlying the initiative in light of
network externalities, particularly on the supply side (including in Section 2.3 and
its subsections, as well as new Annex 10).
Addition of further detail on the nature of the ’payment float’ and impacts of its
reduction on payment service users, providers and financial stability (including
new Annex 8).
Clarification on why and to what extent the initiative will apply in non-Euro area
Member States (e.g. in Section 5 when describing options, in Section 6 when
assessing impacts of options, in Annex 3 when assessing impacts on various
stakeholders).
Clarification that market concentration is not among the main problem drivers,
and that greater choice of means of payment at PoI (rather than greater
competition among PSPs) is an indirect expected consequence of the initiative.
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Greater breakdown of the impact of the initiative on different categories of
stakeholders, including SMEs, particularly in Annex 3.
Consideration of additional options not included in the Impact Assessment as first
submitted, namely Options 1.1 and 4.3.
Inclusion of more information about IP systems in non-Euro area Member States
and worldwide (see Annex 6).
Inclusion of a more granular description of the EU PSP sector (see Annex 7).
Further explanations regarding the risk of fraud and refund rights with respect to
IPs, regular credit transfers and other means of payment (see Annex 5).
More background information on the functioning of cross-border credit transfers
in the EU (see Annex 9).
Clarification of the specific and operational objectives of the initiative.
Structural and presentational improvements (e.g. presentation of baseline options,
explanation of scoring of options; treatment of drivers 3 and 4 and related options
in the main report not in annexes).
Following the positive opinion of 7 September 2022, in light of the comments attached to
the opinion, further clarifications were introduced in the report in three areas:
The distribution of the impacts of the initiative, particularly with regard to PSPs,
arising from the obligation to send euro IPs which has a reducing effect on the
payment float (section 6.1), and consumers (section 6.2).
The impact of this initiative in non-Euro area Member States, and its interaction
with the CBPR (sections 5.2.2 and 6.1).
The application of the “one in one out principle” as regards adjustment costs
(section 7.5).
E
VIDENCE
,
SOURCES AND QUALITY
A number of inputs and sources of data were used in the preparation of this impact
assessment, including the following:
Evidence supplied in the various consultations described in Annex 2.
A study carried out by a contractor, Fidelis Consulting, "IPs, Current and
foreseeable benefits" delivered in 2021
162
.
Information provided by the EPC on the membership and use of the SCT and
SCT Inst. Schemes.
Information provided by the ECB on the use of its TIPS real time settlement
system, ECB Statistical Data Warehouse, National Payment Committees.
ORBIS database.
EBA Register of payment and electronic money institutions under PSD2
163
.
Discussion Paper on the EBA’s preliminary observations on selected payment
fraud data under PSD2, as reported by the industry
164
.
162
Available at this link:
https://op.europa.eu/en/publication-detail/-/publication/735d5b9d-0c5e-11ec-
adb1-01aa75ed71a1/language-en/format-PDF/source-228471178.
163
https://www.eba.europa.eu/risk-analysis-and-data/register-payment-electronic-money-institutions-
under-PSD2
164
Discussion Paper on payment fraud data received under PSD2 (europa.eu)
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Evidence provided by PSPs, especially on costs, in the course of targeted
consultation and bilateral contacts.
With regard to quality of evidence, the following observations can be made:
Information on costs incurred by PSPs, either in offering IPs or in offering a
service of IBAN checking, was provided by various PSPs themselves, and could
not be independently verified. Many PSPs declined to provide this information,
and the ones that did provide it, did so under the condition of strict
confidentiality. The data points used in the analysis reflects the significant efforts
by the Commission services to obtain cost information, as many PSPs and
industry associations were not constructive in sharing the necessary data. It was
observed that the reported costs varied considerably, and were generally in
proportion to the size of the PSP, in terms of geographical reach and number of
accounts serviced.
Information on the numbers of EU PSPs offering IPs is available via the EPC, as
participation in the SEPA SCT Inst. Scheme confers this capability.
The Fidelis Consulting study, completed in 2021, was based on the analysis of
market studies and interviews with relevant stakeholders, including PSPs,
providers of technical services, consumer organisation, merchants and corporates,
to obtain their insights into the actual and expected benefits of a widespread
adoption of IPs.
Information on usage and market shares of various payment instruments and
means (used for example in Annex 7 and in section 2) was compiled by
Commission services from sources such as the ECB, National Payment
Committees, studies, and information provided by market participants, in most
cases in confidence. Commission services collated the data and made calculations
on this basis.
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A
NNEX
2: S
TAKEHOLDER CONSULTATION
1. C
ONSULTATION PLAN
In order to ensure that the Commission’s proposal adequately takes into account the
views of all interested stakeholders, the consultation strategy supporting this initiative
was built on the following components:
1. An open public consultation, open from 31 March to 23 June 2021
165
;
2. A public consultation to prepare the Commission’s Retail Payments Strategy
(RPS), open from 3 April to 26 June 2020
166
;
3. A public consultation on the inception impact assessment for the present
initiative, open from 10 March to 7 April 2021
167
;
4. A targeted written consultation of the payments industry, open from 24 March till
12 June 2021;
5. Consultation of stakeholders in two Commission groups the Financial Services
User Group (FSUG), and the Payment Systems Market Expert Group (PSMEG);
6. Ad hoc contacts with various stakeholders, either on their initiative or that of the
Commission;
7. A FISMA webinar on IPs organised on 10 June 2021;
8. Consultation of Member States’ experts in the Commission Expert Group on
Banking Payments and Insurance and ad hoc workshops on sanctions screening.
The results of each component are presented below.
2. O
PEN PUBLIC CONSULTATION ON
IP
S
Introduction
On 31 March 2021, the European Commission launched a dedicated public consultation
on IPs. In line with the Better Regulation Principles, the Commission invited
stakeholders to express their views on remaining obstacles as well as possible enabling
measures to ensure a wide availability and use of IPs in the EU.
The consultation was open until 23 June 2021 and yielded 170 replies, 165 of them
submitted online via Have Your Say portal and 5
168
by email to Commission services.
The questionnaire focused on four areas:
1. Payment services user perspective
a. Consumer preferences
b. Retailer preferences
c. Corporate user preferences
165
https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12931-Instant-
Payments/public-consultation_en
.
166
https://ec.europa.eu/info/consultations/finance-2020-retail-payments-strategy_en
.
167
https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12931-Instant-
payments_en
.
168
From ETPPA, EMA, EBA Clearing, Danish Ministry for Business, Industry and Financial Affairs, and
Bundesarbeitskammer Ӧsterreich.
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2. Payment Service Provider (PSP) perspective
3. Technical standardization, and
4. Horizontal aspects
The feedback to this consultation has been used to inform the assessment by the
Commission services of impediments to the widespread availability and use of IPs in the
EU and of possible enablers ensuring a full uptake of pan-European IPs.
This annex provides a factual overview of all responses received. Therefore, any
opinions expressed reflect the views of the respondents and do not reflect the position of
the European Commission or its services.
Who responded?
Out of the 170 responses received, almost half (46%) came from IP users (35% EU
citizens / consumers, 8% merchants and 3% corporate users), 43% from IPs providers
(including PSPs, technical service and infrastructure providers) and 11% from other type
of respondents (public authorities, NGOs, academics and other).
Respondents came from 24 Member States and 9 countries outside the EU. Inside the
EU, the highest number of responses came from Belgium and Germany. 17 responses
came from outside the EU.
SMEs were encouraged to participate in the public consultation via the Enterprise Europe
Network (EEN). 18 respondents identified themselves as SMEs, of which 7 were
business associations and consumer organisations, and 11 individual companies (9
provider side representatives, 1 merchant and 1 other).
Key messages
Overall, the consultation responses revealed that a majority within all categories of
stakeholders, on both user and provider side, considered that IPs can respond to their
payment or business needs and bring about broader benefits in terms of e.g. financial
inclusion or fiscal benefits.
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On the user side, consumers and merchants considered that IPs can offer them payment
means which are convenient, fast, and easy to use. In terms of benefits of IPs for
corporates, respondents put emphasis on the improved ability to more efficiently manage
cash flows and meet payment obligations on time.
All categories of payment service users were nearly unanimous that IPs must allow
making and receiving payments anywhere in the EU and not only within one Member
State.
A vast majority of consumers and merchants considered cost of IPs, compared to other
alternatives such as regular credit transfers or cards, to be an important factor.
Furthermore, majority of consumers indicated that they would not be willing to pay for
IPs more that they pay for regular credit transfers.
The responses on the provider side also reflect the recognition of important benefits of
IPs in terms of allowing them to remain competitive on the market.
Respondents considered that certain potential risks related to IPs, in terms of e.g. fraud or
liquidity, may require special consideration, but were not seen as a hindrance to rolling
out pan-European IPs. There was an overall support for ensuring EU-level
standardization of relevant technologies.
Summary of Responses
Payment services user perspective
Consumer preferences
EU consumers were invited to indicate the main features, which they consider important
when selecting a payment method. Overall, 60 responses were received from individual
EU citizens and consumer organizations.
The vast majority of consumers considered that it was important that the funds are
credited instantly to the account of the beneficiary (88%) and that the service was
available 24 hours a day, any day of the year (90%). 88% considered that cost of IPs
(compared with a regular credit transfer) would be an important factor: 67% would not
be willing to pay any premium fee for the instant version of credit transfers, and those
who would be open to paying more, could agree to an increase of up to 50% compared to
a fee for regular credit transfers.
The existence of safeguards regarding the risk of fraud or error was considered important
by 90% of respondents. The majority (83%) expected their banks to offer a service
allowing, prior to the initiation of the transfer, for the immediate verification of the
‘match’ between the IBAN of the beneficiary and the name on the beneficiary account,
automatically and free of charge.
Regarding the important features of IPs when used at Point of Interaction (PoI), 88% of
respondents pointed to convenience (e.g., no need to carry cash or a card if used via a
mobile payment app/digital wallet); 88% to price of using an IP at PoI; 85% to
possibility to pay not only in one’s own country but also anywhere in the EU, as well as
to the possibility to ask for a refund; 75% to the possibility to pay in a broad range of
places and situations (shops, restaurants, gas stations, public administrations, etc.) and
75% to the speed with which the funds are credited to the beneficiary.
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Global acceptance was important for 63% of consumer respondents and a common
recognizable label by 55%. Just under half (48%) considered the possibility to integrate
loyalty points in the payment app/wallet to be an important feature (with one consumer
specifically raising concerns about the impact of integrating loyalty points on their
privacy).
Other benefits of IPs identified by respondents included
inter alia
the possibility to better
identify transactions compared to card transactions which appear on the account with a
delay.
Features of IPs at PoI
considered important by consumers
Convenience (no need to carry cash or cards)
Price of instant credit transfer at PoI
Possibility to pay anywhere in EU
Possibility to ask for refund
Possibility to pay in broad range of places
Speed of transfer
Global acceptance
Presence of visible label
Possibility to integrate loyalty points
0%
20%
40%
60%
80%
100%
Retailer preferences
Stakeholders were invited to rate the importance of various factors for merchants when
deciding on whether to offer customers the possibility to pay with IPs at PoI.
Merchants and retailer associations (13 responses) were unanimous on the importance of
ensuring the ability to accept payments from customers from other Member States;
ensuring the seamlessness at check-out; and availability of reconciliation service
169
. A
similar extent of support for the above factors was given by all types of stakeholders who
expressed their view on the subject.
The vast majority of EU merchants (92%) and nearly the same proportion of all
stakeholders considered it important to ensure a lower cost of IPs at PoI compared to
cards; and the possibility to accept payments without (or with very little) acceptance
hardware. Moreover, 77% of merchants (and even higher proportion of all stakeholders)
considered speed; the availability of an omni-channel point of sale (POS) solution
offering payers means of selecting their preferred means of payment; and the ability to
set up a default selection of payment applications, to be important features. Availability
of services allowing the incorporation of loyalty points was considered important by 54%
of merchants but only 43% of all stakeholders.
169
The process of matching a payment recorded in the bank account of the merchant with the sales of
the merchant.
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Other important features considered by merchants when deciding on whether to start
accepting a pan-European payment solution or new scheme based on IP included:
ensuring appropriate fraud prevention, availability of instant confirmation of
authorisation and payments, availability of dispute resolution mechanism, instant
refunds, capability to cater for recurring payments for subscription-based services, and
affordable fees for consumers.
Corporate user preferences
Overall, respondents argued that IPs could be the first step towards real-time corporate
treasury, ensuring more accurate and secure management of available balances and
reducing the need for liquidity buffers, with surplus cash available to be reinvested by
corporates in their operations.
80% of corporate users considered that being able to manage cash flows more efficiently
was an important benefit of IPs (down to 77% if responses from all categories of
stakeholders are considered). 80% of corporate users (or 86% of all stakeholders who
pronounced their opinion on this point), considered that an important benefit would be
derived from the ability to ensure timely payment of invoices or other payment
obligations. The majority of corporate users (60%) and vast majority of all respondents
(83%) considered that IPs would help corporates offer services to their clients more
efficiently (e.g. by providing instant refunds).
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80% of corporate users (and 75% of all respondents) considered that immediate
availability of funds would enable corporate users to fulfil their obligations (e.g. instant
shipment of the order) sooner, compared to the situation when the funds are not
immediately available.
Other types of benefits for corporate users identified by respondents included
inter alia
being able to be more agile in terms of managing payment needs at a very short notice,
also outside the banking business hours, e.g., booking cargo or manufacturing capacity,
or purchasing on-demand computing services (such as cloud services); facilitating
logistics (e.g. no need to hold goods until payment is cleared); reduced need for
borrowing; reduced risk of not being paid by customers and business partners; and being
able to make payments for higher amounts compared with cards.
Respondents considered that IPs could be useful for paying employees, suppliers and tax
authorities, paying late fees and invoices, payments of dividends, reimbursements to
customers, recovering debt. IPs were seen as a substitute for existing ‘payment against
delivery’ solutions, improving the process of digitalization of EU companies.
In terms of the readiness of corporate users to accept IPs, respondents pointed to the need
to adjust the internal operations of corporate users, such as related to treasury
management system, warehouse operations, customer support system, etc. However,
corporate users, including SMEs, did not express major concerns about the cost of such
adaptations. In terms of the readiness of corporate users to pay a premium fee for an IP
compared to regular credit transfer, the view of all respondents was split 50% in favour
and 50% against.
Only a handful of respondents pronounced their views on whether the current EUR 100k
cap on euro IPs constitutes an obstacle to their use by corporates and whether it should be
modified or removed. Respondents considered that both types of processing: per
individual transaction and in bulk (for multiple payment transactions bundled together)
should be available for corporate users to choose depending on their specific needs. In
terms of the type of Value Added Services (VAS) which were considered useful for
corporates, Request to Pay and/or Confirmation of Payee (CoP), as well as e-invoicing
were mentioned most often.
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Perspective of payment service providers
As regards benefits for Payment Service Providers (PSPs) which would derive from
offering IPs, ‘provider-side’ respondents to the consultation (representing 43% of all
respondents and comprising PSPs, technical service providers and payment systems)
thought that the important benefits would lie in the ability of PSPs to preserve their
existing customers (90% of provider-side respondents who expressed an opinion on this
point) and to attract new customers (88%).
