Instant payments in the EU: UniCredit expert tells all

instant payments in the eu

Last modified on May 10th, 2024

eStill rarely used in B2B transactions, instant payments offer many opportunities to businesses. Speed, efficiency, instant cash flow… They can have a significant impact on operational efficiency and financial management. Luca Vanni, Payment and Cash Management expert at UniCredit sheds light on instant payments’ main benefits for EU businesses, as well as the associated risks.

For more insights and best practices, download Trustpair and UniCredit’s latest white paper about Instant Payments.

  • Could you present yourself? What is your expertise and experience in terms of payments? How do you specifically interact with instant payments?

I am a part of the payment and cash management team at UniCredit and work specifically on innovation and payment solutions for the group’s clients. My area of expertise  is innovative products that are API-based and go under the umbrella of Open Banking. I also work proactively on the regulatory aspect of payment products like the DSP2 regulation for example.

My goal is to offer the right interfaces for our corporate customers here in Italy. We act as third-party providers – between the regulation and our customers -. We ensure they can benefit from the latest API-based technologies per the latest regulations.

UniCredit started working on this type of product in 2019. We went beyond the existing regulation and started to focus on inter-banking groups to develop innovative products for our customers. We wanted to create added-value products and services based on APIs. The first example was IBAN Check, which is a good example of a valuable product that is a win-win for everyone.

Everything started with COVID-19 in fact. The Italian Ministry of Finance was handing out funds to people who couldn’t go to work because of the shutdown. Unfortunately, it was hard to know if you were paying the right person. Any fraudster could just change the banking details to receive money.

That’s why the government asked to develop a service to prevent operational risk. The first service was IBAN Check: we checked the consistency between all banking information available.

IBAN Check started as a way to help the government. But in the end, we understood the potential it had and moved to a more global offer for corporate customers. It was a huge success: the market was – and still is – looking for this type of product because fraud rates keep on going up. This is where instant payment comes into play.

Corporate and private customers alike are looking for more efficient and instantaneous payments. For corporates, instantaneous payments mean instant treasury. Unfortunately, this also comes with risks. Funds are exchanged in a few seconds: this means all the controls are made in that period. And for the paying account, in a few seconds, the funds have left your bank account. If there was a mistake in the IBAN – a wrong copy and paste – or a fraud, the funds are already gone, it’s too late.

 

  • What are the advantages of Instant Payment for companies? What will it bring to businesses?

Compared to regular wire transfers in Europe, the main advantage is that it’s 24/7. It’s always available. If you need to send funds after business hours, during the weekend, or on bank holidays, you can.

This is something that you can’t do at the moment with standard transfers. For businesses, it’s for sure a great advantage.

Right now there are still some limits but they will soon disappear with the European law that will be implemented shortly. Instant payments are still expensive in some banks and have strict amount limits. It will soon become mandatory to offer less expensive instant payments and more and more banks will be involved.

The percentage of instant payments vs normal payments will rise in the coming months and years. On top of everything, the new regulation will lower instant payment fees: right now fees are higher than normal transfers. This will change with the regulation.

I believe instant payments will soon become the preferred method to pay: rather than credit cards and other types of transfers. It’s going to become a habit, for individuals and businesses alike!

 

  • Can you tell me more about the Instant Payment regulation in Europe?

Yes, it’s being voted on right now and should be implemented in all European banks by the end of the year. This means all EU banks will have to be able to receive instant payments by 2025. Of course, that’s only step 1, there will be different steps.

The second step will be the price reduction. I think this should happen at the beginning of 2025 as well.

The third step will be taking action against the possible fraud risks that come with instant payment and making payee verification mandatory. Banks will probably have to offer the possibility for the payer to check the consistency between the payee’s account, name, IBAN, etc. They’ll have to offer this functionality to clients who can then decide if they want to pay or not.

 

  • What are the risks of instant payments for businesses? Have you already seen businesses that lost money to instant payments?

Fraud rates are going up. Unfortunately, it’s normal. The more instant payment is used the more fraud will happen. The verification of the payee will be useful to limit these risks and make sure the person or company receiving the funds is the right one. It’s definitely going to help our customers in the long run.

Currently, instant payment is one of the privileged methods of payment for fraudsters. It’s easy for them to receive money in a few seconds on a bank account, then close the bank account, send the funds elsewhere in a few seconds, etc.

It’s the preferred way for them to operate. On top of that, when you do a normal transfer you have about 10 hours to revoke the payment. So you can double-check if the payment details were right, and if the beneficial information was right, etc. It’s a way to have a second level of control.

But with instant payment, the payment is done in a matter of seconds and there’s no way you can get back the funds in these seconds if you realize you’ve made a mistake in the banking data.

 

  • What would be your advice to companies, to face these risks?

I think companies should take advantage of instant payments. It will simplify their processes, give them better access to cash flow, etc. However, they should increase their level of control to be sure of who they are actually paying. Do they know the beneficiary? Is it a beneficiary they’ve already paid?

For new beneficiaries, companies should integrate specific systems in their ERP or TMS – like Trustpair – to verify the data before authorizing or sending any payment. Using this type of solution also means you don’t need to use 10 different data providers. You can centralize all your controls on one platform.

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