For over a decade, authorities in the EU have been looking for an opportunity to develop a unique payment network to replace Mastercard and Visa. The EU is focused on developing a solution that is not necessarily different or better than that of the global card networks but can reduce reliance on the U.S.-based companies. The global networks already have competition from domestic networks, but these often only function within the confines of a specific country. The European Payments Initiative has set its eyes on a wider network encompassing all of Europe. Efforts around open banking and real time payments are helping to make this a reality and beginning to gain some momentum, although the initiative is still in need of funding. The American Banker had this to say on the matter:
With the Chinese payments systems Alipay and WeChat Pay also encroaching on the European market, some of Europe’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.
Pierre Lahbabi, CEO of the payments consultancy Galitt, said the EPI initiative still needs a stronger message.
“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 European Payments Initiative’s long-term success will largely depend on whether it can persuade consumers to switch to a completely novel payment method, although Weimert does not view this as a significant challenge. All issuers that 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 more easily.
The EPI hopes to roll out its first usable applications in 2022, but experts say it will face challenges along the way. Last week [EPI Chief Executive Martina] 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.
Lahbabi predicts it will take longer than anticipated for the EPI to launch its first use cases, given the IT adaptations that 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 that have signed up still varies widely from one European Union member state to another. In countries like Sweden, the EPI will also be competing with domestic alternatives such as Swish.
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group