In terms of other types of benefits, 67% of provider-side respondents thought that IPs
would present important benefits in terms of ability to (cross) sell other services, 59%
thought that important benefits would arise from the opportunity for PSPs to provide an
alternative to other widely used means of payment such as cards and therefore generate
cost savings and become more independent from other providers, 47% saw important
benefits linked to IPs being a new source of revenue, while 41% considered that with IPs
PSPs could generate cost savings in other operational areas (e.g., cash management and
distribution, ATM maintenance, security costs and other).
As regards provider-side respondents that identified themselves as SMEs and expressed
their view on benefits deriving from IPs, 88% thought that there would be important
benefits with respect to the ability of PSPs to preserve their existing customers, 88% - to
attract new customers, 75% - to provide an alternative to other widely used means of
payment such as cards and therefore generate cost savings and become more independent
from other providers, 75% - to (cross) sell other services, 63% - to have a new source of
revenue and 50% - to generate cost savings in other operational areas.
Types of important benefits for PSPs
(from perspective of provider-side respondents)
Preserving existing customers
Attracting new customers
Opportunity to cross sell
Lower costs due to independence from
other providers
New source of revenue
Cost savings in other operational areas
0%
20%
40%
60%
80%
100%
SMEs
All provider side
Out of 82 respondents representing various types of stakeholders who expressed their
opinion on whether IPs could aggravate bank runs and thus contribute to bank failures,
71% did not see such risk. They argued that important safeguards already exist, such as
the pre-funded nature of IP settlement accounts with Clearing and Settlement
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Mechanisms (CSMs) or various daily or transaction limits that PSPs tend to apply (which
may not pertain specifically to IPs). On the other hand, 29% of respondents, primarily
PSPs, thought that such risk is possible. In terms of mechanisms and tools that this group
of respondents considered could be effective to contain intense liquidity outflows
prompted by IPs, 67% thought that a daily limit for the amount which could be
transferred via IPs could be useful; 54% supported a discretionary power allowing
competent authorities to suspend IP obligations of the PSP concerned for a certain period
of time and 50% thought that other mechanisms or solutions, available to either PSPs or
competent authorities, could be useful, such as application of limits for the number of
consecutive IPs (in addition to a daily limit for the amount that can be transferred),
introduction of a notification mechanism by central banks in case of a bank run or
discretion for PSPs, under certain exceptional circumstances, to redirect IPs to ‘regular’
credit transfers.
Technical standardization
The consultation sought stakeholder views on whether a single European QR (Quick
Response) code standard for IPs should be available to relevant market participants. 70%
of all respondents who expressed their view on this subject thought that a single
European QR code should be available while 30% disagreed.
The majority (63%) of those who were in favour of a single standard thought that it
should be developed by a European standardisation organisation, and 30% said that this
should be done by market participants.
Out of those who disagreed with the need for a single standard, 38% thought that the
same objective could be achieved through the interoperability of existing QR codes,
while 24% said that other technologies (e.g. Near Field Communication) are safer and/or
more convenient.
Broader societal aspects
The consultation also included questions on broader risks and benefits to the society,
arising from the widespread use of IPs in the future.
In terms of risks that could negatively affect operations of a particular financial sector or
pose broader societal costs, 70% of respondents who expressed their opinion on this
subject did not see such risks, while 30% believed that such risks exist, referring to risks
related to online scams and fraud, additional pressure on PSPs to ensure real-time fraud
prevention, costs arising from parallel maintenance of different payment methods and
their integration into applications.
In terms of broader societal benefits, among all types of respondents who expressed their
opinion on various types of benefits, 68% believed that benefits accrue in the area of
financial inclusion, 65% thought there would be fiscal benefits, 44% saw benefits related
to public health and 43% believed that there would be benefits linked to better data
protection. 21% of all respondents to the consultation indicated that benefits would also
accrue in a number of other areas, e.g. societal costs of cash handling and management.
It should be observed that EU citizens / consumers had a more favourable outlook on the
likelihood of societal benefits than the overall sample of respondents who expressed their
opinion on this subject, as evidenced by a consistently greater proportion of EU citizens /
consumers agreeing to the possibility of various societal benefit types.
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As regards respondents that identified themselves as SMEs, they had a marginally less
favourable outlook on the likelihood on the various types of societal benefits that the
overall sample of respondents who expressed their opinion on the subject.
Types of societal benefits
arising from widepread use of instant payments
Financial inclusion
Fiscal benefits
Public health
Data protection
0%
10%
20%
30%
40%
50%
60%
SMEs
70%
80%
90%
EU consumers
All respondents
3. O
THER CONSULTATIONS OF STAKEHOLDERS
3.1 Public consultation in preparation of the Commission’s Retail Payments Strategy
(RPS)
The public consultation preparing the RPS was open from 3 April to 26 June 2020, and
received a total of 189 responses from market players and consumers (17 responses from
citizens). The following is an extract from the published summary of that consultation.
170
A large share of respondents supported EU legislation making payment service
providers’ adherence to the' SCT Inst. Scheme mandatory. Respondents who supported
mandatory adherence to SCT Inst. Scheme suggested very diverse end dates for such a
requirement, ranging from between the end of 2021 until the end of 2025. Approximately
half the respondents did not indicate any date.
In addition, a large proportion supported additional standardisation measures, pointing to
a variety of areas, including inter alia, QR-codes, clearing transmission protocols, data
protocols, APIs, supporting payment initiation and account information services,
authentication, e-identification, cash registry systems and e-receipts, etc.
A number of respondents also supported the development of new payment schemes, such
as SEPA instant direct debit, one leg-in transactions, European electronic identity based
on LEI, etc. A smaller number of respondents supported EU legislation adding IPs to the
170
https://ec.europa.eu/info/consultations/finance-2020-retail-payments-strategy_en
.
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list of services included in the payment account with basic features under the Payment
Accounts Directive or EU legislation mandating replacement of SCT with SCT Inst.
Amongst additional measures which might contribute to the successful rollout of pan-
European payment solutions based on IPs, respondents also referred to a wide range of
possible measures, including: identifying schemes to which adherence should be
mandatory; ensuring open access to Near Field Communication (NFC) on mobile
devices; common branding of interoperable digital wallets; mandating that IPs are
charged as a standard service; and effective regulation of global payment scheme
operators to ensure a level playing field.
A large proportion of respondents considered that IPs may pose some degree of
additional or different risks compared to regular credit transfers. These risks, according
to respondents, may derive from inter alia the speed and immediacy of IPs making them
irrevocable, the lack of clear expectations and standards from regulators concerning
compliance with payment screening obligations, etc. These factors could, according to
the respondents, lead to fraud (e.g. authorised push payment scams), money laundering
and terrorist financing (e.g. mule accounts), cybercrime, liquidity risk for financial
institutions, operational and legal risks from processing errors, higher cost for merchants
and insufficient consumer protection. Many respondents emphasized, however, that
solutions already exist to mitigate those risks or that they could be developed.
Respondents acknowledged that such solutions could be costly, but also considered that
modern technologies (such as artificial intelligence) could be useful.
Respondents pointed to the need for: dedicated, real-time fraud monitoring and
prevention tools;more focus on pre-transaction initiation controls (such as confirmation
of payee); a maximum threshold for instant transactions; a market-wide digital identity
program; consumer communications campaigns to raise awareness about differences
with other instruments such as cards . A number of respondents considered that an ad-
hoc stopgap mechanism would be useful for emergency situations, as IPs can quickly
stress the liquidity situation of a payment service provider and current mechanisms are
insufficient if a bank run takes place outside normal office hours.
When invited to identify the most advantageous solutions for EU merchants, other than
cash, respondents where almost equally spread over three possibilities: card-based
solutions, SCT Inst. solutions, and other (such as Central Bank Digital Currencies, SEPA
Direct Debit (SDD) or various solutions based on a combination of smart cards, IPs,
request to pay schemes, etc.). When asked what the most important factor(s) for
merchants were when deciding whether or not to start accepting a new payment method,
the majority of respondents pointed to the proportion of users, the seamlessness of
consumer experience, level of merchant fees, fraud prevention, reconciliation and refund
services. Other factors included, for example, the implementation cost, time and effort,
maintenance cost, speed of the payment solution, international acceptance, security, and
system stability.
In response to the question regarding whether they accept foreign SDD payments, the
majority of respondents indicated that they accepted both domestic and foreign SDD,
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whereas a very small number of respondents did not accept SDD at all, or only accepted
domestic SDD.
3.2 Consultation on inception impact assessment
The consultation on an inception impact assessment on the Commission's Have Your Say
portal
171
ran from 10 March 2021 to 07 April 2021, and drew 41 responses from a
diverse range of stakeholders, showing broad support for a regulatory action to put in
place relevant enablers.
3.3 Targeted written consultation of market participants
The targeted consultation with PSPs and providers of technical services supporting the
provision of IPs focused on matters of more technical or confidential nature; 51 replies
were received from a wide spectrum of payments market participants.
3.4 Consultation of stakeholder groups
The Financial Services User Group (FSUG) discussed IPs on 23 April 2021
172
. FSUG
members stressed that for IPs, an account should at a minimum be reachable, IPs should
not require a smartphone and are digitally excluded, and that fees should be affordable.
The importance of consumer confidence in IPs with regard to consumer protection
against fraud was underlined.
The Payment Systems Market Expert Group (PSMEG) discussed IPs on 16 December
2021. As regards the nature of PSPs that should be mandated to offer sending and
receiving of IPs, the general view shared by most stakeholders was that the obligation
should cover all PSPs offering retail payment services to consumers and corporates. In
terms of sequencing of the possible obligations to receive and send euro IPs, there was an
overall support for a one-step approach from consumers, retailers, corporates and non-
banking PSPs. As regards the level of transaction fees for euro IPs, the views of the
stakeholders diverged. Among the PSP community, account servicing (AS) PSPs were
not in favour of a regulatory intervention on fees, while non-AS PSPs supported either
equal transaction fees for euro IPs and regular credit transfers, or a free provision of euro
IPs. Consumers and retailers also expressed preference for no ‘per transaction’ fees of
euro IPs. As regards protecting consumers by way of requiring their PSP to provide a
service allowing, prior to the initiation of a transfer, for the immediate verification of the
match between the IBAN of the beneficiary and the name on the beneficiary account held
with the beneficiary’s PSP, consumer representatives and academics considered that such
service would be very important and beneficial for consumers.
3.5 Bilateral contacts with stakeholders
A wide range of bilateral contacts were held with various stakeholders during the
preparation of this initiative, essentially by videoconference, including BEUC - the
European consumer organisation), providers (banks, banking associations, European
171
https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12931-Instant-
payments_en
.
172
https://ec.europa.eu/info/publications/fsug-meetings-2021_en
.
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Payments Council, FinTechs, third party providers (TPPs)), Euro Retail Payments Board
(ERPB), ECB, National Payments Committees, national central banks and supervisors,
etc.
3.6 FISMA webinar on 10 June 2021
The DG FISMA webinar on "Exploring the potential of IPs for EU consumers and
businesses", held on 10 June 2021
173
, brought together consumers, payment service
providers, merchants and corporates, including SMEs. The event garnered significant
stakeholder interest, with 767 pre-registrations and 2,884 connections to the live web-
streaming, from both within the EU and globally, and demonstrated a very strong support
from the user community for the greater availability of IPs.
4. C
ONSULTATION OF
M
EMBER
S
TATES
National authorities were consulted in the framework of the Commission Expert Group
on Banking Payments and Insurance (CEGBPI), which discussed IPs in a number of its
meetings and provided input on the positions of Member States on specific elements. The
CEGBPI discussed IPs on 22 October 2020, 25 March and 30 November 2021
174
.
With regard specifically to sanctions screening, two workshops were held, on 23 June
and 10 December 2021, with Member State experts in the area of application of
“sanctions screening”, focusing on the frictions to the processing of cross-border IPs
which are caused by national and international sanctions screening obligations and on the
possible solutions to overcome those frictions.
173
174
https://ec.europa.eu/info/events/finance-210610-instant-payments_en
.
Minutes
available
at
this
link:
https://ec.europa.eu/transparency/expert-groups-
register/screen/expert-groups/consult?do=groupDetail.groupDetail&groupID=2885&Lang=EN
.
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A
NNEX
3: W
HO IS AFFECTED AND HOW
?
1. P
RACTICAL IMPLICATIONS OF THE INITIATIVE
1.1 Introduction
The costs of the initiative are mainly one-off implementation (adjustment) costs, and fall
largely on PSPs. They consist of a) the costs of offering euro IPs for those PSPs covered
by the initiative which are not already participants in the SCT Inst. Scheme; b) the costs
of implementing an EU-level IBAN verification system in order to reduce fraudulently
and erroneously misdirected euro IPs and thus promote payer confidence in IPs. Ongoing
incremental per euro IP transaction costs for PSPs, where reported, are mainly connected
to having active processing capacity 24/7/365. However at high volumes overall per euro
IP transaction costs are comparable to transaction costs for euro regular credit transfers.
The benefits, on the other hand, are ongoing benefits and accrue to a wide range of
stakeholders, including consumers, businesses, merchants and public administrations,
fintechs as well as PSPs themselves. The proposed solution for sanctions screening will
lead to significant savings for all PSPs on an ongoing basis with anticipated higher
volumes of IP.
1.2 Payment Service Providers (PSPs)
In terms of distribution of adjustment costs and benefits across the industry, they are
expected to vary depending on the following factors:
-
At a more general level, by Member State.
o
Regarding the euro area:
(i) For PSPs operating in national markets (such as the three Baltic States,
Finland, the Netherlands) that are already well advanced in application
of at least several of the measures proposed under this initiative (e.g.,
high level of adherence to the SCT Inst. Scheme, equalised fees for
euro IPs and regular euro credit transfers, IBAN verification service in
place), the adjustment costs are expected to be limited and, therefore,
greater net benefits from the initiative could be expected;
(ii) PSPs operating in the Member States that have been lagging behind in
promoting euro IPs are expected to incur greater initial or recurrent
adjustment costs, but over time are also expected to see them offset by
benefits generated by the initiative.
o
Regarding non-Euro area Member States, the volume of euro IPs is expected
to be lower (in view of the share of credit transfers in a national currency for
domestic transactions), reducing potential revenue and thus negatively
impacting the overall cost-and-benefit balance for PSPs operating therein.
Nevertheless, a number of market factors and deliberate proportionality
measures are expected to provide a counter-balancing mitigatory effect. For
instance:
(i) Only 13% of PSPs operating in non-Euro area would be subject to the
measures included in this initiative, as the remaining ones do not carry
out regular credit transfers in euro;
(ii) Two Member States (Bulgaria and Croatia) will have adopted the euro
by the time this initiative will apply;
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(iii)
(iv)
Domestic IP systems in national currencies exist in all non-Euro
Member States. For PSPs already offering IPs in national currencies,
investments in these systems can be leveraged for providing euro IPs,
thus reducing the initial adjustment costs, in view of the fact that the
domestic approaches are often heavily based on the rules of the SCT
Inst. Scheme (please see Section 6.1), and in some of those Member
States the same settlement system would be used for IPs in euro and
national currencies (e.g., Sweden and Denmark intend to use TIPS).
