EPI and the battle of the cards
This article was first published on LinkedIn and can be found here: https://www.linkedin.com/pulse/epi-battle-cards-mark-munne/
At the end of February 2021, the EPI Interim Company (EPI) launched their Request for Information for a Central Infrastructure. The ambition of EPI is to create a unified, innovative pan-European payment solution leveraging Instant Payment/SEPA Instant Credit Transfer (SCT Inst), offering payment instruments to consumers and merchants across Europe, such as payment cards, a digital wallet and P2P payments. EPI aims to become the new European standard in payments, across all types of retail transactions, including in-store, online, peer-to-peer and even cash withdrawal. They want to become the alternative to the established international brands.
This is quite an ambition, as international card schemes MasterCard and Visa now account for 86% of all payment cards in Europe. Global Payment Cards Data and Forecasts to 2020 shows that €9 out of €10 spent using a payment card in Europe was made on a Visa or MasterCard-branded card – the highest share of any region. How is EPI going to challenge this? The recent webinar presented by Martina Weimert, CEO of the EPI Interim Company, shed some light on their upcoming endeavour.
EPI Value proposition
EPI is aiming for a wide coverage of use cases, with the launch of both a physical as well as a virtual card. The virtual card will sit in an EPI digital wallet, which will also include a “digital / end-to-end SCT inst”. With these instruments, EPI aims to cover the aforementioned use cases of commerce, P2P and cash withdrawal. EPI wants to use this foundation to also offer value-added services, like digital ID and instant financing. SCT Inst will be used for settlement, offering potential instant availability of funds for the beneficiary.
The digital wallet will be offered either through a stand-alone EPI app common to all banks (like Swish in Sweden) or through integration into their respective mobile banking apps or in bank-owned payment platform/apps (like PayByBank in the UK).
The proposed value proposition of EPI is comprehensive and very competitive.
Specific focus is placed at countries with no domestic scheme. EPI could help these countries become independent from the International Card Schemes. EPI could develop a central authorization network (i.e. switch/router and processing) as well as issuing as a service and acquiring as a service offers, with SCT Inst for the Clearing and Settlement.
Currently the EPI interim company has market coverage in Spain, France, Belgium, The Netherlands, Germany, Poland and Finland. This does not compare to the coverage from MasterCard or Visa, but EPI is still in its infancy. It will be interesting to see EPI’s coverage grow, especially hearing Martina Weimert comment on the received interest from market players across the globe, including among others China. Martina stated that EPI is interested in investigating cooperation, however, also commented that she sees progressive migration from local card schemes towards EPI as a goal and interoperability not as a solution.
The EPI Interim Company is aiming to transform into the EPI HoldCo in 12 months. EPI will focus on creating the EPI scheme, the technical basis, the governance, detailed value proposition (including UX), the branding and marketing, the business model (including deals with key third-parties) and the acceptance network readiness. These deliverables will be evaluated in Q4 2021 by the shareholders. The aim is to launch (an initial version of) EPI in the market in the first half of 2022, with a full fledged roll-out achieved in 2025.
Is this enough to challenge the hegemony of the international card schemes in Europe? What will be the compelling reason for banks, merchants and consumers to adopt EPI? Or will this be more of an infrastructural project “behind the curtain”, with the only impact for the end-user a change of logo on their plastic card? Looking at the ambitions of EPI the latter does not seem to be the case, especially in light of the branding and marketing work stream and the launch of an EPI stand-alone app.
In addition to this “battle of the cards”, there are two additional interesting developments. One is the emergence of in-store and online ’card-less’ payment solutions, such as the Dutch e-payment (iDEAL) based Tikkie and hugely popular Chinese solutions AliPay and WeChat Pay. EPI is including a digital wallet into their value proposition, but the architecture is still very much a card-based infrastructure. Is an account-to-account based solution in the form of a combination of Request-to-Pay with settlement via Instant Payments not a better solution?
The other developments is the increasing attention on Central Bank backed Digital Currencies (CBDC). The ECB is increasingly teasing the possibility for a retail CBDC. Although the execution is very different from EPI, the objectives and user experience show many similarities. Is there space in the market for both EPI and a retail CBDC?
With founding partners such as Deutsche Bank, ING, Unicredit, Societe Generale, Commerzbank, Credit Agricole and DZ Bank, and European giants Woldline and Nets backing EPI, there certainly is enough firepower. And with the backing of the ECB, this is an initiative that is not allowed to fail. “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.