A Pan-European Payment Solution

Author: Andrew Woolston (Intern)

Reviewed by: Ralph DiFiore (CCO), Marcus Magarian, Chris Gioffre

In a US-dominated payment services space, a pan-European solution may be the key to stimulate efficient commerce and increase bottom lines for business across the continent in a post-pandemic era.

The Problem

Fees, security, and bottom lines. The reliance of the EU on American payment processors has been an issue for more than a few years now. Currently, four in five transactions in Europe are handled by Mastercard and Visa. The EU believes this hurts customers and merchants alike, citing high fees and data protection issues as primary concerns. Previous European attempts to compete with PayPal, Mastercard, Visa, Google, and Apple have failed due to lack of political backing, trouble developing a viable business model, and the high barriers to entry. Payment services are only valuable to merchants if many customers use them, and customers will only use them if many merchants accept them. This problem, dubbed a “chicken-and-egg” problem, makes entering the payment services space with the US giants extremely difficult.

Current Progress

Corporate backers provide backbone to the venture. The European Payments Initiative (EPI) is developing a pan-European payment service that can be used to pay online, in stores, settle bills between individual consumers, and withdraw cash at ATMs. The Brussels-based venture (currently no brand name) employs 40 payment experts. Corporate backers of the EPI—such as Deutsche Bank, BNP Paribas, ING, UniCredit, and Santander—currently process more than half of all payments in Europe. The European Commission and financial regulators allow this venture to bypass past issues seen in 2011 that detrimentally affected the last effort to create a pan-European payment service. Although the EPI has received only €30 million, government and financial institution support are unprecedented compared to past initiatives.

Goals and Outlook

Unification. Germany’s “Girocard” and France’s “Carte Bancaire” successfully offer affordable access to cash and in-store payments. The Netherlands’ “iDeal” supplies its citizens with an ecommerce payment system. This project aims to unify successful ventures in countries like Germany, France, and the Netherlands and “harmonize” the European payment landscape. Travel across borders is so frequent in Europe that a unified payment system domestic to Europe, not the United States, will benefit all parties from consumers to business owners across Europe. The European venture, which offers real-time electronic payments between consumers, could be launched in early 2022. A broader payments tool could be available in Q3 or Q4 of this year. However, surpassing current payment giants holding the majority of market share will be challenging. Visa already rolled out its contactless Tap to Pay (TTP) systems in European countries, further strengthening its grip on the European market. As seen in the Visa Back to Business Study, these types of contactless payments will remain prominent even as economies open back up.

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Source: Financial Times: Europe’s largest banks plan joint attack on US payments giants

Olaf Storbeck. “Europe’s Largest Banks Plan Joint Attack on US Payments Giants.” @FinancialTimes, Financial Times, 3 May 2021, www.ft.com/content/f274255d-eb96-44fe-90e9-fe5532cc47ac. Accessed 7 July 2021.