European banks are bracing for a hit to their interest income as instant payments become mandatory across the EU. Under the new SEPA Instant Payments regulation, banks must process euro transfers within 10 seconds and operate 24/7/365. This means they can no longer rely on the traditional practice of holding customer funds overnight or over weekends to earn interest. Nearly half of European banks surveyed expect to lose millions in interest revenue due to these new liquidity demands. The core issue is liquidity: because the European Central Bank’s TARGET2 system for wholesale payments isn’t open around the clock, banks must pre-fund accounts in the ECB’s instant settlement system (TIPS) to cover payments during nights and weekends. These idle reserves in central bank accounts tie up capital and forgo interest that banks would otherwise earn by lending or investing those funds. As transaction limits (like the current €100,000 cap) are removed, it becomes even harder for banks to predict needed liquidity buffers, amplifying the concern. In fact, 93% of banks in one survey voiced concern about managing these liquidity requirements, with almost half “very concerned”.
From a revenue standpoint, the mandatory shift to instant payments forces banks to sacrifice a source of easy income (interest on overnight balances) in exchange for customer-facing speed. Projections suggest about 45% of banks will forgo significant interest earnings as they adapt to SEPA Instant. Despite this immediate financial pain, many institutions acknowledge that the long-term benefits outweigh the costs. Offering instant, always-available payments is expected to enhance customer satisfaction and competitiveness, possibly attracting new business to offset lost interest. Indeed, banks see this as a catalyst to innovate and strengthen market position in an evolving digital payments landscape. Still, the short-term trade-off is stark: to meet the October 2025 deadline when sending and receiving instant euro payments becomes obligatory, banks must pour money into liquidity buffers and infrastructure upgrades even as a chunk of their interest income evaporates.
10-Second Settlements, 10-Second Compliance? The Under-Discussed Risk
The headline of lost interest revenue, however, is only part of the story. A less visible yet critical challenge is the compliance infrastructure strain imposed by real-time payments. When transactions settle in seconds, banks and payment service providers (PSPs) have mere moments to perform anti-money laundering (AML) and sanctions checks. Behind the convenience of near-instant transfers lies a daunting compliance challenge: legacy risk controls are being pushed to their limits by the 24/7, sub-second world of instant payments. As one analysis put it, traditional AML and sanctions screening systems – built for batch processing and manual reviews – simply “weren’t designed for payment windows that close in under 10 seconds”. In the old world of next-day settlements, a suspicious transaction might be queued for overnight review. In the new world of SEPA Instant, there’s no overnight – payments stream continuously, at all hours, leaving no downtime for compliance teams or systems to catch up.
The result is a perilous trade-off for financial institutions: either delay the payment (undermining the instant promise) or let it through without fully adequate checks, risking a compliance breach. Neither option is acceptable – and that’s exactly the point. Regulators haven’t given banks any free pass on AML/sanctions obligations just because payments are faster. In fact, both U.S. and EU authorities have stressed that faster payments do not reduce or excuse compliance duties. The U.S. Treasury’s OFAC guidance in 2022 was explicit that instant payment systems still require a robust risk-based approach, urging banks to ensure their technology and processes can detect and block illicit transactions in real time. In Europe, the SEPA Instant Credit Transfer framework similarly emphasizes that sanctions laws apply equally to instant payments – speed is no excuse for letting a hit slip through. The new EU Instant Payments Regulation (IPR), which took effect in 2024, actually hardcodes this principle: PSPs must “immediately” identify if any customer is subject to financial sanctions, even as they process payments within seconds.
This sets up a massive operational challenge. Most banks’ AML compliance architectures were built years ago around slower payment rails. Think of sanctions screening systems that check names against watchlists in bulk overnight, or transaction monitoring systems that generate alerts once daily for analysts to investigate. Those legacy, batch-based controls are fundamentally mismatched to a real-time payments environment. They tend to generate large volumes of alerts and false positives, which then require human review. According to McKinsey, common transaction monitoring systems throw up to 90% false positives – a workload that was barely manageable when payments moved at human speed. In an instant world, a flood of false alarms is not just inefficient; it’s untenable. Every flagged transaction would stop the clock on a 10-second payment, causing timeouts or failures that violate the SEPA Instant rules. Each false hit demands quick adjudication by a compliance analyst, yet no analyst can investigate and clear an alert in a few seconds. The math doesn’t work. Without changes, banks face either breaking the 10-second guarantee or breaching sanctions laws – a lose-lose scenario.
