Europe might move to more digital payments by 2030. This continues, even though recent surveys by the European Central Bank (ECB) indicate that approximately 60% of the eurozone population still value the ability to pay with cash. Some large European banks are rolling out the European Payments Initiative (EPI) as an alternative payment solution to counter the dominance of U.S. payment giants. With the EPI, these banks aim to protect their relevance in the payment space and to safeguard against technological disruption.
What's Happening
The EPI has introduced its digital wallet in France in October 2024, with Luxembourg and the Netherlands expected to follow suit. Initially, clients of large French member banks will be able to make person-to-person (P2P) transactions, which will expand to person-to-professional, online and mobile shopping, and point-of-sale (PoS) payments from 2025. EPI's member banks currently serve about 75% of retail customers in Belgium, France, and Germany.
Why It Matters
Payment services are important to European banks' profits. Apart from financial gains, maintaining strong client relationships through efficient payment services facilitates cross-selling. Currently, European citizens can choose among several payment providers and methods:
- Global payment giants: Among the most important players in Europe are U.S.-headquartered Visa, Mastercard, and PayPal that use their global payment networks and other proprietary solutions for payment processing. Visa and Mastercard issue close to 8 billion cards globally.
- Fintechs: London-based disruptors, such as Revolut and Wise, entered multiple European markets and experienced significant growth. These companies offer a range of services, including payment solutions.
- National mobile payment platforms (mostly owned by banks): TWINT in Switzerland, Swish in Sweden, and BLIK in Poland gained popularity for instant P2P transactions and online PoS payments. These smartphone-based solutions are primarily used domestically and provide efficient payment options.
Payment sovereignty is important for European policymakers, especially within their broader doctrine of an "open strategic autonomy." The doctrine aims to foster competition and innovation, without relying on technologies and services from non-European countries. For example, the ECB is working on the digital euro, a retail central bank digital currency. We note that its specific use case and advantage over existing payment types remain, to some extent, unclear.
What Comes Next
The success of the EPI remains uncertain. The EPI requires a large member base and acceptance by most eurozone citizens to be successful. One potential weakness is the platform's current inability to connect to non-euro payment schemes. We think European consumers' willingness to use the EPI's wallet solution for payments could be low and differ among countries. Additionally, an increase in the number of partnering, but also competing, banks from different countries could lead to governance challenges. In our view, incentives are necessary for merchants and their customers to accept the new solution. Acceptance rates can increase quickly if use cases are clear, reliable, cheap, and convenient.
Payment giants and fintechs will dominate payments, considering their strong global presence and ability to scale and innovative. Well-tested international schemes guarantee reliable, secure, and protected transactions. Payments via stablecoins will likely remain a niche in many markets. Yet they could become more relevant for cross-border P2P transactions, for example in developing and emerging markets, where remittances are important and existing providers are either slow or too costly. The introduction of the digital euro remains uncertain. We believe the EPI and the digital euro could increase the fragmentation of payment markets since new transaction wallets and user applications come on top of existing standards.
Background In Brief
The EPI is a conglomerate of 16 European banks and payment service providers that are developing a cross-border and retail- friendly payment solution for citizens and merchants in Europe. It was launched in 2020 to establish an alternative to international payments giants, such as Visa, Mastercard, and PayPal.
The EPI is being developed on the existing Single Euro Payments Area infrastructure, which connects payers and payees in 36 European countries with their own bank accounts. It therefore uses existing infrastructure and enables clients of participating banks to pay via its wallet, WERO. Using existing and established platforms could lower costs and complexities. Member banks will share the costs to maintain the EPI infrastructure.
Related Research
This report does not constitute a rating action.
| Primary Credit Analyst: | Cihan Duran, CFA, Frankfurt +49 69 33999 177; cihan.duran@spglobal.com |
| Secondary Contacts: | Michal Selbka, New York +1 212 438 0470; michal.selbka@spglobal.com |
| Giles Edwards, London + 44 20 7176 7014; giles.edwards@spglobal.com |
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