A major step for financial inclusivity: non-bank payment service providers’ access to SEPA

This move is a game changer, creating a level playing field for non-bank PSPs – such as electronic money institutions (EMIs) and payment institutions (PIs) – to directly process payments in euro across the SEPA environment. This milestone development is supported by recent amendments to the Instant Payments Regulation and the Settlement Finality Directive. Latvia stands as the first EU country to adopt these regulatory changes and complete the technical work needed to onboard new participants to its EKS system.

Who can participate in the EKS?

The EKS is open to authorised EMIs and PIs that hold EEA licenses to provide credit transfer services. Latvia's national legislation supports this initiative, offering clear guidelines that benefit companies authorised within Latvia. Such companies can already begin integrating with the EKS system. However, companies authorised outside Latvia must check their home country's regulatory framework of requirements for participating directly in payment systems.

What does access to the EKS enable?

Access to the EKS allows companies to offer instant payments and SEPA credit transfers on behalf of their customers directly – without the need for a commercial bank as an intermediary in the payments processing. This direct access reduces reliance on traditional banks for correspondent services, streamlining payment processing. However, companies must still comply with PSD2 requirements for customer funds segregation. This can be managed through a bank account with a commercial bank, an insurance policy, a bank guarantee, or low-risk, liquid securities.

The logic of cash-flow of PSPs should be created to ensure enough funds in the EKS account and maintain compliance with PSD2 segregation of customer funds. For funding and de-funding of accounts, the PSPs need to maintain an account with a commercial bank.

How does the EKS work, and what are the benefits of direct participation?

The EKS provides access to the instant payment service as well as a clearing service for bulk payments. It also offers a service called Proxy Registry, which links phone numbers to the IBAN and name of the beneficiary, thus adding convenience for customers.

The EKS has competitive pricing and is designed for easy integration, minimising technical complexity for companies with in-house IT capabilities. PSPs can directly connect to the system without third-party providers. Additionally, Latvijas Banka has created a sandbox environment known as ZibLab, allowing other service providers to conduct integration testing before offering services to their customer PSPs.

Main elements of the pricelist of the EKS:

• Monthly fee: up to 1500 EUR
• Outgoing transaction: 0.006 EUR
• Incoming transaction: 0 EUR

Steps for building your project with the EKS

For the PSPs ready to take advantage of direct participation in the EKS, here's an outline of the necessary steps:

1.  Familiarise yourself with technical and legal documentation: review all relevant technical and legal guidelines to ensure compliance.
2.  Sign an agreement with Latvijas Banka: establish your participation with a formal agreement.
3.  Develop the EKS connection: build the required connection to integrate with the EKS.
4.  Conduct testing: run your solution in the EKS test environment to identify and address potential issues and, once that is done, complete mandatory testing.
5.  Go live: once testing is complete, you're ready for live operations in the EKS.

Preparation to connect SEPA

If a PSP opts to outsource its EKS integration to an IT provider, it must follow the standard outsourcing approval process, which includes assessing the significance of the outsourcing, evaluating risks, and partner due diligence. For significant outsourcing, approval from Latvijas Banka is required. Companies interested in acting as connector service providers for outsourced EKS access are invited to apply to ZibLab for testing and validation.

In addition, PSPs offering instant payment services must implement a robust internal control system for AML and sanctions risk management. This includes effective transaction monitoring and sanctions screening tools, critical for meeting compliance standards.

Important deadlines to keep in mind

The updates to the Instant Payments Regulation bring new obligations for market participants, with several key deadlines approaching in 2025:

1.  Instant Payments introduction: by October 2025, commercial banks must fully introduce instant payments.
2.  IBAN and name check (Verification of Payee): all PSPs must introduce name verification by October 2025. To facilitate compliance of PSPs with the Instant Payments Regulation, Latvijas Banka will develop a Verification of Payee service.
3.  Parity between instant payments and SEPA credit transfers: non-bank PSPs offering SEPA credit transfers to their customers by April 2027 must offer instant payments to all customers with the same conditions (e.g. channel, user experience, and pricing) as SEPA credit transfers.
4.  Annual reporting requirements: PSPs must report on fees, transaction rejection rates, and transaction geography annually to the regulator.

Direct access to the EKS by non-bank PSPs is an exciting development for the Latvian and broader EU payments ecosystem. It promises to boost competition, innovation, and convenience, ultimately benefiting end users by providing faster, more accessible payment options.

Feel free to make an appointment with us by emailing fintech@bank.lv – we will help you navigate through this exciting journey!