There is a sign of life from the European Payments Initiative (EPI). Germany’s Volks- und Raiffeisenbanken back down from withdrawal, three more banks join EPI. EPI is also acquiring the leading Dutch payment system, Currence Ideal, and the payment service provider Payconiq International, which operates in Belgium and Luxembourg. Competition law approvals are still pending.
The European Payments Initiative (EPI) is an association of European payment service providers and banks based in Brussels. Their goal is to establish uniform European payment methods for customers and retailers. With its own infrastructure, EPI would like to compete with VISA and MasterCard. Shareholders are BFCM, BNP Paribas, BPCE, Crédit Agricole, Deutsche Bank, DSGV, ING, KBC, La Banque Postale, Nexi, Sociéte Générale and Worldline, as well as the financial institutions Belfius and DZ Bank, which joined at the end of 2022. The latter represents German cooperative banks under the Volksbank and Raiffeisen brands. DZ Bank rappeled out of EPI in early 2022, only to return in late 2022. The Dutch banks ABN Amro and Rabobank are newcomers.
In the original package, EPI envisaged a payment card and digital wallet that customers could have used at checkout, online and mobile commerce, and for real-time wallet-to-wallet (P2P) money transfers. The payment card is currently not an issue, EPI is sticking to the wallet. The SEPA transfer, in particular the SEPA real-time transfer, should serve as the basis; at the same time, EPI would also like to function outside of Europe. The EU Commission and the European Central Bank (ECB) have provided political backing, but no significant subsidies so far.
P2P pilot still in 2023
EPI would like to launch the first pilot tests towards the end of the year in Germany and France. Selected individuals are then allowed to transfer funds between private wallets. For early 2024, EPI’s calendar includes a “broader launch” in Belgium, Germany and France. “Together, these three countries represent more than half of all electronic payments in the euro area,” informs EPI“An expansion into other European countries will take place in the future.”
The proponents of EPIs also point to geopolitical advantages, i.e. independence from overseas services. Russia is currently learning about the consequences of foreign financial sanctions. In addition to the often mentioned exclusions from the international payment network SWIFT, American Express, Diners Club/Discover, JCB, Mastercard and Visa have detached the country from their systems. While SEPA could at least partially alleviate such limitations within the European Economic Area, retail in many countries is heavily dependent on networks provided by Visa and Mastercard.
High start-up costs but capped fees
Despite all the advantages, payment transaction experts see the risk that EPI cannot refinance its high start-up costs. The EU has legally capped retail transaction fees so low that it is financially very difficult to establish new procedures. This price regulation helps Visa and Mastercard to defend their market dominance. Mastercard can even afford to hire Maestro.
Another Achilles’ heel of the project is the low added value compared to established payment systems and the well-established user behavior in the individual European countries. Consumers would have to bear any changes and the associated conversion costs – the cost reductions hoped for by EPI could only materialize in the long term, if at all. At the same time there is competition from other payment systems in European countries. For example, Spaniards like to use Bizum, while Irish people use Revolut for smaller amounts. That shows one Market study commissioned by the ECB.
In Austria, in addition to cash, simple bank transfers are en vogue – reduced to the max. In general, Austrians fear losing data protection with other payment methods and being tempted to spend more money than they have. This is exactly where EPI sees its future in “value-added services”: EPI would like to one day offer both customer identification and “buy now, pay later” (in German “buy now, pay later”).
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