Similar synergetic effects are expected with respect to ongoing costs,
such as providing 24/7/365 customer support for both types of IPs;
A considerably extended implementation deadline of the measures
included in the package is expected to serve a dual purpose. First, it
will allow the local PSPs to optimise their implementation costs, by
giving them a possibility to spread their internal resources over a
longer period of time
175
. Second, it is expected that greater euro IP
network effects would be set in motion by such later deadline, as a
higher volume of euro IPs would be attained due to earlier deadlines
applicable to the Euro area PSPs.
-
Existing provision of euro IPs: PSPs that already offer euro IPs (2 300) will incur
initial adjustment costs only for the measures of this initiative other than offering
euro IPs, unlike PSPs that do not currently offer IPs (800-900), which would
potentially incur some costs for implementation of all four components of this
initiative. The remaining group of some 300 PSPs that are excluded from the scope of
obligation to offer euro IPs under the preferred option 1.2 would be directly impacted
by the initiative only if they were to decide to offer euro IPs on a voluntary basis.
Size of a PSP: The collected evidence on the initial adjustment costs with respect to
offering IPs and IBAN verification service shows that those costs are proportionate
and, in absolute terms, vary with the size of a PSP (i.e., they are lower for smaller
PSPs and higher for larger PSPs). This will greatly facilitate implementation of the
proposals for PSPs which are SMEs (many of which are fintechs and enthusiastic
about IPs). Importantly, benefits of the initiative, such as operational savings in the
area of sanctions screening, are also estimated to vary with the size of a PSP (i.e.,
higher for larger PSPs). Therefore, in this regard both the costs and benefits appear to
be distributed in a comparable fashion.
-
Even though the cost-benefit analysis may be negative for certain individual PSPs in the
short term, the overall benefits of the initiative will lead to a more efficiently functioning
payment system, with direct and indirect benefits to all stakeholders, including PSPs
themselves. The indirect benefits include the stimulus to innovation in payments markets,
especially as regards PoI payment solutions based on IPs, with the potential to reduce
costs for retail purchases and to increase choice of PoI payment means.
175
Some PSPs that adhere to the SCT Inst Scheme indicated that a share of incurred implementation costs
was driven by the need to rely on external resources in order to ensure timely implementation.
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1.3 SMEs
Regarding SMEs specifically, they are concerned by this initiative in two capacities, as
users of euro IPs (such as merchants or business users) and as providers of euro IPs or
related services, such as PSPs or payment fintechs (smaller PSPs, start-ups etc.).
As users of IPs, the costs for SMEs are not expected to be material. For SMEs as
corporate users, receiving IPs is not expected to require any significant adaptation and
sending IPs in most cases only requires familiarisation with the new customer interface
of their PSP.
Benefits for SMEs as corporate users and merchants, in terms of cash-flow management,
can be significant given the quicker reception of payments. In relation to this, SMEs
would realise a significant share of the estimated efficiency gains of EUR 1.34 to 1.84
billion per year related to the reduction in the payment float (see section 7.1).
176
SMEs
which are merchants have the potential to benefit from any future increased choice of the
means of payment at PoI, which could drive down fees charged to merchants by PSPs
(see section 2.2.2. above). As observed by SME United,
“Improving the functioning and
the usability of Instant Payment solutions can make this new payment instrument an
attractive payment solution for small merchants in online and offline business”
177
.
As for SMEs which are PSPs or payment fintechs, they are normally not encumbered by
complex legacy IT systems as large well-established PSPs may be (legacy IT systems or
presence of different payment platforms for different brands are a significant generator of
implementation costs
178
); their implementation costs therefore are expected to be at the
lower end of the identified ranges (see section 6.1). This has been confirmed by data
received from certain smaller PSPs, including SMEs, as part of the consultation and fact
finding. It has been observed that innovative start-ups PSPs and payment fintechs
normally want to offer euro IPs, or services ancillary to euro IPs, as a key element of
their business strategy and they tend to recognise benefits of IPs for providers to a greater
extent compared to the overall payments provider community (see Annex 2). In addition,
they also supported the view that IPs could generate certain types of benefits at a broader
society level (see Annex 2).
SMEs are therefore expected to be among the net gainers from this initiative, whether as
users or as PSPs/fintechs.
176
Given that over 99% of non-financial sector companies in the EU are small companies [EU
small and
medium-sized enterprises: an overview - Products Eurostat News - Eurostat (europa.eu)]
177
Instant payment can become an attractive option for SME merchants | SMEunited
178
Studies on implementation of instant / faster payments in other jurisdictions identified these factors as
an important driver of implementation costs for PSPs, for instance
[ARCHIVED CONTENT]
(nationalarchives.gov.uk)
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Impact on SMEs by SME type (summary table)
Type of SME
Costs
PSP
- implementation costs
near the bottom of the
range between EUR
10 000 and EUR 1.3
mln (only if the PSP
does not yet offer IPs)
- ongoing transaction
costs comparable to
regular credit transfers,
declining as volume of
IPs increases
- costs linked to
implementation
of
IBAN
verification
system proportionately
lower than the costs
incurred by larger PSPs
- forgone earnings on
the payment float
Merchant*
- possible adaptations of
PoI
payment
infrastructure needed for
physical shops (depends
on access of new
solutions to existing
payment terminals)
Corporate SMEs*
-
very
limited
implementation costs to
receive IPs (comparable
to consumers)
Benefits
- cost savings from new
approach to sanctions
screening (reducing or
outweighing
other
implementation costs)
- cost savings from
displacement of cheques
(in selected markets)
-
benefits
from
successful prevention of
IP fraud and errors (no
need to investigate)
-
new
market
opportunities
(on
payments market and
PoI market)
- lower costs than those
related to accepting
other payment means
(cash, cheques and
cards), in particular for
cross-border
transactions where the
range
of
available
payment means is very
narrow
- improved cash flow
management: reduction
in
late
payments,
immediate availability
of transferred funds due
to reduction in payment
float
reduces
the
financing
cost
of
working capital
- potential for faster
despatch of goods to
consumers
(where
payments are currently
made with regular credit
transfers) and offering
instant refunds
- improved cash flow
and
liquidity
management: reduction
in
late
payments,
immediate availability
of transferred funds due
to reduction in payment
float
reduces
the
financing
cost
of
working capital
* Types of c
osts and benefits for SMEs which are merchants and other commercial businesses are not
different from costs and benefits for larger merchants and businesses. The relative extent of some of the
benefits (e.g., cost savings related to accepting other payments means such as cards), can be greater for
SMEs due to their inferior negotiating position with acquirers. Certain types of benefits for merchants are
contingent on future development of PoI payment solutions based on IPs and are therefore to be considered
as indirect benefits of this initiative.
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1.4 Consumers
Consumers will experience almost no costs in order to be able to receive and send euro
IPs. Receiving a euro IP will not require any additional effort compared with receiving a
euro regular credit transfer, while sending an IP will require, at most, familiarisation with
options available through the interface of the PSP of the consumer, such as a banking
app.
Due to the pricing provisions in the present initiative, customers of PSPs currently
charging premium prices for euro IPs are expected to experience a fall in transaction fees
for euro IPs. For customers of PSPs which currently do not charge premium prices for
euro IPs, there should be no change. Customers of PSPs which do not offer euro IPs at all
are unlikely to experience a high level of transaction fees for euro IPs, since PSPs would
need to significantly increase the fees for regular euro credit transfers in order to charge
the same level of fees for euro IPs.
On the other hand, consumers will experience the benefits of immediate reception of due
funds 24/7/365 in all types of daily life situations, including emergencies, (as payees) and
ability to settle bills or make late payments more rapidly (as payers). Available evidence
confirms that users do rely on the possibility to send and receive IPs around the clock
(see Section 2.2.1).
As for purchasers of goods and services, consumers will potentially benefit indirectly
from any innovations permitting the use of IPs at PoI, such as quicker dispatch of goods
and services, and possible pass-on of savings accruing to merchants in the form of lower
retail prices (depending on competitive forces between merchants).
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2. S
UMMARY OF COSTS AND BENEFITS
The tables below summarise the costs and benefits described above, based on the
package of preferred options.
I. Overview of Benefits (total for all provisions) – Preferred Option
Amount
Comments
Direct benefits
Reduction of funds in transit Economic benefits from reduction of payment
and unavailable for
float in the range of EUR 1.34 to EUR 1.84
economic use (’payment
billion per year, depending on the uptake of IPs.
float’)
Greater convenience for
users from ability to
instantly send/receive funds
Improved cash-flow
management for businesses,
especially merchants and
corporates
Accelerated and improved
collection of fines and taxes
if paid using IPs
Cost savings for PSPs from
new approach to sanctions
Cost savings linked to
handling of cheques
Financial inclusion, public
health, environment
Reduction in losses related
to fraudulently misdirected
IPs
Stimulus for innovation in
PoI payment solutions
Potential to reduce
concentration in PoI
payments
Not quantifiable
Funds currently held in PSPs will be available
sooner to consumers and businesses for
consumption or investment. See Section 7 and
Annex 8.
Benefits for all categories of payment services
users, consumers and businesses.
Benefit for businesses
Description
Not precisely quantifiable, but 63% of
businesses in the EU maintain a cash
contingency to cover the time it takes to receive
payments, indicating savings potential.
In the range of EUR 0.25-1.59 billion per year
Benefit for public administrations and society
overall. See section 7.
Benefits for all PSPs.
PSPs and merchants (in Member States where
cheques are used). See sections 2.2.1 and 7.
Benefits for society overall. Section 7 and
Annex 2 (on public consultation).
Benefits for payment service users (consumer
and businesses); benefit for PSPs from reduced
need to investigate fraud and errors in IPs.
Market opportunity for PSPs and fintechs with
potential benefits for retail merchants, and
savings for consumers
Could lead to reduced fees to merchants for
receiving PoI payments; competition forces
should lead to such savings being passed on to
consumers.
Potentially in the range of EUR 5.5 -7.6 billion
per year, of IPs depending on the uptake
Potentially up to EUR 2.3 billion per year
Not quantifiable
Potentially up to EUR 209 million per year,
based on experience in the Netherlands and
assuming 100% uptake of IPs.
Indirect benefits
Not quantifiable
Difficult to quantify, but the evidence of high
merchant fees for card payments in section 2.2.2
indicates potential for cost savings from greater
choice of payment means at PoI.
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II. Overview of costs – Preferred option
Citizens/Consumers
One-off
None
Recurrent
None
Businesses
179
One-off
Per PSP in the
range
between EUR
10 000 and
EUR 1.3
million. On
the industry
level between
EUR 36 ml
and € 477 ml.
None
Recurrent
Administrations
One-off
Recurrent
None
Direct
adjustment
costs
For PSPs,
None
average
transaction cost
comparable to
the cost of a
regular credit
transfer,
declining as
volume of IPs
increases
Loss of
None
earnings for
PSPs due to
reduction in the
payment float
in the range of
EUR 1.34 to
1.84 bn per
year, depending
on the uptake
of IPs
None
None
Wider
availability of
IPs
Indirect costs
None
None
None
Enforcement
costs
Elimination of
dissuasive fees
for IPs
Direct
adjustment
costs
None
None
None
Enforcement of
compliance
None
None
None
None
Loss of revenue None
if IPs currently
priced higher
than regular
credit transfers
(if no
compensating
account charges
are introduced)
None
None
Indirect costs
None
Transaction fees, None
only if PSPs
introduce or
increase fees
currently charged
for regular credit
transfers or
increase account
fees
Transaction
fees, only if
PSPs introduce
or increase fees
currently
charged for
regular credit
transfers or
increase
account fees
179
This category includes both business users of IPs and the PSPs.
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Enforcement
costs
Improvement
of sanction
screening for
IPs
Direct
adjustment
costs
Indirect costs
Enforcement
costs
Reduction of
fraudulently
and
erroneously
misdirected
IPs
Direct
adjustment
costs
None
None
None
None
None
None
None
None
Enforcement of
compliance
None
Small one-off None
costs for PSPs
for switching
to new system
None
None
Per PSP in the
range of EUR
10 000 and
EUR 2
million,
depending on
the size of the
PSP and the
extent to
which costs
are recovered
through fees.
None
None
None
None
None
None
None
Possible fees for
the service
None
None
None
Enforcement of
compliance
Possible fees as
users of the
service
Per PSP in the None
range of several
thousand EUR
and EUR 350
000, depending
on the size of
the PSP and the
extent to which
costs are
recovered
through fees.
Possible fees
for businesses
as users of the
service.
Indirect costs
None
Risk of unduly
None
aborted payments
None
None
None
Enforcement
costs
None
None
None
None
None
Enforcement of
compliance
Costs related to the ‘one in, one out’ approach
None
Total
Direct
adjustment
costs
Indirect
adjustment
costs
Administrative
costs (for
offsetting)
None
None
Implementati Net cost
on costs in the savings overall
ranges given (see above)
above
None
Possible
None
increases in
general fee levels
(see above)
None
None
None
None
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A
NNEX
4: S
ANCTIONS SCREENING
This annex discusses in more detail the problem driver 3,
High rate of rejected IPs due to
‘false positive’ hits in sanctions screening,
identified in section 2.3.3 of the impact
assessment.
Operational frictions arising in sanctions screening of IPs
In the process of executing IPs, PSPs have to comply with sanctions screening
requirements a) not to make funds or economic resources available, directly or indirectly,
to persons or entities that are ’designated’ (i.e., included on EU sanctions lists); and b)
freeze the assets owned, held or controlled by designated persons and entities. Sanction
designations applicable in the EU, including the UN sanction designations that are
transposed into EU law, are covered by EU sanctions Regulations.
180
In addition to such
EU-wide sanctions, some Member States also apply national sanctions lists.
EU legislation does not prescribe in what way, in terms of the procedure or tools to be
used, the PSPs are to ensure compliance with the aforementioned sanctions requirements.
Therefore, PSPs apply various methods, based on their own individual approach or on
the guidance provided by the relevant national authorities.
In relation to domestic IPs, in some Member States PSPs comply with their sanctions
obligations by updating their customer lists regularly and frequently (usually daily). This
ensures that the latest information on all the applicable sanctions lists is reflected
accurately in their systems and, as a result, transactions from payment accounts
belonging to designated persons or entities are not initiated, and funds made available to
them are frozen immediately.
A different, transaction-based, approach is employed in some other Member States where
the names of a payer and a payee of each transaction are screened twice, by both the
payer’s PSP and the payee’s PSP, reflecting duplication of screening activities.
Importantly, for cross-border euro IPs, in absence of a harmonised sanctions screening
approach all EU PSPs apply the above transaction-based screening of individual
payments.
When the transaction-based screening approach is applied, the initial automated
screening system flags transactions that are suspected of involving sanctioned persons.
Given the incomplete quality of the data on the lists, similarly sounding names,
misspellings and other deviations (different word order, use of initials instead of full first
names, concatenation, etc.), the flagging will happen not only when the automated
screening tools detect a 100% match between the name of a payer or a payee, and the
name of a designated person or an entity on a sanctions list, but also where they detect a
lower level of match, such as 85% or 95%. The side effect of this approach is that the
screening tools flag a lot of transactions that do not contain the sanctioned entity itself
but only strings of data similar to the sanctioned entity. Such ‘flagged’ transactions
require further, manual investigation. However, unlike regular credit transfers, IPs cannot
be put on hold to allow for a manual investigation, without losing their instant nature. As
180
www.sanctionsmap.eu
.
