Impact of Instant Payments in the EU

Who isn’t happy to receive money faster?

Sending money? Different story. 

In early 2025, European banks were required to receive payments instantly, until in October a new regulation took place requiring them to send them instantaneously too. Where once banks had the authority to process money transfers at their discretion, they now must transmit payments immediately, 24 hours a day, seven days a week. This has tremendous implications not only for payments systems, but also for business models that relied on delays in the transmission and delivery steps of the process.

In 2017, the United Kingdom introduced the Faster Payments system, requiring money transfers to happen within seconds, albeit with some limitations (banks are only required to facilitate transmissions of fewer than GBP 1 million, and may choose to apply lower limits for some customers). In the eight years since this system was introduced, transaction volumes have increased by 270%, confirming the value recognized by both consumers and merchants.

Prior to the new instant payment requirements, the broader availability of rapid transmissions resulted in instant payments growing from 5% of all transactions to some 18%. The industry expectation is that this will grow rapidly post-October 2025. 

This makes intuitive sense for consumers and merchants alike; the rapid delivery of funds acts as an accelerator for deals, reducing the risk of deals falling apart as payment makes its way through the financial system.

Instant Payments in the EU Hit Business Models 

As appealing as instant payments are for consumers and merchants, they introduce new and very real challenges for banks and related financial institutions. In the first instance, simply building and maintaining the infrastructure necessary for such rapid operations is an expensive and technically challenging proposition: the new EU regulations for instant payments mean that banks must be able to deliver large sums at any time of the day or night, even when the bank is nominally ‘closed’.

Perhaps more challenging is liquidity management: to keep the books properly balanced, banks must reassess their capital requirements to ensure they always have liquid assets available to respond to large, unanticipated requests. And from a profitability perspective, banks will no longer be able to inject pauses in the process between decrementing funds from one account and delivering them to another: the ‘free float’ of money in the process of moving from one entity to another is now effectively a thing of the past. 

Given that the EU instant payments rules do not permit banks to charge additional fees for the service, they are all working on creative ways to cover the infrastructure upgrade costs through other fees and service charges (for instance, in their currency conversion rates).

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Fraud Becomes Greater Risk 

An essential element of the instant payment offerings in the EU is that they are not reversible: once payment is delivered, the transaction is considered closed. As a result, when funds are transferred between consumers and merchants, there is limited recourse to unwinding fraudulent transactions. 

The EU regulations have introduced some guardrails in this regard, requiring instant payments to match IBAN details exactly; this should help prevent consumers from being tricked into delivering funds into accounts that appear to be, but are not, those of reputable merchants.

Meanwhile, the growth of machine learning (ML) and artificial intelligence (AI) could not be coming at a better time. With the growth of instant payments and the requirement to complete transactions instantly and at any time of day or night, banks are installing sophisticated systems that can detect even the most sophisticated schemes. 

To put this into context, Visa’s AI fraud detection system was able to identify 54% of the fraudulent transactions attempted in the UK Faster Payment system that had somehow eluded the fraud systems of the banks involved. While offense always eventually defeats defense, rapidly evolving ML systems are quickly identifying and denying access to fraudulent schemes as quickly as criminals can conceive and deploy them.

New approaches that were unheard of—and frankly unnecessary—even a few years ago are now being deployed, including:

• Behavioral Biometrics: pattern recognition systems that analyse the activities of individuals, or groups of, accounts, looking for unusual series of events and flagging them for delay and evaluation.
• Dynamic Scoring Engines: systems that track all the transactions traversing the payments infrastructure, seeking out anomalous patterns that may signal the emergence of a new fraud - and stopping it in its tracks.
• Distributed Fraud Checks: not just at the banks, but also in payment gateways, and even on the devices initiating transactions, preventing, for instance, unauthorized users from sending themselves money from someone else’s smartphone.

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Positive Impacts of Instant Payments in the EU 

Although the cost and resource intensiveness of the instant payments rules have been a challenge for banks and related financial institutions, the impact on consumers and merchants has been unequivocally positive:

• Convenience: money can be moved from individual to individual (or between individuals and businesses) at any time, ensuring funds are in the right place at the right time, even when the banks are closed.
• Improved Business Cash Flow: individual businesses can access the money paid to them instantly, and enjoy simpler reconciliations, as payments entered into the books are immediately reflected in bank accounts.
• Reduced Fees: because PSPs and banks are not allowed to charge additional fees for instant payments, businesses are able to move money quicker at lower effective rates.

For consumers, there is the added benefit that banks now have meaningful ways to improve their offerings and create differentiated services. Where once the only real difference between two high street banks might have been interest rates and the location of fee-free ATMs, with instant payments banks can compete based on, for instance, the superiority of their online or in-app experience, or by creating novel ways to share money between connected groups.

Merchants who want to make the most of the instant payments revolution in the EU need to ensure they do everything they can to encourage its use. This includes collecting, storing, and reusing payment information to reduce friction in sales. In an environment where the exact match between, say, the recipient’s name and the IBAN associated with their bank account is critical to successful transactions, merchants need a system that can operate effectively even when something goes wrong: for instance, when a transaction is rejected because of a misspelling, the payment system should be able to pause, request an update, and retry the deal.

That said, storing consumer personally identifiable information (PII) can require a significant investment of time and money, as any breach or hack can not only cost consumers money, but have a massive impact on the merchant’s reputation and its ongoing relationship with the payments ecosystem. 

For this reason, innovative EU merchants, who are already more likely than not to have contracts with multiple payment service providers, are increasingly turning to programmable payments vaults as the foundation of their payment systems. 

A programmable payment vault can collect and securely store consumer information, providing the merchant with a token that can then be used to transmit payment instructions to the merchant’s preferred provider. Taking the risk and cost of data collection and storage out of the daily list of worries gives merchants time and space to focus on what they do best: sourcing, marketing, and selling world-class products and services.

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