How to handle FX in SEPA Instant

Until now, SEPA (Single European Payments Area) payments have been euro-only. But from October 2025, anyone banking in Euro member states will be able to send SEPA Instant Payments from any currency account. They’ll be able to do it any time of day, any day of the year. And it won’t cost any more than a normal credit transfer.

That’s great news for consumers and businesses. But for banks, that’s going to cause headaches. Not because of any clearing or settlement changes. But because FX is not set up for a 24/7 world. You now have a whole new set of operational risks to consider. Plus, the impact to your customer experience.

So, what’s the problem, why should you care, and how can you overcome it?

FX in SEPA Instant

To explain, let’s start with a real-world scenario.

It’s 7 a.m. on a warm Saturday morning. One of your customers, Rosie, owns a bike shop in the Netherlands. She does business globally, so she holds three accounts with your bank: one in EUR, one in USD, and one in JPY.

That morning, Rosie gets a call from her German supplier. He has the specialized gears she needs—and he can deliver by Monday. But there’s a catch: he needs to be paid by 9 a.m., or the shipment won’t go out.

Rosie checks her accounts. Her euro balance is empty—she just ran payroll. But thanks to a recent US sale, her USD account is full.

That’s good news. Under the SEPA Instant Payments rulebook, Rosie can make euro payments from her non-euro accounts. The bank—you—handles the FX conversion behind the scenes.

She opens your banking app, selects her USD account, enters the amount, chooses her German supplier, and taps “pay instantly.”

Then she calls the supplier to confirm the funds have arrived.

They haven’t.

So she calls you.

Instant is not immediate

It turns out your FX rates don’t go live until 10 a.m. on Saturdays. Until then, you can’t convert Rosie’s dollars into euros—and without the conversion, the payment can’t be sent.

It’s 7:05 a.m. Rosie has to wait three hours.

She calls the supplier to explain, but it’s no use—the courier will be gone by 9.

The payment doesn’t go through. The gears don’t arrive. Her business takes a hit. And so does your relationship.

So what went wrong?

SEPA Instant lets Rosie make a euro payment from a non-euro account. But behind the scenes, the payment must still be settled in euros—just like any other SEPA Credit Transfer.

That puts the pressure on you, the bank, to convert Rosie’s USD to EUR immediately—so the payment can be processed in time.

So, what does immediately mean in this context?

It doesn’t mean within 10 seconds (as per the guidelines for processing the payment).

In fact, immediately means as soon as the currency has been converted.

If your FX rates are uploaded at 10 a.m., you, as a bank,  must convert the funds as soon as you can and then process the payment as soon as the conversion is made (i.e., immediately). The payment must then be processed within 10 seconds as per the rulebook.

Now, what if the rate isn’t live until Monday at 7 am? What then?

In this scenario, Rosie must wait two days (from Saturday at 7 am to Monday at 7 am) for the payment to be processed. This becomes a problem. Again, Rosie can’t pay her supplier on time, which means the supplier won’t ship the order. But this has a bigger impact on the customer experience.

So, FX under SEPA Instant can take far longer than other payments. They are an exception in the SEPA Instant rulebook. (The only other exception is with bulk payments, but that’s beyond the scope of this article.)

Figuring this out is a matter of customer experience. If a customer expects to send a payment instantly but can’t, it will impact your relationships. Your customers – particularly businesses like Rosie’s who deal with multiple currency accounts – will flock to banks who can provide a slick experience.

How can you fix it?

The Instant Payments regulation mandates what must be done. But for euro area banks, the challenge lies in how to do it (without breaking compliance, customer trust, or your systems).

There are four big challenges banks must overcome:

1. Fragmentation in a 24/7 world

The first is fragmentation.

In many banks, the payment chain (internet banking portals, mobile apps, and API channels) operates independently of the FX engine. Rate requests need to be manually processed. That can add a delay.

So, when Rosie tries to pay her German supplier using her USD account (a non-euro-denominated account) using an instant payment (SCT Inst), the system needs to retrieve a live FX rate (USD → EUR), convert the funds into euros, check there’s enough money to do it (validate liquidity), assess the risk (FX exposure limits), and send the payment to the instant payments scheme. The payment must then be processed within 10 seconds.

If just one element fails—let’s say you can’t find a rate, there’s not enough money in the bank, or it exceeds the FX risk limit—the payment cannot proceed.

Now, most banks cannot check FX limits on a transaction level. And that can cause big problems. Let’s say Rosie’s got 100 “€10,000” invoices to pay. Your FX exposure is €1,000,000. That could tip you over your FX exposure limit and cause the whole batch to fail. Or let’s say a flurry of businesses are converting USD to EUR on the same Saturday morning. Very soon, you’ll reach your FX exposure limit, your liquidity will be impacted, and your payments will fail.

The challenge is that FX is not built for a real-time world. But SEPA Instant is.

So, without dynamic FX limit checks, banks run into problems very quickly. Problems that can impact their operations and customers.

What's the solution?

• Embed FX pricing and booking engines directly into the payment initiation layer, exposing rate quotes through real-time APIs.
• Implement real-time FX exposure management, tracking both customer-level and institution-level limits against booked transactions.
• Make sure integration extends to liquidity management, with pre-funded euro pools, corridor-level liquidity forecasting, and sweep automation.
• Partner with FX-as-a-Service providers where in-house capabilities are limited, enabling scale without capital-intensive infrastructure.