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a result, all ‘flagged’ IPs are immediately rejected, even if such ‘flags’ turn out to have
been false.
In this regard, PSPs estimate that in as much as 99.8% of transactions flagged by the
initial automated screening system are ‘false positives’, i.e. in theory they should not be
rejected as they turn out to not involve designated persons or entities.
Based on the feedback from PSPs to the targeted consultation, the problem is particularly
acute with respect to cross-border IPs, where all EU PSPs currently rely on transaction-
based screening. The reported share of cross-border IPs that were rejected in the process
of transaction-based screening over the period of last 12 months were in the range of
0.4% to 9.4%
181
. This was many times higher
182
than the observed rejection rate for all
regular credit transfers which tended to hover around 0%, given that there is sufficient
time to manually verify the initial flagging without the need to reject the transfer.
183
With
the estimated annual volume of euro cross-border IPs in 2020 of approximately 15
million
184
, each percentage point of rejected transactions is equivalent to 150,000 cross-
border IPs that did not reach the intended beneficiary. Assuming the volume of cross-
border euro IPs will go up as a result of the current initiative, the number of rejected
cross-border transactions would increase in proportion with it, if no measures are taken to
reduce the rejection rate.
It should also be observed that this problem is not limited to cross-border euro IPs, as a
number of rejected IP transactions could occur with respect to purely domestic IPs in
those Member States
185
where PSPs currently use the above described transaction-based
approach to screen them.
Estimation of operational savings under the preferred policy option
In terms of compliance costs, the preferred policy option (option 3.2) is expected to
deliver significant operational savings for PSPs, which would not occur under the
baseline or would occur at a substantially lower scale under option 3.1. Those savings,
depending on the level of IP uptake, could be estimated to fall in the range of EUR 5.5 to
7.6 billion per year.
In this regard, the obligation to update customer
lists on a frequent and regular (daily) basis
compliance costs, because for most EU PSPs
practice.
186
At the same time, the elimination of
181
182
lists against all the applicable sanctions
is not expected to generate material
this is already a part of their current
the need to carry out manual follow-up
Based on 11 quantitative submissions from PSPs; the average rejection rate was equal to 3.5%.
The ratio between the two rejection rates (i.e., for cross-border IPs and for regular credit transfers) at
the level of the same PSP ranged from single digits to hundreds and, in some cases, thousands.
183
It should be noted that the low share of rejected purely domestic euro regular credit transfers in some
Member States is driven by the practice of complying with sanctions obligations by way of regular and
frequent updates of PSPs’ customer lists to accurately reflect the latest information on all the applicable
sanctions lists.
184
ECB, National Payment Committees; calculations by the European Commission.
185
Based on the feedback from the market participants, PSPs in almost half of Member States apply this
approach for domestic IPs.
186
For instance, in the workshop of 10 December 2021 with Member State experts in the area of
sanctions screening, experts from 11 out of 19 participating Member States confirmed that all or majority
of PSPs in their national markets already perform regular updates of customer lists.
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investigations on ‘flagged’ transactions would deliver material operational savings. In
this regard, the study
187
by LexisNexis Risk Solutions on financial firms’ compliance
cost with AML and sanctions screening obligations in five European markets found that
74% of that compliance cost is driven by labour resources and, within the latter, 62% of
the overall number of FTEs were involved in sanctions screening activities. On the basis
of the findings of that study and, depending on the level of IP uptake, it could be
estimated that the operational savings for EU PSPs would fall in the range of EUR 5.5 to
7.6 billion per year, as per the following table. If the eventual uptake of IPs is higher
operational savings would be accordingly greater.
Operational savings arising from the application of ‘SEPA domestic’ approach for the sanctions
screening of euro IPs
188
Estimated
Total assets,
Average
number of
billion euro
assets, 000s
PSPs
>50
>10 and <50
>1 and <10
<1 or n/a
84 241 425 890
223 21 300 161
1 024
3 085 771
1 711
360 701
3 042
AML costs,
as % of
assets
0.08%
0.27%
0.51%
1.77%
FTEs,
% of regular
FTEs
Operational
Share of
reflecting
credit
envolved in
savings, 000s
labour
shared AML transfers
sanctions
(50% uptake
costs
/ sanctions screened per
screening
of IPs)
work
transaction
74%
74%
74%
74%
62%
62%
62%
62%
49.6%
49.6%
49.6%
49.6%
53%
53%
53%
53%
1 578 020
1 247 415
1 567 448
1 062 502
5 455 384
Operational
savings, 000s
(70% uptake
of IPs)
2 209 227
1 746 380
2 194 427
1 487 503
7 637 538
187
188
The True Cost of AML Compliance – European Survey | LexisNexis Risk Solutions
.
Assumptions and calculation: (i) increase in the uptake of euro IPs (50% and 70% uptake considered)
eliminates ‘false positive’ rejections that would otherwise occur in the process of transaction-based
sanctions screening of regular credit transfers that are substituted by IPs. Based on the feedback from
national authorities about current practices applied in various Member States, it is assumed that 53% of
regular credit transfers are screened per transaction, (ii) estimates of AML/sanctions costs as % of total
assets (for each of the size buckets), share of labour costs (74%) in total AML/sanctions costs, share of
FTEs working on sanctions screening (62%) in all FTEs working in AML/sanctions area, share of FTEs
working on both sanctions and AML (40%) taken from LexisNexis Risk Solutions study [The
True Cost of
AML Compliance – European Survey | LexisNexis Risk Solutions],
(iii) ‘FTEs reflecting shared
AML/sanctions work’ assumes that FTEs that work on both subjects dedicate 50% of their time to
sanctions screening, and is derived as follows 62%*60%*100%+62%*40%*50%= 49.6%; (iii) allocation of
PSPs across the size buckets based on analysis of information in ORBIS database. PSPs for which the
information on asset size was not found (258) in ORBIS database were assumed to be small and added to
the smallest category (representing the most conservative assumption), (iv) PSPs included in the analysis
include PSPs that provide IPs (2282) and PSPs that are expected to fall in the scope of the obligation to
offer IPs under this initiative (760).
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A
NNEX
5: P
AYER CONCERNS ABOUT SECURITY OF
IP
S
(
WITH REGARD TO
FRAUD AND ERRORS
)
This annex discusses in more detail the problem driver 4,
Payer concerns about security
of IPs (with regard to errors and fraud),
identified in section 2.3.4 of the impact
assessment.
When a payer requests its PSP to send a credit transfer (regular or IP), for example
through online banking, the payer is required to indicate the name of the payee as well as
the account number of the payee (for payments in euro, the account number is the
standardised International Bank Account Number, IBAN). According to the rules of
PSD2
189
, the PSP executing any type of a credit transfers, be it regular or IP, has no legal
obligation to verify the name of the payee provided by the payer and the PSP has no legal
liability towards the payer if it turns out later that the account to which the funds were
sent did not belong to the payee named by the payer. This situation may arise due to
errors made by the payer or due to the payer falling victim of certain types of fraud.
According to the feedback from consumer organisations
190
, over the recent years many
consumers have been tricked into transferring money using credit transfers (regular or
IPs) to fraudulent accounts. Such types of fraud, involving payer manipulation, is not
prevented by measures laid out in PSD2, such as the Strong Customer Authentication
(SCA)
191
, which aims to ensure that it is the payer him- or herself who is requesting the
transaction. Where the payer is manipulated into authorising a credit transfer (regular or
IP) such types of fraud are referred to as Authorised Push Payment fraud, or APP fraud.
There is an important distinction to be made in this regard between payment fraud, when
the criminal (through theft or cyberattack) is able to perform the payment transaction
instead of the genuine payer (which should be prevented by the application of SCA), and
pre-payment fraud, where the criminal manipulates the genuine payer and that the payer
then makes a payment compliant with payments legislation.
There is a wide variety of APP scams affecting credit transfers (regular and IPs),
including so called invoice fraud where the scammer tampers with an invoice, physically
or digitally, and changes the payee’s account number, as well as various types of
impersonation scams. Impersonation scams include, for example, a CEO fraud (where an
e-mail that appears to come from the payer’s employer requests a payment); phone
spoofing (where, by imitating the phone number of a bank, the scammer impersonates
bank staff and urges the payer to transfer their funds to a different account due to
fictitious security concerns); a marketplace fraud or website spoofing (where the
scammer is pretending to be a seller of products or services and/or creates a website
which uses the names, logos, graphics or even URL of genuine website).
All credit transfers, regular and IPs, have been found by the EBA
192
to be the payment
method for which the manipulation of the payer by the fraudster is the most prevalent,
compared with the other payment instruments (such as cards, for which the more
189
Art 88 of PSD2, which applies to all types of payment transactions executed between two accounts,
including IPs.
190
https://www.beuc.eu/publications/beuc-x-2021-027_consumers_and_instant_payments.pdf
.
191
Article 97 of PSD2.
192
Discussion Paper on payment fraud data received under PSD2 (europa.eu).
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common type of fraud is making unauthorised payments, now substantially prevented by
SCA). Based on the fraud data collected by the EBA for 18 EEA countries, the average
fraud rate for all credit transfers (regular and IPs), in terms of value, in the second half of
2020 was 0.0011%, of which 43% was due to manipulation of the payer to initiate SCA-
authorised transactions. On this basis the extent of APP fraud in 2020 for all SEPA euro
credit transfers, including IPs, in the EU is estimated at approximately EUR 323 million.
The problem is more common with respect to cross-border (both inside and outside EEA)
credit transfers, regular and IPs, whose overall fraud rate exceeds that of domestic credit
transfers by more than 20 times. As a result, despite the fact that, according to the EBA
analysis, cross-border credit transfers (regular and IP) represented only around 2% of all
credit transfers, their share in the total volume of credit transfer-related fraud reached
31% in the second half of 2020 for the 18 EEA countries.
Country specific data show this trend as well. For example, in Belgium, the Ministry of
Economy in 2020 received 784 reports from consumers and businesses concerning
invoice fraud, with the total losses amounting to EUR 5.2 million
193
. In the Netherlands,
between January and October 2021, the impersonation scams (where the fraudster
impersonates bank staff) increased in terms of value by nearly 50% compared to the
whole of 2020
194
and reached nearly EUR 40 million. In the UK, in 2020 APP scams
reached GBP 479 million. In the opinion of the UK’s Payments Services Regulator, the
actual extent of APP fraud is likely to be much higher if unreported losses were to be
included.
195
The average value of a fraudulent credit transfer, regular and IPs (43% of
which are due to payer manipulation) is substantially higher (at EUR 4 191) than for the
other payment instruments such as cards (e.g. between EUR 45 and 73)
196
.
Apart from fraud, when the payer manually inputs the IBAN number to place a payment
order for a regular credit transfer or IP, which in the EU can be up to 28 characters long,
errors can occur. The check digit system embedded in the ISO standard on which the
IBAN is based
197
allows to prevent the majority of typing errors that would make the
IBAN number incoherent (e.g. substituting a single digit with a different one). However,
check digits do not eliminate the risk entirely (e.g. an error made by the payer produces a
valid and coherent IBAN, belonging to a different beneficiary). Moreover, other types of
human errors can also be made by the payer (e.g. an employee using the wrong client’s
file). Moreover, erroneous transactions may result from the reassignment by a PSP of an
IBAN of an unused account to a different customer
198
.
Partial data provided by PSPs in their responses to the targeted consultation
199
also seem
to confirm the existence of the problem of funds sent to a wrong beneficiary through a
regular credit transfer or an IP as a result of errors or APP fraud: for instance, one bank
reported having received nearly 17 000 such complaints in the course of the preceding 12
months with respect to IPs and nearly 28 000 with respect to regular credit transfers;
193
194
Source: SPF Economie.
Source: Dutch Payments Association.
195
CP21/6 Confirmation of Payee call for views (psr.org.uk).
196
EBA.
197
Check digits are in position 3 and 4 of the IBAN.
198
In the Netherlands in particular, IBAN numbers of closed accounts are reattributed to new accounts
relatively quickly, thus leading to a high number of errors due to funds being sent to a reattributed IBAN.
199
https://ec.europa.eu/info/consultations/finance-2021-instant-payments-targeted_en
.
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another - more than 8 700 with respect to IPs and 55 300 with respect to regular credit
transfers. Some responses received from PSPs to the public consultation carried out in
the context of the development of the Retail Payments Strategy also referred to a rising
trend of social engineering fraud where PSPs’ security systems are not violated but rather
fraudsters manipulate the customer.
Refunds in case of fraud and errors in different payment methods
Payment fraud:
genuine payer did not authorise the transaction, instead transaction
performed by a fraudster as a result of e.g. cyberattack, theft of the payment instrument, etc.
PSP obligation to refund the transaction in case of all payment methods (regular credit
transfers, IPs, direct debits, cards, etc.)
200
Pre-payment fraud/error:
genuine payer did authorise the transaction under
pretences or as a result of a mistake.
false
Euro direct debits: by law, the payer has a right to a refund within 8 weeks from the
day the payment was made
201
, which is justified by the fact that the payer authorises
the transaction(s) in advance by giving the payee a mandate to pull funds from the
payer’s account at a later stage and the actual transaction is initiated at a later stage
by the payee;
Cards: card schemes offer a possibility of a chargeback on a contractual/commercial
basis (for a fee paid by the card holder), in case for example there is a dispute with
the seller or seller went out of business (conditions defined by card schemes, there
are no refund rights defined by law);
PoI solutions based on regular credit transfers or IPs: refund rights defined on a
commercial basis by PoI solution providers similarly to cards; no refund rights defined
by law;
Regular credit transfers initiated via online banking (or in a branch): no refund rights
under EU law. If the payer realises that fraud or error occurred, they can contact their
PSP, which should make ‘reasonable efforts’ to recover the funds.
202
If the funds have
been deducted from the payer’s account (which is done instantly also in the case of
regular credit transfers ordered on a business day) but the funds have not yet left the
payer’s PSP there may be chances for the payer of recovering funds (but the payer
must realise the problem within few hours and still there is no guarantee and no
obligation for the PSP to offer a refund); if the funds already left the payer’s PSP, the
payee who received the funds must agree to returning them. The PSP has no legal
obligation to cancel the order or to refund the amount to the payer if its efforts to
recover the funds are unsuccessful
203
.
IPs initiated via online banking (or in a branch): the situation is the same as in case of
regular credit transfers, with the only difference that the funds are deducted from the
account of the payer and credited to the account of the payee almost simultaneously
(within 10 seconds). If the payee received the funds in error, they must agree to
return the funds as in the case or regular credit transfers. If the payee is a fraudster,
this is unlikely. In the UK, the payers were able to recover their funds in
approximately half of the Faster Payments
204
transactions, mainly where the payee
was willing to confirm that they received the funds in error.
200
201
Art 72-74 PSD2
Art 76 and 77 PSD2. For all direct debits the refund right applies to cases where the authorisation did
not specify the exact amount of the payment and the amount of the payment exceeded the amount the
payer could reasonably have expected taking into account the previous spending pattern. For euro direct
debits, the refund right during the same period of 8 weeks is unconditional.
202
Art 88 PSD2
203
This is without prejudice to possible contractual arrangements between PSUs and PSPs.
204
Faster Payments in the UK are not IPs in the meaning of this initiative but can normally be executed
within minutes.
