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EPI: A new opportunity for Europe to innovate in payments (Chapter 2)

September 23, 2020
By Arnaud Crouzet, VP Security & Consulting at Fime
EPI: A new opportunity for Europe to innovate in payments (Chapter 2)

After several months of research, 16 banks representing five European countries (Belgium, France, Germany, the Netherlands and Spain) approved the official launch of a new European payment scheme called the European Payments Initiative (EPI).

You missed chapter 1? Read it.

CHAPTER 2. GEOPOLITICAL CONTEXT.

This is not the first time that Europe has tried to bring about the harmonization of card payment systems.

EPI makes it possible to respond directly to the challenges presented by European political institutions and national authorities. In a context where geopolitical situations are changing rapidly, controlling financial transactions, strengthening the single market and the European digital strategy, are crucial issues for Europe.
Arnaud Crouzet
VP Security & Consulting at Fime

The beginnings of EPI

There have already been several initiatives over the past 15 years. Some examples include:

  • The EAPS (Euro Alliance of Payment Schemes) project, which focused on the interconnection of domestic card networks, launched in 2007 and discontinued in 2013 after a limited deployment.

  • The non-bank PayFair initiative also launched in 2007 with the aim of implementing a new European payment scheme, based on a new acceptance infrastructure. A few implementations took place in Belgium and the Netherlands in 2008. PayFair was abandoned a few years later, having failed to establish a sufficient ecosystem.

  • The Monnet project in 2010 was also very ambitious, with the creation of a new card scheme. But it ultimately did not go much further than preliminary studies, failing to find a viable business model in an uncertain regulatory environment and decrease in interchanges. After a lack of agreement with the European Commission on economic conditions, the 24 member banks decided to stop the project in 2012.

A search for “self-regulation” followed, within the framework of the SCF (Sepa Card Framework), where different actors and networks took it upon themselves to harmonize payments in Europe. However, the harmonization of payments between the different countries is still struggling to materialize, and domestic constraints remain.

There have been some important advances in this area, such as:

  • The developments made by the ECSG (European Cards Stakeholders Group)[1], which has defined functional rules at a European level, and the first publication in 2014 of the “Volume”, initially composed of six collections detailing functional rules at each part of the payment chain. The latest version, Volume nine – composed of seven collections[2] – was published in January 2020[3]. This integrates all major European regulatory developments and new technologies such as GDPR, the SCA of EBA RTS, HCE, EMV®* 3DS and FIDO.

  • Since 2015, nexo standards, which took over the work of EPAS.org, OSCar and CIR WG initiated in 2005, has also specified payment acceptance exchange protocols based on the ISO 20022 standard. Its standards and protocols are becoming increasingly used and deployed in Europe and beyond. nexo standards protocols were validated in accordance with the ECSG "Volume" in February 2018 [4].

  • The creation of a new payment infrastructure, TIPS (Target Instant Payment Settlement)[5], in November 2018 by the European Central Bank, allowing payment service providers to offer their customers real-time, 24/7 fund transfers. This represents a significant advancement, meeting the necessary requirements for pan-European interoperability needed to deploy Instant Payments.

The perfect conditions

The number of electronic transactions continues to increase, with an acceleration following the COVID-19 crisis. Before the crisis, an increase of 7% per year between 2020 and 2025 was forecasted. It was also estimated that 55% of payments would be made by card in 2020, compared with 25% in 2000[6]. The crisis has amplified the use of electronic payments over cash. In Germany, for the very first time, the number of card transactions has exceeded the use of cash[7]. It is predicted that card transactions will increase by 28% between 2019 and 2025, and that cash use will decrease by 34% - these figures represent a true revolution in consumer behavior for a country that famously favors cash.

EPI makes it possible to respond directly to the challenges presented by European political institutions and national authorities. In a context where geopolitical situations are changing rapidly, controlling financial transactions, strengthening the single market and the European digital strategy, are crucial issues for Europe.

Various European regulations have made it possible to open up the payments market (PSD2) while strengthening consumer protection (SCA [8], GDPR [9]). EPI brings about the unified management of card transactions across Europe, removing the domestic barriers that still exist.

This strategic initiative could be the last chance for Europe to build a unified payment system.

Learning from global endeavors

In the international landscape, other projects of this magnitude have been successful. In 2002, China created China UnionPay (CUP) and its international version with Union Pay International (UPI). In 2015 it was Russia’s turn, developing its own MIR payment network, managed by the National Payment Card System (NSPK).

In Europe however, it’s a bigger challenge. There are strong disparities in domestic payment systems between the different countries, such as:

National card networks and processing organizations such as Bancomat (Italy), Bancontact-Payconiq (Belgium), Vipps-BankAxept (Norway), Borica-Bcard (Bulgaria), Cartes Bancaires “CB” (France), Nets-Dankort (Denmark), Dutch Payments Association (Netherlands), Pan-Nordic Card Association (Scandinavia), SIBS (Portugal) and STMP (Spain).

Specific communication protocols such as ABI (Italy), CB2A (France), CTAP (Belgium), ep2 (Luxembourg), Price (Spain) and ZVT (Germany).

Dedicated applications and certification processes that cater to local constraints.

To make it work, for the next nine months, the support of the various actors and stakeholders will be decisive. This includes the involvement of other European and national banks, the support of public authorities, the consideration of domestic and international networks, and the participation of representatives of consumers and merchants.

* EMV® is a registered trademark in the U.S. and other countries and an unregistered trademark elsewhere. The EMV trademark is owned by EMVCo, LLC.

Read chapter 3.

[1] ECSG website

[2] ECSG details of the Volume 9

[3] ECSG announcement of the publication of the Volume 9

[4] Nexo standards becomes first association to be granted ECSG conformance label – listingpress release

[5] TIPS announcement by the European Central Bank

[6] Source Kearney – Cashing in on cashless commerce

[7] In Germany, card to exceed cash payment - white paper from Euromonitor International

[8] SCA – Strong Customer Authentication

[9] GDPR - General Data Protection Regulation


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