.svg)
The European Parliament and the Council of the European Union have reached an agreement on the instant payments regulation — including an amendment to allow payments and e-money institutions access to payment systems.
Mairead McGuinness, European commissioner for financial services, said this political agreement on the instant payments proposal is “fantastic news for everyone who wants their payments processed in seconds, not days”.
First proposed by the European Commission last year, the regulation intends to improve the availability of instant payment options in euro to consumers and businesses in the EU and in European Economic Area countries.
Payments industry insiders have welcomed the news.
“Today marks a historic day for European consumers, businesses and the financial services sector,” said Magali Van Bulck, EMEA policy and government relations chief at Wise.
She told Vixio that the agreement means that instant payments will finally become the norm across the bloc. “For too long, banks were allowed to charge a premium for instant payments, deterring people from choosing instant.”
“This has not only harmed consumers, slowing down their money, but also blocked innovation,” she said. “We expect a significant uptake of instant payments on the back of this landmark decision.”
Andrei Cazacu, EU policy lead at TrueLayer, agreed: “It is very, very exciting.”
“The EU has been looking for a payment alternative to card schemes, and to bigtech,” he said.
For this, Cazacu explained that the two main ingredients are there — Europe-wide instant euro transfers, which are now coming via the instant payments regulation, and open banking connectivity to turn them into a dynamic payment method that merchants can integrate at checkout.
“In countries like Brazil or the UK, where account-to-account payments have taken off, it is thanks to having real-time execution to pair them with,” he said.
Fintechs will no longer rely on banks
In a win for fintechs, the co-legislators agreed to grant access for payment and e-money institutions to payment systems, by changing the Settlement Finality Directive (SFD), a decision that Swedish fintech adviser Jens Olsson described as “long waited for”.
Emőke Péter, head of European public and regulatory affairs at Worldline, told Vixio that it is “historic”.
“This is not a mere technical change. This is a game-changer for the future of our financial services, and our overall digital economy,” she said, suggesting that it will be a boost for the uptake of instant payments, which will foster a more digitally interconnected and integrated Europe.
“This is a win for the competitiveness and resilience of our market, for consumers and merchants, which will benefit from the diversity and innovation of the e-money and payment institutions,” she said.
Péter described the decision as “timely”, showing that Europe is ready to embrace the digital age and to support the pioneers and visionaries leading the way. “A decision that proves that Europe is committed to fairness, equity and a level playing field for all.”
“Banks are no longer the gatekeeper to payment systems, a long overdue change to drive innovation and competition, and reduce systemic risk,” said Van Bulck. “With this change, payment institutions no longer have to rely on banks to sponsor them to offer their services.”
Van Bulck said that by breaking this monopoly, European consumers will benefit from better and more innovative services, improving their financial lives. “And at lower cost, as payment institutions can finally compete on a level-playing field with banks.”
Olsson agreed that this “positive change” will lower dependency on the banks.
“This is a dependency between two market participants that often compete in some way or another in the marketplace,” he said. “Removing unnecessary dependencies allows for a more efficient market, while allowing for payments and e-money institutions to gain increased efficiency through economies at scale.”
The SFD amendment will come as a surprise to some in the payments industry. Sources in Brussels had previously told Vixio that the Commission had become less enthusiastic about getting the SFD amendment into the instant payments regulation, considering plans to amend it via the new Payment Services Regulation (PSR).
“It is long overdue and it will have deep implications for competition and innovation,” said Cazacu. “It levels the playing field and we'll very likely see a boost to instant payments adoption and new products and services being offered as a result of this increased competition.”
As a result, these entities will also be covered by the obligation to offer the service of sending and receiving instant credit transfers, after a transitional period.
Consequences of levelling the playing field
The co-legislators have confirmed that “appropriate safeguards” will be added to ensure that the access of payments and e-money institutions to payment systems doesn’t carry additional risk to the system.
“It is essential to note that direct access for non-bank PSPs will not become a reality immediately with the legislation,” said Professor Jakub Górka, University of Warsaw. “The journey is just beginning.”
Górka, a longtime advocate of this change, explained that EU central banks and payment system operators will need to make direct access operational.
For example, payments and e-money institutions will require settlement accounts with a central bank, ideally safeguarded accounts that can hold customer funds, and central banks and payment systems operators will need to establish requirements for direct access.
“There will certainly be no free pass, and non-bank PSPs will need to undergo rigorous assessments,” he said.
Before any of this happens, the European Parliament will need to approve the provisional political agreement — starting with the Economic and Monetary Affairs Committee and followed by a plenary vote.
The Council must also approve the deal before it can come into force.
