The European Parliament has formally approved legislation that will force banks and other payment service providers to offer EU citizens and businesses the option of performing virtually instantaneous credit transfers.
The law, which was passed by an overwhelming majority of MEPs on Wednesday (7 February), follows a Commission proposal in October 2022 to make so-called “instant payments” available across the EU, as part of wider efforts to deepen the bloc’s Capital Markets Union (CMU) and strengthen its strategic autonomy.
The vote also came three months after the completion of so-called “trilogue” discussions between the Commission, Council, and Parliament, during which the Parliament successfully lobbied to strengthen the law’s anti-fraud provisions by requiring payment providers to verify that payees’ names and IBAN numbers match for all transactions.
Under the new rules, all payment providers must offer customers the option of making credit transfers that take no longer than ten seconds from the time of approval, at any time of any day. The cost of instant payments must also be no higher than that of regular credit transactions, which can often take several days to process.
During a parliamentary debate on Monday (5 February), Mairead McGuinness, the EU Commissioner in charge of financial services, praised the regulation’s “very practical” significance.
“The idea is very simple, allowing all of us to send and receive money in less than 10 seconds,” she said.
Dutch rapporteur Michiel Hoogeveen (ECR) similarly hailed the bill’s anticipated impact on ordinary citizens.
“This is not about some abstract plumbing of the financial system, or super-technical capital requirements for banks or insurance companies, or fine-tuning of the European statistical system,” he said. “Instead, this is something very concrete, and something that Europeans truly care about in their daily lives.”
The regulation is expected to come into effect in eurozone countries by the end of this year, while non-eurozone member states will be given several more months to comply.
‘A friction in the financial system’
According to EY, a consultancy, at the end of 2021, just 11% of credit transfers in the EU were instant payments, despite the fact that such payment systems have existed for years in many other countries including India, Australia, and Mexico.
The Commission also estimates that roughly €200 billion in credit transfers is stuck in transit in the European financial system on any given day.
Nicolas Véron, a senior fellow Bruegel, a Brussels-based think tank, said that the EU’s previous failure to mandate instant payments was not “a major problem” but did cause “a friction in [its] financial system”.
“For a business which has a tight management of their financial operations, it does make a difference if the payment goes today or tomorrow,” he told Euractiv.
“The less friction you have the more efficient it is, so I think it’s a relevant issue for policy. I wouldn’t say it’s the biggest obstacle to European growth, but it’s a matter of optimisation,” he added.
McGuinness and Hoogeveen further cautioned that the new regulation means that Europe is effectively only catching up with many of its economic competitors.
Both also offered thinly veiled criticisms of their fellow EU policymakers for not mandating the availability of instant payment systems much earlier.
“We are not trailblazing in this area: this regulation will allow the EU to catch up with international markets like Brazil, India, Australia and the UK, where instant payments are growing fast,” McGuinness said. “The technology to provide for instant payments is well established and, frankly, uptake has been too low in the EU.”
Hoogeveen agreed: “Our payments transaction system is based on a system from the 1980s. With the Instant Payments Regulation, we finally enter the 21st century,” he said.
Is cash still king?
Left MEP Mick Wallace – who ultimately abstained on the vote – also criticised the regulation for potentially reducing the possibility of making cash payments.
Wallace further argued that “cash is still the most inclusive means of payment” which invariably incurs “no hidden charges” and “provides the highest degree of independence and protection available from the private banking sector”.
The suggestion that the regulation could undermine the availability of cash payments was vehemently denied by McGuinness, who stressed the importance of providing EU citizens with “the choice between digital and cash”.
Véron, the Bruegel think tanker, noted that the growing use of digital payments was almost inevitable.
“Moving away from cash is happening anyway,” he said. “I’m not predicting that cash will disappear, but having a system that is more and more reliant digital and automated transactions is the way of the future. The question is: How do we manage it?”
[Edited by Nathalie Weatherald]