EUROPEAN COMMISSION Brussels, 26.10.2022 SWD(2022) 546 final COMMISSION STAFF WORKING DOCUMENT



IMPACT ASSESSMENT REPORT

Accompanying the document Proposal for a

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Regulations (EU) No 260/2012 and (EU) No 2021/1230 as regards instant credit transfers in euro











{COM(2022) 546 final} - {SEC(2022) 546 final} - {SWD(2022) 547 final}



Contents 1.Introduction 1.1.What are instant payments? 1.2.Political context 1.3.Legal context 2.Problem definition 2.1The problem: insufficient uptake of euro IPs 2.2Consequences of the problem 2.2.1Unrealised benefits and efficiency gains from IPs 2.2.2Limited choice of means of payment at PoI, in particular cross-border 2.3Problem drivers 2.3.1Driver 1: Insufficient incentives for PSPs to offer euro IPs (market failure) 2.3.2Driver 2: Dissuasive transaction fees for IPs 2.3.3Driver 3: High rate of rejected IPs due to false hits in sanctions screening 2.3.4Driver 4: Payer concerns about security of IPs 2.4How will the problem evolve? 2.5Problem Tree

3Why should the EU act? 3.1Legal basis 3.2Subsidiarity: Necessity of EU action 3.3Subsidiarity: Added value of EU action 4Objectives: What is to be achieved? 4.1General objective 4.2Specific objectives 5What are the available policy options? 5.1.What is the baseline from which options are assessed? 5.2.Description of the policy options 5.2.1.Increase the supply of IPs in the EU 5.2.2.Address dissuasive fees for euro IPs compared to alternative payment means 5.2.3.Simplify and enhance the efficiency of the sanctions screening process for euro IPs 5.2.4.Increase payer confidence in euro IPs with regard to the risk of fraud and errors 5.2.5.Options discarded at an early stage 6What are the impacts of the policy options and how they compare? 6.1Increase the supply of IPs by PSPs 6.2Address dissuasive fees for euro IPs compared to alternative payment means 6.3Simplify and enhance the efficiency of the sanctions screening process of euro IPs 6.4Increase payer confidence in euro IPs with regard to risk of fraud and errors

7Preferred option 7.1Effectiveness 7.2Efficiency 7.3Coherence 7.4Summary of impacts of selected options 7.5“One In One Out” 7.6Climate and sustainability 7.7REFIT (simplification and improved efficiency) 8How will impacts be monitored and evaluated? Annex 1: Procedural information Annex 2: Stakeholder consultation Annex 3: Who is affected and how? Annex 4: Sanctions screening Annex 5: Payer concerns about security of IPs Annex 6: Background on functioning of instant payments in EU and globally Annex 7: EU non-cash payments market and characteristics of PSPs providing credit transfers in euro Annex 8: Reduction of payment float Annex 9: Background on the functioning of cross-border transfers in the EU Annex 10: Network effects in payments



Glossary Term or acronym Meaning or definition AML Anti-Money Laundering (Directive (EU) 2015/849 of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing) API Application Programming Interface (software allowing communication between different applications or systems) APP fraud Authorised Push Payment fraud, a type of fraud in which the payer (an individual or a business) is tricked into authorising a payment to a fraudster posing as a genuine payee CBPR Cross-Border Payments Regulation (Regulation (EU) 2021/1230 on cross-border payments in the Union (codification) CEGBPI Commission Expert Group on Banking, Payments and Insurance, a group in which the Commission consults experts appointed by Member States Credit transfer Payment service as defined in Article 4(24) of Directive (EU) 2015/2366 (PSD2) and in Article 2(1) of Regulation (EU) No 260/2012 (SEPA Regulation) CSM Clearing and Settlement Mechanism EBA European Banking Authority EFIP European Forum for Innovation in Payments, a platform for exchange of views by payments stakeholders set up by the European Central Bank and the European Commission to contribute to increased economic efficiency and a deeper Single Market by fostering the development of an integrated, innovative and competitive EU market for retail payments EPC European Payments Council, a private law association of banks and other payment service providers, founded in 2002, which functions as a decision-making and coordination body of the European payments industry, and with the main task of the development of SEPA GDPR General Data Protection Regulation (Regulation (EU) 2016/679 of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data) ICS International Card Schemes (e.g., American Express, Discover, Mastercard, Visa, etc.) IP Instant payment, a credit transfer which arrives on the payee’s account within ten seconds of the sending of a payment order by the payer PISP Payment Initiation Service Provider, a PSP offering the service of payment initiation, as defined in Article 4(15) of Directive 2015/2366 (PSD2) Payment scheme A single set of rules, practices, standards and/or implementation guidelines agreed between payment service providers (PSPs) for the execution of payment transactions across the Union and within Member States, and which is separated from any infrastructure or payment system that supports its operation PSP Payment Service Provider, a provider of payment services as defined in Annex I of Directive 2015/2366 (PSD2), such as a credit institution, payment institution or electronic money institution Point of Interaction (PoI) A place where goods or services are purchased from a merchant, either a physical point of sale (a brick and mortar shop, self-service terminals, etc.) or an e-commerce website P2P Person to Person (payments) PoI solutions Payment solutions (e.g. mobile phone application, instant messaging system) which allow initiation of IPs at PoI Point of Sale (PoS) A physical Point of Interaction (in a brick and mortar shop, self-service terminals, etc., but not in ecommerce) PSD2 Second Payment Services Directive (Directive (EU) 2015/2366 of 25 November 2015 on payment services in the internal market) PSMEG Payment Systems Market Expert Group, a group of stakeholders consulted by the Commission composed of representatives of payment service providers and users, as well as payments experts RPS Retail Payments Strategy, Commission Communication COM/2020/592 final of 24 September 2020 on a Retail Payments Strategy for the EU SEPA Single Euro Payments Area (Regulation (EU) No 260/2012 of the European Parliament and of the Council of 14 March 2012 establishing technical and business requirements for credit transfers and direct debits in euro and amending Regulation (EC) No 924/2009) SCT Inst. SEPA Instant Credit Transfer Scheme SFD Settlement Finality Directive (Directive 98/26/EC of 19 May 1998 on settlement finality in payment and securities settlement systems) Uptake The percentage of euro IPs in all euro credit transfers effected in the EU by volume 1.Introduction 1.1.What are instant payments? Instant Payments (hereafter IPs) are a form of credit transfer, whereby the funds pass from the account of the payer to that of the payee in a matter of seconds, at any time, day or night, and any day of the year. This distinguishes IPs from regular credit transfers, where the funds must be credited to the payee by the end of the business day following the day when the payer ordered the transaction and the transaction amount was debited from the payer’s account. IPs are also distinct from card payments, in the case of which it can take up to 48 hours for funds to be credited to the account of the payee and where a payment guarantee is usually provided to the payee (e.g. a merchant) for this interim period. IPs are a major technological innovation in payments, as they allow releasing funds that are locked in the ‘back-office’ of the financial system and making them immediately available to end users - citizens and businesses in the EU - for consumption and investment. IPs also offer opportunities for EU banks and fintechs to develop new Point of Interaction (PoI) solutions (e.g. mobile payment applications on smartphones), which would contribute to increasing the choice of available payment means, in particular for cross-border payments at PoI. Such new payment solutions have the potential to provide convenient and efficient additional alternatives to (i) cash in person-to-person payments (P2P, e.g. splitting a bill in a restaurant); (ii) cash and payment cards in physical shops, and (iii) payment cards in e-commerce. IPs are available in approximately 60 countries worldwide and are under development in others. In the EU, the infrastructure for IPs in euro and in all other EU currencies already exists and is used by EU payment service providers (PSPs) to a varying degree. This infrastructure firstly consists in a set of harmonised rules and procedures (a ‘Scheme’) agreed by PSPs, allowing them to process payments instantly. The only scheme for euro IPs is called SEPA Credit Transfer Instant Scheme (SCT Inst. Scheme), launched in November 2017, managed by the European Payments Council (EPC). Most schemes for other EU currencies have been largely based on the EPC scheme, with a licencing agreement, and are thus very similar. The second relevant infrastructure is the settlement system: PSPs have access to various payment settlement systems, such as the ECB’s TARGET IP Settlement service (TIPS), which ensures pan-European settlement of euro IPs. Instant settlement systems for other EU currencies also exist, although some non-euro IPs are settled or will soon be settled in TIPS. Within the EU the provision and use of euro IPs remains patchy. In certain Euro area Member States, euro IPs are very popular, in particular for payments between private persons (P2P transfers). In other Euro area Member States only certain PSPs can send/receive euro IPs and the usage is limited. Finally, in yet other Euro area Member States and all non-Euro area Member States, euro IPs are practically not available. IPs in national currency other than euro are useful for domestic transactions within one Member State. However, it is not possible to use them to send and receive cross-border IPs between any two Member States (within or outside the Euro area). Being able to make and receive cross-border payments within the EU as easily as domestic payments is at the core of the integration of the internal market for retail payments. Thus, only IPs in euro are the subject of this impact assessment. The growth in the number of PSPs offering euro IPs has been too slow since the end of 2018 and the volume of euro IPs currently stands at 11% of all euro credit transfers. IPs can bring significant benefits to citizens and businesses in the EU (summarised in box 1 and with more detail in section 2 below). These are however impeded by the slow roll-out of euro IPs in the EU. Against this background, this impact assessment examines whether there is a need for EU legislative action and analyses the impacts of available solutions. BOX 1 Benefits of IPs ·Convenience for citizens and businesses, receiving due money instantly ·No longer any need for a (costly) payment guarantee for merchants ·Release of billions of euro locked in the financial system for productive use ("float") ·Improved cash-flow for businesses and public administrations ·Stimulus for innovation in the development of new solutions for merchant sales (PoI) and electronic person-to-person payments ·Potential cost savings for merchants which could be passed on to consumers ·Faster dispatch of purchased goods (compared to when payment is made by regular credit transfer) ·Greater opportunities for payment fintechs to deliver mobile payment apps ·More choice among payment means / services, particularly with respect to cross–border payments at PoI (indirect benefit, subject to emergence of IP-based PoI solutions) ·Increased resilience of the EU retail payments systems ·Accelerated and improved fiscal receipts and other societal benefits 1.2.Political context In 2018, in its Communication Towards a stronger international role of the euro, the Commission supported IPs as a means to reduce risks and vulnerabilities in retail payments in the EU and increase the autonomy of existing payment solutions. In its Retail Payments Strategy for the EU (RPS), adopted on 24 September 2020, the Commission announced that it would assess whether it is appropriate to prepare an initiative aiming for a prompt, full uptake of IPs in the EU. The public consultation carried out in the context of the development of the RPS revealed significant support for such an initiative, which was then included in the Commission Work Programme for 2022. In its ECOFIN conclusions of 22 March 2021 the Council noted that “most domestic payment solutions based on cards or IPs currently do not work across borders, which can constitute an obstacle for cross-border payments in shops and e-commerce”, considered that “the lack of interoperability between existing national solutions, schemes and infrastructures, which is also linked to the lack of EU-wide common standards in some areas, contributes to fragmentation in the EU retail payments market” and in particular highlighted “the objectives (of the RPS) of promoting the widespread use of IPs.” Moreover, in its Conclusions on the EU’s economic and financial strategic autonomy: one year after the Commission’s Communication adopted on 5 April 2022, the ECOFIN Council referred to the Commission’s intention to present a legislative initiative on IPs in 2022, recalling the objective to “foster the development of competitive homegrown and pan-European market-based payments solutions”, and stressing “the importance of defining and effectively implementing a framework for an independent, efficient, well-functioning, open and autonomous “European payments area.”

