Charting Europe’s path to payments leadership

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Andrei Cazacu, EU Public Policy Lead
13 May 2024

2024 is a year of great change for Europe, not least because there are elections in June, which means a new Parliament and a new Commission. These new officials will then define their top priorities for the next five years.

We believe that developing a domestic alternative to cards based on real-time, account to account payments should be high up that list of priorities.

Achieve this priority, and Europe can become a global leader in digital payments. It will not, however, be achieved by attempting to reproduce the closed bank payment schemes model at a European level. Rather, it should be achieved through a combination of:

  1. Real-time payments, with the help of the Instant Payments Regulation.

  2. Open banking to bring real-time payments to merchants and consumers.

  3. A balanced commercial model with financial incentives for premium APIs.

  4. A true single market for payments, eliminating IBAN discrimination.


A home-grown European payment method

Europe has long been looking to increase its ‘strategic autonomy’, or its ability to act without being overly dependent on other countries.

In the world of payments, this means finding an alternative to the historic dominance of US card schemes. Despite the global popularity of card payments, other parts of the world have shown that this can be achieved.

For example, in India and Brazil, real-time payments are thriving thanks to new payments infrastructure like UPI or Pix. In Brazil the real-time payments system Pix now processes more payments each year than both credit cards and debit cards combined — and it’s still growing.

Europe does not yet have a comparable account to account payment method, but it has most of the elements needed to build one. So, how do we take these elements and turn them into a fully functioning payment method that can provide a true alternative to cards?

The most obvious and straightforward solution is to use open banking technology to elevate SEPA Instant and create a home-grown account to account payment method.

Why does Europe need a home-grown payment method?

  • Cost to merchants and consumers: it creates a digitally native and efficient payment method, which is consumer-friendly and gives merchants an alternative to the high fees of card payments (and other payment methods powered by cards). European merchant organisations estimate that merchant service charges — scheme fees, interchange fees, and acquirer margins — increased by almost €1 billion between 2015 and 2020. 

  • Competition: open banking is an excellent driver of competition. It’s based on accessible open API technology based on recognised standards. The free API access model in PSD2 has encouraged competition and market entry by allowing SMEs to provide payment initiation services at low cost.

  • Ease of implementation: the main elements are already in place: open banking and instant payments exist, and all regulated payment providers can make use of them through European standards such as SEPA Instant or Berlin Group (and others).

  • Efficiency: it will help modernise Europe’s banking and payments infrastructure, improving efficiency and lowering processing costs.

How to achieve it:

1. Real-time payments

The EU has taken a significant step forward with the introduction of mandatory, low-cost instant payments.

The focus now should be on the full implementation of the Instant Payments Regulation, ensuring that all Europeans are able to take advantage of its benefits.

2. Open banking 

Open banking provides a platform for the mass adoption of real time payments through SEPA Instant. 

PSD2 introduced a regulatory framework for open banking, and the Payment Services Regulation (PSR) can improve the connectivity and infrastructure underpinning it. Through PSR, the EU can make some small but important changes to help drive adoption of account to account payments. These changes include better APIs and a more streamlined user experience.

3. A balanced commercial model 

European institutions should support and promote the SEPA Payment Account Access scheme (SPAA)

While open banking under PSR will remain a regulatory requirement to be offered free of charge, SPAA is a voluntary, industry initiative that comes with a commercial model. Within SPAA, European banks can offer premium open banking functionality such as Dynamic Recurring Payments, and be remunerated.

SPAA is the most promising route to the balanced financial incentives needed to ensure the sustainable, long-term success of open banking in the European Union.

4. A single market for payments

An integrated market where there is no distinction between national and cross-border payments is an essential requirement for the Single Market achieving its full potential. The majority of payment service providers (PSPs) today operate across the whole of the Single Euro Payments Area (SEPA).

The SEPA Regulation requires that all cross-border electronic payments in euros be as easy to make as domestic payments. 

Unfortunately, IBAN discrimination continues to be an issue, as some PSPs decline cross-border SEPA payments at a far higher rate than domestic ones, or create obstacles for consumers looking to make these payments.

To achieve a truly borderless Single Market, regulators and the market must have more visibility into the extent of IBAN discrimination, and rules must be enforced more strictly.

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The formula we outline above, based on the four essential building blocks, has important advantages. It’s based on existing infrastructure and technology, such as SEPA Instant and open banking. It creates an ‘open’ method, which all regulated fintechs and other PSPs can make use of. It stimulates both competition and innovation, leads to lower costs for merchants and consumers, and unlocks Europe’s payment infrastructure.

We look forward to continuing working with our colleagues and partners in the European institutions and in the industry to help achieve this vision through which Europe can take a front seat globally in digital payments.

To learn more about our vision of making Europe a global leader in real time payments based on open banking, download our report: Payments in the EU

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