The European Payments Initiative (EPI) – what is being achieved and what`s next

Monday 27 June 2022 14:42 CET | Editor: Claudia Pincovski | Interview

The Paypers speaks with Martina Weimert, CEO of EPI Interim Company, about the latest announcements and developments and future plans for the EPI project.

Backed by the European Central Bank, EPI envisaged a unified, innovative pan-European payment solution leveraging Instant Payments SEPA Instant Credit Transfer (SCT Inst) and cards, offering a digital wallet to consumers and merchants across Europe. EPI is set to become a new standard in payments for European consumers and merchants across all types of retail transactions including in-store, online, cash withdrawal, and P2P. (read more in our exclusive interview with Martina Weimert, CEO of the EPI Interim Company)

In recent news, several banks (from Spain, Germany, Finland, and Poland) withdrew from the project.

The remaining 13 shareholders are: 

  • Banque Fédérative du Crédit Mutuel

  • BNP Paribas

  • Crédit Agricole

  • La Banque Postale

  • Société Générale

  • Groupe BPCE

  • Deutsche Bank

  • Deutscher Sparkassen-und Giroverband

  • ING

  • Banco Santander

  • KBC Bank

  • Nets

  • Worldline.

What are the latest EPI developments? In recent news, we learned that several banks (from Spain, Germany, Finland, and Poland) withdrew from the project. What led these banks to abandon EPI plans?

The causes of withdrawal vary. For Finland and Poland, the simple explanation is that in both markets had just one participant bank. This was not enough to drive market adoption. Regarding Spain, CaixaBank, the biggest bank in Spain, was the first one that withdrew. I think the business case was too complicated for them. Nevertheless, this triggered other Spanish banks to withdraw: since the main Spanish bank left, the others followed.

This ultimately had another negative domino effect on DZ Bank in Germany, the corporative banks that pulled out alongside Commerzbank and HVB Unicredit. These three banks have withdrawn because they considered that it would be difficult to issue a European card if it does not work in important markets like Spain. Overall, the whole movement required to pause and think. Those who remained are actually the biggest European banks and the two big European acquirers (Worldline and Nexi). Without these banks in Germany, we could not introduce the German card scheme anymore - because for cards, as you know, you need to shift the domestic card volumes and you need to have critical mass from the beginning. Otherwise, it would not gain traction.

At the end, doing a European card scheme only the French and the Belgian banks would not have been a European but a bi-national card scheme.

Thus, we have decided to redefine EPI`s scope and agreed that, unfortunately, we have to abandon the card scheme plans (the idea of creating a European card scheme and setting up a European card). Nevertheless, with the remaining banks and players, we agreed that it would make sense to focus on an account-to-account instant payment solution for all kinds of use cases, all through a wallet.

That is the most innovative part we are focusing on right now. Although the card would have been nice due to the tremendous volumes that usually come with cards, we decided to focus on the account-to-account instant payment part instead. And since we implement it through a wallet, we can also address the digital Euro and digital identity features (we can integrate them quite easily in the wallet).

Do you see any (or more focus on) specific local initiatives in these countries to develop SCT/payment methods/schemes? Did the initiative ignite local manoeuvres to build overlay services on top of SCT with maximum reach (e.g., Bizum initiative, DK-pay…)?

These initiatives were there even before EPI and I don't think that new initiatives were triggered due to EPI shifting its scope. The real question is: how can we overcome the European fragmentation? The answers vary in Europe. At EPI, we strongly believe that ultimately, after a certain time of migration, we all need to come to one unique, strong solution. Otherwise, we would just continue with fragmentation, different initiatives, and different setups (eg iDEAL, Bizum, Giropay, Paydirekt,  etc)

On the other hand, in other markets, there are no alternative payment methods or national solutions. So, what can we offer to these markets without offering a European solution? How can we achieve a level playing field in payments? How do we get from the current situation to a common European solution?