MEPs from the four largest political groups (EPP, S&D, Greens and Renew) expressed their broad support for the RPS’ focus on the full roll out of IPs in the EU during a FISMA webinar organised on 17 March 2021. Universal availability of euro IPs is necessary to update and modernise the project of the internal market integration for euro retail payments, branded as the Single Euro Payments Area (SEPA). SEPA strives to allow European consumers, businesses and public administrations to make and receive cross-border payments in euro as easily as domestic payments, and to allow people to use their existing payment account in their home Member State to receive their salary or pay bills between different Member States. The SEPA project was launched in 2002, prompting the European banking industry to create the EPC which, at the request of the European Commission and European Central Bank (ECB), committed to developing, in close dialogue with all stakeholders (including merchants and consumers), harmonised rules and procedures for executing euro payments (so called ‘SEPA schemes’). The SEPA scheme for euro credit transfers was launched in 2008, for SEPA direct debits in 2009 and for the instant version of SEPA credit transfers (IPs) in 2017. Within the EU, the SEPA Regulation requires all credit transfer and direct debit transactions denominated in euro to meet conditions which in practice only the SEPA schemes currently meet. PSP communities outside the EU may also apply to be included in the SEPA geographical scope in order to benefit from a possibility to execute cross-border transactions also outside the euro area more quickly and cheaply (if only denominated in euro). PSPs in all EEA countries and six non-EEA countries (Andorra, Vatican City, Monaco, San Marino, Switzerland, and most recently the UK) have seized the opportunity to join the SEPA geographical scope. Also, plans for Ukraine to join the Scheme to facilitate cross-border payments have been announced recently. Payment services play a key role among digital financial services, being at the cutting edge of innovation. The full roll-out of euro IPs in the EU would be consistent with initiatives laid out in the Commission’s Digital Finance Strategy for the EU adopted on 24 September 2020, aimed at promoting digital transformation of finance and the EU economy and removing fragmentation in the Digital Single Market, such as the European Digital ID Wallet or digital euro. At international level, the G20 targets on payments speed include the objective of having, by the end of 2027, 75% of global retail payments being credited within maximum one hour. The present initiative would contribute to the EU achieving the G20 objectives. 1.3.Legal context Regulation (EU) No 260/2012 (the SEPA Regulation), concerns only two types of payment services (credit transfers and direct debits) denominated in euro. It set a deadline by which all EU PSPs were obliged to offer regular credit transfers and direct debits in euro under the same, harmonised rules. Based on a decision of the European legislators that SEPA should extend to the entire EU, these rules also apply to PSPs in non-Euro area Member States, if they decide to offer credit transfers or direct debits in euro. Those rules were largely based on the schemes developed by the EPC in 2008 and 2009. The 2012 SEPA Regulation did not oblige PSPs to start offering euro IPs as they did not exist at the time, being first launched in 2017. Directive 2015/2366 on payment services (PSD2) concerns eight types of payment services (credit transfers and direct debits included) in all EU currencies. It sets out, inter alia, rules about the information that PSPs have to give to consumers and about the rights and obligations of payment service providers and users. A review of the application and impact of PSD2 is ongoing and the results are expected in the first half of 2023. Regulation (EU) 2021/1230 on cross-border payments (CBPR) equalises charges between cross-border payments in euro and the corresponding domestic payments in national currency of an EU Member State, offered by any PSP within the EU. Thus, the Regulation already requires that PSPs offering euro IPs apply the same charges for a cross-border euro IPs as for the corresponding domestic IPs in national currency (whether euro or otherwise). 2.Problem definition 2.1The problem: insufficient uptake of euro IPs As of the fourth quarter of 2021, four years into operation of the SCT Inst. Scheme, the estimated uptake of euro IPs was only 10.97%. It varied considerably by Member State, as shown in the chart below. Chart 1 - Uptake of euro IPs by volume as % of all euro credit transfers by Member State Thus, only around one in ten euro credit transfers effected in the EU is an IP. In terms of overall transferred value, the percentage is even lower, only around 2% (EUR 1.6 trillion) in 2020. The current uptake level reflects mostly the high level of domestic euro IP transactions in some Member States. Importantly, the dispersion of the uptake of euro IPs across Member States is markedly wide, underscoring the untapped potential to achieve a considerably higher uptake at European level. Whereas in May 2021 the uptake of euro IPs in five Member States exceeded the EU average significantly (i.e., Estonia 67%, Lithuania 45%, Spain 38%, Latvia 29% and the Netherlands 24%); in a number of other Euro area Member States (France, Portugal, Germany, Slovenia) the uptake was only between 1% and 4%, it was negligible in Austria, Italy, Cyprus, Ireland, and Malta, and non-existent in Greece and Slovakia. Considered as a percentage of all electronic payment transactions in the EU (i.e. not only credit transfers but also including other payment means), the share of IPs is even lower. Even in Member States with relatively high uptake of IPs, usually carried out via dedicated online or mobile banking apps such as Bizum in Spain, retail purchases at PoI using electronic means of payment remain dominated by card-based payments. Card transactions represented approximately 50% of all non-cash payment transactions in the EU in 2020. In 2018, the two most commonly used International Card Schemes (ICS), Visa and Mastercard, handled 69% of card payment transactions in Europe. Moreover, ICS card payments constitute almost all of the cross-border card payments in the EU. More information on the shares of various non-cash payments instruments in the EU payments market can be found in Annex 7. 2.2Consequences of the problem Two consequences are discussed in this section: (i) unrealised benefits and economic efficiency gains from the wider use of euro IPs, and (ii) limited choice of means of payment at PoI, especially cross-border. Regarding these consequences, it is important to distinguish two types of situations in which IPs can be made. The first situation is where IPs are initiated by the payer (consumer or corporate user) through online banking or in a branch, for a variety of reasons (P2P payments between individuals, payment of invoices etc.). The second is IPs at PoI made for the purpose of consumers purchasing goods or services from a merchant; they can take place online or in a physical point of sale. The first consequence discussed below concerns both situations, while the second applies particularly for IPs at PoI. The development of cross-border solutions for making payments at PoI (such as mobile payment applications) or the interoperability of existing national solutions is facilitated, but not directly dealt with, in the present initiative. The wider availability and use of IPs, which the present initiative aims to achieve, should, together with other relevant initiatives discussed in Section 7.3, act as a catalyst and stimulant for the development of such PoI payment initiation solutions.

2.2.1Unrealised benefits and efficiency gains from IPs Macro level unrealised benefits Funds which are in transit in a payment system between the payment accounts of the payer and the payee (known as ’float’) are not available for spending or investment by payment service users. It is estimated that at any given day, an amount of 187 billion euro is locked in the financial system in this way, using regular euro credit transfers or cheques (see Annex 8 for further analysis of payment float and impacts of its reduction). If IPs were to become universally used, these funds would become immediately available for economic use, either consumption or investment, thus contributing to growth. Unrealised benefits for EU citizens Citizens can benefit from IPs directly, in their capacity as senders or beneficiaries of credit transfers, and also indirectly, in so far as other economic actors, such as merchants, fintechs or PSPs, can pass on to them some benefits from IPs which accrue to them, or use IPs for the development of new goods and services. As regards the direct benefits for citizens, as payers or payees of credit transfers, the growing digitalization of modern societies has led consumers to expect everything to be available in real time. This behavioural change concerns also payments. It is no longer commonly accepted that a bank transfer can take up to two business days to be credited to the beneficiary, not counting additional delays due to weekends and public holidays. As society moves towards real-time, digital ways of interacting in all spheres of life, EU citizens expect payments to match this new reality. Thanks to the near immediate speed (less than 10 seconds), with which the funds are transferred, users of IPs can see their real-time account balance before and after making a payment (helping with better management of finances and avoiding falling into overdraft), or meet last-minute financial obligations (e.g. pay a forgotten bill in time to avoid late payment penalty), which is in particular important for low-income households. This expectation of immediacy is underlined by the consumer feedback to the open public consultation on IPs. All consumer organisations and an overwhelming majority of individual consumers who responded expect credit transfers to be credited to the beneficiary within seconds (88%) and at any time, i.e., 24/7/365 (90%). The demand for round-the-clock credit transfers is confirmed by the fact that already now, as many as 33% of all euro IPs are requested by payers between 6pm and 6am, time during which regular credit transfers are not processed by PSPs. The same trend can be observed outside the Euro area. The call of the European consumer organisation BEUC on the industry and regulators “not to promote slow finance”, and to ensure that IPs “become the new normal for credit transfers” and are “adapted to different use cases, such as payment in shops” reflects the expectations of EU citizens when it comes to payments. IPs can also enable the governments and public authorities to provide support to households in crisis situations in near real time, including on weekends (e.g., see Annex 6 regarding experiences in Australia). The indirect benefits to consumers of IPs would arise from the availability of more efficient and affordable payment solutions available to merchants, on the hypothesis that PoI solutions would be developed to allow the use of IPs for purchase of goods and services, including cross-border. There are concrete examples of industry efforts to set up such solutions based on IPs. Currently, merchants do not usually receive real-time electronic payment for goods and services and consider fees for acceptance of ICS payment cards to be high (see following section). Merchants’ potential cost savings resulting from more affordable payments could be passed on to consumers in the form of lower retail prices, while the improved cash-flow enabled by IPs could enable merchants to improve services to consumers, such as expedited refund services. Unrealised benefits for EU merchants The full realisation of the benefits of IPs to merchants are to a large extent contingent on the development of IP-based PoI solutions by the market, which would work for both domestic and cross-border transactions. The wider use of IPs which the present initiative aims to achieve is expected to trigger the development of such solutions, or to promote interoperability of the existing ones, within a short timescale. The potential benefits to merchants from using IPs fall into two categories: higher speed and lower cost of receiving payments for goods and services sold. As regards speed, with the currently available means of payment (cash, cards, cheques, regular credit transfers), liquidity management for merchants is a major issue and can hinder management of stock and other assets. Currently, the only way the merchant can send goods or provide services immediately after payment is by means of card payment schemes or Payment Initiation Service Providers (PISPs) offering a payment guarantee or similar service to the payee, although actual funds reach the merchant's bank account on average one to two days later. If merchants were to receive the funds immediately on their accounts, it would improve their liquidity and cash flow management, and enable them to, for example, immediately re-invest the funds received from customers in restocking, buying the necessary materials, and so on. As regards costs, 92% of merchant respondents to the open public consultation stressed the importance of the potential cost savings that would result from lower fees on IP PoI solutions compared to other alternatives (e.g. cards). The payment means currently widely used with merchants all have very high costs: ·Cash comes with substantial costs related to theft, human error, handling (need to manually reconcile cash payments at the end of the day); transporting and depositing it safely, etc.; ·Cards (in particular provided by ICS), as well as ICS-based mobile payment applications are expensive for merchants to accept. According to merchants, the costs associated with accepting ICS cards have been increasing due to the increasing scheme fees (see section 2.2.2). ICS-based mobile payment applications may result in higher merchant fees than regular card payments as they can add their own margin on top of interchange and scheme fees and acquirers’ margins. For instance, PayPal merchant fees can reach up to 3% of the transaction value processed. According to a recent research of the Irish and UK markets, costs are among the top three concerns for merchants associated with card payments. ·Cheques are by far the most expensive payment instrument still in use in several European countries (e.g., France, Italy, Spain, Portugal, Malta): 1 386.4 million cheques were issued in the euro area in 2020 (and 1 387.4 million in EU27), with an estimated average cost to the society of EUR 3.55 per transaction, compared to EUR 1.92 for credit transfers. Moreover, cheques cannot be used in other Member States as there is no cross-border mechanism to settle them. The potential for cost savings for merchants resulting from the use of IP-based PoI solutions is confirmed by other countries’ experience. For example, the Brazilian PoI solution based on IPs, PIX (see Annex 6) costs an average of 0.22% of a transaction’s value for merchants, whereas debit cards cost slightly above 1% and credit cards reach 2.2%..

Unrealised benefits for corporate users related to liquidity management Similarly to merchants, all corporates can benefit from better liquidity management as a result of receiving payments instantly instead of with a delay of hours or even days. Studies show that over 50% of payments to EU companies are delayed by 10 days or longer and that the issue is in particular acute for SMEs as they tend to get paid later than large companies. 95% of SMEs in Western Europe and 89% in Eastern Europe say that they are paid late. While these delays are first and foremost caused by late payment by debtors, the slower processing of multiple successive regular credit transfers by PSPs could further exacerbate the problem of late payment to an ultimate beneficiary at the end of a long supply chain. IPs or IP-based solutions would not remove the root cause of the delays, but would contribute to mitigating their impacts. As a result of delays in the availability of funds to the beneficiary, an average of 63% of businesses in the EU maintain a cash contingency to cover the time it takes to receive payments. The relevance of this issue was confirmed by the majority (77%) of retailer respondents to the open public consultation who noted the importance of ensuring instantaneous availability of funds 24 hours a day, any day of the year. Similarly, 77% of all respondents to the consultation thought that IPs would enable corporates to manage their cash flows more efficiently. Unrealised benefits for Payment Service Providers and payment fintechs Under-utilisation of IPs can lead to considerable untapped gains for EU PSPs. On the eve of the development of the SCT Inst. Scheme, the EPC, which represents the EU PSP community, stated that “Payment Service Providers (PSPs) could use their instant payment infrastructure (where available or planned) as a springboard to develop other 24/7/365 financial services and products to serve their customers better and attract new clients”. In a similar vein, ECB argued that “since the early announcement of IPs, it has been argued that the main economic incentives for PSPs to bear their investment cost is to strengthen their competitive position and to introduce cost efficiencies by replacing existing payment instruments that are more costly, e.g. cheques”. 90% of respondents to the open public consultation on the provider side (PSPs, technical service providers, payment systems) who expressed their opinion on the matter considered that IPs could positively impact PSPs’ ability to preserve their existing customer base, while 88% thought that IPs could help them attract a larger customer base. Moreover, without a reduction of the volumes of cash and cheques usage thanks to wider use of IPs, PSPs will continue to incur significant cash and cheque management costs. A study conducted by Deloitte showed that having more IPs would lead to a significant decrease in the volume of cheque transactions per capita. Hence, given that 1.4 billion cheques were issued in the Euro area in 2020, a full substitution of cheques with IPs could potentially lead to up to EUR 2 billion in annual savings for PSPs. Those substantial savings would be in addition to benefits for society arising from elimination of losses arising from the absence of a payment guarantee on cheques and the costs of the various procedures required for the beneficiary to be credited. Other potential benefits for PSPs of wider use of IPs would be increased opportunities to innovate thanks to greater economies of scale for developing new payment services and PoI solutions, based on IPs. The ECB observes that combined with the development of mobile payment services, IPs are an innovation providing a competitive technology in the race for retail payments markets dominated either by cash or cards. Indeed, complementary services (e.g. mobile payment solutions based on IPs) have the potential to provide convenient and efficient alternatives to cash in person-to-person payments (P2P, e.g. splitting a bill in a restaurant); to cash and payment cards in physical shops, and to payment cards when paying online. It should however be noted that developing new solutions based on euro IPs risks being unprofitable if their uptake is too low. The higher uptake of IPs at EU level would also create greater incentives for EU fintechs and non-bank PSPs, such as Payment Initiation Service Providers (PISPs), to engage in developing IP-based PoI solutions which would work not only domestically but also cross-border (in the same way as ICS work). Today, there are no IP-based PoI solutions that work in shops cross-border (see Annex 6). With the reduced opportunities to expand beyond national markets, EU providers of IP-based solutions cannot gain the economies of scale on the cost side necessary to innovate and compete with the large, international incumbents. Attempts to develop pan-European solutions have been made by EU providers. In 2020/2021, EU PISPs assessed the opportunity of designing a European Retail Payments Framework (ERPF), with the aim of ensuring availability of pan-European IP solutions in physical shops. The objective of ERPF was to provide solutions for payments in physical shops. However, the limited use of euro IPs was identified by the ERPF’s promoters as one of the main stumbling blocks to the project. Wider use of IPs would also allow PISPs to fulfil their tasks more efficiently. Banks do not have any obligation to provide the confirmation of account balances to PISPs. As part of their service of payment initiation, PISPs must then estimate the likelihood of sufficient funds being available on the payer’s account to cover the payment to the retailer. There is therefore always a risk for the PISP that the payment that is initiated based on a regular credit transfer will not be executed. IPs would remedy such risk as the payment execution can be instantly verified. A large EU PISP reported to the Commission that the rate of successful transactions it initiated in 2020 had been 10 percentage points higher for IPs than for regular credit transfers. Greater uptake of euro IPs by PSPs would allow further leveraging on the Open Banking policy enshrined in PSD2, which is aimed at opening up the market for more competition and innovation. Unrealised benefits for public administrations and others Public administrations which collect fees, fines or taxes would benefit from improved cash flow management similarly to merchants and corporates. In addition, a greater take up of IPs could reduce tax fraud and tax evasion, leading to fiscal benefits in the range of EUR 0.25-1.59 billion per year (see section 7.3). With IPs, NGOs and charities could make use of contributions more quickly, which is of particular benefit when funds are urgently needed, particularly in times of international crisis. 2.2.2Limited choice of means of payment at PoI, in particular cross-border As indicated above, the use of IPs for retail (PoI) payments is very limited in the EU, with the exception of certain merely domestic systems, mostly located outside the Euro area and limited to payments denominated in national currency. As a consequence, the vast majority of electronic PoI payments, in particular cross-border ones, in the EU are carried out or facilitated by a very limited number of ICS and BigTechs providing mobile payment applications based on ICS, including Apple Pay, Google Pay and PayPal, except for national card transactions in Member States with domestic card schemes in place. Obstacles to access to certain technologies developed by ICS can make entering the card market for cross-border payments difficult for new players. For example, some market players allege that they have difficulties in using the ICS' contactless ‘kernel’ in physical shops, which is necessary for offering contactless card payments and which, for cross-border payments in Europe, is deployed by ICS. Compared to electronic payments in physical shops, in e-commerce there are more payment solutions available, as in addition to ICS, solutions based on credit transfers or direct debits are provided by international (e.g., PayPal, Tink, Plaid) and EU providers (e.g., Klarna/SOFORT, Trustly). Card-based solutions offered by ICS or BigTech service providers are most widely accepted by merchants. For example, in 2018 in Europe, over 72% of online merchants accepted PayPal, 54% accepted Visa, and 48% accepted MasterCard. By comparison, Klarna/SOFORT was accepted by 8.6%. As indicated above, in terms of volume, in 2018, the two most commonly used ICS handled 69% of card payment transactions in Europe. They are continuously expanding to new payment areas, as demonstrated by the purchase of the Swedish Fintech Tink by Visa, or the launch of Visa’s own IPs service. This could reduce growth prospects for new entrants and make it harder for them to raise capital. The current situation creates significant vulnerabilities for the European PoI payments ecosystem in terms of choice, innovation and the emergence of pan-European payment solutions. With the low uptake of IPs, the unique opportunity for EU PSPs (bank and non-banks) and fintechs to develop and promote new pan-European payment solutions, which would not need to rely on the infrastructure provided by the incumbent providers, will remain unrealised. The limited choice of payment methods, in particular for cross-border transactions, means that merchants have very little, if any, bargaining power when dealing with the handful of available providers, even if accepting those few payment methods is costly for them. A study by EY showed that during the years 2015-2017, scheme charges paid by acquirers (but later passed onto merchants) for card transactions increased by approximately EUR 560 million and were driven mainly by increases in charges paid to ICS, with particularly steep increases for cross-border transactions. Eurocommerce estimates that ‘merchant service charges’, including scheme fees, interchange fees and acquirers’ margins, increased in the EU from 2015 to 2020, by EUR 876 million in total. Higher fees on card transactions incurred by merchants tend to be passed (fully or partially) onto consumers via higher prices. Merchants, as well as corporate users, including SMEs, need to be able to make and accept cross-border payments. This is confirmed by the responses to the open public consultation, where merchants stated unanimously (100% of merchants’ responses) that ensuring the ability to accept payments from customers from other Member States was very important. They have therefore little choice but to accept Visa and Mastercard, and mobile wallet solutions incorporating these, since only they enable payments from other Member States. Greater choice of payment means and providers available in shops, in addition to cards, would also benefit users, including SMEs. Currently, users can only benefit from mobile payment solutions based on IPs in certain domestic markets (see Annex 6). A consumer who is used to making payments by using a popular and widely-acceptable domestic payment solution that allows initiation of IPs at PoI is compelled to rely on another payment instrument, most likely an ICS card or cash, purely for the purpose of making payments in other Member States. This is both inconvenient and costly for the consumer. The pertinence of this concern is confirmed by 85% of consumer respondents to the open public consultation who stated that it was important to be able to pay with IPs not only in their own Member State but also abroad.

