How does SEPA Instant work: upcoming changes

Instant SEPA, part of the Single Euro Payments Area (SEPA), is bringing significant benefits to businesses and has gained widespread acceptance across the EU, enabling seamless euro-denominated cross-border payments. However, major changes to the mandate for instant bank transfers are set to take effect at the end of the year. In this article, we will explore how the SEPA Instant transfers work, detail the upcoming changes, examine the benefits of these modifications, and discuss the challenges faced by banks and financial institutions in adapting to the new requirements.

Instant SEPA was a legislation initiated by the European Payments Council (EPC) in November 2017 to facilitate money movement in Europe and single euro payment area, making euro-denominated cross-border payments as frictionless as domestic ones, and setting regulations around how banks clear them. At present, the SEPA scheme is used by 36 countries, including EU member states, Switzerland, Norway, and Iceland.

The key part of the legislation was SEPA Instant Credit Transfer (SCT Inst), by which funds can be transferred and made available to the beneficiary nearly immediately because the payment rail is active 24/7, 365 days a year, without any downtime for weekends or holidays. Initially, the maximum amount that could be transferred was set at €15,000, but some countries have increased the limit to €100,000. While the majority of banks and payment providers within the SEPA zone support SCT Inst payments, wider adoption is still needed to make the rail universally available. Some financial institutions lag behind due to the need to upgrade payment and banking infrastructures to support instant payments—an endeavour that is costly and requires extensive implementation projects.

In addition to the existing Instant SEPA money transfer legislation, some changes coming in October 2024 will put even more pressure on banks and payment providers to innovate.

In October 2024, a new legislation will come into force whereby all incoming funds must be cleared within 10 seconds, significantly impacting payment systems. This change will apply without exception to all PSPs and banks within the SEPA zone and will cover both business and individual transactions.

In practice, this means that while PSPs and banks previously could choose whether to participate in the Instant SEPA transfers mandate, resulting in varying acceptance rates among providers, now all SEPA participants must embrace instant transfers, ensuring the same level of service.

The obvious benefits of the changes are to the payees and beneficiaries. With SEPA Instant payments, euro transactions occur in seconds, enabling real-time processing. Since all SEPA participants are required to clear funds within 10 seconds, 24/7, 365 days a year, instant payments become a standard, not an optional service.

Firstly, because payments are processed continuously and nearly instantaneously, access to funds is immediate, allowing businesses to operate with greater efficiency and flexibility. Real-time settlement of transactions provides better insight into actual cash positions, contributing to better financial decision-making in the short, medium, and long term. On a larger scale, better liquidity supports business growth.

Overall, universal access to instant payments within the euro-denominated zone should help businesses grow and expand cross-border without further complexity in payments, which will undoubtedly have a positive impact on business and the overall economy.

While the new mandate is beneficial for businesses, it poses certain challenges for financial institutions and payment service providers. Up until October, they could choose whether or not to participate in SCT Inst and handle instant payments or stick with standard transfers. Now, they are mandated by both the ECB and national authorities to innovate their systems and processes if they want to remain part of the SEPA network.

Unfortunately, many banks, especially smaller ones, rely on legacy systems and do not have the technology or compliance processes in place to process and clear payments as fast as 10 seconds. As such, these banks will need to either upgrade their legacy core banking system and compliance tools to become compliant with the regulation or partner with a financial tech provider which would help them to speed up the clearing and settlement process to become compliant while removing the technology burden from the bank side.

The challenges are not only associated with the lack of systems and processes but also with the cost and implementation, including staff training required to get everything up and running and ensure security to the desired standard. It’s not even about being competitive; it’s about staying relevant.

For some financial institutions and payment providers, continued participation in SEPA may be a tick-box exercise, but it is another example of how the industry is constantly challenged from a regulatory perspective. Because the landscape is constantly evolving and new regulations are frequently introduced, banks, financial institutions, and PSPs should periodically review their processes, technology, and IT systems to assess security and resilience, ensuring everything is up to standard, compliant, and providing the best possible outcome for customers.

Whether with Instant SEPA payments on the horizon or any other changes, Fyorin is here to support you, especially if you are a legacy bank or payment provider without the necessary infrastructure or expertise to navigate innovation.

As part of our mission, we enable banks and financial institutions with our technology and payment infrastructure.

Fyorin’s cutting-edge technology can help banks and financial institutions to bring innovation to the market in weeks, not months.

Our innovative technology can unify siloed financial products to get a 360-degree view of the customer. Enabling banks and financial institutions to make more effective compliance decisions

Thanks to our global network of financial institutions, we can help banks and financial institutions to clear payments faster using in-country payments rails in over 200+ currencies.

Launch a fintech-like solution to your community of businesses with direct integration with your existing core banking system and payment hubs.

Interested in seeing how we can help you get compliant for Instant SEPA? Get in touch by booking a free demo or send an email to sales@fyorin.com.

How long does a SEPA instant transfer take?

Instant SEPA transfers, also known as instant credit transfers, take around 10 seconds at the moment; however, not all financial institutions are participating in the instant payments.

What is the difference between SEPA and SEPA Instant?

The main difference is the time it takes to clear and settle the transfer. Standard SEPA takes 1-2 business days, while SEPA Instant Credit Transfers can be completed in less than ten seconds and are available 24/7.

When are the changes to SEPA mandate coming to force?

The changes will be enforced from October 2024.