European Payments Initiative - a changing payments landscape
The opportunities which the payments industry presents are seemingly infinite. Continual innovation of payments is alluring not just for end-users but companies too. The sector’s repeated demonstration that it is ripe for disruption and growth means that new players are regularly appearing on the scene.
Payments is therefore undoubtedly an exciting market. Yet for international governments it does present some problems. The rapid rate of change is hard to keep up with, making it difficult to regulate. Plus, it is not uncommon to witness some payments organizations grow to colossal sizes, so much so that they become a resource which entire populations and networks become reliant upon.
In Europe, the European Payments Initiative (EPI) is aiming to take control of this situation. Despite there being no guarantee that it will succeed, one thing which can be taken for certain regarding the EPI, is that no matter whether it flops or flies, it will have huge ramifications for the payments landscape in Europe and beyond.
Ultimately, big changes in the payment industry are never unexpected but the impact of the EPI could well be one of the biggest we’ve ever witnessed. Prepare for the seismic changes that the EPI could be about to usher in by getting to know everything about this ambitious plan.
What is the European Payments Initiative?
The European Payments Initiative is a pan-continental project to introduce a unified payment system across the countries of Europe. It has the support of more than 30 European banks already to give citizens the means to use their local payment schemes no matter where they might be on the continent. Ultimately, through mass collaboration, it will aim to end cross-border payment complications through a user-friendly digital wallet and exercising the technology of real-time payments.
What is the history behind the European Payments Initiative?
The EPI was launched in July 2020; however, this isn’t the first payments innovation Europe has attempted to launch. Back in 2008 the Monnet Project was formed. Devised over a decade ago, the technology was based upon a card system, but it still shared a similar vision to the EPI – to establish a united payment system across the whole of Europe.
Ultimately, the Monnet Project failed and ceased in 2011. Since then, time has passed, and circumstances have changed. As a result, a renewed determination and a sense of urgency has emerged in Europe to revive their payment revolution. Arguably, this was triggered by political actions, namely those of Donald Trump.
In 2018 Trump withdrew America from the Iran deal and threatened to potentially end relations between European companies and American corporations like Mastercard and VISA. This threat was never carried out, but its mere airing signaled to Europe how important it is to have sovereignty over their payments.
Resurrecting the fundamentals of the Monnet Project were no doubt sparked by Trump’s actions but by 2020 they gained additional momentum. The coronavirus pandemic turned the entire world upside down, and this included commerce. With more than 50% of retail transactions still being conducted by cash in Europe, the pandemic only further highlighted the need for an initiative which would increase adoption of contactless payments.
By July 2020 the EPI had 16 major European banks as founding shareholders and now it has snowballed into having the backing of over 30 from across various countries. With the support of BNP Paribas, Deutsche Bank, plus that from the European Central Bank, what can we expect from the EPI?
What is the European Payments Initiative’s timeline and ambitions?
The European Digital Agenda is at the heart of the EPI. Dr. Jachim Schmalz, Chairman of the EPI Board, summarizes this by describing how through digital innovation it aims to stimulate growth and strengthen the Single Market.
To achieve these lofty ambitions, various milestones will have to be hit. The following are examples of those which the EPI wishes to achieve:
- Application of Instant Payments technology to establish a unified pan-European payment solution
- A customer-centric digital wallet solution, enabling payments between bank accounts of customers
- Bank supported By Now Pay Later (BNPL) schemes to be accessible from the EPI digital wallet
- Merchant loyalty scheme incentives to operate from within the EPI digital wallet
Considering the size of Europe and the EPI’s aim to act as “the bridge between a multitude of parties in the complex payment landscape”, their ambition is large. Already their digital wallet is under construction and their sights are set on a pilot being launched between Germany and France at the end of 2023. If this is successful, the next stage will be for the EPI to launch officially across Belgium, France and Germany (an area of the Eurozone which equates for over half of all non-cash retail payments) in 2024.
What impact will the European Payments Initiative have on the payments landscape?
Should the EPI succeed, it will no doubt become the blueprint for large-scale cross-border payment schemes in the future. Despite Europe’s unified-payment nirvana being a tumultuous one spanning back to 2008, the EPI does currently look set to succeed. As a result, close attention is being paid to it by key payment players such as:
- Networks – it is rumored that the EPI was born out of a growing awareness that facilitation of Europe’s payments was dominated by the American networks of Mastercard and VISA. This cannot be denied considering the aforementioned networks accounted for 99% of the 97 billion transactions made in 2019 on credit cards and prepaid cards issued across Europe.