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BEUC argues that
“Payment by instant payment in face-to-face situations or at a
distance will never flourish if consumer protection rules are not improved”
205
.
And there
seems to be a growing recognition by the industry of the need to provide additional
assistance to payers to protect themselves from pre-payment fraud and errors. Services
have been developed and put in place in certain countries inside and outside the EU
whereby payers, before confirming their payment order for a credit transfer (regular or
IP), are provided with feedback about the level of the match between the name of the
payee and the IBAN of the payee, as provided by the payer. In the Netherlands, a
national market initiative was launched in 2017 by a fintech company sponsored by one
of the Dutch banks and currently the service is available to the majority of payment
account holders in the Netherlands
206
. The service consists of an algorithm that needs to
be integrated into individual PSP’s online environment through an Application
Programming Interface (API). The payer’s PSP sends a request containing the name and
IBAN of the payee that the payer has entered through the online banking or mobile
banking interface. The algorithm verifies these details against the data registered at the
PSP of the payee and on that basis the payer’s PSPs receives feedback on whether there
is a match, close match or no match. In case of a non-match, the payer’s PSP can show a
warning message to the payer, upon which the payer can decide whether to proceed or
abort the payment
207
. In France, a similar solution verifying the reliability of IBAN of
the payee (for credit transfers) or payer (for direct debit) has been introduced and is used
by more than 100 PSPs
208
. In Estonia, PSPs check the match between the payee’s IBAN
and name before the funds are credited to the payee’s account
209
.
In Belgium, a legislative proposal for mandatory provision of IBAN-name check free of
charge for the consumer has been put forward by one of the political groups in the
Parliament on 27 October 2021
210
. Preliminary assessments by public authorities of
possible introduction of such a service are ongoing in other Member States, such as
Austria and France. In Poland, a recommendation to provide such a service has been
made by the Payment System Council
211
. Outside the EU, a similar service (called
Confirmation of Payee, or CoP) has also been imposed on the biggest UK PSPs by the
UK regulator.
In addition, in some Member States (Czechia, Finland, Italy, Romania, Latvia, Lithuania)
certain individual PSPs offer a service of a more limited application, e.g. only for intra-
bank transfers where both a payer and a payee hold accounts with that same PSP, or only
for limited use cases (e.g. when the payer is a tax authority), which addresses the
problem only to a very limited extent.
205
206
https://www.beuc.eu/publications/beuc-x-2021-027_consumers_and_instant_payments.pdf
.
Service is provided by 5 PSPs holding the vast majority of payment accounts in the Netherlands:
Rabobank, ING Bank, De Volksbank (SNS Bank, Regiobank, ASN Bank), ABN AMRO and Knab.
207
More information on how the solution works in available on the website of the service provider,
SurePay, here:
https://www.surepay.nl/en/services/iban-name-check-for-banks/
.
208
Presentation-DIAMOND-International-Web.pdf (sepamail.eu)
209
Country profile: digital and instant payments are the norm in Estonia | European Payments Council
210
Proposition de Loi modifiant le Code de droit économique afin d’introduire un contrôle du nom du
titulaire de l’IBAN en vue de lutter contre la fraude bancaire sur Internet,
La Chambre des représentants -
Document parlementaire 55K2296.
211
A coordination and advisory body of the national central bank, involving payment industry
representatives.
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Since 2021 an API-based pre-validation service is available from the Society for
Worldwide Interbank Financial Telecommunications (SWIFT). It allows PSPs
participating in the service verification, within maximum 3 seconds, to verify the match
between the name of the payee and the IBAN of the payee provided by the payer, and it
can be used for transactions within one country or globally
212
. It is currently used by
more than 100 PSPs globally, including in the EU.
Finally, confirmation of payee is part of the Bank for International Settlements (BIS)
Innovation Hub project dubbed ‘Nexus’, aimed at ensuring cross-border interoperability
of IPs available in more than 60 global jurisdictions
213
. BIS considers that the
confirmation of payee solution is particularly important in cross-border payments, where
users may be entering account numbers or aliases in unfamiliar formats, or long
international bank account numbers (IBAN) that can be difficult to check character-by-
character.
212
213
https://www.swift.com/our-solutions/global-financial-messaging/payments/payment-pre-validation
Nexus: a blueprint for instant cross-border payments (bis.org)
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A
NNEX
6: B
ACKGROUND ON FUNCTIONING OF INSTANT PAYMENTS
EU
AND GLOBALLY
(1) IPs in euro: SEPA IPs
IN
For an IP transaction to be carried out, appropriate end-to-end arrangements are
necessary at two levels: (i) scheme rules; and (ii) settlement infrastructures.
In addition, in order to ensure that IPs can be used at PoI, an additional level (iii) is
needed, i.e. payment solutions allowing end users (e.g. consumers or businesses) to
initiate and accept IPs at PoI.
Scheme level
In order to ensure that any type of payment transaction can be successfully carried out
between two accounts, PSPs holding those accounts for customers must agree to follow a
set of common rules, practices and procedures (a so-called ‘payment scheme’). Payment
schemes ensure that when PSPs exchange payment messages between each other and
with the relevant Clearing and Settlement Mechanism (CSM), they use same terminology
and formats, provide the same data sets and follow a commonly agreed sequence of
steps. For euro IPs, i.e. SEPA instant credit transfers, EU PSPs apply the SEPA Instant
Credit Transfer Scheme (SCT Inst. Scheme) agreed upon by EU PSPs in 2017. It sets out
rules for carrying out IPs in euro, including the requirement to ensure that funds are
available on the account of the beneficiary within maximum 10 seconds. There are no
alternative schemes for carrying out IPs in euro, either at EU, or at domestic level. Thus,
currently any PSP wishing to offer these types of euro transactions must adhere to this
particular SEPA scheme
214
.
Settlement infrastructure level
A CSM, or a payment system, facilitates the fund movements between the PSPs resulting
from the payment transactions ordered by the customers of PSPs (i.e. consumers and
businesses holding payment accounts with the PSPs). PSPs must set aside part of their
liquidity on a dedicated account opened with their CSM. When the PSPs exchange
payment messages in accordance with the payment scheme rules with each other and
with their CSMs, the latter move the funds between the dedicated accounts of PSPs to
ensure the discharge of the obligations (settlement). In order to carry out an IP, PSPs
must be connected to a CSM providing instant settlement, which – unlike the settlement
for regular credit transfers – must be operational 24/7/365.
Today, CSMs handling IPs in euro are provided within the EU by the ECB (TARGET IP
Settlement, or TIPS
215
), and various Automated Clearing Houses (ACH), e.g., EBA
Clearing (RT1), Bankcart (SI), CENTROlink (Lithuania), DIAS (EL), EquensWorldline
214
215
Other local payment schemes do exist for IPs in EU currencies other than euro (e.g. in PLN, HUF, SEK).
As of May 2022 TIPS will also allow settlement of IPs in SEK
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(the Netherlands), IberPay (Spain), NEXI (Italy), SIBS (Portugal), STET (France,
Belgium).
216
Until recently, these CSMs have not been made interoperable, meaning that if two PSPs
adhering to the SEPA scheme for IPs in euro were connected to different CSMs
providing instant settlement, IPs between these two PSPs were not in all cases possible.
PSPs could not fully overcome this problem even by connecting to several CSMs. In July
2020
217
, the ECB announced measures which would oblige all PSPs that have adhered to
the SCT Inst. Scheme to connect to TIPS (directly or via another PSP), and all ACHs
offering IP services to migrate their technical accounts to TIPS, by 25 February 2022
218
.
This ensures that a PSP adhering to the SEPA Inst. Scheme and using any CSM offering
instant settlement in euro should be able to settle euro IPs with any other EU PSP also
adhering to the SEPA scheme and using a CSM providing euro instant settlement. Hence,
the barrier for cross-border euro IPs at the infrastructure level is being eliminated.
End user level
A final, third layer refers to solutions, which allow end users (e.g. consumers and
businesses) to initiate and accept, e.g. via a mobile phone application, IPs not only
through online banking or in a branch, but also at PoI (in physical shops, i.e. physical
point of sale, or in e-commerce), or between individuals (person to person, or P2P), etc.
Currently such solutions are available on the market only at domestic level, e.g. Bizum in
Spain, Paylib in France, Bancomat Pay in Italy, MB Way in Portugal, Payconiq in
Belgium, Bluecode in Austria and Germany, Kwitt in Germany
219
.
(2) IPs in non-euro currencies
National systems of IPs in currencies other than euro, both within the EU and outside,
exist in around 60 countries worldwide
220
.
(a) IPs in non-euro EU currencies
Uptake is sometimes reported as a percentage of credit transfers and sometimes as a
percentage of all electronic payments (credit transfers + card payments) due to available
data.
Czechia
An IP system, CERTIS, was launched in November 2018 with the uptake of IPs in CZK
in 2020 estimated at 10%
221
. The usage has been held back by limited use cases beyond
216
There are also CSMs, which provide instant settlement of credit transfers in other EU currencies (e.g.
in Poland, Hungary, Sweden, Denmark).
217
https://www.ecb.europa.eu/paym/intro/news/html/ecb.mipnews200724.en.html.
218
Further
details
are
available
here:
https://www.ecb.europa.eu/paym/target/tips/profuse/shared/pdf/faq_tips_and_pan-
european_reachability_of_instant_payments.pdf.
219
Outside the Euro area, solutions are limited to transactions at domestic level in local currencies, e.g.
BLIK in Poland for IPs in PLN or Swish in Sweden for IPs in SEK.
220
Developments in retail fast payments and implications for RTGS systems (bis.org)
221
Sources: ECB, ACI Worldwide [Prime-Time-for-Real-Time-Report-2022.pdf
(aciworldwide.com)],
Commission calculation
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transfer of funds between accounts (there is no interbank app for IPs and PoI payments
with IPs are still lacking) . Changes in those areas and a high level of cash usage can
provide further potential for the uptake growth.
Denmark
IPs in DKK were introduced in 2014. Since 2021, a rulebook
222
of the Nordic Payments
Council is used (also for IPs in Sweden and Norway)
223
. The rulebook is based on a
licence agreement signed with the EPC to use SCT Inst. Scheme as foundation
224
. This
means that in practice, Danish PSPs already
de facto
comply with majority of SCT Inst.
Scheme rules. A national settlement infrastructure exists but the Danish Central Bank has
already applied to use ECB’s TIPS from 2025 for IPs in DKK.
At the level of the end-user solution, MobilePay is a mobile payment application
developed by Danske Bank and offered now by other Danish banks. More than 85% of
the Danish population use MobilePay. IPs are replacing regular credit transfers and seem
to be replacing cash to some extent. The uptake of IPs in DKK in 2020 is estimated at
37%
225
. ACI Worldwide estimates that with the projected growth in IP volume, net
savings for consumers and businesses in 2026 would reach US$ 151 million and would
help to generate an additional US$ 1 billion of economic output, equivalent to 0.23% of
the country’s forecast GDP.
Hungary
The Hungarian IP system AFR (Azonnali Fizetési Rendszer) was launched in March
2020 on the basis of a decree
226
of the governor of the Hungarian National Bank (MNB)
requiring all PSPs in Hungary to participate in the system. Moreover, all transfers of up
to 10 million HUF must be executed as IPs which by law replaced regular credit
transfers. There is also price regulation forbidding PSPs to charge more for an IP
transaction in HUF than for a regular credit transfer. A transfer is made available to the
beneficiary within five seconds, and the amount credited in the account of the beneficiary
is both irrevocable and immediately at the disposal of the account owner. Proxies such as
mobile phone number or tax number may be used as an alternative to account number.
The growth in uptake of IPs is also expected to be aided by a requirement that all brick-
and-mortar stores accept electronic payments (from 2021).
Already in the year of their launch (2020), the uptake of IPs in HUF is estimated at
30%
227
. According to ACI Worldwide, the trend is growing and it is estimated that
further growth in IP volume, in 2026 net savings for consumers and businesses would
reach US$ 131 million, generating an additional US$ 415 million of economic output,
222
223
npc010-01-2021-nct-instant-rulebook-version-11.pdf (nordicpaymentscouncil.org)
One step closer to easier and faster payments across the Nordic countries (financedenmark.dk)
224
PowerPoint-presentation (nordicpaymentscouncil.org)
225
Sources: ECB, ACI Worldwide [Prime-Time-for-Real-Time-Report-2022.pdf
(aciworldwide.com)],
Commission calculation
226
decree-no-35-2017-xii-14.pdf (mnb.hu)
227
Sources: ECB, ACI Worldwide [Prime-Time-for-Real-Time-Report-2022.pdf
(aciworldwide.com)],
Commission calculation
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equivalent to 0.19% of the country’s forecast GDP. Importantly, due to the
abovementioned setup features and support from the authorities, Hungary is considered
by ACI Worldwide as one of the countries for which IPs could provide the biggest
economic growth opportunities.
Poland
Poland was among the very first European countries to launch two IP settlement
infrastructures in national currency, known as Express Elixir and BlueCash, both
launched in 2012. In terms of an end-user solution, Blik is a payment system launched in
2015 that allows users to make IPs and withdraw cash using only the user's standard
mobile banking app; it now has nearly 9 million users. However, the uptake of IPs in
PLN remains low, and in 2020 is estimated at around 2%
228
. It has been observed
229
that
one of the factors that have restrained the growth rate in the uptake of IPs was that the
PSPs decided to position them as a premium service, thus charging relatively high fees to
IP users.
Sweden
IPs in SEK were developed by the banking sector without regulatory intervention and
launched in 2013. Since 2021 they are based on a scheme of the Nordic Payments
Council (see above for Denmark), based on a licence agreement signed with EPC to use
SCT Inst. Scheme as foundation. This means that in practice Swedish PSPs already
de
facto
comply with majority of SCT Inst. Scheme rules. At present, IPs are available only
via the interbank Swish app in Sweden not via online banking. There are no fees for
consumers but businesses are charged fees to use Swish. Initially launched as a P2P
service, Swish has supported payments to businesses since 2014 and, since 2017, is
increasingly used for e-commerce payments
230
. Since May 2022, SEK IPs are settled in
the ECB’s TIPS (the same as that used for euro IPs). 80% of the adult population uses
Swish and Swish transactions have overtaken cash transactions in number (in 2021 778
million IP transactions took place). The uptake of IPs in SEK in 2020 is estimated at
35%
231
, benefiting from the pricing of IPs, convenient accessibility for users via Swish
app and growing usage of IPs at PoI.
Romania
The IP settlement system in Romania in RON was developed in 2019 by Transfond. The
Scheme for IPs in RON was developed by the Romanian Banking Association, who
signed a license agreement with the EPC to use the SCT Inst Scheme as foundation for
their national instant credit transfer payment scheme. This means that in practice
Romanian PSPs already
de facto
comply with majority of SCT Inst. Scheme rules. Five
228
Sources: ECB, ACI Worldwide [Prime-Time-for-Real-Time-Report-2022.pdf
(aciworldwide.com)],
Commission calculation
229
Are instant payments becoming the new normal? A comparative study (europa.eu)
230
Instant Payments at the POI in Sweden (europa.eu)
231
Sources: ECB, ACI Worldwide [Prime-Time-for-Real-Time-Report-2022.pdf
(aciworldwide.com)],
Commission calculation
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Romanian banks offer IPs in RON and the reported uptake as of May 2021 was at
1.25%
232
.
