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Europe’s EPI: EPIc fail in the making?

The European Payments Initiative (EPI), launched to some fanfare in 2020, was supposed to offer a payments solution “catering and corresponding to European needs.”

But as the EPI’s scope changes and several partners lose interest, James Wood asks if market development isn’t best left to the market itself.

Ronald Reagan’s speechwriters first minted a line that has passed into modern folklore: “These are the words everyone dreads – ‘I’m from the government, and I’m here to help you.’”

Reagan’s words spoke to a belief that individuals and markets are better judges of what’s needed for success than governments or regulators.

In payments, it’s pretty easy to find examples of where Reagan’s dictum does not apply.

In the UK, one thinks of the work done by Pay.UK to develop the Faster Payments system now growing at 25 percent a year and used to process £2.6 trillion of payments in 2021.

One might equally look at the Open Banking Implementation Entity (OBIE), set up by the Competition and Markets Authority (CMA) in 2017, which has been similarly successful, or a variety of government/industry partnerships in the Nordics, Netherlands, Germany and elsewhere that have led to successful domestic payment wallets.

That said, something seems to happen when Europe gets involved – especially when it comes to payments.

For instance, SCT-Inst, an instant transfer system, was set up alongside PSD2 to provide instant cross-border transfers between European countries.

To date, just six in ten eligible institutions have joined the scheme, and transaction volumes using SCT-Inst constitute about 13 percent of all credit transfers in Europe.

Almost five years after launch, such figures hardly constitute a ringing endorsement. Speaking anonymously to Payments Cards & Mobile, one seasoned European payments veteran said there were two reasons for this slow take-up.

The first – recognised by the European Payments Council (EPC) and other authorities – is the incompatibility of various domestic settlement systems, which has to date hampered adoption.

However, a second reason that Credit Transfer is a dated technology first used in the 1960s by corporations to effect the rapid transfer of salaries direct to employees.

As such, it is notoriously creaky and prone to fraud. In late 2021, Greek media outlet Ekathermerini reported that cases of Credit Transfer fraud had trebled in volume and quadrupled in value over the last two years.

If in doubt, double down

Despite such concerns, the EU has decided to push ahead with promoting the SCT-Inst standard.

To resolve the issue of incompatibility between domestic settlement schemes, transfers are now available via the open API architecture mandated by PSD2 which simplifies integration to a single click.

However, the EU is silent on any measures taken to date to improve security around the credit transfer process – although it has published a consultation paper on the possibility of mandating SCT-Inst across the bloc.

This move is being resisted by the EPC among other bodies, with EPC Director General Etienne Goosse commenting that “[SCT Inst] is a not insignificant investment, and for some niche players there is no business case and there will probably never be a business case.”

Part of the EU’s problem is that other payments schemes work very well for consumers and merchants, including cards – which currently account for 41 percent of electronic transactions across the EU.

There’s a whiff of “my way or the high way” about the EU’s approach to SCT-Inst, something we’ll see repeated in the story of the EPI…

EPI penalty?

Set up by 31 major players from across the Eurozone in 2020, the EPI was set up to create a pan-European payments initiative that could handle both corporate and consumer payments via card and instant payment rails.

Its aims – to reduce the cost and time taken of payments to consumers, merchants and participating banks – are of course laudable.

Yet its insistence on a set of “European needs” – whatever they are – sounded somewhat dirigiste and vague. And so the subsequent history of the initiative has proven.

Of the initial 31 partners, just 13 are pressing ahead with the commitment to a shared instant payment scheme as of 11 March 2022.

That figure itself is down from a mere 18 out of 31 (33 including two partners joining after inception) who initially committed to the instant payment scheme.

Meanwhile, the plan for a distinct European card network has been scrapped.

Ralf Ohlhausen, Executive Advisor at PPRO, approves, noting that “trying again to introduce a European Card Scheme had little chance of success and I believe that it was a very wise decision to cancel that plan and focus more on Instant Payments, which is still an open market and looking very promising going forward.”

“While the EPI languishes, private sector solutions for instant payments grow like weeds.”

Mr. Ohlhausen is right that instant payments look like a promising market, and his further caution that to be successful with SCT-Inst, Europe’s banks “have to start using it themselves and finally remove all the obstacles that were implemented to slow down the competition” is by no means misplaced.

The problem is that the private sector is stepping into the breach while the EPI deliberates, and instant payment solutions are proliferating rapidly.

Companies such as Trustly, Zimpler and Tink are forging ahead with instant payments in both Europe and the US and posting triple-digit growth numbers.

That said, most of the private sector plays in instant payments to date are domestic only, while the EPI’s vision is for a pan-European, cross-border instant payment network – an altogether more ambitious undertaking.

Past experience shows us, though, that mighty oaks can grow from small acorns. Look at Africa, where mPESA began as a Kenya-only domestic scheme and now operates in thirteen markets, with cross-border transactions available between Kenya, Tanzania and Rwanda since mid-2021.

Back in Europe, the wildly successful Swish (Sweden) and Vipps (Norway) have announced a merger – one wonders what might stop MobilePay (Denmark) and iDEAL (Netherlands) joining forces with Swish to create a four-country instant transfer scheme that might one day expand to other European markets, especially the UK, Switzerland and others.

Establishing a successful international payment scheme is no easy task. Visa and Mastercard grew so quickly in part because they were launched in the world’s most successful economy and exported to meet the payment needs of travelling and expatriated Americans.

But they were also backed by the ingenuity and spirit of the private sector, a spirit which – on current evidence – would appear to be lacking in the EPI.


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