Introduction
Instant processing and settlement of payment transactions has been a long-desired goal of the payment industry for quite some time. The reliance on a few decades old legacy payment infrastructure requires participants in the payments market to wait from couple of hours to couple of days for their funds to be completely transferred to the payee’s account, which modestly put does not sit quite well with the digital reality that the financial services industry is operating in.
In recent years, some banks and payment institutions have rolled out instant payment service for their customers, primarily as part of their premium packages or in exchange for a small additional processing fee.
Aiming to make instant payments widely accessible for EU residents, the EU lawmakers have adopted the Instant Payments Regulation which introduces new obligations for PSPs operating in the EU.
What is the Instant Payments Regulation?
The Instant Payments Regulation (IPR) is a piece of EU legislation that is directly applicable across the EU Single Market, which has introduced as of 9 January 2025 an obligation on all payment service providers (PSPs) operating in the EU to put in place systems enabling them to receive instant credit transfers.
In accordance with the new regime, credit transfers denominated in Euro must be processed in real time in a way that ensures that the funds can be credited to the payee’s account within 10 seconds of initiation. Consequently, PSPs are required to enable their customers (payment service users acting as either payers or the payees) to send and receive euro-denominated instant credit transfers. Further, payment service providers are prohibited from charging higher processing fees for instant credit transfers than ones they charge for standard credit transfers.
In addition to the above-mentioned instant payment obligation, PSPs will also be obliged to offer their customers (payers) free of charge a Verification of Payee (VoP) service for both instant and non-instant credit transfers.
What is the VoP service?
The VoP service enables payers to verify a payee’s name and IBAN prior to authorising a credit transfer, thereby mitigating the risk of fraud (where for instance, a customer receives falsified invoice from a person claiming to be a known merchant) and incorrect transfer execution. It runs based on an automated system that allows initiating PSP (acting on behalf of the payer) to send a verification request (VoP request) to the PSP acting for the payee. The payee’s PSP immediately thereafter sends a response to the initiating PSP which can be: (i) match; (ii) close match; (iii) no match; (iv) other. Where there is no match or a close match, the initiating PSP decides whether to proceed with the transfer or not. Under the IPR, the entire process is expected to take not more than 5 seconds.
For the purposes of the proper functioning of this framework, the European Payments Council has developed designated application programming interface (API) and the EPC Directory Service (EDS) which the relevant information for the VoP service can be accessed.
PSPs can perform VoP service either by themselves or through specialised technical service providers, the so-called routing or verification mechanisms (RVMs). Due to the high technical complexity of this service, it is expected that RVMs will play an essential role in the VoP Scheme with many PSPs relying on their service. Hence, finding a trustworthy licensed RVM and establishing a proper cooperation agreement with it on time, has been a key priority for many PSPs in the recent period. The EPC maintains a central data base of all approved RVMs.
Timeline
As of today, 9 October 2025, all PSPs operating within the Eurozone (i.e. banks, payment institutions and e-money institutions) are required to offer the VoP service to their customers in accordance with new requirements. For PSPs operating in EU Member States whose currency is not euro, this obligation will start to apply as of 9 July 2027.
Conclusion
The IPR will undoubtedly open a new chapter in the history book of the payment services industry in the EU, making the access to instant payments a new normal, rather than a special feature that is reserved for premium payment account holders.
On the other hand, when it comes to VoP requirements, whilst they aim to improve payment security and reduce fraud is very welcome and necessary, their implementation poses significant challenges that could strain both PSPs and their technology partners. The ultimate impact that this new framework will leave on the payment services industry in the EU will depend on whether the industry can overcome these implementation hurdles and deliver a VoP ecosystem that genuinely protects payment users without introducing new friction points in the European payments market.
