Nadish Lad, Managing Director and Global Head of Strategic Business at Volante Technologies
The SEPA Instant Payments (SEPA IP) initiative changed the European banking game. Goodbye buffer time: SEPA IP clears cross-border euro transactions within 10 seconds, 24/7. Batch processing is left behind in the dust.
This January was the European Commission’s deadline for receiving instant payments in the eurozone. The October deadline for sending instant eurozone payments is fast approaching. Such timelines have put EU institutions on a fast-track to modernisation and boosted speed and efficiency across the eurozone.
Non-EU banks have a little longer to breathe – the deadline for sending and receiving instant payments across the EU isn’t until 2027 – but that’s not necessarily a good thing. Lack of regulatory pressure doesn’t mean modernisation can wait; if banks believe this they’ll be left behind. SEPA IP has raised the bar for bank performance and increased customer expectations, so all banks have a need to innovate. If a customer has a choice between a bank providing instant payments and one that doesn’t, it’s a fairly safe bet which one they’ll choose.
The question for non-EU banks is no longer whether to modernise but how exactly they’ll do it. They face a significant hurdle in optimising legacy systems not built for immediacy, while maintaining all-important liquidity under the new regulatory framework. For many, it’s a race against time: not only to meet incoming regulatory requirements but to keep up with peers in a fiercely competitive landscape.
Bridging legacy systems and instant payments
Legacy systems were never designed for instant payments. Historically, banking systems operated comfortably on batch processing schedules – downtimes were predictable and maintenance windows were scheduled. Then SEPA IP came along and eliminated such luxuries, mandating a constant readiness that legacy systems cannot sustain.
Unfit technology isn’t the only problem non-EU banks face. Their infrastructure often sits in distant time zones, designed for settlement during their own domestic business hours. Banks now have two gaps they must bridge: the tech chasm between current legacy abilities and where they need to be, and the geographical divide between business and customer. They must work out how to bridge them without sacrificing day-to-day service.
Minor tweaks to legacy systems are inadequate. Ripping out old infrastructure and replacing it with a modern core is largely unworkable, despite any long-term benefits. So it’s an incremental approach that will help banks bridge these gaps. Incrementally aligning legacy systems with SEPA IP’s 24/7/365 model should be an immediate priority for non-EU banks, allowing them to swiftly meet regulatory deadlines and increased customer expectations without major disruption.
Managing liquidity in real-time
Another consideration for non-EU banks is how real-time transactions fundamentally alter liquidity management. Traditional liquidity frameworks, established around batch processes and fixed settlement windows, now face obsolescence. Yet many banks are still managing liquidity with manual processes and spreadsheets. This won’t work with SEPA IP. Under this new system, liquidity needs are immediate and continuous – demanding dynamic management that legacy systems were never designed to accommodate.
Banks need to be able to predict and manage liquidity in real-time. Accurate, instant forecasting is crucial in minimising operational risks and avoiding costly liquidity shortages. Automation and analytics tools can be of huge assistance here: a sophisticated analytics platform can provide real-time visibility into liquidity positions and automation technology can instantly reposition funds in response to transactional demands.
A further step financial institutions should take is restructuring their treasury operations. They need to ensure these operations are aligned more closely with instantaneous payment flows so they don’t slow things down. Such changes, combined with the steps above, allow banks to move from sluggish legacy processes to active, real-time liquidity management that enables banks to boost operational efficiency, significantly reduce system risk exposure, and respond swiftly to changing market dynamics.
Architecture that supports speed
The final piece of the puzzle is an architecture that assists efficiency. Core payment engines need to move from monolithic codebases to modular platforms that natively speak ISO 20022 – the lingua franca of modern messaging.
ISO 20022 adoption is a core component of SEPA IP and offers rich data capabilities that extend far beyond basic payment processing. Banks that leverage such an enhanced data structure can develop value-added services, improve fraud detection, and gain deeper customer insights. The standardised format also creates opportunities for streamlined cross-border operations and enhanced automation – crucial to instant payments and improved customer service.
In moving from legacy systems to ISO 20022, banks must embrace advanced architectures. This includes cloud computing – an architecture that helps enhance operational resilience, reduce latency and facilitate seamless scalability. Cloud deployment adds elasticity to absorb unpredictable transaction spikes, meanwhile the integration of APIs (Application Programming Interfaces) is essential to enabling rapid and secure communication between a myriad of payment channels and internal systems.
For non-EU banks, migrating to the cloud often begins with a thin-layer approach. This means creating an ISO-compliant gateway that can translate between SEPA IP and legacy core systems. But there’s a competitive edge in going further. Rebuilding settlement logic atop event-driven microservices allows banks to evolve as fast as regulatory change and keep at the forefront of the industry.
SEPA IP represents a new era for banking. And it’s one which won’t accept the slow tech and manual processes of the past. EU and non-EU banks alike must interrogate and update their systems to ensure they’re equipped for immediacy and the new speed of finance.