A wider uptake of IPs is thus a necessary – although not sufficient in itself - prerequisite for the development of new IP-based retail payment solutions that work at pan-European level, in order to bring more choice of payment methods at PoI. 2.3Problem drivers Four key problem drivers hindering the uptake of euro IPs have been identified: (i) insufficient incentives for PSPs to offer euro IPs (market failure); (ii) dissuasive transaction fees for IPs; (iii) high rate of rejected IPs due to false hits in sanctions screening; and (iv) payer concerns about security of IPs (in terms of fraud and errors). Two (i and iii) are on the supply side (affecting PSPs and providers of technical services) and two (ii and iv) on the demand side (affecting consumers and other types of payers). The supply and demand side drivers affect and mutually reinforce each other, and taken together are largely responsible for the insufficient uptake of euro IPs. There are other factors that could be considered to potentially influence the uptake of IPs and contribute to the apparent differences in the current use of IPs in individual Member States. These could include the competitive environment (such as market structure, entry barriers, competitive pressure from non-banks, switching costs, etc.); specific consumer payment preferences (e.g. cultural preferences for cash or cheques), business strategies (such as transaction-based or package pricing for retail financial services), wired and mobile internet penetration (necessary for online or PoI transactions), etc. Nonetheless, it was concluded that in the current context these factors are either of a secondary importance, do not apply equally in all Member States, or are not in the regulator’s control, hence are outside of the scope of the present initiative. 2.3.1Driver 1: Insufficient incentives for PSPs to offer euro IPs (market failure) As explained in detail in Annex 10, payments are a network industry exhibiting significant economies of scale. Network externalities lead to undersupply, and the resulting unexploited scale economies may prolong higher prices reducing demand that in turn creates disincentives to increase supply. In order to overcome market failures and help the industry reach critical mass, coordinated efforts are frequently taken in payments, either based on industry initiative or by some sort of government intervention. For an IP transaction to take place, both a payer and a payee need to have a PSP which offers such service. PSPs’ decisions to adhere to the SCT Inst. Scheme are, however, impacted by the presence of network externalities. Network externalities occur in a form of circular interaction whereby the more PSPs and users (both payers and payees) of a certain payment method (such as IPs) there are in a network, the more attractive it is for other PSPs to join the network and start offering that payment method. This is, inter alia, because a high volume of payments brings a better chance of recouping PSPs’ investments necessary to offer that new payment method. In this regard, three levels of initial investment are needed: a common scheme, a common settlement infrastructure and, finally, investments by individual PSPs. The first two types of investments have already occurred: the EPC launched the SEPA Inst. Scheme in 2017, while the ECB has already ensured the existence of a pan-European settlement infrastructure, TIPS, and its interconnection with national clearing and settlement infrastructures. Therefore, the necessary fixed investment cost for offering euro IPs is now limited to PSPs’ individual investments (see Box 2). However, a high number of PSPs (about one in three) across the EU do not see sufficient incentives to make such investments to join the network, as they deem its current scale, in terms of other participating providers, payments services users and the IP volume, to be too low to justify such investments (see Annex 10 for more analysis of network effects). However, the participation of the vast majority of PSPs offering regular euro credit transfers is a precondition to achieving such volume. As of February 2022, over four years into the operation of SCT Inst. Scheme, only 2 308 EU PSPs have adhered to it, thereby committing themselves to be able to send and/or receive euro IPs. This represents 66.8% of the 3 454 PSPs in the EU that are able to send and receive ‘regular’ credit transfers in euro. Within the Euro area, this percentage was slightly higher at 70.5% (2 299 out of 3 260), while outside the Euro area, it was significantly lower at 4.6% (9 out of 194). There are significant differences between national markets within the EU. In 8 Member States (Austria, Estonia, Finland, Germany, Italy, Latvia, Slovenia and Spain), as of February 2022, a majority of PSPs offering regular euro credit transfers to customers also offered euro IPs. In four other Member States (Belgium, Greece, Portugal and the Netherlands), even though the PSPs able to offer IPs did not constitute a majority of PSPs, these PSPs held more than 90% of payment accounts in their respective countries. However, in as many as twelve national markets (eight outside the Euro area and four within the Euro area: Cyprus, Ireland, Slovakia, Malta) only a handful of PSPs have made the investments necessary to enable the payment accounts they hold to send and receive euro IPs. The below chart provides a breakdown per Member State. Chart 2 – Share of PSPs offering euro IPs and share of payment accounts enabled to send and receive euro IPs by Member State The real number of EU payment accounts with the ability to send and/or receive euro IPs is lower than the number of accounts held by PSPs adhering to the SCT Inst. Scheme. This is because not all PSPs with the capability to send and/or receive IPs offer this service to all of their account holders. Moreover, certain PSPs adhere to the SCT Inst. Scheme only in the capacity of a receiving PSP. It is estimated that holders of at least 70 million payment accounts in the euro area alone still cannot receive or send euro IPs. As regards the trend, the participation rate of EU PSPs in the SCT Inst. Scheme has been stagnant, as shown in the chart below. After the initial adherence to the SCT Inst. Scheme at its launch in 2017 of those PSPs that saw a business case in offering IPs, the rate at which new PSPs have been joining has been very slow since Q3 2018. Recently this rate plateaued, increasing only by 2.4 p.p. from 64.4% in February 2021 to 66.8% in February 2022, in correspondence with the fact that 1 146 PSPs still did not adhere to the SCT Inst. Scheme (see chart 3 below). Chart 3 - Adherence gap to the SCT Inst. Scheme, number of PSPs (EU27) The uptake of euro IPs in a cross-border context lags behind the uptake of domestic transactions (i.e. where the payer’s and beneficiary’s PSPs are based in the same Member State). For instance, in Spain, the volume of cross-border credit transfers accounted for 1.8% of all credit transfers in 2020, while the share of cross-border euro IPs in all euro IPs was six times lower, i.e., 0.3%; the respective figures for the Netherlands were 3.9% and 0.2%, almost twenty times lower for cross-border IPs. Based on informal feedback from PSPs, it is clear that in order to expand the supply of euro IPs cross-border, PSPs want to be confident that if the customer requests an IP, it will be possible to execute that payment regardless of where the payee is based in the EU. In this regard, there is zero or close-to-zero chance that an IP will be successful if the payment is addressed to a payee in a Member State with no or very few PSPs enabled to receive euro IPs. Offering an IP service to customers without being able to guarantee that the payment will actually be instant can expose a PSP to customer dissatisfaction and reputational risk. Therefore, for many PSPs that already offer euro IPs, it is safer to stick to domestic transactions and not offer the service at all for cross-border payments. This represents an important obstacle to meeting the objectives of a Single Euro Payments Area for IPs. To sum up, for PSPs that do not yet offer euro IPs at all, and given the relative stagnation in participation in the SCT Inst. Scheme, it is preferable to wait for other PSPs to generate sufficient volumes, which the latter cannot achieve when participation in the network of the PSPs is lagging behind. This creates an impasse that is not easy to overcome by the industry itself.

