Verification of Payee: Addressing Regulatory Demands and Operational Challenges for File-Based SEPA Payments

The world of payments is advancing rapidly, and with this progress comes the challenge of ensuring security, accuracy, and compliance. Across all channels handling SEPA payments – from UI, API to file-based SEPA euro payments – the regulatory environment is driving the adoption of Verification of Payee (VoP)¹ as a mandatory practice in the EU.

Under the Instant Payments Regulation (IPR), VoP will become a regulatory requirement for Payment Service Providers (PSPs) in euro-area countries starting October 2025. This mandate compels banks and financial institutions to implement VoP in all channels, ensuring the accuracy of payee information. Let’s explore the benefits and challenges of performing VoP, particularly for file-based SEPA payments.

What is Verification of Payee?

Verification of Payee is a service designed to ensure that SEPA euro payments reach the intended recipient by validating the payee information provided by the payer against the beneficiary account holder information held by the payee’s bank. While enabling VoP for payers in UI channels presents its own challenges, its application to file-based SEPA single euro payments – or “packages”, as referred to in the regulation – has become a key focus area.

VoP empowers organizations to validate payee details for transactions, whether they are processed individually or in bulk submissions. This ensures the integrity of payments processes, which are critical for payroll, supplier payments, and other financial activities.

Benefits of VoP for SEPA payments

Performing VoP brings significant benefits for organizations, aligning operational processes with regulatory requirements and enhancing payment accuracy. Key advantages include:

1. Regulatory compliance: Mandatory VoP ensures adherence to the Instant Payments Regulation², reducing the risk of penalties and reputational damage.
2. Error reduction: By validating payee information before SEPA payments are processed, VoP minimizes the risk of errors, preventing failed or misdirected transactions.
3. Fraud mitigation: VoP acts as a safeguard against fraud, such as invoice redirection fraud, by confirming the authenticity of payee details.
4. Operational efficiency: Early identification of mismatches saves time and resources, reducing the burden of manual corrections and investigations.
5. Customer trust: Accurate payment processing builds confidence with stakeholders, including employees, suppliers, and customers.

Challenges of implementing VoP

Despite its benefits, implementing VoP introduces several challenges that organizations must navigate, particularly for file-based payments:

1. Handling near matches: One of the most complex aspects of VoP is addressing near matches. When the account name provided is similar but not identical to the name on record, organizations must decide whether to proceed with the payment or cancel it. End-users require clear workflows and decision-making tools to handle such scenarios, balancing automation with manual intervention. Based on data from countries where a VoP solution has already been implemented, the number of near matches for corporates is significant.
2. Lack of opt-out options for single payments: When a package contains only one payment instruction, organizations are not able to opt-out from the VoP process, even for low-risk SEPA payments. This can add unnecessary complexity and processing time to straightforward transactions.
3. Integration and compatibility: VoP systems must be compatible with existing payment infrastructure, requiring careful coordination between technology providers and financial institutions.
4. Latency for batch verification: Validating large volumes of data introduces latency, which can impact the timeliness of SEPA euro payments in some cases. Organizations must optimize their processes to minimize delays while maintaining accuracy.
5. Resource allocation: Implementing and maintaining a VoP system requires investment in technology, training, and support. Organizations of all sizes will face resource constraints.

Meeting the regulation head-on

As VoP becomes a regulatory requirement in October 2025, organizations must view its implementation not just as a compliance measure but as an opportunity to enhance their payment processing services. Proactively adopting VoP will help organizations:

• Avoid non-compliance risks: Ensure readiness for the regulatory deadline to avoid fines and reputational harm.
• Enhance payment security: Build stronger defenses against fraud and errors.
• Improve operational agility: Streamline payment workflows, even for large-volume transactions.

Conclusion

Verification of Payee is no longer just a best practice; it is a regulatory obligation for PSPs in euro-area countries. While its implementation across all SEPA payment types presents challenges, the benefits – including compliance, error reduction, and fraud mitigation – far outweigh the hurdles.

By embracing VoP as part of their payment modernization strategy, organizations can ensure their processes are accurate, secure, and future-proof. As the regulatory landscape evolves, VoP will not only help organizations meet compliance standards but also build trust and confidence in their payment systems.

Don’t wait for the deadline. Start preparing your VoP strategy today to stay ahead of the curve and lead the way in secure, compliant SEPA payment processing.

Seamless VoP integration with SEEBURGER and Movitz: Compliance, security and efficiency

SEEBURGER and Movitz enable financial institutions and businesses to seamlessly integrate Verification of Payee (VoP) into their payment workflows, ensuring compliance with the Instant Payments Regulation while enhancing security and efficiency. By leveraging our proven experience and integration expertise, organizations can reduce errors, mitigate fraud risks, and streamline operations without disrupting existing systems, and businesses can confidently navigate regulatory requirements and future-proof their payment processes.

1 https://www.ecb.europa.eu/paym/target/target-professional-use-documents-links/tips/shared/pdf/tipsmeetdoc/ecb.tipsmeetdoc240419_TIPS-CG_Verification_of_Payee_Service.en.pdf?62a1269b3685d609d96e0e1c9a11b94b (accessed 31 January, 2025).

² https://www.ecb.europa.eu/paym/integration/retail/instant_payments/html/instant_payments_regulation.en.html (accessed January 31, 2025)