It seems to be a week of guest columns, but that’s what happens when you find interesting things online and in your network. Today’s guest is Piotr Jan Pietrzak, Director of International Development at BLIK, the innovative Polish payment system.
For followers of my blog, you may remember that I wrote about PEPSI two years ago. This was a new idea of creating an EU payments card system to displace the dominance of Visa and MasterCard. It then lost its way a bit and re-emerged as the European Payments Initiative (EPI). Piotr gives a view on how that’s doing … and it’s not good (EPI, not his writing).
If you live in Europe your life is almost certainly overly dependent on outside technology. The issues of technological sovereignty are now more important than ever with Alphabet (Google), Amazon, Apple, Meta (Facebook) and Microsoft having more power over us than any government on the planet. And it’s not only about data protection, who owns it and how they use it - for or against us. It’s about values that are imposed on us by the tech powerhouses.
Europe hasn’t given birth to any company that is even close to the likes of Google or Facebook. Meanwhile, Americans have been developing products used globally (e.g. Microsoft, Apple), while Asian companies have mastered mass manufacturing at a scale European companies can’t compete with (e.g. Samsung, Huawei). Europe is caught between a rock and a hard place, we’re dependent on foreign technology in a technologically driven world.
The same applies to banking. The financial sector is a key part of every economy, including in Europe, so wouldn't it be preferable to develop technology for finance according to our own European preferences? Of course it would, and the European banks have tried several times to create a unified payments system across the continent. Recently, the European Payments Initiative aimed to succeed where similar efforts have failed, but the project has not gone according to plan so far.
Let’s take advantage of the lessons learned
The European Payments Initiative (EPI) was established in July 2020 by a group of 16 European banks. It promised a unified payments solution for Europe, replacing national schemes for card, online, and mobile payments. The intention was to create a euro-champion to compete with the dominant worldwide payment networks.
Haven’t we heard all this before? Of course we have.
- The Euro Alliance of Payment Schemes (EAPS), established in 2007 attempted to build a payment system based on interoperability. It never had a fighting chance due to lack of investment, missing compelling value propositions and with no clear strategy. Abandoned after 6 years in 2013.
- PayFair, also started in 2007, launched in Belgium with the slogan “One card for one Europe”. However it wasn’t able to reach critical mass, despite an agreement on potential cooperation with EAPS. Operated locally for 7 years, closed in 2014.
- The Monnet Project, founded in 2008, and the most similar to the EPI initiative. Collapsed before it ever got off the ground when participants bailed out. Discontinued after 4 years in 2012.
It’s hard to acknowledge that each time Europe’s banks tried to build a payments group capable of taking on the US giants that dominate the sector, they struggled. EPI is still alive, but with their announcement on 11 March 2022 about reducing commercial backers from 33 to 13 financial institutions, and cutting down scope to just instant payments, the feasibility of the initiative is under question for many.
Why there are doubts about EPI
EPI makes sense from a global competition standpoint, as the major cross-border retail payments infrastructures used by Europeans are owned by US companies. In addition, highly fragmented local payments don't have the economies of scale to be competitive in today’s globalized world. However, despite all the effort, EPI success is questionable. In my opinion there are a number of reasons why yet another Pan-European payment project has underdelivered so far:
- Too ambitious. It’s a long shot to address at the same time all types of retail transactions including in-store, online, cash withdrawal and peer-to-peer. It put EPI in direct competition not only with US card schemes, but also tech giants like Apple and Google. For sure, focusing now only on instant payments makes it more feasible.
- Many unknowns. Many key areas aren’t fully addressed, among them: funding sources, role of local networks, consumer adoption strategy, governance, operating model, and many more. The recent brief announcement doesn’t change that.
- No credible commitment. Banks fear replacing established payment systems with an unproven alternative. There is no clear plan on how to incentivise migration, or at least it’s not well communicated.
- Limited communication. Since the announcement of EPI, no visible progress has been made. The initiative has increased the number of participating banks to 33, but there was no clear plan of how the project would be executed. Now there are 13 backers, which is less than the number of founding partners, and fewer voices might improve decision-making.
- Chicken and egg dilemma. EPI needs merchants ready to accept payments and users ready to make payments. Having both in place at the same time is not an easy task.
EPI might be seen as a company that reinvents the wheel, they ambitiously aim to create a viable pan-continental payment system from scratch, when Europe might have an already existing solution to the problem.
Neils Bohr, the Nobel prize-winning Danish physicist, is credited as having said: “Prediction is very difficult, especially if it’s about the future.” Predicting the future of European payments is difficult, but there are still a few scenarios that may lead to a Pan-European payment system no matter whether EPI will come to fruition or not:
- Interoperability between local players. In practice this means that, for example, a Twint user from Switzerland would be able to travel to Austria and pay for goods at any store accepting Bluecode directly through the Twint app. The European Mobile Payment Systems Association (EMPSA) has already set up production tests of such a solution.
- Consolidation of local champions. Building critical mass under one roof to better compete in an ecosystem where size is increasingly important. As an example, mobile wallets MobilePay, Pivo and Vipps are joining forces to create a single payments app with a combined user base of 11 million consumers across the Nordics.
- Expansion of local challengers abroad. Lastly, one or more local players may expand their services abroad. There are only a few local payment systems that can pick-up this idea due to its complexity, and the challenge of balancing between local responsiveness and Pan-European standardization. One of them is BLIK from Poland, working on entering new markets even as I write this article.
Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...