EPI – New hope for independence
Be Think, Solve, Execute GmbH09.10.2020
Supported by the European Central Bank (ECB) and the European Commission (EC), who see this initiative as a solution to limit Europe’s dependence on foreign players (Visa, Mastercard and Big Techs i.e. Google, Amazon, Facebook, Apple and Microsoft), on July 2nd 2020 sixteen major European banks laid the foundations of what will be the future European payment standard called European Payment Initiative (EPI). The aim is to create a pan-European payment system and interbank network. This new European payment standard should offer an alternative to the American giants (Visa and Mastercard) and emerging Chinese players (notably China Union Pay).
The sixteen banks behind this initiative are:
Banco Bilbao Vizcaya Argentaria, BNP Paribas, BPCE, CaixaBank, Commerzbank, Crédit Agricole, Crédit Mutuel, Deutsche Bank, Deutscher Sparkassen- und Giroverband e.V., DZ Bank, Internationale Nederlanden Groep, KBC Group, La Banque Postale, Santander, Société Générale, UniCredit (HVB).
Origins and main causes
Three main causes can be identified:
- Incompatibility of national schemes and solutions
The ECB indicates that ten European countries currently have national card schemes that do not accept cards from other EU member states. Furthermore in addition, there is a significant offer of incompatible national domestic payment services. To avoid such fragmentation, the initiative therefore makes sense.
- Declining profitability of card payments
The profitability of cards operations is now under threat: competition from new “digital players” (neobanks and Big Techs) is putting pressure on billings to merchants and cardholders. Interchange fees have already been capped by European regulations, and the current revision of DSP2 raises fears of a further decline in these fees. Indeed the economic model of neobanks is based on the provision of a credit card, often free of charge and has a strong impact on the profitability of “brick-and-mortar banks”.
- Confidentiality of data
The implementation of a pan-European solution will strengthen data protection, in particular in the application of the GDPR (General Data Protection Regulation) by structuring exchanges and confining them to Europe, thus avoiding the dissemination of data on networks outside Europe.
EPI’s ambition is to create a unified pan-European payment solution based on Instant Payments / SEPA Instant Credit Transfer (SCT Inst), offering a bank card to consumers and merchants across Europe, a digital wallet and peer-to-peer (P2P) payment solutions including cash withdrawals too.
The EPI will be based on the SEPA (Single European Payments Area) Instant Credit Transfer scheme, that is operational since November 2017.
It will use the Eurosystem’s TARGET Instant Payment Settlement (TIPS) system, which enables instant settlement of Euro payment transactions 24/7 and across the EU. It was launched in November 2018.
The start of the implementation phase will kick off in the coming weeks with the creation of a temporary company in Brussels (Belgium), which will define clear deliverables, including the finalisation of the technical and operational roadmap.
Until the end of 2020, a period is open for European market players, banks, banking conglomerates and third party payment service providers to join EPI as founders.
EPI is expected to enter the operational phase in 2022.
This new initiative will make it possible to process payments without using the American Visa or Mastercard networks and by processing these payments as instant transfers (SEPA SCT Instant Payment). As the scheme (SCT Instant Payment) and the system (TIPS) are already in use, it should make the implementation of EPI easier.
Difficulties winning against the challengers who have occupied the field for a very long time
The difficulties of establishing a brand are obvious in facing systems that have existed since the 60s. Thus Bank of America launched the first credit card in 1958 (Bank Americard became Visa) and as a reaction United California Bank launched a competing card which became MasterCard in 1966.
Difficulties to convince customers
This last point is not necessarily the easiest because the payment offer is multitudinous and the competition between the “brick-and-mortar banks” at the origin of the initiative and the neobanks (N26, Revolut, …) is fierce.
The future will tell us whether this bold gamble can carve out a place for itself in the payments landscape where supply is high and competition is raging.
To go deeper into this subject
European Central Bank
Scheme Instant Credit Transfer
By Jean-Noël Prost | Be STF GmbH