Banks expect to lose millions in interest due to Sepa Instant

Finextra

26-05-2025

Nearly half of European banks expect to lose millions in interest due to new liquidity demands under the Sepa Instant Payments regulation, but still believe the benefits of the change will outweigh the costs.
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As the industry races to meet the October compliance deadline, when instant euro payments will become mandatory across the EU, RedCompass Labs has surveyed 300 senior payments professionals at European banks on the subject.
One of the biggest challenges banks face is liquidity. Sepa Instant requires 24/7/365 processing, but the European Central Bank's Target2 system — used for wholesale payments and liquidity management — only operates on weekdays between 07:00 and 18:00 CET. As a result, banks must pre-fund their accounts in the Target Instant Payment Settlement (TIPS) system to ensure liquidity during evenings, weekends, and holidays.
This is expensive for banks. Idle funds held in central bank accounts tie up capital that could otherwise be deployed for lending or investment. Borrowing from central banks (such as through the marginal lending facility) incurs costs. And transferring money from interest-bearing accounts or market investments into TIPS reduces potential earnings.
The planned removal of the €100,000 transaction limit will make this more difficult. Higher limits make it harder for banks to predict how much money they need. Nearly every bank surveyed (93%) expressed concern. Almost half (48%) said they are 'very concerned'.
To prepare, nearly half of respondents are increasing their liquidity buffers, while a similar number are upgrading their fraud and sanctions screening tools to handle higher volumes at odd hours. Two in five banks are adjusting their risk management frameworks, and a similar percentage are setting up bilateral agreements to set limits with other banks.
Sanctions screening is set to be another big challenge. Over half report a surge in rejected payments tied to sanctions screening under Sepa Instant. Most see a 30-50% increase due to requirements to clear payments in 10 seconds. To keep up, two-thirds of banks say they plan to use AI to reduce false positives in sanctions screening, while a similar number are investing in tools to improve the speed and accuracy of transaction monitoring.
Despite the pressures, over eight in ten banks believe the benefits of Sepa Instant outweigh the costs. And, while nearly half of respondents say that they struggled to meet the first January deadlines, 85% believe the October date is realistic.