European Union’s proposed ‘instant payments’ could super-charge open banking

In 2022 it’s absurd to think that European banks are still charging vast amounts of money for businesses and consumers to send money internationally, and then taking days to fulfil such transfers.

Earlier this week, the European Union Commission put forward draft legislation that might change all that by mandating banks introduce ‘instant payments’ which are processed within 10 seconds.

Open banking providers welcomed the legislation as it could lead to a major improvement for instant open banking payment initiation across Europe.

“Coupling open banking with instant settlement allows open banking payments to be used across far more eCommerce use cases, where goods or services need to be shipped instantly on confirmation of payment,” said Tom Pope, head of payments and platforms at Tink.

Joe Morley, VP and GM for Europe at TrueLayer welcomed the proposal that he said would: “address the coverage and high-cost problems that European instant payments currently face and will allow open banking to truly take off – something that has been a long time coming and which will ensure that Europe doesn’t fall behind the curve.”

The legislation also prohibits banks from charging extra for these faster transactions, although it does not reduce their cost.

“Moving from “next day” transfers to “ten seconds” transfers is seismic and comparable to the move from mail to e-mail. Yet today, nearly nine out of ten credit transfers in euro are still processed as traditional ‘slow' transfers,” said Mairead McGuinness, European Commissioner for financial services, financial stability and Capital Markets Union.

McGuinness added slow transfers mean that some €200bn is tied up in transfers every day.

“There is no reason why many citizens and businesses in the EU are not able to send and receive money immediately, the technology to provide for instant payments has been in place since 2017.” 

The introduction would bring cross-border payments in line with what many of us expect from domestic payments where speed is increasingly the norm.

Alas, it’s not all good news, however, as the draft legislation still has to be agreed and only then proposes a timeline of up to 12 months for implementation, meaning it won’t be until the end of 2023 at the earliest that ‘instant payments’ arrive.

Pope said that while Tink welcomed the legislation: “many financial institutions already have the necessary infrastructure in place – so we would love to see adoption move even faster.”