However, there is an indication that where market coordination exists, the disincentives arising from network externalities can be, to a varying degree, dealt with. This is reflected by the experience of some Member States where the vast majority of PSPs joined the SCT Inst. Scheme at the same time (e.g., Belgium, Spain), which was due to a coordinated approach of the industry towards adopting euro IPs. It is naturally much more challenging to achieve the same market coordination at EU level. In other Member States, National Central Banks or National Payment Committees played a very important role in promoting the uptake of euro IP technology. For instance, in Lithuania, a Memorandum of Understanding between six largest PSPs and the national central bank was concluded in 2017, aiming at ensuring that euro IPs are offered to customers. In the Netherlands, the four largest banks committed in early 2015 to build an IP infrastructure under the programme guidance of the Dutch Payments Association, and all relevant stakeholders, including the Dutch Central Bank, have been involved from the start. In this regard, a number of studies (see Annex 10) suggest that involvement of public authorities is necessary to help address the failure of the market participants to take a coordinated action to achieve a synchronised adoption of a new payments technology and realise the full scale of network benefits. Such interventions have been key for a successful adoption of IPs in other jurisdictions. Also, this is why the migration of EU PSPs to the – new at the time – euro regular credit transfers and direct debits was made mandatory under the 2012 SEPA Regulation after years of unsuccessfully waiting for the industry to complete that migration on a voluntary basis. 2.3.2Driver 2: Dissuasive transaction fees for IPs The economic theory implies that demand for euro IPs, as a network-based service, is impacted favourably by the number of users participating in the network and, particularly, once ‘the critical mass’ of users is attained (see Annex 10). Yet, users are sensitive to the pricing of payment services which appears to dampen their demand for euro IPs and delay the attainment of that critical level of IP turnover (as well as its expected impact). The data presented in Table 1 shows that there is a strong negative correlation between pricing of IPs and levels of uptake. Table 1: Impact of transaction fees on the uptake of euro IPs Member State PSPs charging the same level of transaction fees for IPs and regular credit transfers PSPs charging a different level of transaction fees for IPs and regular credit transfers Uptake of IPs % of PSPs which offer IPs applying the same transaction charges as for regular credit transfers Average level of transaction charges for IPs and regular credit transfers, in EUR Average transaction fee of euro IP, in EUR Average transaction fee of regular credit transfer, in EUR Estonia 100% From 0 to 0.38 Not applicable Not applicable 67% Lithuania 100% 0 or 0.41 (where there is no package fee for all services) Not applicable Not applicable 45% Spain* 30 PSPs, covering 95% of market share, via Bizum solution 0 (when initiated via Bizum), otherwise a fee may apply Not available Not available 38% (almost entirely driven by 510 mln transactions initiated via Bizum) Latvia 100% 0.40 Not applicable Not applicable 29% Netherlands 100% 0 Not applicable Not applicable 24% Finland 100% 0 Not applicable Not applicable 19% Belgium 65% 0 0.88 0 17% EU average uptake: 10,97% Portugal 7% 0.25 1.59 0.81 3% Germany A minority Not available Typically priced as premium products, (from 0.50 to 2.50) in most cases 0 3% France* 11 PSPs participating in Paylib P2P payment solution 0 (when initiated via Paylib), otherwise a fee may apply 0.76 (when initiated online) 0 3% Slovenia 14% 0.395 0.90 0.38 1% Italy 0% Not applicable 2.80 (average) 1.60 (median) 0.45 (average) 0.70 (median) 0.1% Source: Ministries of Finance, National Payment Committees, BEUC, Bizum * In these Member States, a PSP may offer free IPs when initiated via a payment solution jointly offered by multiple PSPs, but charge for IPs when initiated in a different way Currently, there appears to be a great variety of approaches to transaction fees for euro IPs. Some PSPs and even entire PSP communities (e.g. in the Netherlands) have adopted a no-transaction fee policy or apply equal (Lithuania) or very comparable (Estonia, Latvia) fees for IPs and regular credit transfers. Other PSPs apply relatively high fees per IP transaction, which many times exceed those for regular credit transfers. For instance, based on a stock-take carried out by BEUC, in Italy, the fee per IP transaction may be as high as EUR 30. The overview of the transaction fees for IPs for most national payment markets is presented in the table below. The impact of fees policy on demand for IPs is evidenced by the uptake rate of IPs in Member States where the fees of the two transfer types is at the same or comparable level. For instance, as shown in Table 1, in Estonia, the share of euro IPs in the volume of all credit transfers in euro in May 2021 was equal to 67%, in Lithuania 45%, in Latvia 29%, in the Netherlands 24%, and in Finland 19%, i.e., significantly higher compared to Member States where PSPs have adopted “premium” fees approaches, even with the same broad levels of participation in SCT Inst. Scheme. The impact of the pricing policy of IPs on their uptake is confirmed by the feedback to the targeted consultation and the data at Member State level. That data shows a healthy growth of the uptake in Member States where the pricing of euro regular credit transfers and euro IPs is comparable, and stagnant uptake in Member States where IPs are priced at a premium for the period May 2020 to May 2021. A study by the ECB analysing the impact of the level of transaction fees on the uptake of IPs in other international jurisdictions also concluded that higher fees limit the uptake of instant retail payments. It can be observed that in a number of Member States where the fees charged by PSPs for IPs and regular credit transfers are currently comparable, this was facilitated or encouraged by the national authorities (see section 3.2). Similarly, the most successful, in terms of the number of users and transaction volumes, domestic IP solutions offered today by EU banks (e.g., Swish in Sweden or Bizum in Spain) have no transaction fee. Fee differences do not seem to be justified by the differences in transaction costs (though theoretically this may reflect the intention of some PSPs to recover one-off costs gradually via transaction fees). The available evidence on the average recurring cost per transaction for IPs and regular credit transfers shows that the level of the two is rather close. In some cases, PSPs reported that the average cost per transaction of IPs is lower than that of a regular credit transfer. In cases where the average cost of an IP was reported to be higher than that of a regular credit transfer, the difference in euro cents was typically in single digits and was dependent on the volume of IPs. Some may argue that higher fees on IPs may be applied to obtain a compensation for the elimination of the one-day payment float when moving from a regular credit transfer to an IP (see Annex 8). However, it needs to be acknowledged that interest rates for investments with such a short horizon have been extremely low, or even negative, in the recent years and, therefore, this impact is not considered to have had a major impact on the pricing of euro IPs. As regards the competitive environment in Member States where premium pricing is applied it should be noted there is a relatively high number of PSPs adhering to the SCT Inst Scheme. Furthermore, in those Member States a variety of pricing models for IPs is present, i.e., while the majority of PSPs charge a high premium compared to regular credit transfers, there are also some PSPs that are not charging any premium or any fees for IPs. Charging transaction fees for IPs equal to 200% or 600% of the transaction fee for a regular credit transfer tends to reflect the positioning of IPs as a ‘premium service’. However, consumers do not consider IPs a premium service. According to the feedback from consumers and consumer representatives to the open public consultation, 87% of them stated that fees are an important factor when deciding whether to use IPs. Furthermore, 67% of consumers stated that they would not be willing to pay a premium fee for IPs. Of the 25% who would be open to paying more, all indicated that an acceptable difference would be between 1% and 50% more than for regular credit transfers, which is far from the practice of charging up to six times more, as shown in Table 1. Studies also indicate that consumers are sensitive to price incentives, regardless of their actual payment preferences, and that price differentiation can be used to steer consumers towards or away from a certain payment method. Consumer organizations have on several occasions brought up the issue of transaction fees and called for legislation equalizing the level of fees for regular credit transfers and IPs. During the 2021 FISMA webinar on IPs and the PSMEG discussion, consumers were joined by merchants, PISPs and some banks, who agreed that offering IPs to consumers for a premium fee was not appropriate. In addition to creating disincentives for consumers and businesses from using IPs, high transaction fees for IPs imposed by PSPs may create obstacles to the emergence of payment solutions at PoI offered by payments initiation service providers (PISPs), by making them unattractive in terms of fees compared to alternative payment means at PoI, such as cash or cards, which do not have a transaction fee for consumers. 2.3.3Driver 3: High rate of rejected IPs due to false hits in sanctions screening

