In a significant policy shift for Europe’s financial framework, the European Central Bank’s governing council on 27 January 2025 announced a decision that will change payment systems across the eurozone. For the first time, non-bank payment service providers such as PayPal, Revolut, Klarna, N26 and Stripe, amongst others, will gain direct access to central bank infrastructure, breaking the long-standing monopoly of traditional banks in these systems. Set to take effect on 9 April 2025, this change is expected to increase competition and alter how financial transactions are processed in Europe.

Access to Target and settlement systems

The decision expanded the scope of the settlement finality directive to include non-bank PSPs, enabling them to participate directly in central bank-operated payment systems, including its widely-used Target service. Previously, only traditional banks could access these systems. According to the ECB, this decision is “aimed at increasing the efficiency and smooth functioning of the retail payments sector, including, but not limited to, facilitating the provision of instant payments across the euro area.”

With direct access, non-bank PSPs will be able to process payments in real time, improving transaction speeds across the region. The ECB expects this access to promote “market integrity and support competition and innovation in the payment services ecosystem.” International transfers, which often incur higher costs and longer settlement times, could become cheaper and more efficient as a result.

Compliance and security

Despite the benefits, the ECB has implemented stringent security and compliance measures for non-bank PSPs to mitigate potential systemic risks. Companies must demonstrate compliance with high regulatory standards before being granted access to central bank payment systems. As with traditional banks, non-bank PSPs are responsible for ensuring they meet all legal and regulatory requirements.

To manage risk exposure, the ECB has imposed limits on the funds non-bank PSPs can hold in central bank accounts. These funds are restricted to settlement obligations, preventing fintech companies from using these accounts as substitutes for bank deposits. The ECB clarified that Target’s function remains focused on real-time interbank and customer payments in central bank money, and that the imposed limits are not designed to protect traditional banks from losing deposits.

No crypto companies

The ECB confirmed that crypto platforms will not be granted access to central bank payment systems. Cryptocurrency firms will remain dependent on private banks for transaction processing, and digital asset exchanges will not be permitted to store customer funds in central bank accounts. This decision preserves the existing separation between the traditional financial system and the crypto sector.

Regulatory oversight

The changes promise faster and more cost-effective payments, but the ECB warned that non-bank PSPs must comply with strict limits on the funds they hold in central bank accounts. These accounts can only be used for payments, not for storing excess liquidity.

The ECB clarified in the decision that firms exceeding their permitted holdings will face penalties, including fines, “at the rate of 0.03% on the total amount in excess of the maximum holding amount held on all accounts by the non-bank PSP at the end of the business day in each payment system operated by the relevant Eurosystem central bank, and an additional daily penalty of €1,000 for each day of non-compliance,” and potential exclusion from the system for repeated non-compliance.

Outlook

For consumers, these changes are expected to lead to faster and more seamless digital payments. As fintech firms enter the central bank system, competitive pricing models may encourage traditional banks to lower their transaction fees. The increased involvement of fintechs could also promote greater financial inclusion, particularly for users who prefer digital payment solutions over conventional banking services.

The ECB did not provide any comment for this article.