There are no well-established end-user PoI solutions based on IPs originating from
Romania at the moment. However, Transfond is developing a service called AliasPay,
which will allow the initiation of payments through a mobile device using only the
payee's mobile phone number instead of their IBAN. This is expected support the
Romanian banking community in developing and delivering innovative and competitive
payment services.
Croatia
Croatia launched its IP system, NKSInst, in October 2020, and a proxy lookup service
was added in March 2021. Croatia is set to join the Euro area on 1 January 2023. Like in
Romania, both PSP communities already rely on scheme rules based on the EPC Scheme
through a licence agreement. Because NKSInst is based on SCT Inst Scheme, it would
only take a marginal investment for PSPs to process euro IPs according to the SCT Inst.
Scheme. Given the recent nature of NKSInst, the uptake of IPs in Croatia is still
marginal.
Bulgaria
In 2021 the national retail and card payment system operator BORICA AD implemented
a project for IPs in BGN based on the SCT Inst Scheme. By April 2023 all banks
operating in the country should be able to receive and process instant payments in BGN.
Bulgaria announced its plans to join the Euro area on 1 January 2024.
(b) IPs in global currencies
Australia
IPs were launched in Australia in 2018 with the New Payments Platform (NPP) of the
Reserve Bank of Australia and its Payments System Board. Participation is not
obligatory for PSPs, and at the end of 2021 over 100 PSPs offered IPs for almost 90
million customer accounts. While most of those PSPs are banks, there are also a number
of non-bank institutions that are using IPs to offer their customers faster payments and
innovative services.
According to the Reserve Bank of Australia, the share (uptake) of account-to-account
credit transfers that are made via IPs in 2021 has risen to around 30%. Notably, the
Australian government has also become a significant user of IPs, with more than AUD
12 billion of payments for COVID-related support and disaster relief made via IPs in the
second half of 2021. IPs enabled the government to provide support to households
affected by bushfires and floods in near real time, including on weekends.
233
232
233
Source: National Payment Committee
Real-time Payments in Australia (rba.gov.au)
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Brazil
IPs were launched in 2020 by the Central Bank of Brazil via PIX, an account-to-account
payment method, which is managed, owned and operated by it. PSPs with over 500 000
customer accounts are required to offer PIX but many smaller ones also do so. As of
March 2022, there were over 1.6 billion PIX operations per month and over 124 million
registered users; over 70% of the adult population has made a PIX operation.
234
The
Central Bank mandated participation in PIX by banks and other payment institutions with
more than 500 000 transaction accounts
235
. PIX transactions are required by regulation to
be free for individuals but banks can set fees for merchants and corporate customers
freely (but it is estimated that more than half of participating PSPs do not apply charges
to corporates). Consumers can pay at PoI using a PIX via QR code at checkout.
According to ACI Worldwide, in 2021 Brazil recorded 8.7 billion IPs. Despite the recent
launch of PIX, the uptake of IPs is estimated at around 90% of all credit transfers. The
widespread adoption of real time payments resulted in estimated cost savings of US$ 5.7
billion for businesses and consumers in 2021, which helped to unlock US$ 5.5 billion of
additional economic output, representing 0.34% of the country’s GDP.
Hong Kong
Launched in 2018, IPs (Faster Payment System, or FPS, available in both Hong Kong
dollar and Renminbi) have already achieved a significant uptake in Hong Kong, with 262
million transactions in 2021, representing 19% of all electronic payments (including also
other payment methods such as card payments). By end 2021, the FPS recorded 9.62
million registrations, up by 40% or 2.7 million registrations year-on-year. FPS payments
at PoI with QR code are possible, and FPS can be integrated in digital wallets. As a
result, the usage of FPS for merchant payments has been growing and in 2021 constituted
17% of all transactions in HKD.
236
.
India
IMPS (Immediate Payment Service) was launched in 2010 and it was upgraded in 2016
via a Unified Payments Interface (UPI), allowing any consumer to initiate a payment via
any payment app of any PSP. In 2021, India recorded 48.6 billion IP transactions, more
than any other country. The use of proxies such as mobile phone numbers is possible.
Cross-border interlinkage of UPI to Singapore and UAE is planned.
As of April 2022, the uptake of IPs (as a share of all retail credit transfers) was in excess
of 90%
237
, possibly the highest in the world. Moreover, ACI Worldwide estimates that
with consumers increasingly shifting from cash to mobile-based real-time payments,
234
235
Pix Statistics (bcb.gov.br)
BIS Bulletin no.52: Central banks, the monetary system and public payment infrastructures: lessons
from Brazil’s Pix
236
https://www.hkma.gov.hk/media/eng/doc/about-the-hkma/legislative-council-issues/20220207e1.pdf
237
Source:
https://rbidocs.rbi.org.in/rdocs/Bulletin/PDFs/43T_160620224EB5478375DF4232A08C24AA8CB15963.PD
F
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skipping payment cards, the share of IP volume in total payments (i.e., including cash
and cards) will rise from 31% in 2021 to more than 70% in 2026 which would deliver net
savings for businesses and consumers of US$ 92.4 billion, helping to generate an
additional US$ 45.9 billion of economic output (equivalent to 1.12% of the country’s
forecast GDP in 2026).
Mexico
The SPEI (Sistema de Pagos Electrónicos Interbancarios) IP system was launched in
Mexico under the impetus of the central bank as early as 2004. Under central bank
pressure, all banks participate and there are no charges. However, uptake has been slow,
due to a very large unbanked population, a tradition of paper transactions (86% of all
payments in Mexico are paper-based not electronic), and banks not actively advertising
the system due to low revenue.
In 2019, an overlay solution (Cobro Digital) permitting payment via QR codes, bar codes
and NFC was added, which helped to gain some traction in the growth of IPs in recent
years. In 2021, IPs via SPEI constituted 22% of all electronic payments (including card
payments) by volume and 82% by value, meaning that IPs tend to be used for high value
payments in Mexico, probably B2B payments rather than retail payments.
Singapore
IPs (Fast And Secure Transfers, or FAST) were introduced in Singapore in 2015 under
the impetus of the Singapore Monetary Authority. An overlay app, PayNow
238
, was
introduced in 2017, facilitating their use. In 2021 IPs constituted 15% of all electronic
payments (including card payments) by volume and 37% by value (which implies a
significant B2B use of IPs). A cross-border linkage to the IP system of Thailand has been
developed, allowing cross-border payments between the two countries.
United Kingdom
In the UK, ‘faster payments’ are executed within 15 seconds but may take up to two
hours to be credited to the payee’s account by the payee’s PSP. They were developed by
the banking sector in the early 2000s, and launched in 2008, under pressure (but not a
legal obligation) from the Office of Fair Trading
239
. Although limited numbers of banks
participated at first, in 2012 a large number of PSPs joined the system, as the
implementation of the first Payment Service Directive (PSD1) required transactions to be
credited to the payee by the next business day, and the previous credit transfer system
(BACS direct credits) could not guarantee this.
238
239
PayNow Singapore (abs.org.sg)
Office of Fair Trading (2003). UK payment systems: An OFT market study of clearing systems and
review of plastic card networks. Office of Fair Trading (2005). First annual progress report of the Payment
Systems. Task Force: A report prepared for the Payment Systems Task Force. Office of Fair Trading (2007).
Final report of the Payment Systems Task Force.
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By the first quarter of 2021, the uptake of faster payments in GBP in the UK was
exceeding 50%
240
. Faster payments are now usually the default for credit transfers
ordered via online banking applications, and transaction fees are rare (however there is
no regulation of pricing). Credit transfers other than faster payments have slightly
declined since the launch of faster payments, and the use of cheques has declined
significantly (a long term trend which started before 2008).
Sources for this Annex:
ACI Worldwide and GlobalData: Prime Time for Real-Time, April 2022
(https://www.aciworldwide.com/wp-content/uploads/2022/04/Prime-Time-for-
Real-Time-Report-2022.pdf
)
Bank for International Settlements, Developments in retail fast payments and
implications for RTGS systems (available
here)
ECB Occasional paper n° 229, Are instant payments becoming the new normal?
A comparative study, August 2019.
Meeting with Carlos Eduardo Brandt - Central Bank of Brazil on PIX, 14 June
2022.
ECB academic paper: Instant Payments In Hungary – Central Bank’s Role In The
Development, November 2019
Article on EPC website: AFR – the Hungarian Retail Instant Payment System, Dr
Levente Kovács, Secretary General of the Hungarian Banking Association, April
2020 (available
here)
Online article: MINDSPIRE Consulting’s involvement with the Hungarian
Instant Payment System, András Linczmayer, April 2021 (available
here)
Page on instant payments of the website of the Magyar Nemzeti Bank (available
here)
Swedish national bank (Riksbank): Payments in Sweden 2020, October 2020
(available
here)
National Payment Committees of EU Member States
Speech
Real-time Payments in Australia,
Ellis Connolly, Head of Payments
Policy
Department,
Reserve
Bank
of
Australia
(https://www.rba.gov.au/speeches/2022/pdf/sp-so-2022-05-03.pdf)
PIX statistics (https://www.bcb.gov.br/en/financialstability/pixstatistics)
Briefing to the Legislative Council Panel on Financial Affairs, Hong Kong
Monetary
Authority
(https://www.hkma.gov.hk/media/eng/doc/about-the-
hkma/legislative-council-issues/20220207e1.pdf
)
Payment System Indicators, RBI Bulletin June 2022, Reserve Bank of India
(https://rbidocs.rbi.org.in/rdocs/Bulletin/PDFs/43T_160620224EB5478375DF42
32A08C24AA8CB15963.PDF
)
European Automated Clearing House Association (EACHA)
240
Source: European Automated Clearing House Association (EACHA)
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A
NNEX
7: EU
NON
-
CASH PAYMENTS MARKET AND CHARACTERISTICS OF
PSP
S PROVIDING CREDIT TRANSFERS IN EURO
EU market shares of various non-cash payment instruments
According to the estimates of the ECB, slightly less than three-quarters (73%) of all
payments at the Point of Interaction in the Euro area in 2019 were cash payments.
241
As regards the market for non-cash payment instruments, its size in the EU27 in 2020
amounted to EUR 203.5 trillion, of which credit transfers in all currencies made up EUR
189.7 trillion (93.2%), while euro credit transfers made up EUR 68.3 trillion.
242
Transactions of IPs in euro amounted to an estimated EUR 1.6 trillion (or 2.3% of all
euro credit transfers).
243
In terms of the number (volume) of transactions, the size of the non-cash payments
market in 2020 was 127.3 billion transactions, of which credit transfers in all currencies
made up 31.7 billion transactions (or, 24.9%), while credit transfers in euro made up 22.5
billion transactions (or, 17.7%). Among the latter, transactions of IPs in euro amounted
to 1.8 billion, resulting in the euro IP uptake of 7.9%.
244
Volume, million of
transactions
2020
Credit transfers (all currencies)
of which credit transfers in euro
of which instant payments in euro
Direct debits
Cheques
Card payments
Electronic money
Other
Total EU 27
31 738
22 523
1 783
23 089
1 387
63 680
6 149
1 285
127 329
% of all
payments
24.9%
17.7%
1.4%
18.1%
1.1%
50.0%
4.8%
1.0%
100.0%
Value, billion euro
2020
189 727
68 334
1 600
6 781
1 427
2 335
259
2 970
203 498
% of all
payments
93.2%
33.6%
0.8%
3.3%
0.7%
1.1%
0.1%
1.5%
100.0%
Payment instrument / service
Source: ECB, National Payment Committees, Commission calculation
Characteristics of PSPs carrying out regular and instant credit transfers in euro
Credit transfers (including IPs) can be carried out by a range of PSPs, including credit
institutions, electronic money institutions, payment institutions, post offices, central
banks, regional or local authorities, finance companies, investment firms, clearing and
custody institutions, etc. These entities can carry out credit transfers as a payment service
offered to users or on own account.
241
Based on a survey of 41 155 consumers carried out in 2019. See
Study on the payment attitudes of
consumers in the euro area (europa.eu).
242
Source: ECB.
243
Source: National Payment Committees, ECB, Commission calculation.
244
As of the last quarter of 2021, the estimated uptake of euro IPs increased to 10.97% (EPC).
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According to the ECB, at the end of 2020 there were 6 917 entities in the EU offering
payment services in various currencies, of which 5 584 were established in the Euro
areas, while the remaining 1 333 outside the Euro area. Of those 6 917 entities, 3 541 (or
51%) adhered to the SCT Scheme and carried out regular credit transfers in euro. In the
Euro area Member States, the proportion of PSPs carrying out regular credit transfers (in
euro) was equal to 60%, while in the non-Euro area it was four times lower and stood at
15%, as shown in the chart below:
Chart: Participation of PSPs in SCT Scheme and SCT Inst Scheme
1%
Non Euro Area
15%
41%
Euro Area
60%
33%
EU - 27
51%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
SCT Inst Scheme
SCT Scheme
Total PSPs
Source: ECB, EPC, Commission calculation
As regards the size of PSPs adhering to the two Schemes, the below table shows the
distribution of 3 064 PSPs that adhere to the SCT Scheme and whose total assets data
was available in the ORBIS database. The PSPs are segregated in 5 buckets of
comparable size in terms of number of PSPs participating in the SCT Scheme, with the
participation in the SCT Inst. Scheme within each of those buckets being indicated in
absolute and relative terms as well. The figures suggest that PSP size does not appear to
be an important factor determining PSP’s decision to adhere to the SCT Inst. Scheme. In
fact, a somewhat lower share of participation is observed both among the smallest PSPs
and the largest PSPs (with the latter having the lowest share of participation in SCT Inst
Scheme among all five buckets).
Size
bucket
1
2
3
4
5
Total
Size bucket, total assets
EUR mln
< 190 mln
>=190 mln and <520 mln
>=520 mln and <1450 mln
>=1450 mln and <4200 mln
>=4200 mln
PSPs in SCT
Scheme
617
608
614
608
617
3 064
PSPs in SCT Inst % of PSPs in SCT
Scheme
Inst Scheme
408
66%
492
81%
472
77%
466
77%
382
62%
2 220
72%
Source: ORBIS (data as of October 2021), EPC, Commission calculation
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In terms of trade description (or specialisation) of PSPs, the below table shows the
breakdown of 3 400 PSPs that adhere to the SCT Scheme on the basis of the data in the
ORBIS database.
Specialisation / Trade Description
Cooperative Bank
Commercial Bank
Savings Bank
Private Banking
Finance Company
Investment Bank / Security House
Real Estate / Mortgage Bank
Specialized Governmental Credit Institution
Central Bank
Securities Firm
Non Banking Credit Institution
Bank Holding Company
Clearing & Custody Institution
Diverse / not available (incl. credit unions, EMIs, PIs)
Total
PSPs in
SCT
Scheme
1 599
527
497
86
67
48
44
36
20
10
9
5
5
447
3 400
PSPs in
% of PSPs
SCT Inst in SCT Inst
Scheme
Scheme
1 477
92%
172
33%
452
91%
19
22%
11
16%
13
27%
15
34%
12
33%
5
25%
0
0%
2
22%
2
40%
0
0%
107
24%
2 287
67%
Source: ORBIS (data as of October 2021), EPC, Commission calculation
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A
NNEX
8: R
EDUCTION OF PAYMENT FLOAT
Background
The ‘payment float’ represents the funds in transit in the payment system between the
payment accounts of the payer and the payee. The float occurs between the time when
the funds are (i) debited from the payer’s account by the payer’s PSP (which happens
immediately after the payment order is received by the payer’s PSP) and (ii) credited to
the payee’s account by the payee’s PSP (which can happen days later). It is considered
by regulators as an inefficiency in the payment system which generates costs for payment
service users, as the funds caught in the float are not available for consumption or
investment.