Now, the EPI is projecting itself as an “innovative, future-proof payment solution” that is “built for Europe, by European players”. Evidently, it is not shying away from using language to elicit a sense of patriotism to make the EPI Europeans’ choice of payment solution. In fact, a Spanish EPI partner, Cecabank, have openly said that they hope for the EPI to become “the European player”.
The prospect of new regional allegiances springing up after the EPI could therefore pose a very serious risk to large networks who up until now have had a monopoly over the payments market.
- Consumers – on the face of it, the EPI will be most advantageous for citizens of Europe, or in other words, consumers. Thanks to the EPI, not only will they have access to modern payment systems but those which will function anywhere across Europe. When it comes to cross-border real-time payments, this technology is nearly unprecedented, making it a unique luxury for European citizens.
- Merchants – with consumers set to have contemporary means to spend on products thanks to the EPI, inevitably merchants will also benefit. Businesses across Europe will suddenly have access to a larger market and be able to receive revenue much quicker, boosting cash flow, and changing their forecasts for the better.
Along with their metrics directly rising thanks to the EPI offering them a new, quicker way for a larger group of consumers to make purchases, the EPI will also give merchants the means to be proactive about increasing such metrics. This is thanks to the digital format of the innovation giving the opportunity for third-party apps to integrate and provide invaluable data insights to merchants. How this will precisely benefit individual merchants is unknown, but it definitely holds the potential for them to unearth new markets or grow in existing ones.
- Governments – ultimately the EPI has been driven by a geographical mindset which local governments are supportive of. With backing from both the European Commission and the European Central Bank, evidently such a scheme is a political issue. Not only do innovations like the EPI ensure that countries will not be held to ransom by international relations, but they also offer the opportunity for local shareholders to make money from payment systems rather than foreign ones.
What does the EPI mean for transactional payments data?
Success for the EPI would be significantly transformative for Europe and the payments landscape as a whole. This is largely due to the number of transactions it will enable and the speed at which they would be processed due to its real-time ambitions.
Along with the EPI being set to raise volume and speed of transactions in Europe, it will also add an element of complexity should development of their digital wallet solution match their current roadmap. An example of this would be the inclusion of merchant loyalty schemes. This might sound basic, but it would see the need for discounts to be correctly applied and verified dependent on the status of certain customers.
As a result, whilst the EPI is undoubtedly an extraordinary project which will bring swathes of benefits for various stakeholders within Europe, it will also place increasing pressure on due diligence processes such as reconciliation. Simply put, this is the checking of two sets of data to ensure that they match. For centuries it has been done manually but innovations such as the EPI will make this near impossible. Why?
- Transactions over the whole of Europe will be conducted via the EPI, resulting in an extremely high volume of payments
- The EPI’s real-time ambitions will result in transactions flooding in continuously
- Based across the whole of Europe, transactions will take place over various time zones and sometimes even different currencies due to the inclusion of Polish banks in the scheme for example
- Inclusion of merchant loyalty schemes will result in additional factors having to be taken into account, making transactions more complex in nature
Overall, the transactions which the EPI will facilitate will be large in volume and complex, meaning that they will easily overwhelm any manual reconciliation process. To match the EPI’s level of innovation, payment companies, most merchants and even the EPI themselves will need to modernize their reconciliation processes with automated reconciliation software such as Aurum.
The likes of Aurum can handle endless transactions which contain unlimited variables. It also has a vast API bank which is continuously growing, making it a reconciliation provider which is future-proofed for the occasion when the EPI’s digital wallet decides to add third party payments.
Initiative isn’t limited to the EPI – take it today
In reality, transactional data is growing in every industry and becoming increasingly complex. For nearly 20 years this has seen Aurum become some of the biggest brands’ preferred choice when it comes to automating their reconciliation processes.
Inevitably, the payments industry is no different – transactional data is becoming harder to handle and Aurum is leveraged by many key players. The EPI will only further transform the relationship between transactional data and back-end processes like reconciliation. A reconciliation partner which matches the payment industry’s ever accelerating levels of innovation will therefore be needed.
To collaboratively develop a bespoke solution which will future-proof you against the ever-changing world of payments, book an Aurum demo today.