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SEPA Instant Payments Regulation Pressures European Banks Ahead of October Deadline
Banks across Europe are preparing for significant operational and financial adjustments as the SEPA Instant Payments regulation moves closer to full enforcement. Nearly half of banking institutions surveyed by RedCompass Labs anticipate losing millions in interest earnings due to the 24/7 liquidity requirements imposed by the new rules.
The regulation mandates that all euro-denominated credit transfers within the Single Euro Payments Area (SEPA) be processed instantly — at any time of day, throughout the year. As of October 2025, this will be a legal requirement across the EU. For banks, the transition brings new complexities around liquidity, compliance, and technology investment.
Round-the-Clock Liquidity Without Round-the-Clock Access
The requirement for continuous availability creates a fundamental challenge. While the SEPA Instant Payments scheme operates around the clock, the infrastructure many banks rely on — such as the European Central Bank’s Target2 system — is only open on weekdays from 07:00 to 18:00 CET. To maintain instant payment capabilities during off-hours, banks must rely on the Target Instant Payment Settlement (TIPS) system.
This means keeping central bank accounts pre-funded at all times. Funds that might otherwise generate returns through lending or investment must sit idle to ensure payment readiness. The cost of borrowing from central banks also adds to the burden. For financial institutions already facing margin pressure, these idle balances and opportunity costs represent a real concern.
RedCompass Labs surveyed 300 senior payments professionals, and 93% of them indicated that liquidity management under the new system is a significant concern. Almost half said they are “very concerned,” particularly as the planned removal of the €100,000 transaction cap makes liquidity forecasting even more difficult.
Operational Adjustments and Risk Mitigation
In response to these new demands, banks are making changes to their internal frameworks. Nearly half of those surveyed are increasing their liquidity buffers, effectively tying up more funds to guarantee payment readiness. Two in five institutions are adapting their risk management strategies to account for unpredictable outflows, while many are also turning to bilateral agreements to set transaction limits with counterparties.
Compliance is another area receiving attention. Sanctions screening under the 10-second processing requirement has already led to a 30–50% spike in payment rejections, according to over half of the respondents. With financial crime compliance timelines compressed, many banks are looking to artificial intelligence to streamline processes.
Two-thirds of respondents indicated they are either deploying or planning to deploy AI tools to reduce false positives and speed up transaction monitoring. These tools are aimed at ensuring that legitimate payments are not blocked unnecessarily while maintaining a high level of scrutiny on potentially risky transfers. The need for speed is balanced against growing regulatory expectations for accuracy and accountability.
Technology Investments and Infrastructure Upgrades
To meet the technical demands of SEPA Instant, many banks are upgrading their core systems. Around half of those surveyed are overhauling their fraud and sanctions screening systems to better cope with higher transaction volumes, especially during evenings, weekends, and holidays when staffing may be reduced.
Investments are also going toward improving internal APIs, enhancing platform interoperability, and developing contingency planning for system downtimes. In some cases, banks are even reworking their customer communication protocols to clarify instant transfer limitations during unusual hours or under high-volume conditions.
These upgrades reflect the broader trend of digitization within the financial sector. While fintech firms have long operated with agile, real-time capabilities, traditional banks are still catching up — particularly in areas where legacy systems and compliance requirements present integration challenges.
Costs vs. Benefits: A Strategic Shift
Despite these challenges, the majority of European banks appear to support the long-term direction of the SEPA Instant Payments initiative. Over 80% of those surveyed believe the benefits of instant payments outweigh the associated costs.
Faster payments are seen as a way to improve customer satisfaction, reduce settlement risk, and support new revenue streams. Moreover, as real-time payments become standard globally, lagging behind could put European banks at a competitive disadvantage — both within Europe and in cross-border commerce.
The transition also supports wider policy goals aimed at harmonizing financial services and enhancing the EU’s position in the digital economy. The move toward instant settlement aligns with efforts to reduce fragmentation and build a more integrated financial infrastructure across member states.
Confidence in the October Timeline
Although nearly half of the institutions admitted difficulty in meeting the earlier January compliance deadlines, 85% of survey participants said they remain confident in their ability to meet the October milestone.
The lessons learned during the first phase of implementation are proving useful, with many banks now more aware of the areas requiring the most urgent attention — such as liquidity forecasting, payment screening, and back-end system upgrades.
What remains to be seen is how smaller institutions, which may lack the resources of larger banks, will fare under the same requirements. Collaborative models, shared liquidity pools, and partnerships with fintech providers may become more common as a way to offset high compliance costs.
A Turning Point for European Banking
The SEPA Instant Payments regulation marks a significant shift in how money moves within the European Union. While the changes introduce technical and financial pressures, they also encourage greater efficiency and modernization in an industry that often moves slowly when adapting to new technologies.
For banks, the task now is to maintain agility under pressure, continue investing in scalable solutions, and find ways to turn compliance costs into service advantages. In doing so, they may find that adapting to SEPA Instant is not just a regulatory requirement, but a foundation for future growth in a faster, more responsive financial system.
