European Payments: Android Metaphor

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Over the last month, I was fortunate to interview EU banks and non-card payment schemes. The people are just fantastic, and I came away with a new appreciation of the challenges of working in a payments environment with so much “central planning”. The questions I asked myself: How best to achieve the objective of being a “digital first” economy? Centrally planned mandates? or markets with commercial incentives? When there is no margin in payments who can invest in the infrastructure (or governance)?

Europe’s payment ecosystem is shaped by the “central planning” of the ECB and the European Commission: SEPA, PSD2, PSD3 and the Payment Services Regulation (PSR), eIDAS, the Instant Payments Regulation, the digital euro and the EU Digital Identity (EUDI) wallet. I have written about this before, in Payments Innovation in Europe (2011), Building Networks and “Openness” (2011), Open Banking, Open Payments and Trust Networks (2020) and Europe’s Siege (2025). Today’s blog is focused on my new insight: how much of the cost lands on the banks, and how little room that leaves for anything else.

Thought for the day: Mandates build rails. Markets build businesses.

Summary

  • Europe wants payment sovereignty (independence from US card networks and Big Tech) and a digital first economy. It is pursuing both by mandate.
  • My estimate: EU banks spend about 85% of their time on compliance obligations. Less than 15% of their budget is left for their own innovation and business priorities.
  • Today I paint the picture of US vs European payment ecosystem in the metaphor of iOS (walled garden) vs Android (open).
  • Open is a great technical model and a terrible business model. Without margin, no one invests in governance, in the infrastructure that connects everything, or in differentiation.In the Android Metaphor,
  • Europe built the open source version of payments and wrote a compatibility document for it. It never built the commercial services layer that pays for governance.
  • The US runs payments as a market of alternatives with commercial incentives. Market forces act on innovations that do not deliver consumer, merchant or bank value die quickly. This supply and demand force is more effective than any operator or governance scheme, and it directs investment.
  • Trust is important in consumer Consumers choice. Tap to pay on cards is great experience on a ubiquitous product (network effects), there is both a tech hurdle and an even bigger consumer behavior hurdle in converting consumers to a new scheme.

Two Paths to Digital First

There are two ways to become a digital first economy. One is to create an environment where innovation can take place. The other is to mandate compliance toward a central vision. Europe chose the second. Instant payments are the latest EU reg that is soaking up bank tech resources.. Under the Instant Payments Regulation (EU) 2024/886:

  • Every euro area payment provider had to receive instant credit transfers by 9 January 2025, and send them, with Verification of Payee, by 9 October 2025. Non-euro member states follow in 2027.
  • An instant transfer cannot cost more than a standard SEPA credit transfer.
  • Sanctions screening moved from each transaction to a daily screening of the customer base.

Note that there was no consumer demand behind the mandate. The rule creates cost and forbids pricing it. Instant payments is just one in a long line of payment directives: PSD2 access APIs, PSD3 and the PSR, Verification of Payee, a digital euro (ECB prefers a CBDC they control vs commercial stablecoins they cannot), and a digital identity wallet that no one understands. Each arrives with deadlines, certification and no revenue model. By my estimate, EU banks now spend about 85% of their time on compliance obligations, leaving less than 15% of their budget for their own priorities.

Banks have become captive development and operations teams for the ECB’s payments and banking vision. How does a bank differentiate when its product roadmap is written in Frankfurt and Brussels? Who can price?

ECB Vision and the Android Metaphor

In 2020 I wrote that “open is a terrible business model, but a fantastic technical one” (Open Banking, Open Payments and Trust Networks). Android versus iOS is the best illustration. But “Android” means two different things, and the difference is the point.

AOSP. The Android Open Source Project is free, and anyone can fork it. Amazon’s Fire OS and Huawei’s phones after 2019 are examples. There is no Search, no Play Store, no Maps. There is no governance and no margin. As I noted in 2020, no one wants a phone that ships with only the free version.

