Goods for money – this simple exchange has been the basis of every business transaction for centuries. And people have always wanted to know who they entrust their money to. For the digital version of commerce and payment, there is now a method to obtain information about exactly this aspect: Verification of Payee (VoP). This is a name check for payments. It is not for nothing that the new regulation is also known as the IBAN Name Check. The underlying principle: Before the money makes its way to the recipient, it is checked whether the name of the recipient matches the stored IBAN. This sounds simple, but it has far-reaching implications for security and efficiency in payments. We shed light on how VoP actually works, what advantages it offers for all market participants and, above all, how banks in particular can best prepare for it.
What means Verification of Payee?
VoP is an integral part of the Instant Payment Regulation (IPR). This is a new security mechanism that allows payers to check the name of the recipient with the specified IBAN before executing a transfer or direct debit. The aim is to prevent fraud and increase trust in SEPA transfers. With good reason: SEPA credit transfers are extremely popular and widespread in Germany. For example, around 17.3 million SEPA payments were made in 2022, making Germany one of the largest SEPA users in the EURO payments area.
Timeline and implementation
The IPR as the overarching regulation has been in force since April 8, 2024. The agreed deadlines for implementation stipulate that from 9 October 2025, all banks in the SEPA area must offer VoP for all credit transfers – both for instant payments and for regular SEPA credit transfers. To put it bluntly, this is very challenging and poses considerable challenges for financial institutions, as implementation requires complex system adjustments.
Technical aspects of implementation
Let’s take a closer look at what’s changing on the system side for banks and financial institutions.
The technical implementation of Payee’s verification (VoP) is characterized by a fast check within three seconds. Banks are required to offer VoP on all payment channels, including online banking, mobile banking, telephone banking, and in-branch. All of this concerns different technical aspects:
Privacy and security
- Secure data transfer:
Implementation of encryption mechanisms for the secure exchange of customer data. - Data protection compliance:
Ensuring compliance with data protection regulations when processing personal data.
Performance
- Real-time capability:
Ensuring sub-second response times for the entire verification process. - Load balancing:
Implementation of load balancing mechanisms to handle high volumes of requests.
Interoperability
- Standardised interfaces:
Development of standardised interfaces for communication between banks in the SEPA area. - Compatibility:
Ensuring compatibility with different banking systems and payment service providers.
Integrations
- EPC Directory Service (EDS):
Integration of the EDS as a “phone book” of all SEPA subscribers with daily updates. - API connection:
Development of APIs for connection to existing payment systems. - EBICS integration:
Implementation of new EBICS order types (e.g. CTV for SEPA credit transfers, CIV for real-time credit transfers) for VoP checks
In addition, both the system architecture and the verification algorithm play a central role in the implementation of VoP solutions. The system architecture is often based on containerized services that can be operated flexibly as SaaS via APIs or on-premise. This architecture enables multi-tenant capability, allowing multiple banks to work simultaneously on a common platform. The verification algorithm is at the heart of the VoP solution: it includes a robust IBAN name check that matches names and IBAN. To evaluate name similarities, the Levenshtein distance is often used as a phonetic distance measure. In addition, data cleansing is carried out in accordance with EPC specifications, in which special characters, filler words and legal forms are removed.
Focus on consumers
The considerable technical effort benefits the end customers. They benefit greatly from significantly higher security throughout the entire process and greater control over their payments. By verifying the payee before each transaction, customers can be sure that their money is actually going to the intended recipient. This significantly minimizes the risk of fraud and incorrect transfers. This is especially important for payments made online or on mobile platforms, where phishing and other fraudulent activities are becoming more common. VoP also increases trust in digital payments, as customers can see exactly that the recipient’s name matches the account details. In addition, end customers benefit from faster and easier troubleshooting if there are still problems with the payment, as the verification of the recipient data provides a clear basis for clarification.
Impact on banks
Banks and financial institutions are initially faced with high time pressure, as the implementation deadlines are very tight and banks have to implement other aspects of instant payment regulation at the same time. This puts a considerable strain not only on human resources, but also on banks’ budgets.
Despite the financial burden of developing or integrating VoP solutions, implementation also offers opportunities. VoP increases the security of transactions and helps prevent mistransfers and fraud. In the long term, the successful implementation of VoP can strengthen banks’ competitiveness and open up new business opportunities. It offers the opportunity to develop innovative services and increase customer loyalty.
Result
The introduction of VoP marks a turning point in European payments. Banks that act proactively and adapt their systems early on can benefit from increased customer satisfaction and improved security. It is crucial that financial institutions start preparing now to meet the ambitious deadlines and take full advantage of the opportunities offered by this new technology.
