Instant payments are booming – in Europe and worldwide. In the US, the RTP (Real-Time Payment) network saw an impressive 76 million transactions worth $42 billion in the first quarter of 2024. In itself, this would be nothing to write home about, but the network is showing continuous growth, with an average quarterly growth rate of 15% since 2019.1

Now that the EU has revised its regulation on instant payments2, the topic is also gaining momentum in the SEPA area. In Europe, SEPA Instant Credit Transfers (SCT Inst) accounted for 17.8% of all SEPA transfers in the first quarter of 2024, reflecting the increasing acceptance and use of this payment method.3 Again, there is clear growth here. 

The new EU regulation speeds up the introduction of this technology. It brings with it both tremendous opportunities and challenges, especially in the areas of compliance and security. We will examine the most important aspects of instant payments and their impact on corporate treasury in this article. The KPMG Klardenker article also provides details on the EU regulation and its implementation from the perspective of banks: “Instant Payments: How banks can implement the new obligations correctly” from 12.02.2024.4

So what's new about the EU regulation on instant payments?

Below is a summary of the most important changes in the EU regulation

  1. Requirement to provide instant payments:
    Payment service providers must offer their customers real-time transfers 24 hours a day, 365 days a year. This Regulation will enter into force on the twentieth day following that of its publication. Within nine months of its entry into force, payment service providers must be able to receive instant payments (by 9 January 2025), send instant payments (by 9 October 2025), receive EUR IPs outside the euro area (by 9 January 2027) and send EUR IPs outside the euro area (by 9 July 2027).
  2. Costs and availability:
    Instant Payments must not be more expensive than conventional SEPA and SWIFT transactions. In due course, payment institutions should also be able to receive and send instant payments in euros outside the euro area. 
  3. Security and compliance requirements:
    Payment service providers must verify that their systems meet the highest security standards. They are required to check daily whether any of their customers are on sanctions lists. If this is the case, the assets of the affected customers must be frozen immediately.
  4. Amount limits:
    SEPA Instant Payments are subject to certain amount limits, which are crucial to the strategic direction of the topic. Initially, SEPA Instant Payments were available only up to an amount limit of EUR 10,000, with a particular focus on retail payments. It is now possible to make real-time transfers of up to EUR 100,000. At some point in the future, the limit could be completely removed, which would ultimately make SEPA Instant Payments interesting for corporate customers and treasury departments as well. Kindly note that this information is up to date until June 2024. Since regulations may change, it is always advisable to check the latest developments.
  5. Further rules:
    With a view to increasing the acceptance of SEPA Instant Payments and putting them on a par with conventional SEPA payments, the legislator set out further rules:
  • Banks must verify the plausibility of the data for SEPA Instant Payments (in particular, the IBAN must be checked against the recipient's name, the “IBAN name check”).
  • It must be possible to settle bulk payments (bulk files).
  • Cross-border payments within the EU must be possible.
  • Settlement must take place within 10 seconds.

In this way, the directive aims to ensure that instant payments are offered throughout Europe at low cost, which will promote the integration and use of this technology.

Use cases for instant payments in corporate treasury

Time and again, companies ask us whether SEPA Instant Payments are relevant for treasury departments. And in fact, we believe that Instant Payments will fundamentally change corporate treasury in the medium term. Its scope becomes clear when looking at the following use cases: 

  1. End customer payments
    By introducing SEPA Instant Payments and the obligation to settle payments within 10 seconds, the EU has initially created a new payment method. It can be used in both stationary and online retail – for example, for faster refunds to customers or even as an alternative to established end customer payment methods such as direct debit or card payments. There is nothing new about this approach, as other existing initiatives are also pushing for the creation of a competitive alternative to card payments – for example, with WERO (as the successor to GiroPay and managed by the European Payments Initiative, EPI) or with digital central bank money (managed by the European Union). To meet customer expectations, companies in the B2B sector should assess the relevance of SEPA Instant Payments and decide whether it is a suitable new payment method for their own customer group.
  2. Optimization of short-term cash management
    In corporate treasury, one particularly relevant use case for instant payments is the optimization of short-term liquidity management. With the immediate availability of funds and the precise real-time monitoring of payment flows, organizations can significantly streamline and improve their short-term liquidity management. Where real-time information on account balances and real-time payments is possible, the time-consuming and often inaccurate procedures of traditional cash forecasting will become largely redundant. Thanks to instant payments, treasurers can adjust their dispositions to the exact amount needed during the day, as they have a clear overview of the current financial status at all times and can set up future payments without lead time. Not only does this reduce administrative costs, it also minimizes the risk of liquidity bottlenecks and optimizes the use of available funds.
    In other words: Being able to see account balances in real time and making transfers in real time will not only make cash management more precise, but also independent of short-term forecasting. It will become a thing of the past to incur interest losses due to inaccurate cash management and forecasts. 
  3. Expansion of cash management
    A possible extension of SEPA Instant Payments to include “treasury payments” will add to the pressure for automation in the treasury. Having the option to send and receive high-value payments (> EUR 100,000) around the clock will create the need to extend treasury management outside of normal business hours. Simply put, SEPA Instant Payments, which are not restricted by the usual “bank opening hours” and the limitations imposed by the cut-off times of the settlement systems, eliminate the need for a treasury department to operate within conventional business hours. However, given that it is unrealistic to staff a treasury around the clock, the only long-term solution is to further automate trading and cash management processes (e.g. by defining rules or using robotic process automation).
  4. Enhanced transparency and security for international transactions
    Multinational companies often face the challenge of processing cross-border payments securely and transparently. Here, instant payments provide a solution by increasing the traceability and security of transactions. This could be useful, for example, for a multinational company that regularly imports goods from different countries, as it would benefit from instant confirmation and clear traceability of each transaction.
    Think of a company that imports goods from Asia and sells them in Europe. With instant payments, payments can be tracked in real time, minimizing the risk of fraud and errors. Not only does this increase security, but it also improves the efficiency of financial processes and provides a better basis for financial planning and risk management.

