Instant payments are set to become the ‘new normal’ with the EU Parliament’s decision to require Payment Service Providers (PSPs) that currently offer SEPA (Single Euro Payments Area) credit transfers to also offer SEPA instant credit transfers to their customers, at the same price.
In addition to the provision of instant payments, PSPs are expected to offer clients the possibility to confirm account names and numbers through the Verification of Payee (VoP) service, prior to executing the transfer.1 This requirement will be mandatory for both instant and regular SEPA credit transfers from October 2025.
When consumers or businesses make payments, the Verification of Payee informs them if the money is going to the right account. Before they transfer the funds, they can check that the name on the recipient account matches the person or business they intend to send the money to, so funds end up in the right place.
The Verification of Payee scheme is a set of rules, practices and standards to achieve interoperability for the provision and operation of verifying payment account numbers and names of the payment counterparties, between participants of the scheme within SEPA.
The payer’s PSP should perform such service immediately after the payer provides the IBAN and Name of payee and before the payer authorizes the credit transfer. The responding PSP (payee side) should match the information received from the payer’s PSP with their own records and provide a response back to the payer’s PSP as one of the following options: Match, Close Match with the Name of the Payment Counterparty, No Match or Match/verification check not possible. It is at the discretion of each responding PSP to determine a matching result. These rules apply to the name of the payment counterparty (payee), related to both natural persons and businesses.
Conceptual workflow of a VoP request
All SEPA member PSPs are expected to provide the VoP service by October 2025, for both SEPA instant and non-instant credit transfers. The implementation of this service will require technical as well as non-technical efforts from both sides - the payer’s (Requesting PSP) and the payee’s (Responding PSP) PSPs. Refer to the European Payment Council’s VoP scheme rulebook.
The Requesting PSP should enhance their payment origination channels (eBanking, App) so the customer can provide IBAN, name of payee and potentially, an unambiguous identification code (e.g. value-added tax (VAT) number, Legal Entity Identifier (LEI), social security code) of that payee. This can be verified by the payee’s PSP. The payer’s PSP shall display an appropriate outcome and provide the customer with an option to proceed or terminate payment request. PSPs will also need to build new application programming interfaces (APIs) to access the VoP scheme.
The Responding PSP will also need to make changes to their IT landscape to accept the incoming VoP API requests and build the necessary name matching algorithms (as per the European Payment Council’s VoP scheme rulebook2), to instantly verify whether the received data matches the data registered for the payee in question with the Responding PSP and provide an API response back to the Requesting PSP.
The VoP service must be available 24/7, with a maximum execution time of three seconds, which means the Requesting PSP must have received the VoP response from the Responding PSP within three seconds or less.
PSPs should expect significantly high volumes of VoP services, as it will be mandatory for all SEPA instant and non-instant credit transfers.
Based on our experience in Europe (UK, Netherlands) and Asia where the VoP service has been operating for some time, we have identified common focus areas that contribute to the overall implementation success.
Review of IT application and infrastructure: When implementing the Verification of Payee, it is important to consider complexity of implementing VoP for all payments initiation channels, high volume of anticipated VoP requests together with the requirements to ensure 24/7 availability, a transfer time of less than three seconds (ideally one second) and the demanding implementation timeline – by October 2025.
Developing new capabilities to request and respond to VoP: PSPs should develop additional API interfaces to request/respond to VoP requests and implement high performance name-matching algorithms, investing in data validation and enrichment, in preparation for future high transaction volumes. Rather than building the capabilities from scratch, PSPs should evaluate the buy/rent options, where readily available solutions can help meet the challenging timeline.
Changes to customers’ payment journey: The introduction of the Verification of Payee scheme will potentially transform the payment journey from being a unidirectional process to an interactive process, adding a new step to the user journey, while making processes more secure and reliable. PSPs need to implement this change in such a way that it does not create additional friction.
Conclusion
It is important to approach this new requirement with utmost care, due to the demand to complete VoP requests within just three seconds and the tight implementation timelines. The VoP rules will impact the entire (front to back) systems and processes, particularly within customer services, ordering channels, core banking, payment processing systems, IT infrastructure and legal/contractual matters. In addition, data integrity becomes paramount, as firms must ensure that matching algorithms are performing the necessary checks and interfaces are able to communicate the outcomes.
For PSPs starting to build an instant payment/ VoP offering, Capco can help with end-to-end transformation programs. This includes:
PSPs who are already offering instant payments and looking to leverage their technical infrastructure to meet the new regulatory requirement, will benefit from Capco’s extensive knowledge of VoP implementations in other geographies and our relationships within the fintech community offering off-the-shelf solutions.
Contact us to discuss potential solutions and take advantage of our impact assessment offer of your instant payments and the Verification of Payee compliance readiness.
REFERENCES
1 https://eur-lex.europa.eu/legal-content
2 https://www.europeanpaymentscouncil.eu