SEPA Instant Go-Live: what we’ve learned (so far)

…And breathe. The first SEPA Instant Payments Regulation deadline is behind us. All EU banks must now be capable of receiving SEPA (Single European Payments Area) instant payments—unless they’ve secured an extension  

Before jumping into the next set of deliverables, now is a great time to pause and reflect on the lessons learned so far. 

We’ve been working with some of the world’s largest banks to help them navigate these regulations, and along the way, we’ve picked up a few valuable insights that could help you on your journey. 

Here, we’ll break down some of the most important lessons for banks.

Shift your mindset

One of the most defining characteristics of SEPA Instant is the 10-second service-level agreement (SLA) for processing payments. That is, banks must process an instant payment in 10 seconds or less—roughly the time it takes to tie your shoe. 

 Because of this tight window, the regulation removes the need to screen EU sanctions lists for individual transactions – if the payment meets the right conditions (i.e. Payments must be within the European Economic Area. Other sanctions list, such as the US OFAC (Office for Foreign Asset Control) list still apply). 

This process— a major time drain—is replaced with daily screening of the entire customer base against EU sanctions lists. It effectively pre-approves customers for transactions and saves crucial time. The issue, however, is that this approach hasn’t been universally adopted. This creates a bottleneck. 

If a bank continues to screen transactions for SEPA Instant Payments, any flagged as a potential hit will be automatically rejected to meet the 10-second SLA. This leads to a big increase in rejected payments. Every false positive in this process is discarded because there isn’t enough time to investigate further. 

This understandably causes some stress. In non-instant payments, such as a traditional SEPA Credit Transfer, a bank’s compliance team can manually intervene if a payment is flagged. This can be helpful because not every flagged payment is fraudulent. A hit could be due to a data-entry error or a customer having a name similar to a sanctioned individual. In these cases, the bank can ask for more information to verify the identity and proceed if they’re satisfied. But with instant payments, there simply isn’t time. 

If you want to keep your stress levels in check, you need to accept that some rejections are part of the system’s design. Do not try to intervene. It’s always safer to decline a payment than to risk processing a potentially harmful one. 

Once this is understood, focus on your customer experience. If a payment is rejected, the customer should be notified and, if possible, offered an alternative route—like processing the payment as a SEPA Credit Transfer. There’s no need to over-explain why the payment was rejected. Simply offer the next best option. If you use another scheme, like TARGET2, make sure your customers are aware that they will be charged more. 

This mindset shift is essential. It must be understood by every department in the bank including senior management. Train your teams. Prepare them for the operational realities of SEPA Instant. It is crucial for maintaining trust in your processes and of your customers.

Check yourself before you wreck yourself

Which brings us to the opportunity. Let’s say you’re experiencing an unusually high number of rejected payments, and you’d like to reduce them. How do you go about it?   

A large number of rejected payments likely means you have a large number of false positives. That may be a sign that your compliance and sanctions screening systems are out of sync. So, it’s worth taking a step back to review your bank’s rules and technology.  

Ask yourself: when was the last time you scrutinized your bank’s sanctions rules? Are there improvements you could make? New technologies on the market? 

With the recent advances in machine learning and AI, there’s a strong chance you can reduce false positives with targeted matching, all while maintaining regulatory compliance. 

The takeaway here is to regularly revisit your sanctions rules. As with all new exercises, the first time can be challenging. But once it becomes part of your routine, it gets much easier.

Bigger is better

Our third takeaway is linked to transaction limits. Or a lack thereof.   

The current rulebook sets a cap of €100,000 for SEPA Instant transactions. However, corporates are able to make SEPA Instant Payments exceeding this limit. So, to comply with the rules, some banks may reject anything over €100,000.  

There are two key lessons from this. The first is that there is clearly a big demand for SEPA Instant Payments. The scheme is in its early days and we’re already seeing an appetite for large transactions. An appetite that will surely grow. So, even though these payments are being rejected – there is a positive here (a false-positive, if you will).  

The second is that, if banks are to cater for these big payments, we need bilateral agreements for transactions above €100,000. If you do not want to process SEPA Instant Payments larger than €100,000, you should make it clear to other banks that this is your limit. 

Instant payments are always on

And our fourth and final observation is that the volume of ‘out of hours’ payments has been higher than initially expected.  

Some banks may have anticipated minimal or no transactions during late-night hours. But these expectations would be based on assumptions rather than actual management information. Before the scheme went live, there was no reliable way to gauge customer demand for instant payments outside of regular business hours. 

The higher-than-expected volume, however, demonstrates a clear and ongoing need for around-the-clock payment services. 

This, combined with the demand for larger transactions, leads us to our final lesson: resilient 24/7 systems are absolutely essential.  

Payment systems must be designed to handle unexpected spikes in demand, regardless of time or day. 

How to use these lessons:

Rejection is never easy. But when it comes to SEPA Instant payments, it’s part of the system’s design. Fortunately, there are proactive steps banks can take to manage rejections and ensure smooth operations moving forward. In sum: 

• Shift your mindset: Rejections are part of the SEPA Instant system. Educate your teams and align your processes to minimize stress and ensure smooth operations. 
• Focus on customer experience: When payments are rejected, proactively communicate with your customers and offer alternatives to maintain trust and loyalty. 
• Regularly review compliance rules: Revisit your sanctions screening processes to reduce false positives, leveraging AI where possible to streamline operations. 
• Prepare for future changes: With no transaction limits on the horizon, ensure your bank is ready to handle high-value payments – at any time – and capture more market share. 

The journey toward SEPA Instant is about more than just meeting deadlines. It’s about adapting, growing, and positioning yourself to meet customer expectations in a fast-evolving market. Address the challenges head-on, and you will thrive in the era of instant payments. 

I’m a bank struggling with SEPA Instant. What should I do?

Speak to RedCompass Labs. We’re currently helping some of the biggest banks on the planet meet the deadlines. We can assist with the Instant Payments Regulations and the Verification of Payee scheme if you’re in need. Reach out to the team today.