Banks Anticipate Interest Losses Yet Remain Optimistic About Sepa Instant Benefits
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Nearly half of European banks reported that they expect to lose significant interest income due to new liquidity requirements under the Sepa Instant Payments system. However, the majority indicated that they believe the long-term benefits of the regulation will outweigh the associated costs.
As banks prepare for the mandatory rollout of instant euro payments across the EU, RedCompass Labs stated that the industry is actively working to meet the new requirements. The firm also reported that it surveyed 300 senior payment professionals at European banks to gather insights on their readiness and concerns.
Liquidity Management And Cost Pressures Intensify Under Sepa Instant Requirements
One major challenge, experts said, is managing liquidity. They explained that while Sepa Instant requires 24/7 payment processing, the Target2 system — used for large-value payments and liquidity management — only operates on weekdays during specific hours.
As a result, banks said they are required to pre-fund their accounts in the Target Instant Payment Settlement (TIPS) system to maintain liquidity during evenings, weekends, and holidays.
This setup, banks noted, imposes a high cost. They stated that idle funds held in central bank accounts cannot be used for lending or investment. Additionally, borrowing from central banks incurs fees, and transferring money from interest-bearing accounts or market investments into TIPS leads to lost earnings.
According to the survey, the planned removal of the current transaction limit is expected to worsen the situation. Respondents said that higher transaction amounts make it more difficult to estimate how much liquidity to set aside. RedCompass Labs reported that 93% of banks expressed concern, with 48% stating that they are “very concerned.”
Banks Strengthen Systems And Embrace AI To Tackle Sepa Instant Challenges
In preparation, nearly half of the banks said they are increasing their liquidity buffers. Others stated that they are upgrading fraud detection and sanctions screening systems to manage the higher volume of off-hours transactions.
Some respondents mentioned adjusting their risk management frameworks, while others reported establishing bilateral agreements to set transaction limits with partner banks.
Sanctions screening was also highlighted as a major obstacle. Over half of the banks surveyed said they had seen a rise in rejected payments linked to sanctions checks. Most of them reported a 30–50% increase, which they attributed to the requirement to clear payments within 10 seconds.
To address this, many banks said they plan to adopt AI tools to reduce false positives and improve the speed and accuracy of transaction monitoring.
Despite these challenges, over 80% of the banks surveyed said they believe the benefits of Sepa Instant outweigh the costs. While nearly half acknowledged difficulties meeting earlier implementation deadlines, 85% stated that they are confident in their ability to meet the upcoming one.
