The European Central Bank is changing how euro payments are settled in Europe by allowing non-bank financial institutions direct access to payment systems. With payments able to be settled in central bank money without going through banks, expectations are growing for cost cuts and faster processing for fintech companies.

Fintech Futures reported on Nov. 9 that the ECB has expanded access so eligible payment institutions and electronic money institutions can participate directly in euro payment systems.

Previously, non-bank financial institutions had to use intermediary banks or sponsor banks to handle cross-border euro payments. That process led to additional fees and processing delays, and it also constrained liquidity management and operational efficiency.

The ECB adopted the decision in January last year and, from October that year, allowed qualified non-bank financial institutions access to the T2 real-time gross settlement system and the TIPS instant payment system.

Services have also emerged. ISX Financial, a brand of Cyprus-based financial technology company Xryma (엑스리마), was notified of approval for direct participation in October last year and completed technical integration in June this year. From September, it began processing euro payments on T2 using its own bank identifier code (BIC).

The biggest advantage of direct connectivity is reduced reliance on intermediary banks. According to the ECB's 2024 payment systems report, 99.73 percent of T2 transactions were processed within 2 minutes.

With fewer intermediary steps, it also becomes easier for financial institutions to directly manage payment progress and liquidity. Faster processing, however, does not mean a relaxation of compliance obligations such as anti-money laundering requirements.

ISX Financial is diversifying payment routes through Lithuania's central bank CENTROlink and Latvia's central bank EKS. It also plans to add a TIPS connection in the fourth quarter of this year.

Access to central bank payment systems does not grant all the same rights as banks. Non-bank financial institutions can hold the funds needed for payments, but they cannot use the central bank's intraday credit.

Europe's payment market is expected to change on the back of this overhaul, shifting from a bank-centred settlement structure toward broader direct participation by non-bank financial institutions.