To meet the demands of SEPA Instant, your customer channels, FX engines, exposure controls, liquidity providers, and payment processors must work in harmony. That means operating sub-second, 24/7/365. 

2. Pricing and Charges

The instant payments regulation stops banks from charging more for an instant payment (SCT Inst) than a non-instant payment (regular SEPA Credit Transfer). That means Rosie’s Saturday morning FX SEPA Instant Payment costs as much as any other SEPA payment she’s sent via your bank.

This can be expensive – for you – when FX is involved.

FX conversion is not free—it involves spreads, liquidity buffers, and operational overheads. There are margins for the banks, the relationship managers, and third parties (Bloomberg, for example, will have a rate, and corporate banking FX will have a rate). If there are multiple conversions (e.g., USD → EUR → CHF), the costs add up pretty quickly.

If, as a bank, you don’t charge for SEPA payments, how do you price SEPA Instant Payments? As per the rules, you can’t charge any more for a SEPA Instant Payment than you did for a SEPA payment, and you can’t start charging today. So what do you do?

You need to agree on the FX rates up front before the markets close.

That’s hard. There’s no upper limit for FX in SEPA Instant because there are no transaction limits for SEPA Instant. That means Rosie could, theoretically, convert hundreds of millions of dollars to euros at any point over the weekend. You can’t charge any more for a SEPA Instant transfer than for regular transfers. So, a bad rate will cost you a lot of money.

What's the solution?

Transparent FX pricing models.

This means bundling FX costs into a single, all-in rate. So, when Rosie initiates the payment to her German supplier, you will show her the exchange rate, margin, and the final euro amount her supplier will receive. This means you meet the IPR, protect the customer experience, and avoid any uncomfortable disputes.

3. Exception handling with FX

This one’s a problem for your operations teams.

SEPA Instant is designed to be final. But returns and recalls are inevitable, and FX introduces volatility.

Let’s say Rosie’s made a fat finger error. Instead of sending the money to her German gear supplier, she’s sent it to her Swiss Gruyère supplier instead. She needs to reverse the transaction. The challenge here is that the FX conversion has already happened. And the euro amount is settled via an irrevocable instant payment (TIPS).

That means the new FX rate may differ from the original. If the Swiss Franc depreciates against the USD, someone has to absorb the loss. But who? Is it you? Your bank? Both? What’s fair? And what currency are you going to return?

There isn’t an easy answer.

What's the solution?

To prevent damage to the customer experience, banks must design FX-aware exception workflows, where:

• The original FX rate and timestamp are captured and stored.
• The refund logic is pre-defined and disclosed.
• Fixed rate: Refund uses the original FX rate; bank absorbs risk.
• Live rate: Refund uses current rate; customer bears risk.
• Shared-loss model: Risk is split via configuration.

These models must be programmable, policy-driven, and visible across digital channels. The key is to be transparent before the payment is made, not to resolve after something goes wrong.

4. Reconciliation: When internal ledgers and TIPS don't align

Here’s another operational challenge.

Let’s say Rosie paid her German supplier from a USD account. You, as the bank, debited her USD balance, converted it to euros, and sent the payment via SEPA Instant to Munich. But when you review your TIPS (TARGET Instant Payments Settlement) report at the end of the day, you only see the final euro transaction—no mention of the original USD source or the FX conversion that made it happen.This creates daily friction for operations and finance teams:

• Internal ledgers don’t match settlement data.
• FX and payment systems can't be easily reconciled.
• Auditors and compliance teams struggle to trace the full flow of funds.
• Customers are left confused if something goes wrong—especially in refund or recall scenarios.

What's the solution?

To fix this, banks need to build reconciliation logic that links the original foreign currency debit to the final euro payment:

• Enrich payments with ISO 20022 fields like XchgRate, InstdAmt, and EqvtAmt.
• Create FX trace IDs that persist from initiation through booking to settlement.
• Mirror euro-side journals in multi-currency ledgers for reporting and exception handling.

Without this, even successful payments like the one from your bike shop can create downstream mess. And at scale, this becomes a major operational burden.

The strategic opportunity for Euro Area banks

The SEPA Instant FX challenge feels operational. But really, it’s an opportunity for forward-looking banks to boost their customer experience.

Across the eurozone, businesses – like Rosie’s bike shop – increasingly manage global relationships. They hold foreign currency accounts, pay international suppliers, and expect the experience to be fast, simple, and digital. The Instant Payments Regulation makes that expectation law.

FX must be priced fairly, risks managed in real time, and customers given visibility from start to finish. That means rethinking the role of FX – as live capability built into digital channels, mobile apps, and treasury tools.

As the SEPA ecosystem expands and currencies like the Danish krone and Swedish krona edge closer to TIPS, we may be seeing the early signs of a multi-currency, real-time settlement system that goes far beyond the euro.

Soon, moving money instantly—across borders and currencies—will be the baseline. Those who build for it now will be the ones powering the next generation of businesses, bike shops and all.

Struggling with SEPA Instant?

Speak to RedCompass Labs. We're helping some of the world's biggest banks get ready for the European Instant Payments Regulation. If you need help, reach out today.