Rethinking liquidity: Instant payments as a challenge and opportunity

From 9 October 2025, the full implementation of the EU regulation on Instant Payments¹ will take effect. This marks the end of relative planning certainty for Treasury departments—and the beginning of a new era. Banks will be required not only to receive instant credit transfers but also to execute them proactively, 24/7, 365 days a year.

At first glance, this may appear to be a purely technical upgrade. In reality, however, it signifies a profound change in liquidity strategy. It’s no longer just about process efficiency—it’s about capital allocation, control, and strategic risk steering.

This article explores why Instant Payments are far more than just ‘faster transactions’, how Treasury teams can actively navigate the transition, and why data-driven forecasting models will be critical to managing liquidity efficiently and in compliance with regulatory expectations

From Predictability to Permanence: What Changes in Practice

So far, liquidity management in banks could be planned: SEPA transfers were processed in batches, booking windows were known and the Treasury department was able to manage outflows – i.e. by deliberately withholding individual payments. Weekends and public holidays were regarded as reliable ‘off-times’ during which hardly any relevant liquidity movements took place. Monitoring at fixed times – in the morning, at midday, at the end of the day – often was sufficient.

With the new regulation coming into force, this model will change fundamentally: payments must also be executed in real time outside of traditional working hours. The previous distinction between daily and overnight liquidity is becoming blurred. Therefore, banks must hold sufficient liquidity at all times – even at night, at weekends and on public holidays. Treasury is changing from planning to permanently observing and proactively shaping liquidity positions:

Netting and real-time clearing: efficiency drivers with side effects

Modern payment infrastructures such as real-time clearing and netting-based settlement systems also exacerbate this development. Systems such as CLS (Continuous Linked Settlement) or CLSNet, which is based on distributed ledger technology, make it possible to bundle payment flows, settle them several times a day and thus massively reduce the gross liquidity requirement – by an average of 96% in the case of CLS. However, this efficiency gain has a downside: liquidity no longer needs to be available throughout the day, but is concentrated in specific, often short-term time windows. This increases the time-dependent volatility of liquidity – an additional challenge for intraday treasury management.

Such netting rounds or FX settlements can generate additional fluctuations due to market movements, clearing times or operational delays. This also affects liquidity prices, i.e. the opportunity costs and hedging costs for liquidity, which will be subject to higher intraday fluctuations compared to traditional batch procedures.

Therefore, Treasury must not only have available funds in real time, but will have to manage liquidity increasingly in anticipation: Which netting cycles are imminent? Which markets are open? Where do short-term liquidity requirements arise due to settlement or compliance dates?

Real-time payment transactions, volatile intraday curves and international netting systems are leading to the paradigm shift mentioned at the beginning:

Capital Tied Up: Liquidity as a Structural Cost Driver

This new obligation has a clear consequence: banks must permanently maintain larger and differently structured liquidity buffers. Specifically:

• Increased buffers during off-peak times: No longer just during core working hours, but also at night, at weekends and on public holidays.
• Structural adjustment of the liquidity buffer: Towards assets that can be liquidated more quickly.
• Higher central bank balances: Participation in instant payments requires connection to systems such as TIPS (TARGET Instant Payment Settlement). This can lead to the necessity to permanently hold central bank balances as part of the liquidity buffer – with a corresponding impact on tied-up capital.
• Higher opportunity costs: The tied-up capital is not available for more profitable uses such as lending business or own investments.
• Regulatory pressure: Supervisory authorities are already demanding detailed intraday liquidity reports, stress tests and proof of solvency. Instant payments will increase this pressure even further.

In short:

Instant Payments as a Liquidity Stressor

Beyond the cost implications, Instant Payments pose an operational challenge: real-time execution increases the volatility of outflows. Typical stress scenarios include:

• Unexpected transaction peaks: For example, when a major customer makes several large payments (24/7).
• Simultaneous outflows: Several customers make large instant payments at the same time.
• Systemic pressure: If many banks must pay at the same time, the pressure on the entire industry increases.

Cut-off times once helped mitigate these spikes. Now, outflows hit liquidity reserves instantly. The result?

Verification of Payment Execution (Verification of PE): More than just a technical requirement

A central element of the regulation is the obligation to ‘verify payment execution’. Banks must not only initiate payments, but also ensure that they are verified, confirmed and executed – in real time.

The consequences for Treasury and Operations:

• Real-time verification: Every payment is checked for plausibility, liquidity and regulatory requirements within seconds.
• Risk management: Sufficient liquidity must be available at all times.
• Reputational risks: Payment failures can damage trust and result in supervisory reprimands.

From batch to real-time Treasury: adjustments are inevitable

Traditional management tools are becoming less important. Instead, it takes:

• Intraday instead of end-of-day management: liquidity must be permanently monitored and managed.
• Real-time instead of batch reporting: live data is crucial for identifying bottlenecks at an early stage.
• Dynamic limits: Rigid budgets are no longer enough to react to volatility.

Forecasting models and data are key

The question is how to manage the transformation? The ECB has formulated clear expectations in its ‘Sound Practices’³:

• Identification of time-critical payments (i.e. Time Sensitive Payments, TSP) and time-of-day specific obligations.
• Real-time monitoring with drill-down function: Aggregated payment flows and individual transactions must be analyzable at any time.
• Early warning mechanisms: Documented processes that detect liquidity shortfalls in time.

A particularly important steering parameter is the ‘Largest Net Negative Cumulative Position’ (LNNCP): the arithmetically largest negative balance that can occur during the day. The maximum liquidity requirement can be forecast based on historical data and scenarios. In addition, there are forecasting obligations for various (intraday) time horizons.

Automation, AI and predictive analytics

The technological dimension should not be underestimated. Treasury departments need:

• Scalable data architectures: To be able to process mass data in real time.
• Advanced analytics: Drill-downs, simulations and stress scenarios must be available at the touch of a button.
• Smart forecasting tools: AI and machine learning help to recognize patterns and continuously improve forecasts.

Strategic outlook: From risk to opportunity

Even if the pressure to adapt is large, instant payments offer strategic opportunities. Those who invest today can use liquidity management as a competitive advantage. Some approaches:

• In-depth analysis of historical transaction patterns: When do peaks occur? How strong are they?
• Simulation of extreme scenarios: What happens in the event of system failure or major customer outflows?
• Dynamic buffer logic: moving away from lump-sum reserves towards dynamically calculated liquidity buffers.
• Close exchange with major customers: Joint planning reduces surprises.
• Early introduction of a forecasting model: instead of reactively managing shortages, act proactively.

Conclusion: Proactive Steering – Leveraging the Opportunity

Instant payments are fundamentally changing liquidity management. Banks not only have to adapt technical processes, but also need to transform governance, risk models and culture. A rigid, reactive model is no longer sufficient. Instead, data-driven, flexible control systems are needed to ensure solvency at all times – without tying up excessive capital.

Those who recognize this early on and position themselves accordingly can use liquidity management as a real competitive advantage and, not least strengthen trust with customers and regulators. After all, it’s not just about processing payments faster and more effectively.

The aim is to remain solvent and capable of acting at any time, even in real time – and this is precisely the key to sustainable success.