The European payment market continues to be a veritable Wild West, as different infrastructures emerge. While the rate of progress in its development is promising, the high level of fragmentation across various schemes affects the vision of a fully integrated market – it does not align with customer preferences, who want a comfortable payment method that is accepted everywhere they need to pay.
As a result, the focus is turning towards a unified, pan-European solution that reduces complexity and improves efficiencies for businesses and consumers, by providing consistent transaction processes. The need is greatest in the area of payment initiation services (PIS), where fragmentation is introducing challenges around person-to-person (P2P), ecommerce, and point-of-sale (POS)/point-of-initiation (POI) use cases.
Recent years have seen fierce competition within the European payment landscape, reflecting new schemes and regulations:
The SEPA Payment Account Access (SPAA) is incentivising retail banks to align their service developments with third parties;
SEPA Request-to-Pay (SRTP) has established a set of rules and messages to request payment initiation before goods or services are exchanged;
and the third payment service directive (PSD3) implementation promises improvements to Open Banking (OB) and Open Finance (OF).
In theory, the complexity was added in early July when the European Payments Initiative (EPI), backed by 16 banks and financial institutions, launched Wero – a new digital wallet offering Europe’s consumers a fast and convenient way to initiate P2P payments. Users need just a phone number, an app-generated personal QR code, or an email address. But with focused efforts by banks, Wero could prove to be a unifying force within payments – one that could help European banks compete with the likes of Visa, Mastercard, Apple Pay, Google Pay, and PayPal.
While P2P payments are a central feature of the new wallet today, the addition of ecommerce functionality – launching in 2025 – is where Wero is predicted to offer the greatest value. Consumers will be able to pay any professional or online merchant using the wallet – supporting a wide range of payment options, including immediate payments, payment upon shipment, instalments, QR code payments, subscriptions and POS/POI capabilities. In-store payments at the cash register will be added in 2026, along with other capabilities such as Buy Now, Pay Later, merchant loyalty, programme integration, and expense sharing.
But what makes the new wallet different? By progressing from the interpersonal to commercial, Wero hopes to gain a lead over competing schemes like SRTP and SPAA, which are considered for specialised or industry-specific use cases, such as the insurance industry.
Thanks to its binding rulebook, payments using the new Wero wallet will receive a highly efficient and reliable experience that, in combination with the wider payment optionality on offer, positions Wero as a challenger in the PIS market. In recent years, the PIS market has been dominated by local A2A solutions and OB and OF providers that leverage the PSD2 framework.
So where does that leave OB? OB PIS solutions will likely continue to play a complementary role next to Wero. The renewed competition could see these providers look beyond plain vanilla PIS offerings currently available and towards more specialised use cases. For example, by leveraging a customer’s financial data, such as their incoming and outgoing payments and availability of funds, OB providers can provide solutions that integrate risk evaluations before setting up a payment plan.
A convergence of OB PIS solutions and Wero for the benefit of consumers may be driven by the EU Instant Payment Regulation which obliges banks and PSPs in the SEPA area to be able to send and receive SEPA instant credit transfers as of 2025 and 2027. As instant payments are becoming the new normal – also driven by comparable pricing to regular credit transfers – this upgrades the value of PIS with increased reliability and reduced risk.
Although Wero has the potential to forge ahead of local and OB-based solutions, there is no guarantee of adoption. EPI – the scheme’s orchestrator – and participating banks must convince consumers and merchants of the value proposition offered by the new wallet. A balanced value distribution between consumer banks and acceptance service providers of merchants incentivises the promotion of Wero.
Convergence and interoperability with other schemes will also help to increase relevance for market participants. For example, in April 2023, EPI acquired the leading ecommerce payment network in the Netherlands, iDEAL, with these flows expected to migrate to Wero. Looking to the future, if interoperability with the European Central Bank's (ECB) ambitions to launch the digital euro cannot be secured, further fragmentation is likely to result. The banking community and other non-banking bodies are being consulted about the kind of ecosystem in which the digital euro could be deployed, with the ultimate aim of Wero prevailing as an agnostic hub for payments via bank and central bank money.
This editorial piece was first published in The Paypers' Open Finance Report 2024, the latest comprehensive market overview and analysis focusing on the key players and products within the Open Banking and Open Finance ecosystem. Download the full report to discover more insightful content.
Tino began his career 23 years ago with Deutsche Bank and has since held various different roles in Frankfurt and Singapore. Today, Tino is heading a product management team responsible for the acceptance products Request to Pay, EPI and BNPL.
Deutsche Bank provides retail and private banking, corporate and transaction banking, lending, asset and wealth management products and services as well as focused investment banking to private individuals, small and medium-sized companies, corporations, governments, and institutional investors. Deutsche Bank is the leading bank in Germany with strong European roots and a global network.
Every day we send out a free e-mail with the most important headlines of the last 24 hours.
Subscribe now