Zero To Wero: What Does The Future Hold For The EPI?

November 7, 2023
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The once-struggling European Payments Initiative (EPI) appears to be having a second coming, but can it realistically take on competitors, such as Visa and Mastercard, and work alongside the digital euro?

The once-struggling European Payments Initiative (EPI) appears to be having a second coming, but can it realistically take on competitors, such as Visa and Mastercard, and work alongside the digital euro? 

On October 31, the EPI made an announcement: it had successfully closed the deal on its acquisition of Payconniq and iDEAL — two key domestic payment schemes in Europe. 

With the companies joining what CEO Martina Weimert described as the “EPI family”, she said that she felt that their “expertise and experience will be very valuable in driving the success of EPI and its payment solution Wero”.

It was on September 21 that the EPI unveiled the name "Wero" for its mobile payment solution. 

The EPI has had something of a comeback in 2023. It began in 2020 with momentum, but this slowly drifted into cynicism about the project after banks pulled out and original plans for a card solution were ditched. 

"The project was almost abandoned at one point. However, new banks have joined since then and EPI have now acquired payment systems,” said Victor Warhem, representative of the Centre for European Policy in France and payments expert.

According to Warhem, this is very good news and will start to integrate payment networks in the EU. “The objective is really to keep on buying these companies to build a truly European retail payment system.

"It sounds like, finally, there will be integration. But, how far can we go? Do we end up with EPI being a monopoly in Europe? Would this dramatically stifle innovation? Competition should ultimately be preserved on the retail payments market in the EU, be it against Visa and Mastercard or European alternatives,” he said. 

However, in spite of a more positive outlook, expectations remain low from some in the payments industry. 

"I am a little bit sceptical about the success of the EPI,” said Hugo Godschalk, consultant at PaySys. “I think that this will still be a challenge and will be difficult.”

According to Frankfurt-based Godschalk, this will especially be the case when the other pan-EU payment concept, the digital euro, is considered. 

“Both are more or less looking at the same project. Both are pan-EU schemes, with more or less the same goal,” he pointed out. “The main difference is one is based on account-to-account payments with central bank money and the other with commercial bank money."

"Do I think EPI will become a huge EU-wide solution? Not in the short term,” commented Andrew Gómez, director at Lipis Advisors.

Gómez said that the issue is that the European Commission waited too long to push for a project like this, and a lot of markets already have something that they can use. 

“There are already really great solutions,” he commented. “They have acquired these two companies as these solutions are already working well. The EPI need something to hang their hat on until they get something bigger.

“France and Germany are notoriously difficult markets,” he said. “The banks can't agree to work with each other on something like this."

Godschalk agreed, pointing out that there is low progress in Germany with adapting to new payment customs. “We have seen this in the past, so why shouldn't we see it here as well? Something between 2 and 5 percent of all proximity payments are done with smartphones.

“I'm sceptical that even with EPI, why should we take a smartphone to make these payments? I have no incentive to substitute my Girocard with a mobile wallet for an account-to-account payment. Maybe this is the case in e-commerce but vis-a-vis, I don't see this,” he said. 

Atze Faas, payments advisor at EuroCommerce, explained to Vixio that although the concept of pan-European mobile payments is good, a problem could end up developing whereby there are too many players and initiatives trying to achieve the same thing. 

"We need a strong EU champion and EPI could provide a good alternative to Mastercard, Visa, and PayPal,” he said. "My only concern is that we have five different initiatives in Europe.”

For example, Faas pointed out that there is the EPI but then also the European Mobile Payment Systems Association (EMPSA), the SEPA Account Payment Access (SPAA) scheme, and the EU pushing the SEPA instant credit transfer (SCT Inst), or instant payments, regulation. 

“EPI says that it is building its own rulebook, not following the SCT Inst rulebook. Yet, it will use the SCT Inst technology. Why do this? How is that going to fly? Are we really going to fragment the market over five methods instead of one European champion?” he said. 

“It seems like we are fighting ourselves to death. Payments is a volume game, and needs wide acceptance from both consumers and merchants. How will the consumer be able to pick one of these?” Faas pointed out, commenting that it is “deeply concerning” that retailers may end up having to support five slightly different initiatives.

The digital euro: collaboration or competition?

The EPI inevitably echoes the other political project in the EU, the digital euro. Much of the regulatory proposal made by the European Commission appears to align with the goals of the market-led EPI. 

"We have two new schemes that want to do more or less the same thing. One could be the winner, yet both could be a flop,” said Godschalk. 

"Both concepts are based on a wallet for mobile payments. You only see about 5 to 10 percent of EU consumers who want to pay at the time being with a mobile wallet,” said Godschalk. “Both systems expect all consumers to want this. People are saying they want to pay with a card, but being pushed towards mobile."

According to Warhem, payment service providers understand that if they do not move themselves, the European Central Bank will create its own European retail payment system that could go against their interests, especially considering deposit capture by digital euro accounts. 

“If the EPI is adopted, and Wero works, then what we could have is a shift in the current spirit of the digital euro programme, with a refocusing on its wholesale arm,” he suggested. 

Gómez, meanwhile, said that the digital euro and EPI are competing initiatives. “At least from a bank-resource perspective. The back-end solutions are very different.”

However, he continued that he finds it hard to think the EPI will not be compatible with the digital euro.

“From a bank perspective, the tech solutions are very separate from what is needed for EPI. The banks will be building this off of existing rails,” he said. 

What the EPI has is a headstart, here. Banks could get this out, and it could be a success, which may reduce the incentive politically to launch a retail central bank digital currency, as is planned with the digital euro. 

“Not much extra that needs to be done for EPI,” said Gómez. “Yet, a digital euro will mean much more work. The banks won't make money from it either. So it is like forcing car manufacturers to create a new engine and then not allowing them to charge for this."

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