The European Payments Initiative announced its acquisition of Luxembourg-based payment solutions provider Payconiq International on 25 April, and on 22 May, the European Council announced that it had agreed upon its position on revised rules for instant payments in Europe.
The EPI, which is an organisation made up of tech partners, payment industry players, banks, payment service providers (PSP) and related companies, is dedicated to flexible and secure payments. It aims to facilitate instant credit transfers and payments and to provide an efficient alternative payment scheme to more traditional methods such as Visa, Mastercard or Paypal, said Dorothée Ciolino, a lawyer at Norton Rose Fulbright in Luxembourg. “The idea is really to create a competitor to that kind of payment scheme.”
This is the perfect time because instant payment is also of an interest to the European Union
“This is the perfect time because instant payment is also of an interest to the European Union,” said Ciolino. “A draft bill on instant payments has been published at the European level and is currently being analysed.” It’s expected to be adopted at the end of 2023 and “it will be a regulation, meaning that it’s going to be directly entering into force in all countries.”
EPI: wallet app and banking app
The EPI product is composed of two parts, said Ciolino. “One is the wallet app, which is a multi-banking application. You can have it on your mobile, for instance. And the other product is a banking app,” which can be accessed via web banking. The EPI is planning its pilot phase for new instant payments in three countries--Belgium, France and Germany--in Q4 of this year.
But what about Luxembourg? I ask Ciolino.
“In Luxembourg, you already have instant payments, but apart from the EPI product,” she replied. “All the local banks here--like BGL or Spuerkeess--have already implemented the instant payment products for local payments.” Along with Luxembourg’s Payconiq, EPI also acquired the Dutch company Currence Ideal in April, which will allow them “to expand these local solutions within the European Union (eurozone and later within the European Union).”
Payments to be executed immediately after receipt of order
Instant payments are meant to be “executed immediately after the receipt of the payment order, seven days a week, 24 hours a day,” explained Ciolino, and will be possible all throughout the European Union.
Outside the eurozone, however, there will be two phases: during the first phase, instant payments will only be carried out during business hours on weekdays. The second step will extend the possibility to make instant payments to weekends and after business hours, but a schedule has not yet been set in place.
“It’s really an improvement compared to what we have now,” said Ciolino. With the Payment Services Directive 2 (PSD2), which came into force in 2015, “you have already had a uniform and standardised period of time to execute Sepa [single euro payments area] payments--24 hours.” Once a person gives an order to their bank to perform a credit transfer within Europe, it is supposed to be carried out within 24 hours.
This has now been the case for about eight years. But Sepa credit transfers are linked to a particular cutoff time, explained Ciolino. Say the cutoff time is 3pm in the afternoon. If you initiate after the payment after cutoff time--at 5pm, for instance--it will only be done the next day at 3pm, which explains why there is sometimes a delay in receiving payments. “But thanks to the EPI, instant payments are going to be greatly facilitated.”
Industry need, consumer need and available technology
So is it technology or legislation that has made instant payments easier?
Both, answered Ciolino. But “the technology is always in advance [of] the regulation.”
There was an industry need, a consumer need, and the technology was ready
Consumer needs have also driven the development of instant payments. “And also, the European Union wanted to have a real competitor to the schemes I mentioned earlier--card schemes and Paypal,” she said, “because those schemes provide for instant payment solutions. When you pay with a card, for the merchants, it’s credited directly. But not with a credit transfer.”
“So they’re trying to offer a really good, competitive, alternative to this kind of scheme,” said Ciolino. “There was an industry need, a consumer need, and the technology was ready. So that’s why we are here now.”
Challenges: security, errors, sanctions
Despite the many positive aspects related to instant payments, there are, of course, some sticking points. Ciolino pointed to three critical challenges in particular: security, the potential for errors, and how to make sure people who are under European sanctions are not receiving payments.
“With regard to the authentication process, the technology is already there, so that should be the same issue as the one we already know, with card payment and standard credit transfer.”
But other challenges are more specific to instant payments. “For instance, what happen if you execute a payment to a wrong payee, which is likely to happen as the payment is completed within 10 seconds or even less? This type of error can have serious consequences. So we need to find a system to mitigate the risk of such errors, and to identify the person who will be liable in case of an error,” she said. “You will have several entities involved in this payment process.” It will be necessary to determine “who will be liable to reimburse, for instance, a payor if there is a technical error or an error because the check was not performed correctly. So the new bill--which is now prepared at the European level--addresses this kind of liability regime.”
In the end of the day, that should be a huge benefit for people, industries and consumers
A third challenge relates to people targeted by European sanctions, and ensuring that payment entities responsible for executing instant payments are “cautious” about not completing a payment to a person who is under EU sanctions.
These issues were analysed at the European level when the bill was prepared, “and so in this draft regulation, those points are addressed,” said Ciolino. “But of course, it’s a very important and serious topic for the industry.”
“I’m quite optimistic that this is going to be a huge success for consumers,” she said. “If you compare to what happened in Luxembourg with Payconiq--it’s quite a huge success. A lot of people now use Payconiq instead of standard credit transfers.”
I’m quite optimistic that we are on the right way, and that it will accelerate the trend for mobile payments and digital payments
Instant payments probably won’t replace credit cards at the moment, but it will likely become a popular solution for payments between friends and family. In addition, thanks to the European legislation, “there will really be a place for facilitating the improvement, the innovation, the interoperability between all the solutions.”
“I’m quite optimistic that we are on the right way, and that it will accelerate the trend for mobile payments and digital payments in general,” said Ciolino. “For that, we need, of course, the support of the banks itself, as well as the payment service providers and the technical side.”
“But in the end of the day, that should be a huge benefit for people, industries and consumers.”
This article was published for the Delano Finance newsletter, the weekly source for financial news in Luxembourg. Subscribe using this link.