245
The presence of the ‘payment float’ is brought about by technological,
procedural and settlement infrastructure constraints. Some of those constrains have
evolved or eased markedly in the course of the recent years, in part due to the measures
taken by the policy makers internationally, which aimed to tackle the inefficiencies
arising from the float. For example, as from 1 July 2000, Norwegian banks were no
longer allowed to earn float income
246
. In 2005 the UK authorities requested the
elimination of the float for credit transfers (settlement of which at the time was up to
three business days) via the introduction of ‘faster’ payments.
247
In the EU, the impact assessment of the European Commission accompanying the
legislative proposal for the first Payment Services Directive 2007/64/EC (PSD1) noted
that for businesses, the delays related to float can have a substantial impact on cash flow,
working capital and processing costs causing serious problems, and this situation has
been widely criticised by corporate customers and SMEs. The study argued that the float
represents an inefficient drag on the rest of the economy if “artificial” delays in the
availability of funds negatively affect the cash flow of companies and individuals, finally
impacting on the efficient allocation of capital
248
. As a result, PSD1 harmonised and
gradually reduced the maximum execution time of regular credit transfers, initially, by
capping it at three business days for electronically-initiated transactions and four
business days for the paper-initiated ones and, from 2012, at one and two business days,
respectively, in order to improve the efficiency of payments throughout the EU.
249
Prior
to the implementation of the PSD1, the execution time for outgoing transactions varied
considerably between PSPs, in some cases reaching up to as much as 10 days.
250
Moreover, since PSD1 Member States have discretion to impose even shorter maximum
execution timelines for national payment transactions and some Member States have
done so recently (e.g., Hungary).
245
246
Economic impact of real time payments | Deloitte Luxembourg | Financial Services
Act on Financial Contracts and Financial Assignments (Financial Contracts Act), No. 46 of 25 June 1999
(in force 1 July 2000) [Microsoft
Word – lov-19990625-046-eng.doc (uio.no)]
247
https://webarchive.nationalarchives.gov.uk/ukgwa/20131101202847/http://www.oft.gov.uk/news-
and-updates/press/2005/94-05
248
st15625-ad01.en05.doc (europa.eu)
249
See
recital
(43)
and
Article
69(1)
of
PSD1
[https://eur-lex.europa.eu/legal-
content/EN/TXT/PDF/?uri=CELEX:32007L0064&from=EN]
250
study-impact-psd-24072013_en.pdf (europa.eu)
102
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Instant payments and reduction of float
Reduced float and its impact on payment services users
IPs have the potential to reduce the payment float given that they are expected to displace
payment means that have a longer settlement cycle, such as regular credit transfers or
cheques. As shown in Annex 7, the annual value of regular euro credit transfers and
cheques in 2020 was equal to EUR 68 161 billion
251
. On this basis it can be estimated
that on any given day an amount equivalent to EUR 187 billion was locked in the
financial system, assuming that their execution would take place only on a business day
that follows the business day of their initiation
252
. Under the assumption of the uptake of
IPs of 50% and a full displacement of cheques, it is estimated that the daily payment float
would be reduced by EUR 96 billion
253
, whereas under the assumption of the uptake of
IPs of 70%
254
and a full displacement of cheques, the daily float would be reduced by
EUR 132 billion
255
.
The main benefit of the reduced float is that the funds in transit would become available
to payees (consumers, businesses, public administrations) much sooner, i.e., within 10
seconds from the moment of being sent by the payer, compared to one-to-two business
days later in the case of regular credit transfers. This would enable those payees to realise
the cost savings of financing their working capital or short-term spending, and make use
of the funds immediately for consumption or investment, thus, boosting aggregate
251
The assumption that IPs (and not regular credit transfers) will displace cheques is linked to the features
of these payments means and is also informed by the findings of external studies. The study by Fidelis
Consulting
[https://op.europa.eu/en/publication-detail/-/publication/735d5b9d-0c5e-11ec-adb1-
01aa75ed71a1/language-en/format-PDF/source-228716981]
argues that one of the main reasons behind
the use of cheques is that they provide the beneficiary with a seeming certainty of payment (since there
is a risk that the payer wrote a cheque without sufficient funds available in their payment account). Thus,
in some Member States cheques are commonly used to make a deposit / down-payment in order to
reserve a rental agreement of an accommodation). IPs will provide an indisputable certainty of payment
to the beneficiary, with a strong advantage of also reaching the beneficiary’s account immediately (as
opposed to cheques where it may take several days) which could be verified by the beneficiary while
concluding the agreement. A similar conclusion is reached in the study by Deloitte [Economic
impact of
real time payments | Deloitte Luxembourg | Financial Services
] which observes that cheques are time-
inefficient payment instrument and that IP features such as real time settlement and notification, as well
as the greater ease of making payments efficiently and securely are likely drivers of the displacement of
cheques.
252
For cheques and paper-initiated regular credit transfers the float would be longer, while for the ‘on-us’
regular credit transfers the float would normally be shorter, as debiting the account of the payer and
crediting the account of the payee could take place on the same day. For the calculation of the payment
float, it was assumed that in all these instances the crediting of the payee’s account takes place on a
business day that follows the business day of the initiation of the underlying payment transaction (which
is the case with the electronically initiated regular credit transfers).
253
Consisting of EUR 4 billion from the displacement of cheques and EUR 92 billion from the displacement
of regular euro credit transfers.
254
The assumption of the uptake of IPs of 50% is considered as a realistic and central assumption within
3-5 years of implementation of measures included in this initiative, while the assumption of the uptake of
70% represents a higher, more optimistic, level which is still attainable in view of the fact that the uptake
in one Member State is already close to 70% in absence of EU legislation.
255
Consisting of EUR 4 billion from the displacement of cheques and EUR 128 billion from the
displacement of regular euro credit transfers.
103
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economic activity. Based on the analytical model employed by Deloitte
256
, such benefits
are estimated to fall in the range of EUR 1.34 to 1.84 billion annually, depending on the
eventual uptake of IPs (50%-70%) and assuming an annual interest rate of 1%. The study
by Fidelis Consulting estimated those benefits to range between EUR 0.68 billion to
EUR 1.83 billion per year, reflecting a broader range of scenarios considered
257
.
Impact on PSPs
Those benefits are assumed to be currently flowing to PSPs as they are in a position to
generate revenues by placing the funds arising from the payment float in short-term
investments. It is estimated that at the industry level such revenues would represent less
than 0.3% of the total annual net operating income.
258
The above re-distribution of those
benefits is not seen as an unintended consequence, as from the regulation point of view
the payment float is considered as an inefficiency in payments to the detriment of
payment services users, rather than a deliberate policy targeted to aid PSPs’ profitability.
Moreover, the possibility for PSPs to generate earnings from the payment float creates
disincentives for PSPs to innovate and improve the efficiency of payments.
In terms of the impact of the reduced payment float on liquidity and its management by
PSPs, several aspects have been assessed. The abovementioned reduction of the payment
float is assumed to be predominantly driven by the displacement of regular credit
transfers by IPs. As a result of this, there could be an impact on the amount of liquidity
that PSPs would have to hold in their settlement account in the relevant payment systems
(such as TIPS or others) to facilitate a seamless settlement of IPs, in view of the fact that
IPs are settled in real time individually on gross basis whereas regular credit transfers are
settled in cycles (once or several times per business day) and where the payment owed to
other PSPs represents a multilateral net liquidity need. In this regard, the study conducted
by the Bank of Finland
259
looked into the additional liquidity that PSPs would have to
hold in their settlement account under the scenario of a full migration from regular credit
transfers to IPs (i.e., 100% uptake of IPs). The study estimated that under such a
scenario, the aggregate increase in daily liquidity needs held by Finish PSPs would be
small, i.e., on average 2.7%, and would not exceed 8.7% in 95% of the cases. Under the
IP uptake assumptions considered by this impact assessment (50%-70%), an accordingly
lower increase of liquidity needs in settlement accounts can be reasonably assumed. The
study also observed that the timing for a transition to IPs might be favourable as the high
liquidity levels currently held by PSPs could accommodate any temporary increases in
liquidity needs.
It should be pointed out that one of the implicit assumptions of the abovementioned Bank
of Finland study was that all PSPs both send and receive IPs. The main driver for the
increased liquidity balance at the PSP level being the value of IPs sent, in a scenario
256
257
Economic impact of real time payments | Deloitte Luxembourg | Financial Services
Study of Fidelis Consulting,
https://op.europa.eu/en/publication-detail/-/publication/735d5b9d-0c5e-
11ec-adb1-01aa75ed71a1/language-en/format-PDF/source-228716981
258
On the basis of the total annual net operating income of EUR 417 billion for banks covered by the 2021
EU-wide stress test. The figure is grossed up to EUR 596 billion, to reflect the fact that only banks covering
70% of the total industry assets were included in the exercise (and not grossed up for the assets of
payment institutions and e-money institutions) [
2021-EU-wide-stress-test-Results.pdf (europa.eu)
].
259
Instant payments as a new normal: Case study of liquidity impacts for the Finnish market (helsinki.fi)
104
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where PSPs only receive but not send IPs (which is reflected under option 1.1) there
would be no impact on additional liquidity needs of such PSPs. This would result in an
asymmetric outcome as only the PSPs that both send and receive IPs would face possible
increases in liquidity needs, while the PSPs that only receive IPs would have no such
costs and, in addition, would continue to be able to benefit from the payment float arising
from the regular credit transfers sent, which is likely create a disincentive for them to
voluntarily migrate to the sending of IPs.
Also, when assessing the impact on the increased liquidity needs due to the way that euro
IPs are settled in TIPS, several measures that are being put in place by the ECB should be
mentioned. First, PSPs are able to move funds from their account in TARGET2 to their
IP settlement account in TIPS, while being able to count the sum of the two balances for
the purposes of meeting the reserve requirement of the central bank, which should allow
PSPs to manage their liquidity in accounts with the central bank more flexibly. Second,
the measures included in the Pan-European Reachability Package
260
require that all
Automated Clearing Houses (ACHs) that offer IP services migrate their technical
accounts from TARGET2 to TIPS. In turn, this does also contribute to PSPs’ ability to
settle IPs in a timely manner and optimise their liquidity management, as the funds that
they may have in their accounts in TIPS and ACH(s) could be moved around as needed
on 24/7 basis. The ECB is actively monitoring the dynamics in this area and could
consider additional measures, if necessary, to ensure a smooth settlement of IPs as their
uptake increases.
From the point of view of the ability of PSPs to comply with prudential liquidity
requirements, the abovementioned reduction in the payment float is not expected to
weaken the overall liquidity position of individual PSPs, as with IPs the funds are simply
moving from one PSP to another faster. More specifically, with an IP, the transferred
funds would reach the payee’s PSP already on the day of the transfer, while in case of a
regular credit transfer between different payer’s and payee’s PSPs those same funds
would remain on the balance sheet of the payer’s PSP until the next business day. Since
each PSP, for different IP transactions, acts both in the capacity of the payee’s PSP and
the payer’s PSP (except for option 1.1), this effect should be evenly distributed among
PSPs and cancel itself out. For intra-PSP IP transactions, there would be no impact on
PSPs either, as funds remain with the PSP.
In its targeted consultation with PSPs, the Commission services sought PSPs’ views on
whether there would be a risk that existing liquidity management tools and relevant
prudential requirements (such as the Liquidity Coverage Ratio, LCR) may not be
sufficiently effective or adequate in view of the increases in the uptake of IPs. The
obtained feedback reflected a largely consensual view that IPs would not have an impact
on PSPs’ compliance with LCR as the latter is calibrated to ensure that banks withstand
at all times (and therefore also intra-day) stress conditions computed over a 30-days
period. Rather, for the management of the liquidity risk related to IPs, PSPs’ capacity to
manage intra-day liquidity was deemed to be relevant. In this regard, some PSPs
indicated that they manage their intra-day liquidity risk pertaining to IPs through internal
forecasting / modelling and stress testing for various relevant scenarios.
260
ECB takes steps to ensure pan-European reach of instant payments (europa.eu)
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As concerns credit institutions
261
, the current liquidity framework applicable to them
includes a number of provisions that address intra-day liquidity risk arising from IP
operations. More specifically, Article 86 of the CRD
262
requires competent authorities to
ensure that banks adopt policies to manage their intra-day liquidity risk, while the EBA
Supervisory Review and Evaluation Process (SREP) guidelines
263
require banks to
closely monitor their intra-day liquidity. In addition, credit institutions are required to
meet the LCR at all times, including intra-day liquidity flows. Thus, the LCR captures all
liquidity inflows and outflows, including those due to instant payment. The LCR
Delegated Act
264
contains provisions that are able to capture the issues posed by instant
credit transfers
265
.
On the basis of the above analysis and the feedback from the Member State experts in the
context of discussions in CEGBPI, it was concluded that a regulatory intervention in the
area of prudential requirements dealing with the management of the intra-day liquidity
risk is currently not warranted.
Impact on financial stability
The above analysis lends support to an assessment that, under normal market conditions,
the impact of a greater uptake of IPs and a reduced payment float on liquidity and its
management by PSPs should not pose major risks for financial stability. Likewise, it
appears that the gradual reductions in the payment float due to past regulatory
interventions such as PSD1 did not create any unintended systemic consequences and no
such evidence is available in the national markets that are the ‘front-runners’ in adoption
of euro IPs and that, as a result, substantially reduced the float domestically. For the
remaining EU PSPs and individual Member States, the estimated increase in the uptake
of IPs is expected to be gradual and, therefore, would allow the industry to make any
necessary adjustments over time. Globally, by now IP services have been launched in
over 60 jurisdictions
266
and there is little, if any, evidence suggesting their negative
impact on the financial stability.
Nevertheless, via the open public consultation stakeholders were consulted on whether
the availability of IPs could aggravate bank runs, by possibly facilitating sudden and
substantial outflows of liquid funds from a PSP. The analysis of their feedback showed
that the majority (71%) of respondents who expressed a view on the issue did not think
that IPs could aggravate bank runs and, therefore, contribute to bank failures. This is
because of the safeguards that already exist, such as the pre-funded nature of IP
261
Prudential liquidity requirements applicable to payment institutions and e-money institutions are not
analysed in the annex, as those entities are excluded from the scope of the preferred option 1.2.
262
Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the
activity of credit institutions and the prudential supervision of credit institutions and investment firms,
amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC
263
Guidelines for common procedures and methodologies for the supervisory review and evaluation
process (SREP) and supervisory stress testing | European Banking Authority (europa.eu)
264
Commission Delegated Regulation (EU) 2015/61 of 10 October 2014 to supplement Regulation (EU) No
575/2013 of the European Parliament and the Council with regard to liquidity coverage requirement for
Credit Institutions
265
For instance, Article 5 on LCR stress scenarios envisages as “stress indicators” unscheduled draws on
liquidity (lit. f).