One could answer through ‘interoperability’. We believe that interoperability comes with major drawbacks. It does not overcome European fragmentation. It is not an answer to markets that do not have any digital solution for the time being. We think interoperability is really difficult because you have to match different technology standards, different functionalities, different business models, and different rules through an overlay service, which would only work cross-border. Of course, on national grounds, these domestic solutions want to keep their market. We don't think that this will ultimately lead to a strong European solution and therefore we are advocating a different way, which is that we need to build a strong European account-to-account wallet solution, which also addresses the digital Euro and the digital identity in order to address current and future needs.

In a brief statement on the EPI site, the group says that the 13 remaining shareholders remain convinced of the strategic value of a unified payment solution ready for commerce leveraging especially instant payments and want to go ahead. The EPI Interim Company is now adapting its scope, objectives, and timelines to this new dimension. Could you please elaborate on this?

Our focus now is instant payment, wallet, and value-added services. We built up everything based on the needs expressed by merchants and consumers. This means that we did research in various markets, and we had a lot of meetings with local commerce associations, big retailers, and so on.

The fragmented payment landscape (Apple Pay, Google Pay, PayPal, banking apps, national solutions, etc) leads to huge complexity for consumers. Overall, all this is super fragmented and a burden for the consumer. Our goal is to unify different payment use cases and services under one umbrella. The wallet is a container which allows hosting various payment means. For us, the most important will be instant payments, but we can also allow the consumer to use his cards in this solution, in the future, through HCE (host card emulation) technology – dematerialising his current card, whether it's a domestic card or an international card scheme.

In the future, the customer could access through the same wallet the digital Euro or leverage the digital identity. What we are focusing on is a broad range of payment transaction types, including complex transactions. For example, managing subscriptions is something which, to my knowledge, other solutions do not do through instant payments. Today, you can only pay for subscriptions via direct debits and cards, which are not very convenient for merchants. For example, when cards expire, you need to update with the new card data, which can be very cumbersome and risky for the merchant. The need that we are addressing for the consumer is that we are bringing all these things together. We bring instant payments not just for P2P or limited use cases, but for all use cases (ecommerce, m-commerce, P2P, and P2Pro or professional payments, which are emerging in some markets). Today, besides in some markets the consumers don`t have a solution where they can pay, for example, their yoga teacher, sports coach or gardener through their app and at the same time trigger an electronic receipt or even a fully-fledged invoice. One can do a P2P payment, but not a P2Pro payment.

We`ll address subscriptions, recurrent payments, deferred payments, split payments, and donations – many sub-use cases that the consumer should be able to do through one wallet, on top on usual plain payment use cases.

On the merchants' side, we aim to simplify the level of fragmentation or integration. There should be easy integration and a single standard for various European markets, if not all. Today, merchants' international expansion requires multiple payment integrations which cumbersome.

We know for a fact that merchants are interested in an account-to-account solution if it is service-rich. For example, we will integrate a Buy Now, Pay Later instant financing solution which is also attractive for the consumer. This solution would be offered through his bank, so the merchant does not even have to see it. And theconsumer can decide at the very last minute, or even after the transaction, that this purchase should be going through BNPL or even a light version of consumer credit. That is the flexibility that the wallet allows.

Of all European card transactions (domestic or cross-border), approximately two-thirds are made through the Visa and Mastercard networks. Can EPI still be true to its mission statement of breaking dependency on non-European payment networks?

As I said, we cannot be a direct competitor to Visa and Mastercard on the card side anymore. However, as we are seeing, we will have the additional push of the regulator towards instant payments. Our goal now is to be established as a European alternative through account-to-account and request-to-pay payments.

Visa and Mastercard are also focusing on account-to-account payments. Our purpose isn`t to fight against them, but to have an alternative to instant payments in Europe, which offers more possibilities than cards and is also more flexible. These will become more important for consumers – we can offer solutions such as Scan and Go, where you scan a QR code and you don't have to pass the cash register or card terminal, and you can just finalise the transaction in your app. Something that the card can`t offer.

