Rumors have been circulating for some time in the market that some banks were working on a project dubbed Pan-European Payment System Initiative (or PEPSI), but no official public announcements were ever made. However, on 2 July 2020, a group of 16 banks finally went public with their plans to launch the European Payments Initiative (EPI) – apparently the name of the initiative had to be changed due to some pressure from another company. Let’s have a look at why these banks launched this initiative and what it entails.
It was already clear that the question is not if European payments will have to move to instant payments, but more on when this will have to be achieved. In a video message, European Commission Vice-President Dombrovskis already mentioned two dates that will be likely milestones in the roadmap the European Commission is working on: by the end of 2021 a full rollout of instant payments should have been established, meaning that from them everyone should be able to use instant payments everywhere and in all situations. Benoît Cœuré, at that time Member of the Executive Board of the ECB, announced that relying exclusively on non-European and new ecosystems presents certain risks. It is clear that the various European regulators see the launch of instant payments as a possible stepping stone towards achieving (more) European sovereignty in the broader domain of payments.
In light of this, it will be no surprise that instant payments is in fact one of the main building blocks of the EPI. As per the announcement of the founding banks, the ambition of the EPI is to create a unified pan-European payment solution leveraging instant payments, offering a card for consumers and merchants across Europe, a digital wallet and P2P payments. The solution aims to become a new standard means of payment for European consumers and merchants in all types of transactions including in-store, online, cash withdrawal and “peer-to-peer” in addition to existing international payment scheme solutions.
Hence, the creation of the EPI will support the implementation of the political agenda for both European public institutions and national authorities, in particular through the creation of a truly European solution in the fields of payments, banking and technology. Existing digital payment solutions are fragmented in Europe and European citizens are still unable to pay digitally everywhere. Moreover, the Covid-19 crisis has underlined the need for a unified European digital payment solution. In this sense, EPI also aims to align the European payments ecosystem of banks, merchants and acquirers / payment services providers, thereby contributing to strengthening of the Single Market and the European digital agenda.
It comes with no surprise that both the European Commission and the European Central Bank were amongst the first to announce their support for EPI: the European Commission, which will adopt later this year its own strategy for retail payments in Europe, fully supports the European payments initiative as a new, ambitious and European project. The Commission believes that EU citizens and businesses should benefit from fast, efficient and reliable payments solutions. The European payments initiative – EPI would be a critical and decisive step in that direction.
Valdis Dombrovskis, Executive Vice-President of the European Commission said: “The European payments initiative fits into our ambition that European consumers and businesses should have access to fast, efficient and competitive payment solutions. I hope banks from other countries, innovative European fintechs and other European payment service providers will join the first 16 members, bringing their own expertise and assets to this ground-breaking project, and making it even more innovative and competitive at global level”. The Eurosystem will continue to support private initiatives for retail payments provided that they fulfil five key objectives: pan-European reach, customer friendliness, cost efficiency, safety and security, European identity and governance, and, in the long-run, global reach. “The European Payments Initiative will have to tackle the fragmentation in European retail payments and should encompass all euro area countries, and eventually the entire European Union”, said ECB Executive Board member Fabio Panetta. “The foreseen effective implementation and a growing number of participants have the potential to strengthen the role of European providers”.
The beginning of the implementation phase is expected to materialise in the coming weeks through the creation of an interim company in Brussels, Belgium, which will set out clear deliverables including the completion of the technical and operational roadmap and initiating the implementation work to achieve a best-in-class user experience. The accomplishments of this Interim Company will be evaluated by each bank before moving on to the EPI’s final corporate structure. Other payment service providers are invited to join the initiative. Until the end of 2020, a window remains open for European market players, individual banks or banking syndicates, as well as third-party payment service providers to apply and join EPI as a founder. EPI is expected to enter the operational stage in 2022.
It will take time before the first EPI transactions by consumers can be observed, and only some time after that the first judgements can be made whether EPI will be a cash-killer or a (non-EU) cards-killer.