'Instant' bank payments to become an EU-wide reality

Most people will have encountered a situation in which making a bank transfer from one bank account to another has seen the payment delayed for several days, with the funds apparently suspended in the ether before completion. 

But that is about to change, as the European Parliament (EP) passed a regulation last week that will ensure that transferred funds reach the bank accounts of individuals and businesses across the European Union (EU) immediately. The regulation will also mandate improving the security of transfers. 

Many European banks, including those in Latvia, already offer instant payments, which means that the transferred money reaches the recipient instantly. However, some banks offer instant payments as an additional product that costs more than regular money transfers.

This is largely explained by the fact that the short transaction time makes it more difficult for banks to carry out checks aimed at preventing fraud or money laundering.

The European Commission (EC) proposed new legislation in 2022 to make this service mandatory. The EC argued that this would put billions of euros into circulation that cannot be spent by individuals or businesses because they are held in transit via payment systems. At that time, the EC estimated that around 200 billion euros get stuck in the financial system every day.

Last November, the EP, the EC and the EU Council agreed on the final draft of the immediate payments regulation, and a week ago it was supported by an overwhelming majority of members of the European Parliament.

The regulation stipulates that from now on all non-cash payments in euros will take no longer than 10 seconds, and instant payments can be made at any time of the day, and on any day.

In addition, these payments will be able to be made from one EU or European Economic Area member state to another.

MEP Michiel Hoogeveen from the Netherlands, who is vice chair or the Committee on Economic and Monetary Affairs, was involved in the creation of the legislation, and emphasized that the new rules will make the everyday life of EU citizens easier.

"This is something very concrete that Europeans really care about in their daily lives. Have you ever wondered why a shipment from an online retailer reaches you faster than a payment from a friend in another EU member state? Why we can send emails all over the world in seconds, but a payment from Belgium to Latvia still takes two to three working days?" asked Hoogeveen.

"Our payment system is based on a system created in the 1980s. With the regulation on instant payments, we are finally entering the 21st century. It is high time that instant payments become a reality: for European citizens, as they will be able to use simpler payment options; for European businesses costs will decrease; and European payment services will become more competitive," the MEP explained.

EU Commissioner for Financial Markets Maread McGuinness also emphasized that instant payments are important for all citizens and businesses.

"Instant payments have a really powerful impact. Consumers can easily avoid late payment penalties and manage their household budgets more efficiently. Businesses get better cash flow, which is very important for small and medium-sized businesses. Retailers have more payment options that allow them to offer better service to clients, including immediate refunds. Non-governmental organizations and charities can receive contributions more quickly, especially when funds are urgently needed in crisis situations. The public sector also has advantages in terms of cash flow and tax revenue collection," said McGuinness.

The regulation also requires payment transfer providers to put in place robust and up-to-date fraud detection and prevention measures to avoid money transfers going to the wrong account by mistake or maliciously.

The European Consumer Organization sees the adoption of the new regulation as good news for Europeans. The organization emphasizes that in the future, consumers will be able to send and receive instant money transfers for the same price as regular money transfers, and in most cases it will be free.

On the other hand, banks are not so happy about the new EU regulation. The European Banking Federation said last year that the decision on whether to offer instant transfers and how much to charge for them should be left to the market.

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