What are the main challenges in promoting the widespread establishment and use of instant payments (fragmentation, interoperability, consumer protection, level-playing field, business case, lower revenue than card revenue)?

First, we need to build up trust. Many people still don't know about instant payments. For a start, we need to provide proof that these payments work as safely or better, are smoother, and offer value than existing payment methods and cards. And not just for ecommerce payments, but for P2P payments as well.

I believe P2P is useful for small transaction amounts, as it will allow users to get used to the new solution, understand its functioning and security, and then also trust it for more complex commerce-related activities.

The most difficult area will be physical commerce because, today, physical commerce works well with cards and existing solutions. Another challenge is building up an acceptance network. Also, if you want to pay with instant payments, and given the limitation that Apple imposes, you need to set up QR code functionality. We would like to facilitate NFC payments, but we all know that Apple does not allow other payment solutions based on NFC to work on their devices.

Studies revealed a sharp increase in QR code use regularly since the onset of COVID-19, with many terminals already equipped to accept QR code payments. Nevertheless, you need to build up an acceptance network. Moreover, we will need to sign merchant contracts.

The third biggest challenge is to broaden the country scope. To have Germany, France, and Belgium is very promising and gives access to at least 45% of European retail transactions, however, it's not the broad European solution that we all hope for. We plan to build on this first, very substantial block, and expand into other markets as well.

How is EPI`s business model for instant payments competitive in comparison to the card and the fees charged there?

We did our best to make instant payments cheaper than cards in terms of setup. We know that merchants would not be interested in instant payments if they turn out to be more expensive than cards.

In our alternative business model for instant payments, we made sure that we are cheaper than cards. However, EPI, as a solution, will not determine the market pricing. EPI will rely on acquirers, who will sell the solution to merchants. The acquirers or acceptance providers in ecommerce will negotiate their pricing with the merchants.

What does the roadmap look like? What precisely will be the next steps in terms of launch and what are the upcoming milestones?

We are starting the implementation or ‘inception phase’, meaning that we are now setting up the final company and started to develop the new solution.

In the third quarter of 2023, we should go live with P2P and P2Pro. Then, following closely a couple of months later, in the fourth quarter of 2023, we will start with ecommerce. Of course, we also have a roadmap per market, because we must take into consideration national constraints as well, and it will be all packed in a timeframe of six to nine months for these first two big use cases.

Then, we`ll examine the market reaction, because, as I mentioned, it is important for us to become established on the P2P/P2Pro side. Once this is settled, ecommerce and other commerce-related use cases like in-shops payments will follow.

About Martina Weimert 

Martina Weimert has been appointed as CEO of the EPI Interim Company in December 2020. She has been supporting European banks since the beginning of the European Payments Initiative (EPI) as a Partner in the Financial Services Practice of the consultancy Oliver Wyman in Paris, where she was for 4 years in charge of the European payments practice. With 17 years in international consulting, she has in-depth experience in all areas of payments, fintech, blockchain and retail banking in Europe, the Americas and the Middle East. She developed strategy concepts, new business models and led major transformation programs and is known to be an instant payments specialist. Martina Weimert graduated from the Institute of Political Science Paris in European business development and holds a Master degree in International Administration (DESS) from Sorbonne University and studied before Political Science at the University of Bonn (Germany). 

About European Payments Initiative

EPI (or European Payments Initiative) is set up by 31 banks and 2 payment service providers across 7 European countries (Belgium, Finland, France, Germany, the Netherlands, Poland, and Spain). Its shareholders currently cover 65% of all European payment transactions. The aim of EPI is to create a unique payment solution that will become the new normal for European consumers and merchants for all payments in a shop, online and between friends & family. 

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Keywords: payments , banks, SEPA, e-wallet, merchant, transactions , regulation, digital identity, BNPL, Open Banking
Categories: Banking & Fintech
Companies: EPI
Countries: Europe
This article is part of category

Banking & Fintech


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