Portugal generalizes beneficiary verification and facilitates initiating transfers

Banque du Portugal has announced the launch of two new functionalities designed to enhance the security of credit transfers and direct debits, while facilitating operations. These include a new pre-transaction beneficiary/debtor confirmation solution and the introduction of an identifier based on the telephone number of the beneficiary of an instant transfer, rather than the IBAN. The aim is clearly stated: to build a more convenient payment market without compromising on security.

FACTS

• The Bank of Portugal is launching two services designed to make payments safer and more convenient.

• They will be offered to Payment Service Providers (PSPs) using the Portuguese Interbank Clearing System (SICOI), the platform for managing transactions carried out by private individuals and companies in Portugal.

• The first new feature is a payee/debtor confirmation service. Available since May 20, it is based on two main functionalities:

• Individual beneficiary confirmation, which works by transmitting the account holder's name together with the IBAN. This functionality will be offered by PSPs, who will then be able to make it available to their users.

• Grouped beneficiary confirmation for grouped transactions. This confirms the ownership of one or more accounts by validating NIF/IBAN or NIPC/IBAN pairs, which are company identification numbers. This functionality will be offered to companies for grouped transactions such as payroll payments, supplier payments or direct debits.

• Available online, on application or in branch, these functionalities will be operational non-stop, every day of the year.

• According to the bank, the second new feature, SPIN, will be available to PSPs from June 24. This is an identifier for account derivation, in other words, a “proxy” or “alias” search function:

• In concrete terms, users will be able to use the recipient's telephone number to initiate a transfer to a natural person.

• In the case of legal entities, this will also be possible by entering the company's identification number.

• SPIN will be free of charge for users, and will be available on the various channels of their PSPs. PSPs will be required to make it available to their users from September 16.

CHALLENGES

• Enhanced security: The central point of these new functionalities is to improve the security of transfers. Beneficiary confirmation helps prevent IBAN fraud, in which a malicious person may try to impersonate someone in order to request money from someone close to the victim. If the person is caught out, beneficiary confirmation will enable them to realize, when entering the IBAN, that the owner of the account is not the relative to whom they think they are making a transfer. Last but not least, beneficiary confirmation will also prevent any IBAN entry errors during a transfer.

• Improving the user experience: With these innovations, the Bank of Portugal also aims to simplify the process of issuing transfers for users. The traditional banking system will thus close the gap with fintechs and neo-banks in terms of the user experience when initiating a payment. Even if the way they work is very different, the paths offered to customers will come closer to the ease of use of a player like Lydia, for which the user only has to enter a telephone number or contact directly to initiate a payment.

• A milestone in Portugal's payments strategy to 2025: The Bank of Portugal wants to ensure that these functionalities are widely adopted, in order to move towards a more secure and convenient payments market. This initiative is in line with the National Strategy for Retail Payments 2025, a global strategy focused on four points: Proximity and transparency, Innovation and efficiency, Security and ease of use, Resilience and sustainability.

MARKET PERSPECTIVE

• Beneficiary verification is a hot topic in the European payments ecosystem. The entry into force of the European regulation on instant payments has strengthened security requirements, and in particular beneficiary verification for instant and ordinary transfers. Payment infrastructures are therefore working on compliance issues, as well as on the future increase in the volume of instant transactions.

• At continental level, EBA Clearing took advantage of the regulation's entry into force in February to announce that its own beneficiary verification function would be available in December 2024.