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- Despite different approaches, EMPSA and EPI may create a pan-European solution together - EMPSA chair
- EU has momentum to overcome fragmentation resulting from different levels of payment modernisation
- Pan-European payment solution requires European marketplace and merchant-driven solutions, expert says
A pan-European payment solution is on the way, experts agree; however, it is less obvious how this will happen and which form it will take.
The idea of an EU-based pan-European payments solution has been a pipe-dream of policymakers for decades, with a number of initiatives coming and going.
In recent years, a number of initiatives have emerged from different roots and with different approaches but their goal has, to some extent, been common — to achieve a state where strategic sectors in Europe’s economy are protected against the influence of large foreign market players.
The most widely known of these initiatives has been the European Payments Initiative (EPI), which initially involved large banks from seven countries, covering 65 percent of all European payment transactions.
Its aim was initially to create a pan-European card network to compete with Visa and Mastercard, but banks cut back plans in January after two-thirds of the member banks pulled out of the project.
The remaining members then decided to move focus to “more innovative and future-driven” account-to-account (A2A) payments, according to Fabian Mansfeld, managing director of cash management, fintech, platforms and ecosystems at Deutsche Bank.
The first developers are now working on the technical foundation of a new A2A service, in combination with a digital wallet, and they are planning to roll out the first product by the end of next year, Mansfeld said.
A parallel project managed by EMPSA, the European Mobile Payment Systems Association, would take a different approach to unify the payment landscape.
Instead of building a new product, this initiative is aiming to create “roaming bridges” between existing successful domestic payment solutions to allow users of one payment app to use their digital wallets across other participants’ networks.
For instance, in January, TWINT and Bluecode became the first mobile payment systems in Europe to achieve cross-border interoperability based on EMPSA specifications.
Banking Circle will act as a central hub for FX and settlements for transactions between the two systems, allowing Bluecode customers to use their app at the point of sale (POS) when travelling in Switzerland and TWINT users when visiting Germany and Austria.
EMPSA currently has 15 members in 16 European markets, representing more than 90m users, more than one million merchants and hundreds of European banks.
Market consolidation could also support this bridging. For example, Denmark’s MobilePay, which is owned by Danske Bank, announced plans to merge with Norway's Vipps and Finland’s Pivo, creating the prospect of a pan-Nordic mobile payments wallet.
Bottom-up and top-down approach to go hand in hand
Although EMPSA and the EPI take a different approach to a pan-European payments solution, the two initiatives may eventually work together to achieve their shared goal.
“I don’t see it as A versus B,” Christian Pirkner, chairman of EMPSA, said at the Merchants Payment Ecosystem (MPE) event in Berlin last week.
EMPSA and EPI are different approaches but the goal is the same — “you want every European to have the option to pay European.”
“There is one way to come from bottom-up, and the other to come top-down. Usually, they meet in the middle,” Pirkner said.
For instance, Swish, Sweden's popular payments app has 8m users, which raises the question of whether it is worth the investment to build a new service “from scratch”?
On the other hand, no such successful solution exists currently in France or Germany, according to Pirkner, “so it makes sense to think it through”.
“It depends on every country and the different levels of maturity of account-based payments.”
He stressed that it makes sense for those countries that are more mature in terms of account-to-account payments to leverage the innovations of local solutions across Europe, while those countries that are less advanced could join EPI to develop a new product.
What is Europe missing?
The concern that Europe’s strategic autonomy is intended to solve is that the global payments system is largely dominated by big market players in the US and, to a certain extent, China. In recent years, the commerce ecosystems of these two large players have increasingly moved away from each other as political tensions between the countries intensified.
Europe is, however, facing its own challenge with its very fragmented market, according to Olivier Denecker, an expert partner at McKinsey & Company.
“European innovation has historically been driven out of local solutions catering to local needs country by country and even smaller than that in some cases,” he noted.
“The challenge we have now is that we have good national solutions … but we don’t have a European regional intermediary, whereas in other markets these things have really taken a lot of space, [such as] AliPay in China or PayPal in the US,” Denecker said.
“Because of this fragmentation, some countries have made investments to modernise, while others have not,” Denecker said, noting that those who made the choice to invest, do not want to throw that away.
Nonetheless, the existing global landscape has created momentum to build a pan-European payment champion, but the missing point is “the agreement of how can we actually use technologies in parallel for different use cases [and] still start to consolidate the scale to some extent in the backend”, he stressed.
The missing link
Despite the discussion of creating a pan-European payment rival, Denecker stressed that payments do not operate in a vacuum in and of itself.
“Payments is only there because it powers buying and selling. Nobody wants to pay. That’s just the boring thing that happens before you leave the store,” Denecker said.
In other parts of the world, large payment solutions have emerged driven by merchants’ needs that created a regional relevance. This has been the case with Alibaba in China, Mercado Pago in Latin America or Grab in Singapore.
In Europe, however, even the largest retail chains, such as Aldi, operate in only half of member states.
“What Europe is missing are big marketplace and merchant-driven solutions,” Denecker stressed.
“In Asia, Latin America and the US it’s been the big e-commerce platforms that triggered the unification of payments. In Europe, we do not have that participation in the debate.”
“The element of consolidation of these schemes with the need of consolidation of commerce is two things that need to find each other and this may be the debate that is missing in the construction of European schemes,” he concluded.
