Data: Banks to lose millions in interest due to SEPA Instant
New research from RedCompass Labs, the global experts in payments modernisation, reveals that nearly half of European banks (47%) expect to lose millions in interest due to new liquidity demands under the SEPA Instant Payments Regulation.
The findings come from “Inside Europe’s race to Instant Payments”, a survey of 300 senior payment professionals in European banks. The report is released as the industry races to meet the October compliance deadline, when instant euro payments will become mandatory across the EU.
One of the biggest challenges banks face is liquidity. SEPA Instant requires 24/7/365 processing, but the European Central Bank’s TARGET2 system—used for wholesale payments and liquidity management—only operates on weekdays between 07:00 and 18:00 CET. As a result, banks must pre-fund their accounts in the TARGET Instant Payment Settlement (TIPS) system to ensure liquidity during evenings, weekends, and holidays.
This is expensive for banks. Idle funds held in central bank accounts tie up capital that could otherwise be deployed for lending or investment. Borrowing from central banks (such as through the marginal lending facility) incurs costs. And transferring money from interest-bearing accounts or market investments into TIPS reduces potential earnings.
The planned removal of the €100,000 transaction limit will make this more difficult. Higher limits make it harder for banks to predict how much money they need. Nearly every bank surveyed (93%) expressed concern. Almost half (48%) said they are “very concerned”.
To prepare, nearly half (47%) of banks are increasing their liquidity buffers, while a similar number (46%) are upgrading their fraud and sanctions screening tools to handle higher volumes at odd hours. Two in five banks (44%) are adjusting their risk management frameworks, and 43% are setting up bilateral agreements to set limits with other banks.
Sanctions screening is set to be another big challenge. Over half (54%) of banks reported a surge in rejected payments tied to sanctions screening under SEPA instant. Most see a 30-50% increase due to requirements to clear payments in 10 seconds. To keep up, two-thirds (66%) of banks say they plan to use AI to reduce false positives in sanctions screening, while a similar number (65%) are investing in tools to improve the speed and accuracy of transaction monitoring.
Despite the pressures, over eight in ten banks (82%) believe the benefits of SEPA Instant outweigh the costs (up from 71% last year).
Other key findings include:
- Banks struggled to meet January deadlines: Nearly half (44%) of EU banks struggled to meet the first European Instant Payments Regulation deadlines in January.
- Increasing demand: Every EU bank has experienced growing demand for instant payments, particularly from corporate clients. 56% saw corporate demand grow, 27% experienced growing retail demand, and 17% said they felt demand from both had increased.
- Rising fraud risk: Nearly eight in ten (77%) banks believe SEPA Instant will lead to increased fraud. Over nine in ten (93%) say Verification of Payee (VoP) will help—but most agree it won’t be enough on its own.
- Interest beyond the EU is growing: Just over half (51%) of banks say they are very likely to prioritise SEPA Instant readiness for non-EU countries ahead of the 2027 deadline. Another 41% say they’re somewhat likely.
- ISO 20022 migration still in progress: 39% say they’ve completed migration, while 43% are still working on it.
- Banks are more optimistic this year: 85% believe the October deadline is realistic—up from just 42% last year. 82% now say the benefits of SEPA Instant outweigh the costs, up from 71% in 2024.
“SEPA Instant is a transformative opportunity for commerce and society, but it brings serious operational and financial challenges,” said Pratiksha Pathak, head of payment services at RedCompass Labs.
“With 24/7 payments now a reality, banks must rethink how they manage liquidity and risk in a world where weekends and holidays are no longer downtime. And with the €100,000 cap set to be removed, how much liquidity is enough? €300 million? €600 million? €1bn?
“Imagine it’s a Saturday evening and multiple high-value instant payments hit your system. What then? The ECB isn’t open. But instant payments are. If your TIPS account is underfunded, you’ll be forced to reject payments, and that hits your customers, your brand, and your bottom line. You can’t top up until Monday morning.
“That’s the risk banks are now grappling with. And while many are focused on avoiding fines, a failed payment is more than a compliance cost. It’s a blow to trust and reputation.
“However, the banks see and support the growing benefits of instant payments across Europe. For individuals, small businesses, and large corporations, and the broader boost to the economy and financial inclusion.