New Regulations Effective October 9: Enhanced Protection for Bank Customers in Instant Transfers
Starting October 9, new EU regulations will take effect, aimed at providing greater protection for bank customers during instant money transfers. These regulations come as a response to the increasing need for security and accuracy in fast financial transactions.
Instant payments, which allow for money to be transferred within seconds, have been technically feasible in Europe for almost eight years. However, beginning on the specified date, banks will be required to facilitate such transfers for their customers without exception. In addition, new EU mandates will be introduced to safeguard consumers against fraudulent activities and processing errors during these transactions.
What is an Instant Payment?
Traditionally, banks collected and processed payment orders in batches, often resulting in delays, particularly for online transactions. Instant payments, however, promise to transfer funds from one account to another within ten seconds, available 24/7, including nights and weekends.
Are Instant Payments Already Available?
Since January 9, 2025, European banks have been required to credit received funds directly to the recipient's account, regardless of the day or time. The fees for these instant transfers must also not exceed those of traditional transfers. The new regulation adds an obligation to send money instantly if the customer opts for this service.
How Will Instant Transfers Be Made Safer?
Starting October 9, banks will need to verify the recipient's name and the provided International Bank Account Number (IBAN) against the target account's information before authorizing a transfer. Customers will receive immediate feedback regarding the verification results, empowering them to decide whether to proceed with the transfer.
Why Is This Being Implemented?
Previously, customers relied solely on the information received via invoices or emails, leaving them unable to assess the accuracy of these details. With the upcoming changes, banks will provide transparent data checks between institutions, enhancing customer confidence in their transactions.
What Does the Verification Process Look Like?
Upon initiating a transfer, customers will receive one of the following responses within seconds:
- The name and IBAN match
- The name and IBAN are almost correct (with the correct name provided)
- The name and IBAN do not match
It is important to note that discrepancies may not always indicate fraud. For instance, if a payment is made to a business that operates under a different name, the bank might flag this as a mismatch.
Customers will have the autonomy to decide whether to proceed with the transfer based on the bank's feedback, bearing the associated risks themselves.
Will There Be Additional Costs for the Verification Service?
The European Union stipulates that the new verification service should not incur additional fees for customers. According to the Banking Association, neither the sender nor the recipient will bear the costs of the verification process.
What Happens if I Make a Mistake in a Transfer?
If an error occurs, it is crucial to act quickly. Customers should immediately contact their bank if they suspect fraud. If the funds have already been credited to the wrong account, a request for a reversal can be made. The sending bank will then coordinate with the receiving bank to retrieve the funds, though there is no guarantee of recovery.
What Legal Framework Supports This Verification?
The verification process, known as Verification of Payee (VOP), is part of an EU regulation (EU 2024/886) designed to enhance security, especially in online banking. This verification will also be implemented at bank branches when customers submit transfer orders. By July 9, 2027, these regulations will be applicable throughout the entire European Union.
Where Will These New Rules Apply?
The verification process will apply to SEPA transfers and SEPA instant transfers between payment accounts within the Eurozone. The Single Euro Payments Area (SEPA) includes the 27 EU member states, as well as the UK, Norway, Liechtenstein, Iceland, Switzerland, Monaco, Andorra, Vatican City, and San Marino. The IBAN (International Bank Account Number) aims to standardize and expedite transfers, direct debits, and card payments across these 36 countries.
While non-EU countries such as Iceland, Liechtenstein, and Norway may choose to adopt the EU verification requirements, there will be no such obligation for transfers to and from the UK or Switzerland.