After years of back and forth, Europe has decided to launch its own payment system for consumers and retailers. European banks hope to be able to counteract the US top dogs Visa, Mastercard and Apple Pay – and to be able to secure a piece of the profitable payment market.
The European Payments Initiative (EPI) is planning real-time transfers based on SEPA and cards for bulk payments and for payments between private individuals from 2024. Consumers should then be able to choose between another provider in the global market. The costs for transactions should become cheaper overall.
According to the EPI, the pilot phase should start at the end of 2023, where payments between private individuals via a wallet will initially be possible in Germany and France. Belgium is to take part next year, and the initiative also wants to get other EU countries on board. The payment system is to be introduced in online shops at the end of 2024, and in retail stores in 2025. “Then customers will be able to use their bank card – in Germany, for example, the Girocard – as well as debit and credit cards from international providers for EPI,” quotes the Handelsblatt as EPI boss Martina Weimert.
But EPI’s market entry comes too late for many. “The train hasn’t completely left yet, but it’s already moving,” says Christiane Neumüller, Executive Director and expert for payment transactions at the management consultancy Capco. Volker Brühl from the Center for Financial Studies at the University of Frankfurt considered EPI to be the last chance to establish a payment system that could keep up with global competition at the end of 2021. “We in Europe are already behind,” said the finance professor.
In contrast to the US market, there is no payment service provider in Europe that can compete with US providers. The banking sector in Europe could benefit from a European payment system. “It would not be profitable for the banks for ten years at the earliest,” Brühl predicted. In addition, the European Central Bank is working on its own virtual currency, the digital euro. He found that it would then have to be integrated into the EU payment system.
In addition to the time-related competitive disadvantage compared to the US competition, not all banks are convinced of the payment system. There is a risk of a patchwork quilt in Europe. “The EU countries have not yet found a common denominator. That costs EPI a lot of clout,” says payment transaction specialist Neumüller.
The EPI initiative was founded in 2020 by several major European banks from France, Germany and Spain, including BNP Paribas, Société Generale, the German savings banks and ING. But half of the 32 supporters dropped out and didn’t want to invest any money in the payment system. EPI is currently supported by 16 banks. From Germany there are Deutsche Bank, DZ Bank and the savings banks.
The fact that the project can be implemented at all is also due to the fact that EPI wants to take over two companies and thus jump on existing systems: The EPI Company plans to buy the Dutch payment system iDEAL and the payment solution provider Payconiq International (PQI).
The fact that banks are now around the corner with the new payment system does not mean that customers will actually accept it, says Neumüller. “Consumers will only switch from PayPal or Apple Pay if the new payment system offers them enough incentives,” says the expert. “Just being a second PayPal won’t do.”
Neumüller sees three conditions that must be met for EPI to actually be accepted by customers: First, the system must be simple. Lengthy authorization and verification processes deter many private customers. According to Neumüller, retailers should be able to set up the payment system without any problems and not need any IT training to integrate it into their checkout system. In addition, EPI must be usable across the board in as many businesses and shops as possible.
Secondly, attractive conditions are needed. The Capco expert understands this to mean the user fees for retailers that have to beat those of Paypal or Apple Pay. With Paypal, for example, the merchants pay most of the fees, but pass some of their costs on to the end customer in the price. It is also important for private customers that there is a money-back guarantee for purchases.
The third condition is that EPI has to offer more functions than the competition: To do this, the payment system must be fully integrated into online and mobile banking. A statement from EPI suggests that the initiative is working on exactly that: “EPI’s product will include an ‘all in one’ digital wallet solution as a payment solution based on SEPA real-time payments and existing current accounts under a unified brand.” Ideally, according to Capco expert Neumüller, one can then select EPI as the preferred payment system via a button.
In addition, there must also be discount campaigns and loyalty programs. It is conceivable, for example, that retailers will be reimbursed one percent of their sales or that end users will receive points if they use EPI.
This article first appeared on Capital.