Google-certified Android. To license Google Mobile Services (GMS: Play, Search, Maps, Wallet), a device maker must meet the Compatibility Definition Document (CDD), pass the Compatibility Test Suite, and sign a distribution agreement with Google. This version has weak governance given that handset makers control harware, update schedules, skins and their own app stores, and fragmentation persists. Google makes its money in services, not in the OS. Outside Samsung, the handset makers earn little.

iOS. Strong governance. Apple sets the rules and prices everything: App Store, payments, music, storage. It is a marketplace with an owner. In 2012 Apple earned about 75% of handset profits with 9% of unit share (Nokia, Apple, Android and the Stage 4 Value Shift). The pattern has held. In fiscal 2026 (ended September 2026) Apple reported $479 billion in revenue and $132 billion in net income. It shipped about 20% of the world’s smartphones in 2025, yet took 49% of global smartphone (device sales) revenue in the second quarter of 2026 (Counterpoint Research).

The bigger change is services. In fiscal 2012 Apple reported $12.9 billion from iTunes, software and services. In fiscal 2026 services revenue was $123.3 billion, up 13%, and about a quarter of sales. Services carry a 76% gross margin against 39% for hardware, so services produced $94 billion, or 40%, of Apple’s gross profit (Apple, Form 10-K, November 2026).

ServiceWhat Apple pricesEstimated annual revenue
Digital contentApp Store commission (15 to 30%); Music, TV, Arcade, News+, Fitness+App Store commissions about $30 billion (Horace Dediu, Asymco, 2025)
Advertising, incl. licensingGoogle’s payment to be the default search engine in Safari; App Store and Maps adsGoogle payment about $20 billion in 2022 (US v. Google trial record)
CloudiCloud+ storage tiersNot disclosed
AppleCareDevice support and protectionNot disclosed
Payment servicesApple Pay issuer fees; Apple CardNot disclosed

Note the second row. Google, the owner of Android, pays Apple about $20 billion a year for access to iPhone users. The open platform pays a toll to the governed one.

AOSPGoogle-certified AndroidiOS
GovernanceNoneWeak (CDD, test suite, GMS license)Strong
Who pricesNo oneGoogle, in servicesApple, everything
Where margin sitsNowhereServices, and the hardware bundleHardware, software and services

From a development standpoint, Android is the best OS to build on: scale (billions of devices), standardization and simplicity. Commercially, it is a commodity. Margin in the Android ecosystem comes from the bundle of hardware, software and services. In Apple’s world it is much easier to make money on software and services, because everything is priced.

Note the direction of travel. Google has spent a decade moving features out of AOSP into closed packages, and in 2025 took Android development private (Ars Technica). Open won adoption. Closing the services layer paid for governance.

Europe Copied the CDD and Forgot the GMS

Europe’s payment stack looks like Android’s compatibility program. The SCT Inst rulebook and the Instant Payments Regulation are the CDD: every bank must send, receive, verify the payee and meet the timing. Certification is mandatory. What Europe does not have is GMS: a licensed, priced services layer with an owner who earns enough to fund the rules. Europe’s governance is therefore weaker than Android’s. Google pays for the CDD out of GMS profits. The ECB plays Google’s role in writing the rules but has no services margin to fund them. So the banks fund them, out of the 85%.

Europe cannot take Google’s second step either. PSD2 forces data access open, and the Instant Payments Regulation caps the price. In phones, the Commission fined Google €4.34 billion in 2018 for the GMS bundling that pays for Android’s governance (reduced to €4.125 billion, and upheld by the Court of Justice in July 2026). Whether the subject is phones or payments, the EU treats the commercial layer that funds governance as the problem.

Who would invest in governance within a system where there is no margin? Making every system open reduces the incentive to invest in two places. The first is infrastructure that connects everything, the role Stripe plays in the US. The second is the commercial entities whose business depends on some switching cost and friction, which describes every bank.

