Robust financial regulations are key for facilitating growth with instant payment providers
New regulations from the European Council this year have been introduced to support instant payments for consumers and businesses alike across the European Union (EU) and European Economy Area (EEA). The development comes after payment and financial crime service provider RedCompass Labs highlighted that banks and payment services alike will soon be implementing the technology required to facilitate regulation with an ambitious timeline.
This update for new instant payments regulations aims to improve the EU economic and financial sector by reducing excessive reliance on third-country financial institutions and infrastructures. Instant payment regulations will improve the transfer of money at any time of the day – including outside business hours across EU member states – which is key in boosting payment services for major financial inclusion for European fintech services.
Mike Shafro, chief executive officer at Xpate, agrees that this collaborative support for the financial industry will create a more efficient and effective solution for instant payments. “Whilst implementing the technologies needed to comply with the latest instant payment regulations may appear ambitious and present several challenges for financial institutions, this ongoing synergy between traditional banks and developing fintech companies is sure to drive the financial industry forward.
“Challenges for financial institutions include the need to upgrade legacy systems and integrate new instant payment solutions, ensure compliance with security standards and train (or retrain) staff to manage these new systems. Additionally, institutions have had to invest significantly in infrastructure to handle real-time transactions and continuous availability. However, collaboration allows traditional banks to leverage the agility and technological expertise of fintechs while in turn they can benefit from the banks’ extensive customer bases and regulatory experience.”
Shafro outlines that a primary focus for financial institutions leading up to the regulation’s implementation should be addressing the technicalities of instant payments outside of traditional business hours. “Transfers need to be delivered in quick succession – usually within 10 seconds – whilst performing all required checks, especially outside regular operating hours. This is a challenge that can be met with automated systems for time constraints, but striking this balance alongside the costs involved only creates more challenges to overcome for inexperienced institutions.
“Payment service providers located in non-euro area accounts may also convert currency and offer a limit to instant credit transfers. However, this exemption is only applicable during periods when these PSPs neither send nor receive non-instant credit transfer transactions in euros concerning such payment accounts. Applying equivalent rules by amending the regulation to domestic instant credit transfers is key to regulate cross-border and currency conversion, whilst keeping up to date with consumer and business needs.”
Shafro believes that payment service providers need to implement robust fraud detection systems as well to go alongside updated financial regulations, as consumer trust should be a key priority to maintain in this period of transition. “Consumers need reassurance that any and all transactions are securely fraud protected, which has a knock-on effect to increase their confidence in utilising instant payment services. This, coupled with the convenience and speed of instant payments, allows to customers feel better placing their faith in such systems, and underscores provider priorities of safety and service quality at reasonable costs.
“To maximise their benefit from this update to regulation, businesses should ensure that their payment provider partner of choice is taking steps to uphold the latest compliance and security needs, whilst onboarding the needed technologies that will best help their operations. It’s important that, in this crucial stage of transition for financial institutions, businesses pick and choose those instant payment providers that can provide the best support, tailored to cross-border or cross-currency conversations or 24/7 services dependent on what businesses find crucial to their operations.”