Currently, EU legislation does not prescribe the ways and means for PSPs to ensure compliance with their obligations to apply EU sanctions such as asset freezing against designated persons and entities. Thus, for cross-border IPs, PSPs apply transaction-based screening, which generates a high number of alerts that the payee or payer is a designated person on an EU sanctions list. Based on PSP feedback to the targeted consultation, this proportion falls in the range of 0.4% to 9.4%, compared to close to 0% for regular credit transfers. Such alerts are the main reason for the rejection of initiated euro IPs, given that the time needed to verify the alert does not allow for executing the transaction instantly. The payment is therefore either not executed, or it can be executed but no longer as an IP (but as a regular credit transfer). This is highly inefficient considering that in as much as 99.8% of such cases, the alert is a false positive. At the current level of uptake of IPs, each percentage point of rejected cross-border transactions is equivalent to some 150 000 IPs that did not reach the intended payee and this figure would only increase in proportion with the expected growth in the uptake of euro IPs. Moreover, the same problem is also applicable in the context of domestic euro IPs where the transaction-based screening is applied by PSPs. The high volume of inaccurately ‘flagged’ and subsequently rejected IPs arising when transaction-based sanctions screening is applied creates operational challenges for PSPs’ who wants to offer IPs to their customers. Some PSPs across various Member States have indicated that those challenges contributed to their decision to delay a provision of IPs on a cross-border basis. It also limits the reliability and predictability of IPs in the perception of users (consumers, merchants, corporates), having a negative effect on the level of uptake of IPs (see the Problem Tree in section 2.5). More details on the different approaches to sanctions screening and their impacts on processing of IPs are included in Annex 4. 2.3.4Driver 4: Payer concerns about security of IPs with regard to fraud and errors Credit transfers (regular or IPs) may end up being sent to a payee not intended by the payer. This can be due to mistakes made by the payer (e.g. mistyping the payee’s account number) or as a result of fraud. The latter can involve illegal impersonation (e.g. a fraudster makes the payment instead of a genuine payer as a result of a cyberattack or theft of the payment instrument), or a criminal activity which occurs before the payment is made by a genuine payer (pre-payment fraud). Pre-payment fraud can take the form of an invoice fraud (e.g. where invoices are intercepted and the merchant account number is substituted for that of the fraudster), or more sophisticated APP frauds involving manipulation of the payer through direct interaction (e.g. manipulation of the payer into believing he is dealing with a genuine payee or even with his bank’s representative). Such type of fraud precedes the execution of the payment transaction. Currently the EU payments legislation does not envisage any specific provisions to protect payers from such criminal practices, neither with respect to more traditional payment methods (regular credit transfers, cards, direct debits) nor more novel ones, such as IPs. Likewise, EU payments legislation does not provide for any ex-post remedies for possible errors made by payers when inputting the IBAN of the payee to place a payment order for a regular credit transfer or IP. However, a common perception of payers is that even in case of pre-payment fraud, as well as for the possible errors in inputting the IBAN, when using regular (‘slower’) credit transfers, they will be able to cancel or reverse such transactions, while with IPs (‘faster’) credit transfers, they will not be able to do so. In fact, in order to ensure stability and certainty of payments, PSPs have no legal obligation to stop, cancel or reverse a payment order placed by the payer (such revocation can only be agreed upon contractually, possibly against a fee). This needs to be distinguished from a refund, which can be offered as a new transaction paid from the original payee back to the original payer. Certain payment means come with such refund options, which are provided either on a commercial basis by card schemes or IP-based PoI solutions, or by law in the case of direct debits. Even if, in terms of the risk of fraud or errors occurring, and in terms of the legal guarantees of recovering the funds, the difference between regular credit transfers and IPs is not materially significant, the novel nature of IPs, their speed and perceived reduced margin for reaction to fraud and errors may lead to payer concerns about the security of IPs and lead them to choose a slower form of payment, thus reducing the uptake of IPs even in cases where they are available. These concerns, whether justified or not, seem to be a driver of suboptimal uptake in situations where supply of IPs exists, alongside premium pricing. The need to enhance consumers’ and businesses’ trust, is generally recognised by stakeholders as a key element to facilitate a greater uptake of IPs. The more technical explanation of the types and extent of pre-payment fraud affecting all credit transfers, the different refund rights specific to different payment methods granted by law or on a commercial basis, and the rules on the irrevocability of payments are included in Annex 5. 2.4How will the problem evolve? In the absence of EU action, as regards supply of IPs, the number of PSPs offering IPs will gradually increase, but the process will remain slow. Even where there is supply of euro IPs, with premium transaction fees for them being applied, the user uptake would remain limited. This would be further exacerbated by any unaddressed payer concerns about security of IPs. Finally, with sanctions screening procedures remaining inefficient, the rate of rejection of a notable portion of euro IPs, especially cross-border, would remain significant. The consequences of this “baseline scenario” are discussed more in detail in section 5.1 below. In that case, the benefits of euro IPs for EU consumers, merchants, corporates, fintechs, PISPs, banks and the society as a whole will remain largely untapped. The inability of the market to achieve, by itself and in a timely fashion, the critical mass of euro IPs in the EU will have a negative effect on new pan-EU product offerings by PSPs and fintechs. The market for IPs, especially at PoI, will remain fragmented. Without an EU initiative to promote euro IPs, the best possible future evolution would be the development of bilateral or multilateral interconnections between domestic IP solutions that exist in certain Member States. 2.5Problem Tree 3Why should the EU act? 3.1Legal basis Article 114 of the Treaty on the Functioning of the European Union (TFEU) confers on the European institutions the competence to lay down appropriate provisions that have as their objective the establishment and proper functioning of the Internal Market as announced in Article 26 TFEU. Payments are an enabler of the Internal Market, which encompasses the free movement of goods, persons, services and capital. The limited choice of cross-border payment methods creates effective barriers to cross-border activities of consumers (buying goods/services in another Member State) and businesses (using suppliers located abroad, reaching clients in another Member State) that restrict their access to the Internal Market by imposing additional costs.

Article 114 TFEU is the legal basis of the SEPA Regulation concerning direct debits and credit transfers in euro. Euro IPs are a sub-category of euro credit transfers. For all the above reasons, it is appropriate that the present initiative be introduced via an amendment to the SEPA Regulation. 3.2Subsidiarity: Necessity of EU action Member States acting alone are not able to ensure a high level of uptake of cross-border euro IPs. Only through an EU intervention can all relevant EU PSPs be required to offer the sending and receiving of cross-border IPs. The fact that in several Member States there are not more than a handful of PSPs able to send and receive euro IPs means that cross-border IPs cannot effectively work, given the network effects described in section 2.3 above. This remains true even despite the fact that a relatively high uptake of domestic IPs has been achieved within some Member States. Members States could theoretically take actions to ensure a high level of uptake of domestic IPs. However, in practice there are no indications to suggest that the Member States where the current level of uptake of IPs is low have any immediate plans to adopt effective measures to increase that level. Only a few Member States have developed a national strategy for retail payments aiming at promoting the use of IPs, but without stipulating any obligations or target dates for PSPs to engage in offering euro IPs. Moreover, Member States alone cannot provide for harmonized EU rules regarding cross-border IPs, be it on sanctions screening or the protection of the payer in case of fraud or errors. If Member States do take action at national level, this would only accelerate the already emerging regulatory fragmentation. For instance, in Lithuania, a Memorandum of Understanding between PSPs aiming at ensuring that IPs are offered to customers and at the same transaction fee as regular credit transfers has been concluded at the initiative of the national central bank. In Portugal, a law imposes limits on the collection of fees by PSPs for payment services, including IPs-based PoI solutions. In Belgium, a law has been proposed to make the provision of a service ensuring a check between the name of the beneficiary and the IBAN of the beneficiary mandatory for all PSPs, and laying out the main design features of a solution. In France, specific provisions prescribe the procedure applicable to PSPs in the context of sanctions screening of payment transactions. It cannot be excluded that more such initiatives will be taken by Member States, raising the compliance costs for PSPs offering services in multiple Member States and making the execution of cross-border IPs more difficult. 3.3Subsidiarity: Added value of EU action Given the network nature of the payments industry, only European level action, co-ordinated on the supply and demand side, can unlock the full potential of the network benefits of IPs for EU consumers, merchants, corporate users, fintechs, banks and the EU economy. The alternative to an EU-wide approach would be divergent national legislation and at best a patchwork of purely domestic IPs solutions, unable to inject in the EU retail payments market the much needed increased diversity and choice of payment methods for both domestic and cross-border payments. Compared to individual action by Member States, EU intervention would also ensure a greater synchronisation of implementation of the relevant measures. This would not only create positive overall network effects, but also reduce the operational costs (e.g. due to economies of scale) for the PSPs that already provide euro IPs and for those that would start providing them in compliance with such EU-level measures. The EU-level action would also support the competitiveness of more PSPs and fintechs vis-à-vis the large incumbents. 4Objectives: What is to be achieved? 4.1General objective Under the Commission Work Programme objective of “An economy that works for the people”, the general objective of this initiative is to significantly increase the uptake of euro IPs in the EU, in order to improve the efficiency of the retail payments market and unlock their benefits for EU citizens and businesses. This would also contribute to facilitating cross-border trade within the EU, leading to deeper integration of the Single Market and Digital Single market and supporting the recovery of the European economy. 4.2Specific objectives The specific objectives of this initiative are to: 1.Increase the supply of euro IPs in the EU; 2.Address dissuasive fees for euro IPs compared to alternative payment means; 3.Simplify and enhance the efficiency of the sanctions screening process for euro IPs; and 4.Increase payer confidence in euro IPs as regards risk of fraud and errors. 5What are the available policy options? 5.1.What is the baseline from which options are assessed? Under the baseline, the EU would not develop any new regulatory or non-regulatory action to increase the uptake of euro IPs. The provision of IPs in euro would remain voluntary for PSPs, which would also have full discretion in terms of pricing of euro IPs. There would be no EU harmonised rules laying out the process of sanctions screening with respect to euro IPs and there would be no measures to address payers’ concerns about security of IPs.