The Margin Finds a Way Back

Across my conversations with banks and schemes, the same pattern came up:

  • Schemes need a commercial model before banks will participate, and identity or authentication on its own has not proven to be one. The ideas now rising to the top are liability based: card-like guarantees rebuilt on the mandated rail.
  • Bank support for pan-European initiatives is thin and junior. The tech and vision of Wero are fantastic, but banks are encumbered with mandatory compliance obligations and what little left over they spend on business priorities. Anything optional gets dropped on the floor.
  • Banks want their own identity and their own wallet first. They see the EUDI wallet as a government instrument, not a commercial payments product. Belgium’s itsme, Sweden’s BankID show there is a commercial case for bank trust.
  • Wero’s merchant pricing is moving from scheme fixed fee (varies but assume €0.10) to 70bps (Wero 2026: Sovereignty at a Commercial Premium). That is card economics, rebuilt on a utility rail. The market is reinventing the Android GMS equivalent, one scheme at a time. Wonder if they will get sued here too.. or just American companies can’t do it.

The US: A Market of Alternatives

US payments are managed by commercial entities, and banks are not forced to adopt Central Bank services.

  • FedNow is optional. It has 1,640 participating institutions and small volumes (UBS, March 2026). Nothing is built on it.
  • Zelle settles over ACH, and most ACH settlement runs through TCH, a private bank-owned consortium (my estimate is about 95%).
  • Visa Direct settles the way cards do. Visa is a messaging network; issuers net settle.
  • RTP runs on TCH rules and TCH pricing, and banks opt in.
  • Banks may price data access. 1033 is dead (Open Banking is Dead in the US).

As Europe builds instant payments on SCT, the US has four to six optional alternatives, each with its own economics: FedNow, RTP, Zelle, Visa Direct, Mastercard Move and Open USD. Innovations without consumer, merchant or bank adoption die quickly. The ones that survive have a business model.

A European reader will object that Europe has private settlement too. It does. But that settlement is wrapped in mandatory services and pricing that the settlement entities cannot control. They own the plumbing. Regulators own the product.

Curated Trust and the Tap to Pay Hurdle

Consumers prefer curated experiences they can trust, and they rarely leave one for something that is merely equivalent. In my conversations, EU banks described tap to pay as both the best experience in payments and the biggest hurdle for anyone hoping to compete with cards. Non-card schemes can build it. Google launched tap to pay for Pix on Android in Brazil in February 2025. The technology is not the barrier. Getting consumers to switch is.

Europe faces the same wall. Schemes told me the main blocker at the point of sale is access to the iPhone. Here is the sovereignty irony: Europe’s route to independence from US card networks runs through regulators forcing open a US walled garden, and that walled garden is the curated experience Europe’s own consumers choose. Wallets now account for 44 to 53% of online transactions in Europe. The iPhone’s NFC is now open for Europe.. The only known deployment I found is BBVA using its own app as the tap to pay wallet (with Visa card).

Is Europe’s Open Worth More?

Europe’s open and free payment architecture is technically elegant, but it lacks governance. The US offers a market of alternatives with commercial incentives. Is the incremental value of Europe’s “open” greater than that market? My answer is no. Europe has built AOSP, certified it like GMS, and asked the banks to pay for the certification. The output is compliant infrastructure that no one can price, and so no one will invest in it beyond the mandate.

An Amusement Park Metaphor

Assume you are taking the family to an amusement park. This park charges admission. Every ride is designed, certified, inspected and priced. Rides are grouped by age. The lights are bright and security is visible.

Now Europe’s park. The government requires every ride to be free and built to its own blueprint. Inspectors certify that each ride matches the drawings. The ride owners pay for the construction and the inspections out of their own budgets, which leaves nothing for new rides. Nobody runs the park. There are no ticket takers, no staff, and nobody responsible when a car comes off the track.

Europe built the second park, and it wonders why families still buy tickets to the first.

My previous related posts

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