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Anyone who has tried in vain to use a basic German Girocard to make purchases online — as I did soon after moving to Frankfurt almost two years ago — will know just how antiquated the payment system can be. It is a similarly frustrating story for many Italian bank cards.
This is why Martina Weimert has one of the most challenging jobs in the European payments industry. The former Oliver Wyman consultant was appointed last year as chief executive of the European Payments Initiative (EPI), a group set up by big banks to build a regional payments provider that can challenge the dominance of US giants like Visa and Mastercard.
In an interview with #fintechFT, Weimert said she is “becoming really frustrated” at the idea that EPI is little more than a new pan-European bank card scheme. “It is about so much more,” she said. “We don’t even need cards — though we will do them, of course, as we know it will take time to change consumer behaviour.”
The ultimate aim is to create “a new ecosystem” built on the EU’s Single Euro Payments Area Instant Credit Transfer scheme, allowing European consumers to make instant payments online, in stores, or to people they know around the world. Weimert says people will be able to pay with contactless technology, QR codes or just their mobile phone number.
The project will cost “several billion euros” and launch next year, Weimert said. It will allow customers of banks that are part of the scheme to make peer-to-peer payments through their mobile apps and upgrade their bank cards to ones that work both online and in other countries.
“We will start with P2P payments as those are easy and don’t need to have a distribution network with millions of merchants’ terminals and web pages,” she says. “We know that will take time to build.”
Initially, the scheme will only cover the countries in which banks have joined EPI. Seven have signed up so far — Germany, France, Spain, the Netherlands, Belgium, Finland and Poland — but Weimert said others are in talks to join. She acknowledged that it would take several years to develop the capacity to make payments anywhere in the world.
Weimert said EPI will introduce “an alternative business model” to the interchange fee-based model that payment cards currently use. “The regulator wants to get rid of the interchange model eventually, so we will develop one with attractive pricing by charging money to provide the EPI instant payment service to acquirers who then offer it to merchants.”
There are, however, plenty of reasons to be sceptical about whether this will succeed. Firstly, European banks have made several failed attempts to create a pan-European payments scheme, including the Monnet Project that fizzled out in 2011. The latest drive made an inauspicious start by calling itself the pan-European Payment System Initiative, or PEPSI, which was changed to EPI after complaints from the US drinks group PepsiCo.
The fact that less than half of the eurozone’s 19 countries are represented among EPI’s 33 initial backers suggests the project lacks support. “Once participating banks start to go into the nitty-gritty of designing the EPI, the interests of those banks will start to diverge,” warned Zach Meyers at the Centre for European Reform think-tank.
But some countries have already developed very successful P2P payments apps. Swish in Sweden and MobilePay in Denmark are used by more than 80 per cent of adults — making it unlikely they will ditch existing systems for a new EPI offering.
“It might be highly complex to convince banks in the Nordic countries to agree to scrap their national solutions for something pan-European, if they have to bear the same amount of costs as other banks that may need investments in P2P regardless sometime in the future,” Barclays analysts said in a recent report.
However, Europe’s fragmented local payments market is steadily declining. Barclays estimated the share of overall transactions running on the region’s domestic card schemes — such as Germany’s Girocard and France’s Cartes Bancaires — has fallen from 50 per cent a decade ago to only 25 per cent today, eaten away by Visa, Mastercard and newer arrivals like Apple.
“The market share of international solutions is growing and their financial resources are much bigger than any bank’s,” said Weimert. “The only way to free up the resources to invest in innovation is to join forces and benefit from economies of scale.”
More stories from the industry that caught our eye this week
Klarna raises even more cash Klarna, Europe’s largest buy-now-pay-later specialist, has added another $639m to its growing war chest to fund an aggressive push into the US. It hasn’t all been plain sailing for the Swedish start-up recently — a “self-inflicted” incident last month let tens of thousands of users see the personal details of other customers — but investors are clearly still focusing on the positives: new backer SoftBank valued the group at $45.6bn, a 50 per cent increase in just three months.
Crypto corner The Basel Committee on Banking Supervision provided a stark reminder this week that the path towards increasing institutional acceptance of digital currencies will not be smooth. A growing number of big banks have been dipping their toes in crypto markets in the past few months — even State Street, the staid US custody bank, is setting up a new digital division. But the world’s most powerful banking standards-setter on Thursday called for cryptocurrencies to carry the toughest bank capital rules of any asset, warning that the industry’s rapid growth posed risks to financial stability. Still, the news didn’t put off high-profile investors such as billionaire hedge fund manager Alan Howard, who invested in two digital asset start-ups in two days last week. Howard has long been a vocal backer of digital currencies, but the trend is catching on with other high net-worth individuals.
Wirecard fallout UAB Finolita Unio, the Lithuanian payments company caught up in the Wirecard scandal last month, has had its licence revoked after being accused of breaching anti-money laundering and counter-terrorist financing rules. The case has revived worries that the small Baltic nation lacks the resources to supervise its increasingly large fintech ecosystem, which is now the largest in the EU.
Quick Fire Q&A
Stay up to date with up-and-coming disrupters. Each week we ask a fast-growing fintech to introduce themselves and explain what makes them stand out in a crowded industry. This week we spoke to Terry Donohoe, European chief of Ignition, whose tech helps established banks and finance firms fight back against the wave of start-up robo-advisers.
When were you founded? 2014
Where are you based? Ignition started in Sydney before expanding to Dublin in 2017 and London and Edinburgh in 2021 to serve the UK.
What do you sell, and who do you sell it to? We provide a digital advice platform to financial institutions. Our advice journeys are suitable to adviser, hybrid, and direct to customer distribution channels.
How much money have you raised so far? Our UK launch follows an A$26m funding B-round, led by Morgan Stanley.
What’s your most recent valuation? A$105m
Who are your major shareholders? Ignition Advice is 60 per cent owned by our founders, management and staff, with the remaining shares controlled by family offices and clients of Morgan Stanley.
There are lots of fintechs out there — what makes you so special? We combine the power of digital intelligence with a human touch to enable smarter, more flexible and more secure advice delivery.