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The European Instant Payments Regulation (IPR) represents a pivotal step in reshaping payment infrastructure across the European Union (EU). By mandating that all Payment Service Providers (PSPs) within the Eurozone enable the ability to receive instant payments by 9 January 2025, and allow instant payment by 9 October 2025, the regulation seeks to foster a more seamless and efficient financial ecosystem. This policy initiative holds the potential to enhance the velocity of money, improve liquidity management, and broaden financial inclusion.
The interplay between regulatory mandates and market readiness raises critical questions about infrastructure adequacy, cost implications, and equitable access for smaller PSPs.
However, the IPR also introduces complex challenges that warrant careful examination. The interplay between regulatory mandates and market readiness raises critical questions about infrastructure adequacy, cost implications, and equitable access for smaller PSPs. Furthermore, the harmonisation of instant payment systems across diverse national frameworks introduces operational complexities that require robust cross-border coordination. The IPR could be likened to reprogramming the underlying code of an old system—it promises efficiency but demands precision, along with the political will to ensure it is properly enforced.
IPR in a nutshell
Adopted in March 2024, the IPR marks a significant leap forward in the EU’s financial modernisation agenda, ensuring that fund transfers are processed within an impressive ten seconds. As part of the EU’s broader strategy to promote financial inclusion and foster a competitive payments ecosystem, the IPR introduces a regulatory framework that combines speed with accessibility. One of its most notable provisions prohibits PSPs from imposing higher fees for instant payments compared to traditional bank transfers.
Key features of the IPR include real-time processing, mandating that instant payments be settled without delay, and universal accessibility, ensuring that every consumer has the option to leverage this technology. Moreover, by enforcing cost parity between instant and traditional payment methods, the regulation eliminates pricing barriers that could otherwise exclude smaller businesses or lower-income consumers. This initiative echoes the EU's commitment to fairness, efficiency and innovation in financial markets—principles that have driven successful initiatives such as SEPA (Single Euro Payments Area). As Europe embraces this shift, the IPR has the potential to redefine liquidity management and cash flow dynamics, much like what we’ve witnessed in markets with advanced real-time payment ecosystems.
Beyond the blueprint
The IPR presents a bold stride toward modernising Europe’s financial ecosystem, but its implementation reveals layers of complexity that merit closer scrutiny. The mandate for ten-second payment processing, while ambitious, introduces technical friction with existing European Payments Council (EPC) standards, highlighting the challenges of reconciling new rules with legacy systems. Furthermore, aligning the IPR with broader regulatory frameworks like PSD3 (Payment Services Directive 3) and AML6 (EU anti-money laundering 6) demands meticulous coordination to avoid regulatory overlap and the risk of undermining operational coherence.
The mandate for ten-second payment processing, while ambitious, introduces technical friction with existing European Payments Council (EPC) standards, highlighting the challenges of reconciling new rules with legacy systems.
Perhaps the most pressing concern lies in the new regulation's approach to consumer protection. While the commitment to no-cost instant payments is commendable, the absence of robust mechanisms to guard against fraud and transactional errors exposes a significant vulnerability. The reliance on tools such as Verification of Payee (VoP) underscores the need for more comprehensive safeguards, particularly as instant payment systems scale across diverse user bases. As the EU seeks to deliver on the promise of instant payments, policymakers and financial institutions must strike a delicate balance between efficiency, security, and systemic resilience to ensure that the regulation achieves its transformative potential.
Closing the gap
European banks are grappling with significant operational hurdles as they work to upgrade outdated legacy systems to handle the heightened transaction volume demanded by the IPR, all while minimising downtime. Compounding these difficulties is a troubling lack of standardisation, particularly in the implementation of VoP services, which creates inconsistencies in beneficiary verification and heightens the risk of transactional errors and fraud. Furthermore, a broader issue of limited awareness and inadequate training among financial institutions has emerged, as many lack a comprehensive understanding of the IPR's requirements. This knowledge gap leaves staff ill-equipped to manage the complexities of compliance, threatening to undermine timely implementation and the regulation's broader objectives.
Preparing for tomorrow
The IPR presents a significant opportunity to boost financial inclusion in Europe by mandating universal access to instant payments. This aligns with the EU’s broader goal of equitable financial services. In addition to improving accessibility, the regulation drives innovation by pushing banks to adopt advanced technologies and fostering competitive, creative payment solutions. It also creates opportunities for collaboration between banks and fintech firms, helping traditional institutions integrate new technologies while easing infrastructure burdens. Furthermore, the move to instant payments offers banks a chance to enhance customer engagement with faster transactions, building loyalty among consumers who value speed and convenience. While complex, the IPR lays the foundation for financial modernisation and greater inclusivity, with lessons to be drawn from India’s digital payment successes.
The IPR presents a significant opportunity to boost financial inclusion in Europe by mandating universal access to instant payments.
India’s success with the Unified Payments Interface (UPI), launched in 2016, offers valuable insights into Europe’s push toward instant payments. UPI’s rapid adoption can be attributed to strong government backing, a user-friendly interface, and seamless interoperability across banks and platforms. However, challenges such as cybersecurity and data privacy prompted the Indian government to implement measures like two-factor authentication and data encryption.
The European Union’s IPR draws parallels with UPI, offering a significant opportunity to enhance financial inclusion and drive innovation. However, Europe faces challenges of regulatory ambiguity, operational hurdles, and consumer protection concerns that must be addressed to ensure successful implementation.
Drawing from India’s experience with digital payments—especially in areas like government support, user-focused design, and system interoperability—European regulators can better navigate the complexities of the IPR. While it is essential to understand what has worked in other regions, particularly India, the key is to adapt and contextualise these lessons. The economic dynamics of payment systems in India are distinct from those in Europe, and strategies that succeeded in one region may not be directly transferable. However, the principles that underpin India’s success, such as broad access to financial services and efficient system design, are universally relevant. The real challenge lies in asking how these principles can be adapted to the European context. While financial inclusion was a central goal in India, it may not be as urgent in Europe. Yet, understanding the underlying drivers of India’s success—contextualised for Europe—will be critical to the IPR's success.
The economic dynamics of payment systems in India are distinct from those in Europe, and strategies that succeeded in one region may not be directly transferable.
Another valuable lesson from the Global South comes from Brazil, where the central bank launched Pix in November 2020. This system enables users to make instant payments through mobile phone numbers or QR codes, offering a seamless and efficient transaction experience. Facilitating real-time transactions around the clock, Pix has surpassed traditional cash transfers and credit card payments in usage, highlighting the growing preference for instant payment solutions in emerging markets.
The future of instant payments in Europe will depend on a robust implementation framework, strong regulatory oversight, and an iterative approach to development. Whatever the outcome, it will be fascinating to explore the ripple effects of a robust digital payments system in Europe.
Sauradeep Bag is an Associate Fellow with the Centre for Security, Strategy, and Technology at the Observer Research Foundation.
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