New EU Law: Mandatory Payee Verification for All Instant Payments and SEPA Transactions

This March marked the start of the implementation deadlines for the new EU regulation concerning instant payments. It is aiming to ensure that all citizens and businesses with an account in an EU or EEA country are provided access to instant payments in Euros. The core objective of the Instant Payments Regulation is to make real-time payments safer, smoother, and faster, ensuring that banking customers incur no higher costs than for traditional online transfers. This intends to eliminate barriers to instant payments and energize the entire payments sector with real-time payment technologies.


Enhanced Security Measures for Transactions

As part of enhancing security, the regulation introduced a mandatory check between the IBAN and the account holder’s name, initially discussed in the industry as the ‘IBAN Name Check’ now included in the legislation as “Verification of Payee” (VoP).

Further details of the regulation are now known, which will have a drastic impact on banks and Payment Service Providers (PSP).

1. Changes to the Instant Payment Process
Further adjustments require that the response from the recipient bank must be processed within the allowed ten seconds of the payment process. This poses significant challenges and introduces new risks for banks, especially those that have already integrated an instant payments process, due to its profound impact on transaction processing.

2. New Name and Details for the Mandatory Security Check
The designated check is now known as Verification of Payee (VoP), where a verification between a IBAN and the name of the account holder will occur. Optionally, Payers can also provide an additional identifier.

3. Mandatory VoP for All SEPA Transactions
Anticipating the PSD3 and PSR directives, VoP will become mandatory not only for real-time payments but for all SEPA transactions with the EU’s Instant Payments regulation.

In countries where most payments are already made instantly, such as the United Kingdom and the Netherlands, a security check similar to VoP, known as Confirmation of Payee (CoP), has been introduced and become a standard. It is widely adopted by major European banks like ING, NatWest, Deutsche Bank, ABN Amro, and many others, proving to be an effective measure against payment fraud and errors.

A globally functioning solution that meets all known VoP requirements and leads the market in several European countries is SurePay’s IBAN-Name Check. Over 150 European banks and hundreds of organizations are already directly connected, and through a partnership with Swift’s payment validation service, the fintech also leverages their extensive global validation network of 11,500 institutions in more than 200 countries. This IBAN-Name Check is tailored to meet all VoP requirements, including bulk payments.

Timeline for Implementation of New Requirements

The final version of the EU regulation on Instant Payments was published in the Official Journal in March 2024, and the implementation deadlines have begun. VoP must be live by no later than October 2025. Specifically, for accounts in Euros:

• Banks and Payment Service Providers have 9 months to become reachable for instant payments.

• Within 18 months, they must fulfil the obligation to be able to send instant payments in all euro countries.

Banks and PSPs must now dig in and address the complexities of VoP solutions, considering whether to develop their own solution or integrate an existing, operational solution. By making the right choice, they can secure additional advantages today, positioning themselves as pioneers with advanced features, differentiating from competitors, and ensuring long-term competitiveness.


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