European payment initiatives are nothing new. For example, from 2007 to 2013 there was the Euro Alliance of Payment Schemes (EAPS), which created links between different national debit card schemes. In addition, a whole series of working groups on various payment topics have been formed in recent years. The European Payments Council (EPC), for example, has developed the foundations for SEPA credit transfers and direct debits. The European Card Payment Cooperation (ECPC) focuses on the development of uniform specifications required throughout Europe in connection with card payments. The European Digital Payments Industry Alliance (EDPIA) sees itself as an interest group to further advance digital payments. And the European Mobile Payment Systems Association (EMPSA) wants to establish mobile payments based on barcodes. The only initiative that claims to develop a concept for a new European card payment system is the EPI.
EPI: Airbus for payment transactions
One motivation for the EPI is to set up something for payment traffic like Airbus succeeded in doing for the aviation industry: a solution based on the cooperation of important European countries that can take on a leading role in global competition. The EU Commission and the European Central Bank want to support competitive digital payment solutions developed in Europe with a pan-European reach. This seems important to them in order to strengthen Europe's economic and financial sovereignty in the long term.
Therefore, 16 European banks and banking groups announced on 2 July 2020 that they want to establish the European Payments Initiative (EPI). From Germany, the DZ Bank for the cooperative banking group, the German Savings Banks and Giro Association, Commerzbank and Deutsche Bank are participating. They are joined by large institutions and groups from Belgium, France, Italy, the Netherlands and Spain. The EPI has already attracted new industry participants and plans to attract even more banks and other interested companies.
The EPI's goal is to create a pan-European payment solution. The building blocks include a payment card and a digital wallet. All types of transactions in shops, in e-commerce, for cash withdrawals as well as for payments between individuals (P2P) should be possible. Clearing and settlement will be based on instant payment (SEPA Credit Transfer Inst, SCT Inst).
EPI promises merchants an attractive pricing model, simple integration options, interesting additional services, immediate payout or payment guarantee as well as access to all European consumers. Consumers will benefit from a complete solution via a single digital interface with a high level of security as well as simplicity in registration and use.
To be able to realise this, the EPI needs two pillars: On the one hand, a scheme management must be responsible for the development of detailed rules, clear processes and a pricing model as well as the brand. On the other hand, a central unit is required to manage the infrastructure. The infrastructure includes appropriate routing as well as certified issuers, acquirers, PSPs and processors.
Complex task
A new card payment system requires a whole range of different building blocks. These include technical standards and certification processes, a processing infrastructure, effective misuse and risk management, a viable business model with a corresponding fee structure and rules and regulations for all participants. The system must be open to all interested issuers and acquirers, fulfil all legal requirements (e.g. money laundering, data protection) and support different types of applications (POS, e-commerce, P2P) as well as additional services such as ticketing.
The development of specifications and the market launch cost time and money. The required investments depend, among other things, on whether the market launch is supported by a regulation of the EU Commission, for example a PSD3, or not. With regulatory support, the investments would probably be in the range of a few hundred million euros, without this support more likely a few billion euros.
A particularly critical success factor lies in the question of why consumers should use such a new system. With debit and credit cards, mobile payment solutions and various e-commerce payment methods, a sufficiently broad range is already available. In addition, other market participants will not wait to see how EPI develops. Or would Mastercard and Visa sit idly by and watch an important market being taken away from them?
Another challenge for EPI lies in the chicken-and-egg problem. Should cards and wallets be brought to market first, or should the infrastructure be built first? Is it better to start with regional rollouts or to start right away throughout Europe?
The banks involved must then also clarify how they want to deal with their existing co-badging cards. Should Mastercard or Visa solutions continue to be integrated on the cards to enable worldwide use? Or can a separation between a purely European solution and additional offers for worldwide use also be convincingly communicated to consumers?
And finally, the question of what influence the introduction of digital central bank money (e-euro) may have also needs to be clarified.
Kurt Schmid says: "The EPI has to find convincing answers to all these challenges and at the same time reconcile the interests of all parties involved - no easy task."
Learn more in our webinar on EPI: