03 October 2023

CER's Meyers: Does Europe's payments strategy add up?

EU residents have an impressive range of ways to pay for goods and services at home – including with cash, cards, smartphones, direct debits, bank transfers and instant payment apps. Yet the EU institutions have spent years fretting that most of these services do not work seamlessly across borders. The main way residents pay for goods and services across the whole bloc remains American payment networks like Visa and Mastercard. There is still no EU-wide payments champion, despite the EU’s many efforts to foster one.

The EU is following China and the US in pursuing an active industrial strategy in strategic areas like chip-making and green technologies. But its industrial policy in payments has received much less attention, perhaps because it is driven more by regulation than by large subsidies. To keep the dream of a ‘sovereign’ European payments champion alive, the European Commission has recently launched a barrage of proposals for new rules. But these different ideas lack an overarching vision. The EU’s strategy would work better if it worried less about sovereignty and thought more about what makes payment systems successful: fulfilling consumers’ needs.

Historically, European banks have had little interest in managing the mechanics behind cross-border retail payments, or making the big investments necessary to support them. In a few countries, banking consortia rolled out some innovative and successful payment products – like Spain’s Bizum, Sweden’s Swish, Denmark’s MobilePay, Norway’s Vipps and the Netherlands’ iDEAL. But these have largely remained national projects. After investing in their development, banks have mostly been unenthusiastic about recreating them so they work with other EU countries’ systems, or trying to bridge the varying preferences of consumers in different member-states. Many banks largely treated payments as a compulsory side gig. Many gave up on operating domestic card systems in individual EU member-states, preferring to stick with international card brands that work everywhere. And European banks sold off their stakes in Visa and Mastercard. They are now normal members of the Visa and Mastercard networks, which means they still get to keep a handy cut of fees from card transactions, while letting Visa and Mastercard do the heavy lifting of co-ordinating the card systems.

In response to this ‘de-Europeanisation’, the Commission has tried to open up the payments market. The central idea was to encourage financial technology firms (‘fintechs’) to enter the market. In 2009, the EU allowed fintechs to operate payment accounts across Europe without the rigmarole of becoming regulated banks. And in 2015, the EU mandated ‘open banking’: allowing consumers to use a fintech to transfer money from a consumer’s bank account to a retailer, enabling cheap online payments without using card networks. Banks want consumers to use cards because they earn a cut of the card fees – conversely, fintechs want to offer this cheaper alternative. The Commission therefore hoped that open banking could result in a new EU-wide payment option. However, this remained elusive. Different countries, and sometimes different banks, rolled out open banking in inconsistent ways. More egregiously, some banks simply block cheap cross-border transfers. In response, the Commission now wants to standardise open banking across the EU – a costly and complex endeavour...

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