In 2020 a group of banks – with the support of the European Commission – decided to collaborate to develop a European payments system.
The European Payments Initiative (EPI) is intended to rival the likes of Visa, Mastercard, PayPal, Google, and Apple. It plans to offer a retail card scheme for consumers and merchants, a digital wallet, and P2P payments.
However, this is not the first attempt at creating a European payment scheme, and without a clear plan for development it is likely to fail – much like its predecessors, Payfair and the Euro Alliance of Payment Schemes.
The EPI sounds like a good idea in theory for European countries. The ultimate goal of this project is for the European Union and the European Central Bank to have a payment system they can control and regulate. At the same time, it will offer an alternative to Europe’s consumers and merchants, who are currently heavily reliant on US payment providers.
According to GlobalData’s Payment Instrument Analytics, 62% of payment card transactions in Europe were made using Visa or Mastercard in 2019. American Express is also a key player, while the remainder is accounted for by domestic card schemes in specific countries, such as Cartes Bancaires in France.
EPI will be built using the SEPA Instant Credit Transfer (SCT Inst) scheme, which enables instant payments in euros among participating countries. SCT Inst allows merchants to receive payments within 10 seconds, compared to up to 48 hours for payment cards due to all the different intermediaries involved in card transactions.
In addition, the fewer intermediaries involved with SCT Inst transactions means EPI will be cheaper for merchants to accept than Visa and Mastercard card transactions. Given the various instances of legal action taken against card schemes due to high acceptance fees, EPI will certainly appeal to merchants.
No visible progress
Yet since the announcement of EPI in 2020, no visible progress has been made. The initiative has increased the amount of participating banks and institutions from 16 to 31 across seven countries, but there is still no clear plan of how this project will be executed. EPI’s proof of concept and business are meant to be presented in 2021, but there is still no new information on that front.
Even if EPI becomes a viable platform capable of rivalling the major US payment providers, it could struggle to establish itself among both consumers and merchants. Despite the aforementioned benefits, merchants will ultimately only adopt EPI if consumers use it to make payments.
Meanwhile, consumers’ adoption of new technology or solutions depends on whether it is cheaper and more convenient than the system they are currently using.
US payments providers such as Mastercard and Visa have the advantage of being accepted worldwide, meaning a payment provider that only covers European transactions will be less appealing to consumers. And low consumer uptake means merchants will have little incentive to take on the additional cost of accepting another payment type alongside Visa and Mastercard.
The idea of a payment provider in Europe that can challenge the US giants is a great concept as it would help lower fees for merchants, but with only seven countries involved so far the project is lacking widespread support among the nations that are meant to benefit from it. And with Visa and Mastercard firmly established in the region, driving uptake among consumers and merchants is likely to prove challenging.
This was written by GlobalData Payment Analyst Chris Dinga.