Given that Member States are expecting EU action in these areas, inaction at EU level could prompt measures to be taken at national level. However, uncoordinated measures would lead to inconsistent approaches to retail payments and unfinished Single Euro Payments Area integration project and, more broadly, a fragmented Single Market. In any case, such uncoordinated approach would not increase the uptake of cross-border IPs. Also, the PoI payment market would remain concentrated, especially for cross-border transactions and efficiency gains from the wider use of IPs would not be fully exploited. Many problem consequences described in section 2.2 would not be tackled. Regarding supply of euro IPs, based on recent evolution of the number of PSPs able to send and receive euro IPs, full coverage of all PSPs offering euro regular credit transfers would be attained in about 14 years, even if accompanied by ‘soft’ measures undertaken by EU institutions to promote the uptake (as they have proven to be ineffective with one third of PSPs). Varying speed of progress can be expected within Member States, with those with only a handful of PSPs adhering today being more likely to lag behind (given that some PSPs consider that joining the scheme makes sense only if a sufficient domestic level of uptake of IPs is already ensured). New provision of IPs by PSPs would also not be synchronised. As a result, PSPs that already offer IPs would continue to incur various costs arising from the inability of other PSPs to receive/send IPs, such as costs linked to liquidity management (given that it is possible that more outgoing transfers would leave a given PSP instantly while a share of the incoming funds would continue to arrive with a delay of at least one business day). In view of the network nature of the service, for them it would also be more difficult to quickly grow the volume of IPs in order to realise positive network effects and economies of scale. Regarding fees, dynamics in the level of fees would be entirely market-driven. However, it is unlikely that a significant reduction in transaction fees for IPs would be implemented/pursued by PSPs themselves given that: (i) a significant share of PSPs (in certain Member States) tend to position IPs as a ‘premium service’, setting a transaction fee at a considerable premium to a fee for regular credit transfers, and (ii) fees are considered as a stable source of revenues for PSPs. Given the high sensitivity of consumers, regardless of their actual payment preferences, to the fees of substitute payment means, it is unlikely that there would be any significant increase of uptake of euro IPs, either in the form of online account-to-account transfers or at PoI, if the premium pricing of euro IPs by some PSPs is not addressed. In addition, transaction fees for IPs greater than transaction fees for alternative payment means (such as regular credit transfers), would hinder the development and competitiveness of IP-based PoI solutions offered by third party providers who would be unlikely to cover themselves the disproportionate transaction fees for IPs charged by PSPs. This would make these solutions too expensive for the end users (compared to other PoI payment means, such as cash or cards). Regarding sanctions screening, according to PSPs, through their own efforts (e.g. by improving their automated screening tools or data quality), they could reduce the number of ‘false positive’ hits for cross-border and domestic IPs only to a limited extent. Those efforts would not be sufficient to lower the proportion of rejected cross-border IPs to the rate of rejections experienced by PSPs for (i) domestic and cross-border regular credit transfers (since in this case PSPs have more time for a follow up investigation, as crediting of the funds to the account of the beneficiary must be completed at the latest on the following business day), or (ii) domestic IPs of those PSPs that comply with their sanctions screening obligations by regularly and frequently updating their customer lists (in lieu of transaction-based screening). Moreover, the potential use of IPs at PoI would also be severely undermined as it would not be acceptable for consumers and merchants to have such a high rate of rejections in shops and in e-commerce. This would reduce the attractiveness of IPs at PoI, given that the competing payment options (cards and cash) would not suffer from the same problem. Regarding payer confidence in the security of IPs, the issues described in section 2.3.4 and Annex 5 would persist, affecting consumers’ and corporates’ trust and demand for euro IPs. Pre-payment fraud, such as social engineering scams and other APP fraud, as well as consequences of errors made by payers, would continue to be unaddressed through the existing EU payments legislation. With the increased use of e-commerce and digitization of all kinds of personal and organizational activities it is likely that payers would become even greater targets of such scams. In addition, with the upcoming initiatives of several national communities of PSPs or public authorities in some Member States, to offer or require some kind of an IBAN-name verification service for domestic euro IPs only, and designed in diverging fashions, the attention of fraudsters would likely shift to cross-border credit transfers, where the combined rate for all types of fraud is already 20 times higher than that of purely domestic transfers. Postponing the introduction of additional payer protection for cross-border IPs could imply two rounds of investments for PSPs (first for domestic transactions on the basis of non-harmonised local initiatives, and again for ensuring coverage of cross-border transactions). 5.2.Description of the policy options 5.2.1.Increase the supply of IPs in the EU The following policy options are considered: Option 1.1. Legal obligation for PSPs to be able to receive euro IPs This option would make it mandatory for PSPs offering euro regular credit transfers to be able to receive euro IPs but would leave it to them to voluntarily offer their users a service of sending a euro IP. Option 1.2. Legal obligation to offer sending and receiving of euro IPs for PSPs offering the service of regular euro credit transfers to users (with targeted exclusions) Wide availability of IPs would be ensured through a legal obligation imposed on PSPs that offer regular credit transfers in euro to offer both the sending and receiving of IPs in euro. Proportionality would be embedded in this option by ensuring that only PSPs that execute euro regular credit transfers for their clients (consumers and businesses), i.e. as a payment service offered to users and not for own account, are covered by this obligation. Moreover, the option would not impose a mandatory offering of euro IPs on certain types of PSPs (payment institutions and electronic money institutions), given that under the current EU law, they have no right to participate in certain key payment systems (including systems settling IPs, such as TIPS) and have to rely on banks to get (indirect) access to such systems. This option would apply to PSPs in both Euro area and outside for the following reasons: (I)ensuring coherence with the present scope of SEPA (see section 7.3); (II)the need to provide the same right of receiving and sending cross-border IPs to citizens regardless of their place of residence in the EU, which is possible only by means of cross-border euro IPs (see Annex 9), and

(III)the share of euro cross-border credit transfers sent from non-Euro area Member States in the overall volume of euro cross-border credit transfers within the EU is material (around a quarter). This option would entail transitional provisions to ensure that the obligation is introduced gradually, initially for PSPs within the Euro area, followed by those outside the Euro area at a later stage. The obligation to be able to receive IPs would need to be complied with by PSPs within a specific deadline, while the obligation to be able to send IPs would have to be complied with by PSPs within a longer deadline (e.g. with several months more time). This would allow PSPs to stage their efforts, since being able to only receive IPs is linked to a reduced implementation burden (e.g. there is no need to update online banking interfaces and channels in order to only receive IPs, the same IT resources can be used to ensure consequent stages of implementation, etc.). Option 1.3. Legal obligation for all PSPs carrying out euro regular credit transfers to carry out euro IPs Universal availability of IPs would be ensured through a legal obligation imposed on all PSPs that carry out regular credit transfers in euro to carry out their instant version. This option would entail no carve-out of PSPs as described in option 1.2, and would include all PSPs that offer regular credit transfers in euro as a service to payment services users as well as those that carry out such transfers exclusively on own account. This option would cover both sending and receiving of euro IPs. It would still include staggered compliance dates (i) for being able to receive and send euro IPs or (ii) based on the currency area of the Member State where PSPs offer their IP services. Under options 1.2. and 1.3., entities subject to the obligation to offer IPs would be free to decide whether they wish to continue to offer or carry out regular euro credit transfers in parallel. Option 1.4. Mandatory migration for all PSPs from regular euro credit transfers to euro IPs This option would require that as of a certain date, all euro credit transfers must be carried out as instant, i.e., that PSP clients would no longer have the option to initiate regular credit transfers. Euro IPs would legally replace regular transfers, and the SCT Scheme of the EPC would be ended and entirely replaced by SCT Inst Scheme. 5.2.2.Address dissuasive fees for euro IPs compared to alternative payment means The following policy options are considered: Option 2.1: Obligation for PSPs to apply fees for IPs in euro that are not higher than fees for regular credit transfers in euro Under this option, euro IPs could not cost the user more than euro regular credit transfers. This means that where, for example, PSPs would choose not to charge customers a per-transaction fee for a euro regular credit transfer, they could not charge for a euro IP either. PSPs that do apply transaction fees for regular credit transfers in euro would be obliged not to charge higher fees for euro IPs. PSPs would maintain full discretion as to their pricing structure and levels, as long as the fees for IPs that a given PSP charges are not higher than the fees that the same PSP charges for euro regular credit transfers. The obligation would apply to fees applicable to both sending and receiving euro IPs. The date of application of this obligation would be consistent with the dates of application of the obligations for PSPs to offer euro IPs in the Euro area and outside the Euro area respectively. In non-Euro area Member States, PSPs which currently charge more or the same for euro cross-border regular credit transfers than for corresponding domestic IPs denominated in the national currency, this option will have no impact on the level of fees for cross-border euro IPs, because such fees are already regulated under CBPR and must be the same as the fees for corresponding domestic non-euro IPs. Only if a PSP located in a non-Euro area Member State currently charges more for domestic non-euro IPs than for cross-border regular euro credit transfers, would they be required to lower the fee for cross-border euro IPs at least to the level of the fee for cross-border regular euro credit transfer. . Option 2.2. Obligation for PSPs to offer euro IPs free of charge Under this option, PSPs would be prohibited from applying fees per euro IP transaction, regardless of transaction fees that PSPs apply for euro regular credit transfers. The obligation would apply to fees applicable to both sending and receiving euro IPs. The date of application of this obligation would be consistent with the dates of application of the obligations for PSPs to offer euro IPs. As regards cross-border euro IPs carried out by a PSP in a non-Euro area Member State, the same impacts and approach with respect to CBPR as in the case of Option 2.1. would be applicable. 5.2.3.Simplify and enhance the efficiency of the sanctions screening process for euro IPs The following policy options are considered:

