Real-time payments: The innovation opportunity many banks are missing

SEPA Instant promises faster, 24/7 payments across Europe, but with few banks ready, urgent investment is needed to meet rising demand and regulatory deadlines.

Instant payments have emerged as a widely adopted benchmark over recent years, capable of reshaping customer expectations and business operations across various sectors. Consumers and businesses globally have become accustomed to immediate, secure and – most importantly – 24/7 payments. As Europe accelerates this transformation with its own SEPA Instant mandates, a concerning gap has emerged. At current estimates, fewer than 5% currently possess the robust infrastructure needed to comply with the mandates, which took effect early this year. While the deadline to receive euro-denominated instant payments has already passed, banks now have until October to meet the requirement to send these payments.

These figures are incredibly low. In today’s convenience-driven society, SEPA Instant is expected to drive significant change in the European payments landscape. With fund transfers settled within 10 seconds and available 24/7, the regulation represents more than a technological upgrade. Instant transfers are a response to customer expectations for speed, security and reliability in financial transactions, and by the end of the year, demand for credit transfers via instant payment solutions is expected to rise from 19% to 40%, according to SBS Software research.

It isn’t just consumers who are set to benefit. I’ve witnessed firsthand the increased efficiency and faster transactions that SEPA Instant offers banks, which will, in turn, stimulate economic activity and enhance liquidity for businesses and consumers both within and outside Europe. Additionally, banks can attract and retain more customers by offering enhanced payment services.

Many banks are also potentially underestimating the impact of this shift. SEPA Instant isn’t a regulatory box tick, but an opportunity to reimagine and redefine the European payment sector. This represents a meaningful opportunity for banks to demonstrate leadership. Yet, the current low level of preparedness should serve as a wake-up call, as the consequences of inaction will be significant.

The root cause of the readiness gap

Three key, interconnected elements primarily contribute to this problem. These include outdated infrastructure, integration challenges, and a general underestimation of the magnitude of the changes.

Regarding the first point, these legacy issues are the banks’ major roadblocks, as their systems are unable to withstand the speed, volume, and security required for real-time payments. Investment in new technology is essential, as existing infrastructure is insurmountable.

Integrating instant payments with existing systems can be challenging. Setting up secure connections, complying with anti-money laundering (AML) measures, and preventing fraud are essential, but they also add layers of complexity.

Ultimately, many banks significantly underestimate the processing capacity required for real-time payments. Research from RedCompass Labs shows European banks are typically aiming to process only 100-300 payments per second, while the reality of bulk payment files demands at least 1,000 payments per second. Such a capacity gap could create severe bottlenecks as demand for instant payment volumes grows. Another challenging operational element is the need for 24/7 availability, which demands an overhaul in how banks traditionally function. The impact of transitioning from a 24/5 to a 24/7 operating environment on intraday liquidity will necessitate further adaptation in how banks manage liquidity, with implications for the availability of funding at the Central Bank and even in money markets. Staffing patterns must be shifted, with round-the-clock support and accelerated tempo changes that could disrupt entrenched banking cultures.

Pathways to seamless adoption

While these hurdles are significant, there are straightforward solutions that can be implemented effectively. Success demands a multi-faceted approach that begins with a thorough infrastructure assessment. Banks must identify integration gaps, processing capacity limitations, and compliance vulnerabilities before making targeted investments. For some institutions, this will mean a complete modernisation of payment systems, while others might benefit from tactical deployments, such as stand-in modules, that ensure continuity during the transition.

The verification of payee (VoP) requirement represents another challenge that must be addressed by October, adding further pressure to banks. Systems that verify the IBAN matches with the intended recipient’s name – notably a feature not previously mandatory in SEPA credit transfers – are now compulsory. Selecting solution providers with seamless integration capabilities and comprehensive geographic coverage is crucial in creating distinctive customer experiences that differentiate banks in an increasingly competitive environment.

While the path ahead presents challenges, SEPA Instant offers all banks a strategic opportunity to truly innovate and differentiate themselves from the rest. Banks that approach this mandate with vision will transform it from an obligation into a strategic opportunity for leadership. After all, corporate clients stand to benefit enormously from these innovations, gaining payment certainty, operational efficiency, and potential cost savings through the elimination of interchange fees associated with card payments.

SEPA Instant represents a concerted effort to enhance the euro’s international role and increase the interoperability of European P2P and P2M solutions, providing a value-added service to individuals and merchants across the EU. Banks that invest strategically in this space will be well-placed to shape industry dialogue and influence future developments in payments. SEPA Instant is just the beginning of customer-centric solutions that will separate leaders from followers.