Legacy Systems vs. Real-Time Reality: A Compliance Crunch
Why are incumbent systems struggling? Traditional bank AML programs often rely on siloed tools: one system for sanctions list screening, another for fraud detection, another for transaction monitoring, etc., many of which run on end-of-day batches or rules that aren’t optimized for speed. Many institutions have complex legacy cores that simply cannot support 24/7/365 real-time processing natively. This extends beyond payments engines to the compliance tools attached to them. For example, older sanctions screening engines might scan transactions in hourly batches and flag a queue of potential name matches for manual review. Similarly, AML transaction monitoring rules might be set to analyze daily aggregated data (looking at patterns like large single-day transfers or suspicious structuring across accounts) rather than instant, granular transaction-by-transaction analysis.
Under SEPA Instant, these legacy approaches fall short. Banks and PSPs now need to screen customers and payments on the fly, at any time of day, including weekends and holidays. Operationally, this means continuous monitoring with no off-hours. Compliance staff and technology must be “always on.” Many banks are finding that to achieve this, they have to upgrade core systems and invest heavily in infrastructure and operations. Everything from server capacity, cloud availability, and vendor Service Level Agreements (SLAs) is being reviewed to ensure resilience around the clock. Banks are even revising their operating models – for instance, setting up on-call compliance teams or automated decisioning – so that alerts can be handled at 3 AM on a Sunday just as well as 3 PM on a Tuesday. These are significant changes, and smaller institutions with limited IT budgets or staff face a real strain keeping up.
A vivid example is sanctions screening in the instant payments context. Recognizing that traditional transaction-by-transaction sanctions checks would clog the pipes with false hits, EU regulators decided on a new approach. The Instant Payments Regulation requires PSPs to shift away from transaction-based sanctions screening for intra-EU instant transfers, and instead perform daily comprehensive screening of their customers against EU sanctions lists. In other words, banks must at least once every day (and whenever sanctions lists are updated) verify that none of their account holders are sanctioned. This way, in theory, individual payments need not be stopped for sanctions checks – if both sender and receiver have been cleared in advance, their instant transfer can flow unimpeded. It’s a clever solution on paper to avoid constant false alarms. But in practice it shifts the burden to a massive ongoing task: screening the entire customer base every day, and immediately incorporating any new sanctions updates. For large banks with millions of clients, daily bulk screening is itself a heavy lift. Many will need to automate and optimize this process to ensure it actually catches new designations in time. If a bank’s scanning tool is too slow or errors out, they could unknowingly facilitate a transaction for a blacklisted entity that was added to the list that morning – a clear regulatory breach. And for any payments outside the “intra-EU” scope (or simply as an extra precaution), banks are indeed still performing transaction-level screening within the 10-second window, despite it being discouraged, just to be safe. The Finextra survey found more than half of banks reported a surge in payment rejections due to sanctions screening under SEPA Instant, with many institutions seeing 30–50% more flagged transactions once they started operating in real time. This uptick in alerts is directly tied to the tighter 10-second decision window – banks can’t just hold a payment for hours to investigate, so they’re erring on the side of caution and rejecting anything that isn’t a quick clear. It underscores how compliance friction is rising: without smarter filtering, instant payments could stall due to the very controls meant to keep them safe.
Compounding the challenge, instant payment messages often carry less data than traditional bank transfers (for speed and efficiency), meaning compliance systems get truncated or incomplete information about counterparties. A name and IBAN might be all the receiving bank sees, versus the richer data of a wire transfer. This lack of context makes it harder for automated screening to distinguish legitimate customers from bad actors, leading to more false positives. Compliance departments, already stretched, face a deluge of “hit” alerts that require urgent triage to avoid delaying customers’ payments. It’s no wonder that in the RedCompass Labs survey, upgrading fraud and sanctions screening tools was a top preparation step, cited by nearly half of banks as they race to meet the instant payments deadline. Two in five banks are overhauling risk management frameworks alongside – a recognition that policies and processes need to be rewritten for real-time operations.
Rising Regulatory Pressure: No Room for Error
The operational risks of not adapting are high. Regulators and financial oversight bodies have signaled that they will not tolerate lapses in AML/CFT compliance just because of faster payments. The European Banking Authority (EBA) has already highlighted that fraud risks are significantly higher in instant payments – up to 10 times higher than in traditional credit transfers – putting banks on notice that robust real-time fraud detection is expected. The new EU Anti-Money Laundering Authority (AMLA), operational in 2024-2025, will further raise the stakes. Starting in July 2025, AMLA gains direct supervisory powers over “high-risk” financial institutions, with a mandate to intervene swiftly if it detects serious AML control failures. This means a bank that consistently fails to screen transactions or customers properly (and thus potentially facilitates illicit transfers) could face direct scrutiny or enforcement from a powerful new EU regulator. AMLA is also empowered to issue harmonized regulations and guidelines, pushing for modernized AML practices across member states. One likely emphasis will be on technology: in fact, the EU’s Sixth Anti-Money Laundering Directive (6AMLD) explicitly mandates the integration of technological tools to enhance AML effectiveness. This forward-looking stance underscores that antiquated systems won’t cut it – regulators want to see banks leveraging advanced data analytics and real-time monitoring to combat financial crime.
