EPI – Quick Take

16 banks in Europe just announced the European Payment Initiative (EPI) to tackle retail payments.

In November 2019 the Eurosystem relaunched its retail payments strategy, calling for increased collaboration between European stakeholders to provide payment services that meet the needs of European customers and strengthen the autonomy of the European retail payments market

European Central Bank, PR July 2 2020

What are the drivers? The ECB asked banks to do it… thats just about it.

Visa and Mastercard are very efficient networks, taking 5-10bps of a transaction. Beyond that, the “magic” of V/MA is their economic model that creates incentives for consumers, issuers, acquirers, processors, terminal manufacturers, …etc. There are MANY more logical ways to build a set of network messages, but there is no other payment scheme which provides for shared investment to create infrastructure. In the V/MA model, thousands of companies invest BILLIONS of dollars to make it work.

EPI may be most effective in a cross border debit scenario, as domestic debit has proven to be the primary area of country success (Interact, CUP, EFTPOS, RuPay, …). The time required to create the scheme, define the operating agreements, build the technology, and operate a new network is at least 10 years (20 if following the SEPA footsteps).

Many bank issuers will participate, if only to have leverage in V/MA issuing discussions. My assessment is that this will be a very long haul, with minimal business case. A top bank CEO recently said of V/MA “there is no scheme we can define together that will result in improved economics… why on earth would we want to spend our time assessing one”? this same logic should hold for EU issuers. This is a check the box response to the ECB’s request..

2 thoughts on “EPI – Quick Take”

  1. I see this initiative following in the footsteps of India’s UPI initiative — which has been great for consumers and the openness allows for many smaller startups (or even larger players like GOOG & FB) to build quickly from ground up. Do you think of UPI/EPI (if it comes to exist) as another “payment rail”?

    I agree that the incentives for big banks is lower — although this may spell bad news overall for V/MA. There seems to be some pressure on V/MA business in India after the UPI introduction (although credit card penetration isnt as high as the western world).

    (Recently stumbled on your blog since Ive only recently diving deeper into fintech and loving all the posts. Thanks for sharing)


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