European Payments Initiative: Right Direction — Wrong Path?

European Payments Initiative: Right Direction — Wrong Path?

  • Local Payments Expert Frank Breuss argues that instead of focusing on Visa & Mastercard dominance in the European payments market, ecosystem support and fostering innovation should be the prime focus of EPI.

EPI (European Payments Initiative) has been under scrutiny ever since the opt-out of several European banks, which meant to develop joint payments frameworks rather than interoperability of heterogeneous domestic solutions in Europe. Although the concerns about the future of the autonomous Eurozone payment infrastructure solutions continue —  the diminished capacity of the initiative might be a blessing in disguise as the project scope can be adjusted, helping grow and empower the European Payments ecosystem.

“Instead of focusing on the dominance of Visa & Mastercard in Europe and building the ‘antidote’ solution — innovation in the payments industry of the region should be the prime focal point of EPI,” argues Frank Breuss, an expert in Local Payment Methods and the CEO of fintech Nikulipe. “With adjusted focus, EPI can achieve its original goal of increased payment homogeneity in the EU by supporting and growing the existing ecosystem, instead of focusing on a search for one magic bullet.”

History of EPI initiative

The EPI project was kickstarted by the European Commission back in 1999. Initially, it was well received even if it had a far-reaching scope — creating a „unified payment area covering the whole EU, that unifies fragmented local payment solutions into one that allows cross-border payments without friction.” The focus to unify payments was soon linked with the goal  to offer an alternative to European consumers and merchants, who were highly reliant on US payment providers (to date around 62% of payment card transactions in Europe are made via Visa and Mastercard).

EPI had the consumer interest at heart, imagining one card, password and one app for authorization covering all payment solutions across Europe. Having such a solution would facilitate additional initiatives like a Europe wide identity verification and even in parallel supporting a digital European currency, etc. Furthermore such a system would ultimately have the potential to save costs for the merchants and for the banks. All that would also make the EU less dependent on the US card schemes.

“Unfortunately, the initial scope EPI was tasked with, like similar projects before it (i.e.Euro Alliance of Payment Schemes (EAPS) or the Monnet Project) was too grand. It is no surprise — the lofty ambition was estimated to cost over 2 billion EUR —not to mention other complications, which member banks did not want to take on. Such a long-term political endeavor should also have had adequate funding from relevant institutions, otherwise there are just not enough benefit for the banks to flip the bill,” explains Mr. Frank Breuss. “That said, not all is lost, EPI could still stay the course and help diminish the market fragmentation across the payment ecosystem in Europe”

Redefined scope

Subsequent to half of the members having pulled out, it seems the EPI has a second chance to succeed. Instead of putting all the efforts towards one overly ambitious goal, the remaining members can help strengthen and support the existing ecosystem, which would organically birth innovative solutions that will win over the EU market.

A lot has happened since 1999 — as the value of digital payments in Europe reaches more than 30% of all transactions and many innovative Fintechs are taking advantage of this by trying to eliminate the need to use card readers. In parallel, innovative payment solutions like A2A payments, or integrated Wallets are moving towards border consumer adoption.

Mr. Breuss adds that “EPI should learn from the past and drive change by means of collaboration. It is a unique opportunity that will prevail if focus on consumer and industry player feedback will continue to guide the organization. When EPI was launched — consumers were not consulted — it would be a shame not to get them more engaged going forward.”

Ensure European Banks are all onboard with Open Banking & SEPA

There are other directions where the EPI could take a leadership role in the context of creating a complete Eurozone payment infrastructure, driven by the goal of increased market homogeneity. Open Banking (OB) has become a symbol of innovation for the European financial industry but in reality, adoption and acceptance has a wide discrepancy between countries — yet just 5-7% of Europeans have ever used open banking solutions.

“Europe has good examples for achievements in OB adoption but the regulation across the continent is not balanced. Yes, the directive was issued by the ECB to make API connections available by banks to Fintechs but there is no serious enforcement to level the innovation in each country,” says Mr. Breuss. “Further more initiatives like instant SEPA are not yet fully rolled out and could use support also.

In conclusion

“At the end of the day — we should not stop ‘half— way’. If the goal is to achieve unified payment infrastructure in Europe, we have to remember that it does not depend on a single initiative but rather on continuous hard work of institutions, banks and financial solution innovators in the region,” explains Mr. Breuss. “The better answer isn’t a single solution but rather a flourishing ecosystem.”

Mr. Breuss adds,  “As for EPI — it has a chance to re-focus and exceed everyone’s expectations. With much needed public funding and renewed enthusiasm it could be the flagbearer of innovation in the European Payments system.”