In the sanctions arena, Europe’s sanctions authorities (and the U.S. OFAC for any dollar transactions) have not slowed down – if anything, sanctions lists are updated frequently and unpredictably, especially given geopolitical events. A bank that allows a sanctioned individual to move funds – even due to a technical delay in updating lists or a slow screening process – can face severe penalties. Multi-million euro fines, legal action, and reputational damage are all on the table for compliance failures. European regulators have noted the “operational challenges” false positives create for instant payments and moved to mitigate them in the new rulebook, but ultimately the onus is on each institution to ensure no blacklisted party slips through. The cost of non-compliance could easily dwarf the lost interest revenue that started this conversation. After all, interest income loss is a predictable, manageable cost of doing business; a major AML/sanctions lapse could result in sudden fines or even restrictions on a bank’s operations. In the worst case, if an institution’s instant payments platform is deemed unsafe, regulators could force it to suspend services – an operational failure that would undermine customer trust and market standing overnight. In short, the regulatory environment around AML/CFT is tightening alongside the instant payments push, leaving zero room for complacency. Banks must achieve both speed and security, or face consequences. As Warren Buffett quipped, “It takes 20 years to build a reputation and five minutes to ruin it” – in the age of instant payments, a bank might not even have five minutes to contain a compliance incident.
Global Precedents: FedNow and UK Faster Payments Offer Warnings
Europe is not alone in this real-time payments revolution. The United States launched the FedNow instant payment network in 2023, and the UK has been operating Faster Payments since as far back as 2008. Both offer instructive parallels. In the U.S., the Federal Reserve’s FedNow rules require participants to maintain compliance programs in line with existing Bank Secrecy Act/AML standards – essentially reinforcing that all the usual AML obligations apply at full speed. U.S. banks quickly realized that the convenience of sending dollars in seconds also meant screening transactions in seconds. OFAC made it clear that banks should adopt innovative tech and a risk-based approach to ensure sanctions checks keep up with instant settlement. This has led many U.S. institutions to invest in real-time screening solutions or partner with fintech providers to upgrade their capabilities.
Meanwhile in the UK, the Faster Payments experience over the past decade foreshadowed some challenges now facing the EU. The UK saw an explosion of Authorized Push Payment (APP) fraud – scams tricking customers into sending instant payments to fraudsters – which prompted banks and authorities to introduce measures like Confirmation of Payee (checking the recipient’s name against the account to prevent misdirection) and to ramp up fraud monitoring. UK banks found that instant, irrevocable payments require instant fraud defense. The European landscape is similar: the EBA noted a diversity of fraud types emerging (eight types of APP fraud identified in the UK alone) and has stressed the need for real-time fraud monitoring in SEPA Instant. In short, wherever instant payments roll out, financial crime attempts also accelerate – be it sanctions evasion, money mule schemes, or fraud – and banks must respond with equally swift countermeasures. The EU’s approach with the IPR is somewhat unique in legally mandating certain practices (like daily sanctions screening and upcoming Confirmation of Payee requirements by 2025), but the underlying principle is universal: faster payments demand faster compliance. Banks that have watched the FedNow launch or the UK’s journey can glean that investing early in real-time compliance tech is far better than playing catch-up after suffering fraud losses or regulatory fines.
Modernizing Compliance: Unified, Real-Time Solutions (Flagright’s Approach)
How can banks and PSPs practically rise to this challenge? The consensus is forming that a modern, unified compliance infrastructure is needed – one that operates in real time, 24/7, with high automation and minimal human bottlenecks. This is where financial technology (RegTech) firms are playing a pivotal role. For instance, Flagright has built its solution from the ground up to meet the speed and integration demands of instant payments. Flagright offers a unified platform where AML transaction monitoring, sanctions screening, fraud detection, and case management are all tightly integrated, eliminating the silos between different risk controls. The system’s design prioritizes performance: it features a high-performance rules engine capable of evaluating transactions and customer events with sub-second response times. This means even complex risk rules (for example, detecting unusual patterns or name matches) can execute within fractions of a second, fast enough to not hold up a 10-second payment window.