Option 3.1: Eliminate overlaps in transaction-based screening This option would consist in adjusting and harmonizing the way in which the transaction-based screening is to be carried out to remove inefficiencies and duplications. The current duplication of screening of the same elements of a given transaction by a payer PSP and a payee PSP would be removed, with the tasks (elements to be screened, lists against which the screening to be performed, etc.) being clearly allocated between the two of them. For EU sanctions lists, the transaction screening of both a payer and a payee would be carried out only by the payer PSP before a payment is sent to the payee PSP. Option 3.2: Replace transaction-based screening with regular updates by PSPs of own customers lists against applicable EU sanctions lists (‘SEPA domestic’ approach) This option would consist in each PSP which offers IPs (whether under a requirement to do so or voluntarily) being responsible for screening its own clients both at the moment when a payment account is opened and via regular and timely updates of customer records vis-à-vis the latest applicable EU sanctions lists. In doing so, the payer’s PSP and the payee’s PSP will be able to clarify which payment accounts truly belong to persons and entities that are designated on EU sanctions lists and which ones belong to clients whose name is only very similar to the name of sanctioned persons or entities (so that such clients are able to initiate IPs and have access to funds received, with no need to carry out transaction-based screening). Mutual trust of PSPs and national authorities in the ‘SEPA domestic’ approach and in its uniform and effective application would be aided by a possibility to impose a penalty on a PSP that fails to comply with its obligations underlying such harmonised screening process. 5.2.4.Increase payer confidence in euro IPs as regards risk of fraud and errors The following policy options are considered: Option 4.1: An obligation for PSPs to ensure the availability of a service allowing a payer to have an immediate check of the ‘match’ between the IBAN and the name of a payee, before confirming an IP This option would imply an EU-wide obligation for PSPs offering euro IPs (whether under a requirement to do so or voluntarily) to provide a service to payers, ensuring that before they authorise the payment, they are informed of the degree of a match between the name and IBAN of the payee as provided by the payer. The payer would maintain the final control and, based on the feedback received from the PSP, would decide whether to proceed with the IP. The liability regime of PSPs under PSD2 would remain unchanged. The service would be required in respect of both domestic and cross-border euro IPs. PSPs would be free – but not required – to offer the same service with regard to regular credit transfers, which are targeted by the same type of pre-payment fraud and can be affected by errors made by the payer in the same way as IPs. Option 4.2: Grant payers the right to ask for a refund under certain circumstances (e.g. where a payer can prove that there was a pre-payment fraud or a mistake) This option would consist in granting payers a right to obtain a refund of an authorised and executed euro IP within a certain period of time. This right would apply where a payer can prove that their intention was to send the payment to a different payee (e.g. by providing a copy of the invoice or evidence of a contractual agreement with the payee from which the payment obligation derived). Option 4.3: An obligation for the payee’s PSP to temporarily ‘freeze’ funds credited to the payee’s account This option would consist in crediting the funds received through a euro IP to the account of the payee within maximum 10 seconds, but making them available for spending by the payee only after a certain period of time (e.g. 1-2 days). This would allow the payer some limited time to realise the occurrence of a potential error or pre-payment fraud, and could facilitate a returning of these funds to the payer by the PSP of the payee. 5.2.5.Options discarded at an early stage Option 1.1 (Legal obligation for PSPs to be able to receive euro IPs) would only partially respond to the problem driver 1 of insufficient incentives for PSPs to offer euro IPs (market failure). PSPs which have not so far decided to offer euro IPs on a voluntary basis are likely to limit their euro IP offering to the bare legal minimum and refrain from offering the service of sending IPs, given that investments required to offer sending of IPs represent a material, often larger, share of the total investment costs needed to be able to offer euro IPs. Some of those PSPs may consider offering the sending of euro IPs but many would have a preference to wait for higher volumes of euro IPs to be achieved in the network. Requiring that all PSPs are only able to receive euro IPs would generate only limited increase of euro IP volumes since a significant share of users, holding more than 70 million payment accounts in the Euro area alone (see section 2.3.1), would still not be able to send a euro IP. As a result, this would significantly impair the achievement of full network benefits. Due to the lower overall uptake of euro IPs, this option would also be ineffective in promoting the emergence of IP-based PoI payment solutions such as mobile apps. As regards liquidity management within PSPs, in the case of an obligation for PSPs to both send and receive payments instantly, the impact on their liquidity needs and management would be rather symmetric given that each PSP acts both as a payer’s PSP and a payee’s PSP (and funds would simply move quicker – from the moment of the payment order initiation - between PSPs without materially impacting their liquidity position). Similarly, all PSPs would be impacted rather evenly in terms of foregoing the revenues arising from the float. Under option 1.1, however, these impacts would become rather asymmetric and would create significant liquidity disadvantages for PSPs offering the sending and receiving of euro IPs, compared to PSPs only receiving euro IPs. Only the PSPs offering both sending and receiving euro IPs would face higher liquidity needs in their settlement accounts with payment systems and forego any payment float–related revenue, while the only receiving PSPs could continue to benefit from the float, which in turn may create disincentives for them to offer the sending of IPs on a voluntary basis (see Annex 8). On grounds of the above considerations, this option was discarded at an early stage. Option 1.4 (Mandatory migration for all PSPs from regular euro credit transfers to euro IPs) would fully achieve the general objective of significantly increasing the uptake of euro IPs, as it would not only require all PSPs that carry out regular euro credit transfers to carry out euro IPs (as in option 1.3), but it would automatically absorb all the current volume of regular credit transfers in euro. However, it was discarded at an early stage as disproportionate. From the user perspective, rather than providing incentives for uptake of IPs through removing dissuasive fees and alleviating concerns over fraud or errors, it would effectively force consumers and businesses to use IPs in all circumstances. From the PSP perspective, the prohibition of processing of any euro credit transfers as non-instant could cause undesirable consequences arising from the lack of capacity and preparedness by the industry to ensure an uninterrupted provision of euro IPs in the current volumes of SEPA credit transfers (22.5 billion transactions in 2020) and to prudently manage the associated risks which, in turn, may have negative spill-over effects for the stability of the EU payment and financial system. While this concern could be addressed through a sufficiently long transitional period, it would delay the application of the obligation to offer euro IPs in the first place, ultimately rendering the effectiveness of this option lower than that of options 1.2 and 1.3. Moreover, many stakeholders (users, PSPs, authorities) consider that regular credit transfers should be phased out by the industry itself based on the evolution of customer demand and, also, in view of the pace of uptake of IPs globally (as the provision of international or non-SEPA regular credit transfers would have to be continually supported by EU PSPs). Option 4.3. (An obligation for payee’s PSP to temporarily ‘freeze’ funds credited to the payee’s account) would have several serious intrinsic shortcomings and therefore was discarded at an early stage. First, it would be incompatible with the nature of credit transfers, including instant ones, as a credit transfer, once authorised, cannot normally be revoked. This is a matter of stability of and trust in financial transactions.

Second, freezing of the funds for a short period of time would have a limited benefit in terms of protecting the payer from losses since, based on feedback received from a PSP, the average time to discover that a transaction was made to a fraudster can range between 2 and 6 weeks. Third, the immediate availability of the funds to the payees is one of the key features of IPs that makes them attractive to users. As mentioned in Section 2.2.1, all consumer organisations and a majority (88%) of individual consumers who responded to the open public consultation deemed it important that the funds reach the payee immediately. Importantly, this feature of IPs also enables the payees to realise important associated economic benefits of having funds immediately available for investment or consumption (see Annex 8). Removing this feature by way of requiring a freezing of the funds on the payee’s account (even if only for a day or two) would make IPs effectively the same as regular credit transfers and eliminate their key distinctive advantage for users. The full certainty of having been paid (as the funds arrive on the payee’s account in a few seconds) is as effective as the payment guarantee offered by cards schemes for a fee and, therefore, is key for a successful and widespread adoption of IP-based payments at PoI. The feedback received from across the industry, banks and fintechs alike, has been that any payer protection measure must not jeopardise the essence of IPs which is payment certainty and finality. 6What are the impacts of the policy options and how they compare? 6.1Increase the supply of IPs by PSPs Option 1.2 (Legal obligation to offer sending and receiving of IPs in euro for PSPs offering the service of regular euro credit transfers to users (with targeted exclusions) would ensure that the vast majority of PSPs that offer the service of sending and receiving regular credit transfers in euro would be added in a timely and synchronised manner to the network of PSPs offering euro IPs. This option would ensure that IPs in euro, both domestic and cross-border, become a widely available method of payment across the EU much sooner than under the baseline. This option would entail a number of features aimed to ensure that the obligations are proportionate and are phased in gradually. Proportionality would be embedded by not covering by the abovementioned obligation the following two groups of PSPs: (I)PSPs that do not offer regular credit transfers as a payment service to their customers (i.e., consumers and corporates), but carry out such transfers exclusively on own account. Examples of such PSPs may include certain clearing and custody institutions, investment or securities firms or bank holding companies. Their exemption would be contingent on them not providing regular credit transfers, as a payment service, to customers. (II)Electronic money institutions and payment institutions would be excluded due to their current ineligibility to become participants (directly or indirectly) of payment systems designated under the Settlement Finality Directive (SFD). These PSPs need to secure their access to the payment system via another participant (such as for example a credit institution), which makes offering of IP services for them more complex process-wise and potentially more costly, compared to other PSPs that are credit institutions and qualify as participants of designated payment systems under the SFD. These two types of exemptions, in total, would apply to approximately 300 PSPs that today carry out regular credit transfers in euro, leaving 800-900 PSPs that would fall under the obligation (about a quarter of PSPs carrying out credit transfers in euro). The total one-off compliance costs are reported by PSPs to fall in the range of EUR 10 000 to EUR 1.3 million per PSP. This cost would vary in relation to the size of a PSP, i.e., it would be higher for larger PSPs and lower for smaller PSPs, with the overall estimated cost for the industry in the range of EUR 36 million and EUR 477 million. Box 2 Actions necessary for a PSP to be able to send and receive euro IPs A.Join SCT Inst. Scheme (i.e., ensure internal compliance with scheme requirements). B.Integrate IP module in internal IT system, adjust online and mobile banking interfaces and APIs in order to, e.g., (i) receive euro IPs, (ii) provide users with means of submitting instructions for sending euro IPs; (iii) provide immediate feedback on screen if the payment failed or was rejected by the beneficiary bank. C.Update terms and conditions and other legal documentation (e.g. the notion of a banking business day would not be applicable). D.Connect to a relevant Clearing and Settlement Mechanism (CSM) in order to fulfil the instant settlement obligations. E.Set up 24/7/365 operability with IT support capabilities (e.g. customer support based on artificial intelligence, such as chatbots). Moreover, in Member States outside the Euro area credit transfers in euro are much less common than in the local currency and the volume of euro IPs is also expected to be lower. Thus, the potential revenue for PSPs outside the Euro area is expected to be lower compared to the Euro area. Nevertheless, a number of market factors and deliberate proportionality measures are expected to provide a counter-balancing mitigatory effect. Firstly, the obligation would be introduced gradually: firstly, for PSPs in the Euro area, and at a later stage, for those outside the Euro area. Such a later deadline for non-Euro area PSPs will enable them to optimise their implementation efforts and resources by spreading them over a much longer period of time. The later implementation deadline would also further mitigate any negative or disproportionate effect on non-Euro area PSPs by virtue of the fact that greater euro IP network benefits would be set in motion by then (as a greater volume of euro IPs is expected to be attained due to earlier implementation deadline ap