In July 2020, a group of 31 banks and two large processors (Worldline and Nexi) proudly announced the European Payments Initiative (EPI). Their ambitious goal was to develop a European card scheme to challenge the supremacy of Mastercard and Visa in retail payments. The announcement received broad political support from the European Commission and the European Central Bank, who hoped that this initiative could make Europe less dependent on the U.S.-based payment giants.
I should admit that I was one of the many skeptics who didn’t believe that EPI was going to fly, having witnessed earlier failures to develop a European card brand (remember the Monnet initiative?). My doubts were confirmed last year when the EPI Company announced a rather drastic reduction of scope, abolishing its ambition to develop a European card scheme.
EPI would now focus on the development of a product that serves as “a multi-faceted digital wallet solution and an instant, account-to-account payment means under one brand, unified across European countries”. The majority of founding banks left the project, leaving 12 shareholders to beat a dead horse. Or so I thought.
EPI Company Surprises With Acquisitions of iDEAL and Payconiq
But that horse surprisingly rose to its feet, whinnying happily. On April 25, the EPI company announced that it had acquired the Dutch payment scheme iDEAL and Payconiq, the technology provider for iDEAL and other account-to-account payment solutions.
As a bonus, Dutch major banks ABN Amro and Rabobank joined EPI as shareholders. With these banks on board, EPI shareholders now represent a market share of 90% or more of account holders in Belgium, France, and the Netherlands as well as a large share in Germany (from the major banks, only Commerzbank and HypoVereinsbank are not participating).
The acquisition of iDEAL could be the breakthrough that EPI needs. The Dutch payment scheme processed 1.2 billion payments in 2022, which is equal to about 20% of total online card volume in the eurozone. The scheme has a huge market share of 70% of Dutch e-commerce transactions, compared to other payment methods such as credit cards (about 8%) or direct debit (4%). But e-commerce contributes just 20% of iDEAL transactions. The majority of iDEAL transactions are generated by other online applications (bill pay, tax payments, fines, charities), and payment requests (both C2C and B2C). Payment request is an increasingly popular method that enables consumers and businesses to send a payment link to a person to settle a bill; the payment is then processed in real time via iDEAL.
The success of iDEAL can be attributed to the ubiquity of the service (all consumers can be reached), the convenience of use (no registration required, authorization via the trusted mobile banking apps of the banks), and the favorable merchant conditions (payment guarantee for a fixed price per transaction).
This acquisition of iDEAL will bring scale to the EPI initiative. The experience of the iDEAL and Payconiq teams will be an important factor to realize the ambitions of EPI. The infrastructure of iDEAL has recently been modernized, running on the Payconiq platform (iDEAL 2.0). This infrastructure can be leveraged to create a pan-European scheme for e-commerce payments and other online applications.
Will EPI Succeed Where Others Failed?
The EPI Company can continue its work with renewed energy. The key idea is to develop a commercially viable proposition on top of the existing instant payment scheme and rulebook (SCT Inst). The latter describes how instant payments are processed and cleared between banks in the Single Euro Payments Area (SEPA), but it lacks the commercial features that are required to support e-commerce transactions or person-to-person transactions, for instance.
To compete with cards, the EPI scheme aims to provide a user experience and richness of functionality that are at least on par with those provided by card payments. In addition, EPI Company says it will support a wide variety of use cases, including one-off payments, subscriptions, installments, payments upon delivery, and reservations.
EPI Company plans to start a pilot with person-to-person payments between France and Germany in Q4 2023, with further rollout to other countries in Q1 2024. Commercial launch is planned for Q4 2024.
EPI’s journey is supported by the European Commission’s ambition to create a single payments market. In October 2022, the Commission adopted a legislative proposal to make instant payments in euros universally available at no extra cost compared to traditional credit transfers. This is a very important driving factor to make the use of instant payments ubiquitous in SEPA countries.
From a market perspective, there is strong demand from merchants to have a viable alternative to the perceived duopoly of Visa and Mastercard. Account-to-account-based payment methods look attractive compared to card payments, as they offer certainty of payment, faster receipt of funds, reduced risk of fraud, and lower cost. For example, for a 50 euro transaction, a merchant will pay almost four times more for a credit card payment than for an iDEAL transaction.
Challenges Ahead for EPI
But the question is how can merchants and banks steer customers to this new payment method without introducing unwanted friction into the checkout experience. Changing customer behavior is notoriously difficult, and payments is no exception. Each country in Europe has its own payment culture, developed over decades and representing differences in consumer behavior, socioeconomic factors, and regulatory environment. Large differences among the countries remain in terms of payment method use.
Consumers should see a substantial benefit in terms of ease of use, and/or financial incentives, to adopt a new payment method. While iDEAL became an iconic success in the Netherlands, similar schemes were introduced in other European countries e.g., in Germany, Austria, and Italy without the same success.
Experts I speak with see many bears on the road for EPI, as the Dutch saying goes. And these bears may well be real. Large programs with many competing stakeholders typically suffer from conflicts of interest between banks or banking communities, changing market conditions that require the program to go back to the drawing board, and commitment fatigue if things are not going according to plan or if investments do not generate sufficient return.
One recent example is the P27 initiative in the Nordics. The vision of P27 is to establish the first integrated region for domestic and cross-border instant payments in multiple currencies. Recently, it became clear that the future of this massive undertaking is uncertain. In a press release, P27 CEO Paula da Silva stated, “Our vision was to provide a better payments infrastructure to the 27 million people living in the Nordics, with an optimistic timeline. Lately, it is evident that our vision was too ambitious and complex. Hence, we need to reassess our future ambition in the Nordic payments market.”
Still, I would give EPI the benefit of the doubt. The potential of a pan-European payment scheme based on instant payments is just too big to set aside. With its political support and the mass volume acquired through the acquisitions described above, the odds look promising enough for EPI to earn money and avoid becoming the next Monnet.
Have thoughts about the EPI or want to learn more about developments in the European payments market? Contact me here.