A key strength of such platforms is their real-time rules engine. Compliance teams can define rules or scenarios – for instance, flagging transactions involving high-risk countries, or detecting rapid sequential payments that might indicate structuring – and these are applied on-the-fly to each transaction as it happens. Flagright’s rules builder is built to handle high volumes instantly, so whether a bank is processing 10 payments per second or 1000, the screening keeps pace without degrading the customer experience. Moreover, having all risk checks in one unified system confers huge advantages. When a suspicious transaction is flagged, it can automatically cross-reference multiple risk signals (sanctions lists, fraud patterns, customer risk scores) in one place, and if necessary, open a case in an integrated case management module for investigators to review. This unified approach means a compliance analyst isn’t swiveling between separate tools for sanctions, AML, and fraud – all relevant data is available in a single dashboard. It streamlines investigations and saves precious time, which is especially valuable in a real-time environment. Flagright’s platform even incorporates AI-driven components (what they dub “AI Forensics”) to help reduce false positives and assist in investigations, aligning with the trend of banks turning to AI to cope with the alert volume. Two-thirds of European banks said they plan to use AI to cut down false alerts in sanctions screening, and solutions like Flagright are enabling that through machine learning models that learn to recognize false matches or anomalous patterns faster than static rules alone.
Importantly, modern compliance platforms like this are built to be always-on and scalable, a necessity as SEPA Instant adoption grows. They are typically cloud-ready or API-based, allowing banks, fintechs, or payment processors to integrate the compliance checks directly into their payment flows with minimal latency. This is crucial for smaller PSPs and fintech startups who are connecting to SEPA Instant rails – they might not have the luxury of large internal compliance teams or custom systems. By leveraging a unified compliance API, even a mid-sized payments company can instantly get a 24/7 automated compliance layer that meets regulatory expectations. For banks, such platforms can serve as a drop-in upgrade to legacy systems: instead of trying to retrofit real-time capabilities onto decades-old software, banks can route instant payment transactions through an external engine (like Flagright’s) that screens and decisiones transactions in milliseconds, then returns an “all clear” or “flag” response before the 10 seconds are up. This kind of architecture is becoming the modern standard for financial crime compliance, as evidenced by industry recognition (Flagright was recently named a top innovator in AML compliance) and the adoption by institutions globally.
The strengths of a unified, real-time compliance infrastructure can be summarized: speed, integration, and intelligence. Speed, via sub-second API responses and real-time processing, ensures compliance checks don’t become the choke point of instant payments. Integration, via a platform covering sanctions, AML, fraud, and case management together, ensures nothing falls through the cracks and reduces operational complexity. Intelligence, via advanced rules and AI, ensures the system gets smarter at distinguishing true risk from noise, thereby controlling false positives – critical when every alert could potentially halt a payment. Flagright and similar providers are enabling banks, PSPs, and fintechs to meet the SEPA Instant mandate without compromising on risk controls. By adopting such technology, financial institutions not only avoid the nightmare scenario of an overloaded compliance team manually clearing queues of alerts at midnight, but they also position themselves to handle future regulatory demands. (It’s worth noting that upcoming regulations like the EU’s Payment Services Regulation and even global trends in digital finance will likely impose even stricter real-time oversight – investing in robust compliance tech now is a forward-looking strategy.)
Conclusion: Modernize Risk Infrastructure – Now – to Match Instant Payments
SEPA Instant is often touted as a game-changer for customer experience and European payments innovation – and it is. But it comes with a non-negotiable corollary: an equally instant compliance capability. The industry can no longer treat AML, fraud, and sanctions screening as a slow back-office function; these controls must operate at the same speed as the transactions they are policing. The new regulation has effectively put Europe’s banks on a timer – 10 seconds or less – not just to move money, but to vet that money for illicit activity. In this landscape, clinging to legacy, batch-based risk systems is a recipe for disaster. It invites regulatory rebuke, financial crime exposure, and operational gridlock. Conversely, those who modernize and invest in real-time risk infrastructure stand to turn compliance into a competitive advantage. They will be the institutions that can confidently promise both fast payments and strong security, thereby gaining customer trust in a digital economy where both factors are paramount.
In the final analysis, the mandate for instant payments is about much more than technology upgrades or lost interest revenue – it’s a mandate to reimagine compliance and risk management for the real-time age. Banks must cultivate a culture (and tech stack) of constant vigilance: transactions monitored as they happen, anomalies flagged before funds clear, and data updated continuously to reflect the latest risks. The tools are emerging to do this – from unified compliance platforms to AI-enhanced screening – and regulators are clearly expecting the industry to use them. Modernizing one’s risk infrastructure is no longer a forward-thinking optional project; it’s an urgent requirement to keep pace with the instantaneous movement of money.
In an era where a payment can fly from Lisbon to Helsinki in one second, but a compliance misstep can cost millions, the message is clear that now is the time to build an equally instant, intelligent, and unified compliance layer to underpin the promise of instant payments. Those who act will thrive in the new real-time economy; those who don’t may find the cost of delay far exceeds any interest income they hoped to retain.
