This editorial piece was first published in the Open Finance Report 2023. We encourage you to download the report and find out the latest trends and developments in the world of Open Banking and Open Finance, as the road to Open Data continues.
In recent years, significant progress has been made towards an integrated European payments market with the introduction of several pan-European infrastructures under the Single Euro Payments Area (SEPA). Now, the next steps are about to be taken. As several initiatives are evolving from the theoretical stage to market implementation, Europe is finally on the edge of embracing Open Finance which will allow banks to offer better services to merchants and end customers.
Let’s look at the most relevant initiatives: spurred by its first-mover advantage, the front runner appears to be the European Payments Initiative (EPI), which seeks to replace the current patchwork of payment solutions on a country level with a unified digital wallet that can be used across Europe. Hence, EPI will have a wide range of use cases – with peer-to-peer, consumer-to-small business, B2C, and point-of-sale (POS) payments all in use under the EPI.
Going live in mid-2024, the first markets in the rollout are Belgium, Germany, France, and The Netherlands. As part of this, the EPI is consulting legacy local payment schemes in the four countries to leverage their operational experience with the objective of transitioning their existing client base to EPI. This will kick-start the new payment method which will be branded Wro.
The SEPA Payment Account Access (SPAA) scheme has also been making strides. It focuses on fostering Open Finance across Europe by incentivising retail banks to align their service developments and technologies with third-party providers. Having already defined its functional scope – and with a robust offering that incorporates flexibility and information sharing – the SPAA scheme has positioned itself strongly in the market, having published its rulebook in June 2023 and with the first services envisaged sometime in 2024.
Elsewhere, the SEPA Request-to-Pay (SRTP) scheme introduces a set of operating rules and messages that will allow PSPs and other service providers to request a payment initiation before the exchange of goods. While SRTP is ready from a scheme perspective, with the first offerings for processing services available in the market, it has a very focused value proposition on payment initiation. In the context of a proof-of-concept, multiple big European banks assess the use case of B2B e-invoicing supported by Request to Pay. Beyond that, no pan-European launch plans have been announced yet.
Alongside these market initiatives, regulation is also evolving to support the instant payment ecosystem and remove obstacles such as pricing and high rejection rates in compliance checks. PSD3 is in the works and set to enhance the pre-existing progress made with PSD2, with respect to requirements for regulatory APIs as well as improving the flexibility around Strong Customer Authentication (SCA) exemptions.
The presence of multiple schemes, however, presents significant challenges for market participants. There is a decision to be made by each player on which scheme to join, or – more likely – which scheme to join first. This uncertainty (and investment risk) is slowing down any individual scheme’s entrance into the market.
On a technical level, providers need to introduce solutions and processes that, ideally, can support multiple schemes, which is more complex and implies higher investments. For merchants and corporates, the focus of their investment depends on what payment scheme they anticipate will be most broadly adopted. If this decision is made differently across the space, the investment is spread thinly, and progress is further hindered.
When it comes to addressing these challenges, the onus lies predominately with the banks to build the path forward. The mission should be to offer solutions with a broad reach and a clear value proposition for the users, paired with value-added features for specific use cases such as e-invoicing.
Based on our experience with corporate and fintech clients over the past years, Deutsche Bank has created an offering with a simple integration for merchants and a comfortable user journey for end customers. We provide legacy domestic payment methods and support their transition to the new payment methods. Furthermore, we offer Open Banking-based Request to Pay to ensure full reach beyond local and European payment schemes. The importance of each of these components should not be underestimated when it comes to making the new payment schemes a success.
The new opportunities enabled by the pan-European payments schemes will play a significant role when it comes to adoption by providers and users. Advanced payment options are coming to the fore, like Buy Now, Pay Later offered by banks and fintechs, and new market segments such as B2B can be supported. Services like e-invoicing for insurance, telecommunication, and utility bills offer great added-value to consumers and retail banks increase their relevance to customers.
In the process of establishing an integrated European payments market, it is unclear what scheme will play a significant role for which use case or market segment. What is clear, however, is that it requires banks, fintechs, corporates, and regulators to continue working together towards creating relevant offerings that have a clear value proposition for the payments market and all its participants.
Tino began his career 23 years ago with Deutsche Bank and has since held various different roles in Frankfurt and Singapore. For the last four years, Tino has worked as Product Manager for Request to Pay – and is an active member of the EBA Clearing R2P Taskforce.
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