266
See annex 6.
106
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settlement accounts with CSMs (which act as an implicit cap of how much funds could
leave a PSP via IPs on a given day) or various daily/transaction limits that PSPs apply
(for more details on the consultation feedback see Annex 2). The question of whether any
unaddressed risk remains and, if so, whether any additional measures would be needed to
deal with it was also discussed with Member State and industry experts in two
Commission working groups (CEGBPI and PSMEG, respectively). Neither group of
experts expressed support for additional crisis prevention or management measures,
given the robust and recently introduced European crisis management framework
(consisting of BRRD
267
and SRMR
268
) and the presence of the above mentioned
prudential requirements pertaining to the management of the ‘intra-day’ liquidity risk.
When assessing whether IPs may contribute to inter-PSP contagion and thus pose any
risk for financial stability, it shall be recalled that the existing Settlement Finality
Directive (SFD)
269
further limits this risk, as it guarantees that IP orders entered by the
payer’s PSP into a ‘designated’ payment system cannot be revoked or invalidated even in
the event of the PSP’s insolvency. However, it should be noted that given the real-time
settlement process of IPs, the risk of their revocation is inherently lower compared to
regular credit transfers.
267
Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a
framework for the recovery and resolution of credit institutions and investment firms and amending
Council Directive 82/891/EEC, and Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC,
2007/36/EC, 2011/35/EU, 2012/30/EU and 2013/36/EU, and Regulations (EU) No 1093/2010 and (EU) No
648/2012, of the European Parliament and of the Council
268
Regulation (EU) No 806/2014 of the European Parliament and of the Council of 15 July 2014
establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain
investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund and
amending Regulation (EU) No 1093/2010
269
Directive 98/26/EC of the European Parliament and of the Council of 19 May 1998 on settlement
finality in payment and securities settlement systems
107
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A
NNEX
9: B
ACKGROUND ON THE FUNCTIONING OF CROSS
-
BORDER
TRANSFERS IN THE
EU
In order to make a payment cross-border within the EU (between any two Member
States), EU citizens and businesses can use credit transfers, direct debits or card
payments.
With regard to direct debits, it was not possible to set up cross-border direct debit until
the adoption of the 2012 SEPA Regulation. The only cross-border direct debit possible
today is that denominated in euro (a SEPA direct debit).
With regard to card payments, the only cross-border card payments possible are via the
International Card Schemes (mainly Visa and Mastercard).
With regard to cross-border credit transfers in the EU, these can be done in two main
systems:
-
SWIFT
270
: available for credit transfers denominated in nearly all global
currencies, including non-euro EU currencies, except euro. SWIFT transfers are
more costly for the PSPs, who need to rely on intermediaries such as
correspondent banks, and the fees applied to users are usually several times
higher than the fees for SEPA transactions
271
. SWIFT transfers take approx. 1 to
5 working days (depending on the number of intermediaries involved, etc.);
SEPA: available for credit transfers denominated only in euro (and mandatory for
euro transfers). They are less costly for PSPs to provide as they do not need to
rely on intermediaries and they are executed in the same way as domestic euro
credit transfers. Pricing varies by individual PSPs, who tend to set it at zero
(practice applied by many PSPs within and outside Euro area). Where a fee is
applied, it is many times lower than the fee for a SWIFT transfer. An
electronically-initiated cross-border regular SEPA credit transfer normally takes
one business day to execute, and a cross-border instant SEPA credit transfer takes
less than 10 seconds.
-
It is an individual decision of every PSP (within and outside the Euro area) whether they
wish to offer credit transfers, and in which currency. A PSP wishing to offer credit
transfers denominated in euro must offer SEPA credit transfers (regular and/or instant).
The denomination of a credit transfer is not dependent to the denomination of the
payment account from/to which a credit transfer is sent/received (e.g. it is possible to
send and/or receive a credit transfer denominated in euro to/from a payment account
denominated in a different currency). In such cases, it is either the sending or the
receiving PSP, or both, that performs the currency conversion into/from euro before
sending the SEPA credit transfer or after receiving it. Even in cases where a credit
270
271
Homepage | SWIFT - The global provider of secure financial messaging services
Based on desk research (e.g. in PL, PSPs tend to charge between zero and 5 PLN for a SEPA euro credit
transfer initiated electronically, and 20-35% of the value of the transferred amount and up to 250PLN for
a SWIFT transfer)
108
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transfer involves a currency conversion between euro and the currency of a Member
State outside the Euro area, such a SEPA credit transfer must be executed by the end of
the next business day, provided that the required currency conversion is carried out in the
Member State outside the Euro area concerned
272
.
Based on the above, the following examples can be provided for a credit transfer made
from Denmark to Belgium:
272
Article 82 and 83 of PSD2
109
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A
NNEX
10: N
ETWORK EFFECTS IN PAYMENTS
Payments is a well-known example of a network industry. Such industries feature
positive adoption externalities
273
, meaning that a participant joining the network brings
benefits that accrue to other participants in the network. In other words, the value of a
payment service to a payment service provider or payment service user increases with the
number of other participating providers or users
274
. When these positive effects are not
internalized
275
, market demand tends to be too low at any price, hence the equilibrium
network size is smaller than the socially optimal network size, and even a perfectly
competitive equilibrium is not efficient.
276
This market failure may result in a chicken-
egg type of problem, where a better standard may fail to be implemented
277
due to the
lack of willingness for any market participant to be the first to invest.
278
One may differentiate between one-sided network markets, and two-sided network
markets, or “platforms”. While one-sided markets have homogeneous users, two-sided
markets feature two distinct customer groups that have inter-related demand by both
customer groups imposing a positive externality on the other group
279
. The literature
often defines such externalities between the two sides as “indirect network
externality”
280
, in addition to “direct network externalities” that arise in one-sided
network markets (e.g. telephones). A much-analysed two-sided market is that of payment
cards, where the cardholder (consumer) is typically in the payer position, while the
merchant is typically the payee. In the context of payment cards, an indirect network
externality is driven by the fact that the more consumers have payment cards, the more
273
“There is strong empirical evidence that network externalities exist in payment instruments like ACH
transfers, debit- and credit card payments and ATMs.” Payment Systems and Network Effects Adoption,
Harmonization and Succession of Network Technologies in a Multi-country World, Johan Gottfried
Leibbrandt, 2004. Gautam Gowrisankaran and Joanna Stavins also find significant evidence that the
network externalities for payment systems are moderately large. Network Externalities and Technology
Adoption: Lessons from Electronic Payments, Gautam Gowrisankaran, Joanna Stavins, The RAND Journal
of Economics, Vol. 35, No. 2, p260-276, 2004.
Network Externalities and Technology Adoption: Lessons
from Electronic Payments (nyu.edu)
274
Payment service users need an intermediary (a payment service provider) to be able to use the service
(indirect link to other users). Therefore, it is first the service providers who need to join the platform
(adoption or membership externality), while already considering the size of their own potential customer
demand (and the customer base of other service providers that they expect to join) in their decision.
Consequently, the service providers need to offer the new payment service to their customers (end
users), and encourage its use.
275
Social marginal benefits continue to exceed private marginal benefits.
276
Even adoption externalities that are small at the individual level can lead to large social welfare losses.
Systems Competition and Network Effects, Journal of Economic Perspectives—Volume 8, No. 2, p93-115,
Michael L. Katz, Carl Shapiro, 1994,
Systems Competition and Network Effects (aeaweb.org)
277
Or implemented slowly.
278
Product Introduction with Network Externalities, The Journal of Industrial Economics, Vol. 40, No. 1,
p55-83, Michael L. Katz, Carl Shapiro, 1992,
Product Introduction with Network Externalities (jstor.org)
ECB Occasional Paper Series
Are instant payments becoming the new normal? A comparative study
(europa.eu),
Monika Hartmann, Lola Hernandez-van Gijsel, Mirjam Plooij, Quentin Vandeweyer, 2019
279
Examples are men and women for nightclubs, firms and workers for employment agencies, customers
and suppliers for supermarkets, etc.
280
Also called as cross-side network effects by some.
The Challenge of Two-Sided Markets in Merchant
Payments (cgap.org),
2019
110
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retailers benefit from accepting them, and the more retailers accept payment cards, the
more consumers benefit from them. The relative size of positive externalities and price
sensitivities on the two sides might justify rebalancing mechanisms between the two
sides in order to achieve a socially optimal network size
281
.
The payment industry exhibits significant economies of scale, for two reasons
282
. First,
due to the network externalities described above, i.e. the value for an individual
participant increases with the number of others using the system. Network effects may
imply multiple demand levels for a given price, depending on users’ expectations
regarding network size
283
. Convergence to the high equilibrium depends on passing a
given threshold. Once that threshold is crossed, demand will continue increasing in a
self-reinforcing process that ends in the large-network equilibrium. This threshold level
is usually referred to as the critical mass of buyers that leads to the build-up of the
network
284
.
The second reason for the existence of considerable scale economies in payments is the
relatively high level of fixed costs compared to variable costs. Building up new payment
systems requires significant investment costs
285
. In such a situation with scale economies,
the turnover of electronic payment methods must reach a critical level, where the unit
costs are low enough to provide an opportunity to recover the sunk costs
286
. There are
three components to this initial investment: (i) a common scheme, (ii) a common
infrastructure
287
, and finally (iii) investments at the level of individual PSPs. One way to
help overcoming the scale entry barriers is to separate the provision of services from the
provision of physical infrastructures, which are often provided centrally
288
.
In the specific case of IPs, as regards the investment component (i) the EPC has already
designed the SEPA Inst Scheme, while with respect to component (ii) the ECB has
281
For instance when only men pay entrance fee to nightclubs, or the interchange fee in payment card
transactions which would act as a rebalancing mechanism between the issuing side and the acquiring
side.
282
The payment system, Payments, securities and derivatives, and the role of the Eurosystem, editor Tom
Kokkola, ECB, 2010,
THE PAYMENT SYSTEM - PAYMENTS, SECURITIES AND DERIVATIVES, AND THE ROLE
OF THE EUROSYSTEM. EDITOR TOM KOKKOLA, SEPTEMBER 2010 (europa.eu)
283
Introduction to Industrial Organization, Luis M. B. Cabral, The MIT Press, 2002
284
Payment Systems and Network Effects Adoption, Harmonization and Succession of Network
Technologies in a Multi-country World, Johan Gottfried Leibbrandt, 2004
285
Macroeconomic effects of the increase of electronic retail payments – A general equilibrium approach
using Hungarian data. Financial and Economic Review, Vol. 15 Issue 2., p 129–152, Ilyés T. – Varga L., 2016
286
The existence of fixed costs imply that the average cost of a payment declines with the number of
payments processed, in other words, as volumes increase, the marginal cost of transactions falls.
Fast
payments - Enhancing the speed and availability of retail payments (bis.org), 2016
287
“As argued by Milne, a shared payment infrastructure is a public good from the point of view of an
individual bank, which may without public intervention lead to under-provisioning.”
ECB Occasional Paper Series
Are instant payments becoming the new normal? A comparative study
(europa.eu),
Monika Hartmann, Lola Hernandez-van Gijsel, Mirjam Plooij, Quentin Vandeweyer, 2019
referring to0020What is in it for us? Network effects and bank payment innovation, Journal of Banking &
Finance, 30, p1613-1630, Alistair Milne, 2006
288
The payment system, Payments, securities and derivatives, and the role of the Eurosystem, editor Tom
Kokkola, ECB, 2010,
THE PAYMENT SYSTEM - PAYMENTS, SECURITIES AND DERIVATIVES, AND THE ROLE
OF THE EUROSYSTEM. EDITOR TOM KOKKOLA, SEPTEMBER 2010 (europa.eu)
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2636030_0117.png
already created a pan-European clearing and settlement infrastructure TIPS
289
, plus
ensured the interconnection of national (and cross-border) clearing and settlement
infrastructures (see Annex 6). Therefore, the necessary fixed investment cost for offering
IPs is now limited to the PSPs’ individual investments (component (iii)).
In order to overcome the market failure (due to the network characteristics, aggravated
by the economies of scale in payments) to achieve a socially optimal network size, the
literature recognises the importance of coordinated efforts, either on the basis of industry
collaboration and/or by some sort of government intervention (e.g. the importance of the
role of central banks as initiators, coordinators and catalysts).
290
The most important benefit of such coordination is reducing the uncertainty about
whether and when other PSPs will make the necessary investments.
291
There are
examples of both market-led and publicly organized coordination in the area of
payments. In several countries
292
, the banking sector decided to actively coordinate the
implementation of IPs (such as in the markets of Spain, Belgium and Sweden – see
Section 2.3.1).
As regards public intervention, the completion of the SEPA area (for regular credit
transfers and direct debits) required EU regulatory intervention to phase-in EU SEPA
standards and phase-out national legacy corresponding standards, as self-regulation
forces alone had not managed to reach this objective within a reasonable end-date. In
Hungary, the central bank MNB decided to regulate the implementation of domestic
currency IPs by making adherence mandatory “in order to move the whole domestic
payments market into a more optimal point from a social point of view”
293
. Involvement
of central banks in promoting the roll-out of IPs in national markets was observed also in
other Members States (e.g., the Netherlands, Lithuania).
289
290
On top of various – mostly national - Automated Clearing Houses.
Fast payments - Enhancing the speed and availability of retail payments (bis.org), 2016
Instant payments in Hungary – Central Bank’s role in the development, László Kajdi, Kristóf Takács, Lóránt
Varga, 2019
https://www.ecb.europa.eu/pub/conferences/shared/pdf/20191126_payments_conference/academic_p
aper_kajdi.pdf
ECB Occasional Paper Series
Are instant payments becoming the new normal? A comparative study
(europa.eu),
Monika Hartmann, Lola Hernandez-van Gijsel, Mirjam Plooij, Quentin Vandeweyer, 2019
Network Externalities and Technology Adoption: Lessons from Electronic Payments, Gautam
Gowrisankaran, Joanna Stavins, The RAND Journal of Economics, Vol. 35, No. 2, p260-276, 2004,
Network
Externalities and Technology Adoption: Lessons from Electronic Payments (nyu.edu)
291
In other words, it changes the users’ expectations regarding the network side.
Fast payments -
Enhancing the speed and availability of retail payments (bis.org), 2016
292
Differences in local coordination efforts, but also some other market features, such as payment habits,
business culture, industry structure, etc may all influence the adoption levels, and can explain the
apparent differences in the adoption levels across Member States.
293
Instant payments in Hungary – Central Bank’s role in the development, László Kajdi, Kristóf Takács,
Lóránt Varga, 2019
https://www.ecb.europa.eu/pub/conferences/shared/pdf/20191126_payments_conference/academic_p
aper_kajdi.pdf
112
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Finally, it is important to note that as the large majority of retail credit transfers (and
other retail payments) in the EU is domestic, PSPs are mostly focusing on the domestic
situation when evaluating their future investments. Hence, the SEPA objective of
creating a true European payments area that strengthens the internal market by covering
not only domestic, but also cross-border payments, would require that the market failures
are addressed in all Member States in parallel, i.e. by efforts at the European level.
113