EPI and the digital euro: missing links contribution to a uniform payments landscape?
Still, today, SEPA remains a list of 36 different European countries, some with and some without the euro as a currency. Despite the acronym, the many directives, and regulations, agreements, and treaties, SEPA is not a uniform payments market. On the contrary, it is a group of countries with some standardisation and many cultural differences.
It takes time to build uniformity, as Inge van Dijk, Director Payments and Market Infrastructures of De Nederlandsche Bank (DNB), explained: “We are not living in America, we love our cultural differences, and we should certainly keep them intact, but this means that it takes time to grow to efficiency in that context.”
Many expected PSD2 and open banking to create more uniformity. Thus far, though, the results are questionable, even on a local level, also due to the lack of uniformly implemented standards requiring integration on an individual bank level. DNB researched last year why open banking is not yet – it is still early days - taking off and found that one of the missing elements to make open banking a mainstream success is trust: “Consumers in The Netherlands prefer to share data with their bank, rather than with somebody else.”
Inge believes that in the data-sharing economy, the balance is lost between givers and takers. Today banks need to provide data free of charge and invest massively to ensure secure data connectivity.
“We need to make sure that there is a good business model for all parties involved”, she said. “And that is not for free, so there is a need to incentivise parties to open up.” A better business model will stimulate banks to improve data sharing, which will grow trust in open banking services in the future and bolster competition and innovation.
EPI's contribution to a uniform European payments landscape
What exactly EPI (European Payments Initiative) will look like is currently unclear; it is still in its concept phase. However, in the corridors, it is said that it will be two payment solutions at the point of interaction: a card-based solution and a wallet solution based on instant payments, with an interim period that allows interoperability with the existing local payment schemes.
60% of the audience believed that one of the problems EPI would solve is a better customer experience with a unified pan-European payments solution. A bigger portion, 70% of the audience, saw it as a political answer to the dominant international card schemes.
Inge was not surprised. The geopolitical dependency on non-European parties can become a serious threat, as vital payments infrastructures could slip out of the hands of the European supervisor.
Also, from a bank’s perspective, it makes sense to have an alternative, according to Inge. The grip that banks create will allow them to better tailor the customer experience to local expectations and to improve prices to the end-user, as it is also interesting from a procurement perspective, not to mention a business continuity perspective.
Inge: “The patchwork of e-commerce payment solutions in Europe is something that we cannot leave like it is. We should harmonise it and work together. That’s one of the more holistic goals that EPI wants to achieve. From the Dutch central bank perspective, we certainly strongly support that.”
Are European banks to blame that they lost control over their payments markets because they sold their stakes in Visa and Mastercard?
“In hindsight, wisdom is always easy. It was a different world in the 90s, 25 years ago. So from that perspective, I don’t think it’s a fair statement to make these days”, Inge explained. “Selling those stakes was a logical decision for shareholders at the time as investments in innovation can be quite costly to bear on a local market level.”
The sense of urgency today is what makes EPI different from historical initiatives like Monnet or Payfair, according to Inge. In the past, people were excited about the technology, but some missed the relevance and the right business case. That is different today.
“Today, the landscape is rapidly evolving into a whole new payment ecosystem that we know will impact players, even though we cannot predict exactly how and when, with the developments like Diem, stablecoins and cryptos, and the speed at which technology is evolving.”
With EPI being a private initiative from banks to keep control over retail payments and soft support from central banks, who see it as a way to ensure their role to ensure a safe and reliable payments infrastructure, many stakeholders act upon the same sense of urgency.
Once the roll-out starts, convincing consumers is a matter of uniting issuing banks, the challenge is to persuade the merchants. To stimulate the roll-out in the near future, the industry is currently in talks with the European Investment Fund for subsidies to accommodate adoption by retailers to avoid this chicken and egg problem, where consumers are equipped but unable to pay or vice versa.
The digital euro’s contribution to a uniform European payments landscape
The digital euro is still in its infancy, much more than EPI is. Many central banks across the world studied the concept. Concretely the research of DNB in early 2020 listed many scenarios of what the digital euro could address and the consequences of each scenario.
Inge: “One of the key tasks of a central bank is to issue public money. Today, we do that in paper form. Tomorrow, we may need to do that in a digitalised form, preparing us for the near future. And of course, we need to consider the good things that private and commercial bank money has brought us.”
Spurred by Corona, we see in Europe across the board a reduction of cash payments, and this seems to be permanent. For example, in The Netherlands, only 21% of all POS payments are still in cash (13% of all payments). In combination with the risk that a very dominant non-traditional newcomer can pop up with an alternative payment solution, like Diem, central banks cannot ignore considering a digital euro.
Inge: “We’re currently conducting a survey that we hope to conclude by July this year. Then the governing council at the ECB will decide whether or not to enter into a project to investigate strategically deeper and design that digital euro.”
Add to this seven more years, and we arrive in 2028 as a realistic projection to have the digital euro available to all, according to the discussion around the virtual round table.
Will this contribute to a uniform European payments landscape? In my opinion, it will, although the audience had more faith in EPI after this session to accomplish this. 43% said that the digital euro together with EPI would contribute to this goal (21% at the start of the session), with another 43% sharing their faith in EPI but not in the digital euro.
Although together they stand stronger against the international superpowers, Inge did note that EPI and the digital euro should be considered two different tracks, in both of which the private sector can deliver services: “In the end, private parties are there to make shareholders happy and to make a profit. The interest of the central banks and the ECB is, of course, to look after the interests of citizens making sure that everybody is included.”
The goal of open banking was not to create a uniform landscape, but to promote innovative new services.