Tackling the VoP challenge(s): 3 questions to Ramzi Dziri

The Verification of Payee – introduced in the Instant Payments Regulation (IPR) earlier this year – deadline is slowly but surely approaching. Payment Service Providers (PSPs) will have to comply by October 2025, and VoP is considered by most of them as a strategic project that must be well under way in the coming months. Ramzi Dziri, Head of Product at LUXHUB and digital payments expert, tells us more about the main obstacles PSPs are facing in their VoP implementation, and how those could actually be solved.

What are the main challenges that PSPs will face in the next months?

In about 14 months, by October 2025, payment service providers will have to able to send instant payments in euros and provide a payee details check service to ensure that any credit transfer, instant or not, is reaching its intended beneficiary. Leading these two projects in parallel, and not forgetting that the first IPR deadline has been set to January 2025 for the ability to receive instant payments, is the first obvious hurdle. Moreover, and prior to focusing on the sending of instant payments and on VoP obligations, institutions that already offer IPs will have until this first deadline to adjust related operational and commercial aspects such as their fees alignment and the implementation of daily sanctions to replace transaction monitoring for instant transfers.

In the past months, we’ve noticed a certain prioritization, with the focus on receiving and sending instant payments, but the Verification of Payee obligation has also rapidly become a strategic project. Why? Because of the required implementation scale (all initiated credit transfers, single or bulk, from any existing touchpoint), the demanding technical requirements for the service availability (very quick response especially in the instant payment context, capacity to onboard and serve a large number of service consumers, PSPs and hubs) and finally, the impact that the service will have on corporate and individual clients’ payment experience (and potentially their decision of initiating or not a transfer). Most PSPs have already investigated the topic, and are now trying to figure out how they can efficiently enable the verification service to other PSPs and to their end customers.

The connectivity between all European PSPs – as, theoretically they should be able to perform checks for any European account – is a key and crucial aspect, as there are more than 5000 registered payment service providers in the European Union today. Moreover connecting to a combination of pan-European and local schemes and standards also represents an important technical and operational challenge.

In addition, bringing internally compliance, data, IT and operational teams together to work on such large-scale project implying alignment of scope, regulatory requirements and timelines, can sometimes be challenging, as well as having the appropriate needed expertise within the payment service provider, especially for small to medium size entities.

Concretely, how will customers be impacted by this new obligation? What about user experience?

In an extremely competitive market, it is key for PSPs to retain their customers and offer innovative services. And when new regulations and obligations pop up, it could also be an opportunity for them to enhance their user experience and keep providing a smooth journey to their end customers.

In this specific context, with an additional check to verify the match between the name and the IBAN of the payee before the payment’s authorization, payers should not feel any friction that might disturb or slow the payment process. To ensure that this new step won’t stop them to go through with a payment, PSPs need to offer an efficient and effective service: a consistent and meaningful matching outcome and a response in a fraction of a second.

The risk of affecting the payment experience applies even more to corporates that perform bulk payments to several hundreds or even thousands of payees. Contrary to individuals though, several options could be made available to them. From preparing a VoP requests file and sending it to the PSP before sending the final bulk payment order, to sending an authorized grouped order and requesting from the PSP to only execute payments where the matching outcome is “positive”; to finally the ability to opt out of VoP checks for such bulk requests.

And concerning these corporate account holders, there will also be the possibility to use, instead of names, more relevant beneficiary identifiers such as national or European corporate or tax identifiers. This would avoid the fuzziness around name matching and make the Verification of Payee even more reliable.

Finally, as fraudsters are extremely inventive and sometimes move faster than the financial industry, it will be interesting to improve the process and outcome of matching by relying, for example, on trusted third-party databases to eventually enrich the data input entered by the payer or leveraging fraud indicators based on account velocity and past transactions history.

How can PSPs overcome these challenges?

Taking part in a mutualized local hub has several advantages. It notably answers the connectivity question between the PSPs in scope as it ensures the consistency of the matching responses across a market, better reflects local account holders’ names and structures, and leverages local corporate identifiers. And, for those of whom the majority of incoming/outgoing transfers are domestic, it reduces potential fee costs. Also, the teams of the PSP will be able to rely on the expertise of the service provider in terms of compliance first, as well as technology. Finally, leveraging a robust technology and solution also ensures a smooth user experience for all PSUs, which will, eventually, increase customer satisfaction and trust.

With its Payee Verification Platform, LUXHUB aims at bridging the gap between the different stakeholders in scope of the Verification of Payee obligation, from credit institutions to payment institutions and e-money institutions. The goal is to become a renowned player in the field, notably by building a nation-wide platform, while collaborating with other schemes and hubs that have been developed outside of the Luxembourgish borders. LUXHUB is a “Support PFS” company – a specific status for professionals of the financial sector in Luxembourg – and therefore takes into consideration relevant and strict local requirements in terms of compliance and outsourcing conditions.

One of LUXHUB’s mottos, ever since its inception 6 years ago, is “innovation imposes collaboration”. Here again, LUXHUB, as a central hub, expert in mutualization and compliance-related topics, is promoting collaboration, aiming at bringing PSPs together to help solve the VoP challenges.