A new legislation agreed by the Council of the European Union will enable businesses and consumers in all EU and EEA nations to make rapid payments in the euro.

The new rule aims to lessen what the union refers to as "excessive reliance" on financial institutions and infrastructures in other countries, enhancing the strategic autonomy of Europe's economic and financial sectors. This would include American companies with a global presence in the payments processing industry, such as Visa and Mastercard.

Controlling immediate payments: Advantages for Europeans

In fact, this extensive legislation will promote quicker and more effective cash flows, which will benefit businesses and citizens alike by enabling the development of fresh, cutting-edge value-added services.

According to the EU Council, a new quick payments law will enable citizens to transfer money between EU member states and inside the same nation in under 10 seconds, day or night, even outside of regular business hours.

Although transfers will primarily target the euro (€), they will also take into account the unique characteristics of entities outside of the euro region.

Following the regulation's adoption, all payment service providers—banks being the most prominent—must incorporate sending and receiving quick payments within their regular euro credit transfers.

The fees associated with money transfers cannot exceed those associated with regular credit transfers.

According to the EU Council, these new regulations will take effect following a transition period. In the euro area, this period is projected to be shorter, and in the non-euro area, longer, as the latter requires more time for adjustment.

"The move in Europe to ensure euro money transfers arrive within ten seconds can enable merchants and corporates to optimize their liquidity, resulting in more efficient cash management," says Laurent Descout, the founder and CEO of Neo, in response to the declaration made by the EU Council.

This implies that companies can also cut transaction and working capital expenses by having a quicker settlement lag and a more seamless reconciliation procedure.

"In the end, this new regulation will benefit businesses and customers in Europe by bringing about more ease and choice. Corporates will find it easier to enter many more markets with significant growth potential if they have instantaneous cross-border payments.

"Businesses of all sizes will be able to take advantage of new technology to enhance their treasury operations and enjoy the benefits of instant payments with the right partners."

New specifications for PIEMIs

By amending the Settlement Finality Directive (SFD), the legislation specifically allows payment and e-money institutions (PIEMIs) to access payment systems.

After a transitory time, these firms will be legally obligated to provide the service of sending and receiving fast credit transfers.

The EU Council emphasizes that the rule has the necessary protections in place to make sure that PIEMIs' access to payment systems doesn't put the system at further danger.

Furthermore, in accordance with the rule, instant payment providers must confirm that the beneficiary's name and IBAN match in order to notify the payer of any potential errors or fraud before a transaction is completed. Regular transfers will also need to comply with this criteria.

A review provision in the most recent law mandates that the European Commission provide a report that includes an assessment of the evolution of credit charges.

It implies that banks and payment service providers will soon need to deliver instantaneous, fee-free euro payments that may be sent and received in less than ten seconds.

"While this is fantastic news for businesses and consumers in Europe, banks will have significant challenges in implementing the technology within the very ambitious schedule.

To quickly solve these issues, they will need to evaluate their digital capabilities quickly and collaborate with their counterparts and service suppliers.

"Banks need to provide their business clients with surcharge-free file-based rapid payments as soon as possible. This implies that a significant increase in throughput will be required from payment service providers, even those who can already process payments instantly.

"When the beneficiary's account is not denominated in euros, banks will also need to figure out how to enable an instant currency conversion."

"It will be very difficult for banks to handle the technical feasibility of FX markets after business hours because they are not designed for a round-the-clock environment."