Europe’s homegrown payments network gains momentum

In recent years, the European banking sector has become increasingly concerned about the volume of the continent’s credit and prepaid card transactions handled by two U.S. companies: Visa and Mastercard.

With Chinese payments systems Alipay and WeChat Pay also encroaching on the European market, some of the continent’s largest banks have united to create the European Payments Initiative with the aim of establishing a European alternative for peer-to-peer, mobile, real-time and card payments. This aims to challenge the existing card networks as well as newer payment brands such as Apple Pay.

So far the concept has been met with support from both the European Central Bank and the European Commission. However, historical precedent suggests it will face challenges. In 2008 the Monnet Project was launched with similar grand aims of rolling out a unified payments system across Europe, but folded three years later despite gaining the support of 24 banks.

EPI CEO Martina Weimert is optimistic that the new project will not suffer the same fate. She describes how the Monnet Project lacked the support of third party acquirers, while key markets such as the Netherlands — the fastest growing European e-commerce market — are now committed to the EPI, while they were not part of the previous effort.

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“There are many differences compared to the Monnet Project,” said Weimert. “This includes the members — we have the two biggest European acquirers [Nets and Worldline] on board — the opportunity, and the competitive pressure. Since that time, the dominance of international players has become much stronger in Europe which is clearly perceived by the whole market.”

The political economic environment has shifted greatly in the past decade, which could benefit the EPI, according to Corrado Macchiarelli, a global macroeconomics research manager at the National Institute of Economic and Social Research.

Transactions made through Visa and Mastercard have increased greatly between 2015 and 2019 at the expense of national card networks, Macchiarelli said. In Italy, Euromonitor 2021 data showed that Visa and Mastercard’s market share increased from 10% to 68% over that four-year period.

“Since the dismissal of the Monnet Project, the political landscape has changed. A turning point was in 2018, when the U.S. administration withdrew from the Joint Comprehensive Plan of Action on Iran’s Nuclear Programme,” said Macchiarelli. “Under the threat of being excluded from Visa and Mastercard’s networks, Europe suddenly realized that nearly all its card transactions are handled by these two U.S. credit card giants. This has put the emphasis on the political importance of a system such as EPI.”

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But Pierre Lahbabi, CEO of payments consultancy Galitt, said the EPI initiative still needs a stronger message if it is going to overcome skeptics.

“EPI, in my view, started with a defensive approach,” he said. “How do we gain autonomy at European level? How do we make sure we are not too dependent on Visa and MasterCard? It should also move towards a more offensive approach, so it should also set a goal to offer one of the best and more fluid digital experiences for end users and for merchants.”

The EPI’s long-term success will largely depend on whether it can convince consumers to switch to a completely novel payment method, although Weimert does not view this as a significant challenge. All issuers who are part of the EPI will pitch the new payment option to their customers. The EPI also plans to attract users through an instant payment system and a method for merchants to track consumer spending with greater ease.

The EPI hopes to roll out its first usable applications in 2022, but experts say it will face challenges along the way. Last week Weimert revealed that the project requires several billions of euros in funding to be completed, and called for public financing from across the European Union to support its development.

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Lahbabi predicts that it will take longer than anticipated for the EPI to launch its first use cases, due to the IT adaptations which will be required to support instant payments in many of the major European banks. Lahbabi expects the best case scenario is that pilot trials and small deployments will begin within two to three years, with a full, large-scale deployment happening in five to six years time.

Macchiarelli says that while the demand for the EPI is there, the practical implementations will still prove challenging.

While the EPI has the support of more than 30 European banks and acquirers, the number of banking institutions who have signed up still varies greatly from one EU member state to another. In countries like Sweden, the EPI will also be competing with domestic alternatives such as Swish.

“I think the promise of convenience is a realistic one but establishing a new EU payment network is clearly not easy,” Macchiarelli said. “First, banks need to buy into the scheme. Currently, there is the challenge regarding the various levels of enthusiasm across the EU. The take-up from banks is still comparatively low in Germany, France [and] Finland, particularly considering their higher use of card payments.”

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