Today (October 9) marks the day where financial institutions and payment service providers must adhere to the European Payments Council’s (EPC) Verification of Payee (VoP) regulations.
VoP is the authentication payment service that checks recipients bank account details to match to the payer to stamp out fraudulent transactions. It has been likened to the UK’s Confirmation of Payee (CoP) which operates similarly.
Form3, a payments-as-a-service platform, has provided financial companies with the proprietary technology to integrate VoP and as the EPC’s mandate to comply with VoP comes into effect today, it could set about a new adoption wave for instant payments across Europe.
To explore this further, Mike Walters, CEO of Form3, spoke to Payment Expert on the differences between VoP and CoP, the early use cases of its impact, and if this can become a breakthrough for banks to adopt SEPA Instant.
Payment Expert: Firstly Mike, can you briefly outline what the Verification of Payee mandate is and why this is important for European payment service providers?
It is now becoming mandatory activity for most financial institutions operating across Europe. One of the things that the UK has learned is that if you really need instant payments, then you can quite quickly find yourself in a situation where fraud gets out of hand.
This is because of the speed in which value can bounce in-and-out of differing accounts, meaning you can find yourself in a situation where the payment lands in the wrong house.
I think what we’ve seen occurring in the UK with Confirmation of Payee (CoP) is effectively taking some learning points and moving this into Europe to provide VoP. They are very similar in concept, but effectively, this is to make sure that you’re paying the right person. It is about making sure that you can check the details of the organisation that you’re paying to, with the information of reducing the number of error times, or ultimately, it is sent to somebody that wasn’t really your intention.
It’s a really important baseline of fraud control. This will enable the financial system to benefit from instant payments.
Payment Expert: What are some of the procedures payment service providers must do before the October 9th mandate, and the July 2027 mandate for relevant companies?
The first thing is, if you are in the business of moving money through your customers, then getting really close to the underlying rules and regulations around both instant and verification pay, it’s not really optional anymore. That will drive when you need to be ready based on the type of organisation that you are.
The second thing is, if you were doing VoP, it is fair to assume that your technology stack is going to have to run available and very fast, not just as a support to VoP, but because it will drive more instantly and for real-time Euro transfers.
Work out where the hot spots will be, not just to enable VoP, but because there will be an increasing expectation of instant flow more generally, because it all becomes safer and more accessible to normal organisations.
What we are doing with our clients in the UK, but not exclusively, is to do this verification process efficiently across all pockets of the ruling, such as investing once in a technology lane that can support several small markets.
There is also an element that is missed at the end; the impact of the user journey of banks and customers.
You can fix the technology at the bank, but what you are showing customers are screens and asking them for details and the whole process can be clunky for customers who are not digital-first. There are questions from clients as to how we can embed this technology to make it a positive journey for customers.
Payment Expert: Will companies and/or customers run into any user experience issues stemming from the introduction of VoP. How can this be mitigated?
The crux here is, and in many cases, this will be embedded and the verification process is beneficiary. You don’t have to necessarily authenticate every time you send a payment with VoP.
There is a two stage process where users are loading or storing beneficiaries, you think about this user experience in two different flows. You start to think ‘how do I do this really fast the same way I do adding information into a contacts book?’.
Then there is a second aspect to which you ask ‘how do you call a service for an individual transaction in real-time?’. I think we will see organisations differ on this second aspect.
VoP is not as onerously complex as some of the card centric views, because those have been complicated by being made to be compatible with e-commerce platforms. Whereas a lot of the instant payment flows, you are in the name of a bank centre and they will have more control and experience in being able to handle these payments.
Payment Expert: For UK-based companies who also operate in the Eurozone, what are some of the similarities and differences between VoP and Confirmation of Payee? Will this place greater pressures on compliance teams?
They are very, very similar. When we have been dealing with our clients it has been the same question.
There will be a lot of familiarity from organisations that are moving from a UK CoP to a European VoP environment. But there are some differences.
If you are operating in both the UK and Eurozone, you do need to work specifically with the rules and behaviour of both VoP and CoP. The technical aspect of both is very similar, but you have to present the right information to your customers.
This makes sense because you’re dealing in Europe with, potentially, cross-border transactions and in the UK, you will likely be focusing heavily on domestic transactions. Expect a difference in the volume of information and some of the mandatory consents in order for you to spend.
Payment Expert: How impactful will VoP be for the adoption of instant payments? Will we see a surge in SEPA Instant payment methods due to the mandate?
I really think it will because one of the real constraints from the banks’ perspective with instant payments is the risks associated with fraud.
It is very obvious VoP is a driver from the regulators in Europe to make instant more adoptive but in recognising this, the banks also need more support from a fraud prevention perspective.
I don’t think instant payments blow up overnight due to VoP, but I think what you will probably see is less reliance on fraud cases of chargeable incremental value. What helps with VoP is it is trying to make instant payments as safe as it can be.
There are some differences in instant payments in Europe, with SEPA, and the UK. In the UK, while most of the time it runs quickly, payment time is measured in hours, then seconds, and in Europe, SEPA is a 10 second activity. This will cause organisations to assess how to put these different instant payment technologies together.
Payment Expert: Does Form3 have any use cases from VoP used by its partners that has greatly impacted its ability to onboard customers and successfully protect them from fraud?
We have had a mixture of clients who have embedded VoP for the first time and those who have done it as an extension to the already existing CoP they have embedded.
I think those organisations integrating something like VoP for the first time really value a scale in resilience behind technology-first models, which is what we pride ourselves on, and the full process has been integrated really quickly.
That should also be one of the other benefits to reassure the market if organisations have not made the decision yet, because the technical process can be done in weeks and not a 12-18 month process.
It’s a really good development and example of clarity from a regulatory perspective.