The above are just a few examples of how instant payments do more than just improve the efficiency and security of various business processes. Accordingly, integrating this technology can add significant value for corporate treasury.

Roll-out of instant payments: What treasurers need to know

The roll-out of instant payments requires careful planning and coordination. Practically speaking, treasurers need to work closely with IT departments and external providers to ensure that the technical requirements are met. Specific attention needs to be paid to several areas:

Technical integration: Instant payments will need to be seamlessly integrated into existing ERP and financial systems. In many cases, it will be necessary to modify existing software (e.g. payment runs) or adapt interfaces (e.g. creation of new payment formats for banks). This means that a company's IT department will play a central role in ensuring that the technical requirements are met and that the system is compatible with the various banks and payment service providers.

Scalability and performance: Instant Payments require an infrastructure capable of handling high transaction volumes and the speed of the payments. IT departments will need to ensure that the systems are scalable and remain stable and perform well under heavy use. It may be necessary to implement cloud solutions or other scalable technologies to achieve this.

Security and compliance requirements: IT experts need to make sure that all transactions are encrypted and protected against cyber attacks. Among other things, this involves implementing multi-factor authentication, conducting regular penetration tests and continuously monitoring systems for security vulnerabilities. Even though these security measures need to be in place in traditional payment systems, the speed and volume of instant payments requires an even more robust security infrastructure. This means that treasurers must ensure that their payment processes, for example, continue to meet transaction monitoring requirements. Such monitoring systems must detect and flag suspicious activity in real time. They need to be able to keep pace with the speed of real-time payments to ensure compliance and transaction security.

Collaboration with external providers: Third-party payment solution providers can provide specific technologies and expertise that are vital for implementing instant payments. This may include technologies for fraud prevention or compliance tools. Working closely with these providers can help ensure that all components work together smoothly and that the requirements of the new EU regulation are met.

Use of technology: It is essential to provide all employees with comprehensive training to ensure a smooth transition. IT departments need to make sure that treasury teams and other affected departments are familiar with the new systems and processes and know how to use them effectively. Organizations need to put strategies in place to effectively use and analyze the additional data generated by real-time payments.

Strategic orientation: At any rate, existing providers should also be critically scrutinized to see how innovative they are. Is the in-house payment service provider dealing with SEPA Instant Payments and WERO, and (when) will it be able to offer the new payment methods? How well is my TMS provider able to keep pace with new innovations on the part of banks, to automate processes, and at what quality and speed?

As you can see, there is indeed a lot to do. 

Conclusion: Opportunities and challenges

Instant payments offer numerous benefits. By making payments almost instantaneously, they can improve liquidity for businesses. It doesn't take a crystal ball to foresee a future in which instant payments are the norm. And that will reduce the need for large liquidity buffers, free up capital and enable faster receipt of funds in foreign currencies. What's more, real-time payments help to reduce the risk of payment defaults, as the immediate confirmation of payment receipts improves financial planning and risk management. However, real-time payments come with some new requirements for day-to-day treasury management and will prompt companies to offer new payment methods to their customers.

Of course, rolling out instant payments also presents challenges. It will be necessary to make significant investments to adapt existing IT infrastructures in order to handle the high transaction volumes and speed of the payments. Organizations will need to have robust and secure systems in place to manage risks appropriately. 

Source: KPMG Corporate Treasury News, Edition 145, July 2024
Authors:
Börries Többens, Partner, Finance and Treasury Management, Corporate Treasury Advisory, KPMG AG
Alexander Horn, Senior Manager, Finance and Treasury Management, Corporate Treasury Advisory, KPMG AG

_________________________________________________________________________________________________________________

cf. www.theclearinghouse.org/payment-systems/Articles/2024/04/RTP_Network_Breaks_Instant_Payments_Records_04-04-2024
2 cf. Regulation (EU) 2024/886; https://eur-lex.europa.eu/eli/reg/2024/886/oj
3 cf. What are instant payments? (europa.eu)
4 cf. Instant Payments: So setzen Banken die neuen Pflichten richtig um (kpmg.de)