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The European Central Bank (ECB) and would-be providers of pan-EU payment services want to take on international providers such as Visa and Mastercard. But a busy market and a lack of a concrete strategy seem to be standing in the way of progress.
Sovereignty is high on the EU agenda against the background of a more isolationist United States, a rising China and the UK’s departure from the bloc. That dynamic has affected policymaking around payments in the European Commission’s current mandate, which is drawing to a close this summer.
The EU executive has introduced various regulatory initiatives to encourage more sovereignty in payments and related industries, from the Instant Payments Regulation (IPR), the Markets in Crypto-Assets (MiCA) regulation and rules targeting big tech, such as the Digital Markets Act and the Digital Services Act.
Last week, the European Parliament’s Economic and Monetary Affairs (ECON) committee went as far as to exclude the likes of Meta, Apple and ByteDance from being able to benefit in their negotiating position on Financial Data Access framework, which should build up open finance in the trading bloc once it is passed into law.
But the sheer number of companies aiming to provide payments services in the EU risks overwhelming rather than helping the EU’s payments system, sources in the payments and merchants space have previously told Vixio.
Some European providers, such as Spain’s Bizum, Portugal’s SIBS and Italy’s Bancomat signed an interoperability agreement in December 2023. They are also all members of the European Mobile Payments Association (EMPSA) umbrella group.
“We believe that this is the right way to create a true pan-European alternative network to increase transactions and SCT-INST usage,” said Bancomat’s Oscar Occhipinti at the time.
Another grouping, the European Payments Initiative (EPI), was set up in 2020 and consists of a variety of players including Deutsche Bank and ING, alongside technology providers such as Worldline and Nets.
The EPI has stepped closer to bringing its mobile payment solution, Wero, to market and has made interesting acquisitions, such as iDEAL in the Netherlands.
The EPI has been walking on a tightrope between success and failure since its inception. It was applauded by regulators in Brussels and Frankfurt but sneered at by most of the market, considering previous failures such as Project Monnet.
Then, it lost members in Spain and in Germany, and had to desert its plans for a card payment service. Its CEO, Martina Weimert, even asked for a regulatory pause and financial assistance in 2022.
However, with its service now becoming a reality, it seems to have achieved some successes in more recent times.
The issue now is how it can compete with the digital euro, which the ECB and the European Commission appear to be pushing as a standalone solution.
These regulators have gone from endless endorsements of the EPI a few years ago to very little mention now, with their focus squarely on the digital euro.
Last week, the ECB hosted a conference in Frankfurt, titled "An innovative and integrated European retail payments market".
At this conference, stakeholders including the central bank mulled over how exactly the EU can make its retail payments ecosystem more European.
“In the private means of payments, we are very dependent still on non-European players,” said Evelien Witlox, digital euro programme manager at the ECB.
The ECB in general is very happy with initiatives such as the EPI and the European Mobile Payment Systems Association (EMPSA) because of this, she said, adding that there will be “plenty of room for everybody”.
According to Witlox, it is “vital for society” that the EU become more self-reliant with regard to payment services. “The digital euro would be that by definition.”
Privately-owned services, by contrast, are generally domestic or regional rather than truly pan-European, she said.
Witlox suggested that the incoming IPR is an opportunity for synergies and common standards, which are currently lacking. “What the digital euro will need to define is such a standard,” she said.
Using that same standard across all means of payment “would bring value for the digital euro and could very easily be leveraged by the schemes, coming out stronger together”.
Other panellists said that more payment rails inevitably mean more costs.
“Payments are not only complex and innovative, but cost intensive,” said Joachim Schmalzl, chair of the EPI. “The more use cases a digital euro is implemented for, the more costs will stay on the banks.”
Schmalzl said that the payments ecosystem needs to consider how to “optimise” or try to lower costs, warning that having to implement an EPI and then also a digital euro would be a “nightmare” due to limited resources.
“The real competition for EPI is not the digital euro but Visa, Mastercard and PayPal … and we should focus on this real competition and try to find ways to lower costs,” he said. “One way we can do this is acceptance standards as this helps everybody. It helps Bizum, it helps EPI, and also the digital euro."
Madalena Cascais Tomé, CEO of SIBS, also said the digital euro could be a way of aligning standards.
“It could enhance interoperability in the sense that this is an additional layer of standardisation if this is correctly drawn and implemented,” she said. “Having said this, it is paramount that it is drawn as an open standard to be able to also link with private initiatives.”
It looks like now the ECB and private players will need to come together to influence such standards. However, for all of the money flowing into the digital euro project, it is not a done deal.
The project relies on the endorsement of the EU’s political institutions to move forward, and members of the European Parliament in particular are far from pleased about it.
This suggests that the way forward for pan-EU payment services will remain murky for a while yet.
