EPI – Episode 1: Hybridization of payments
EPI Reminder
On July 2, 2020, the European Payments Initiative (EPI) was officially launched with sixteen European banks out of the initial twenty, with the objective of creating a new payment scheme(1) guaranteeing European sovereignty in the field of payments. The initiative will be based on payment solutions between consumers and merchants in Europe, including a payment card and a digital wallet, which are expected to cover all possible uses of retail payments (in-store payments, online payments, person-to-person payments, cash withdrawals).
EPI = catalyst for payment hybridization
Beyond the potential success of this initiative, this announcement officially marks the beginning of the era of payment hybridization in Europe. In genetics, the term refers to an organism derived from two individuals. EPI is of the same nature. Payment methods have evolved in isolation from one another (checks, bank cards, transfers, direct debits), in line with technological advances and national, regional and international standards and regulations. International exchanges have required a gradual harmonization of each of these instruments to simplify and generalize their use (EMV for cards, SCT and SDD for transfers and direct debits in Europe). But now, a technological evolution by one of its individuals, SCT IP – Sepa Credit Transfer Instant Payment, offers sufficient features to meet all retail payment usage situations.
Instant payment = http of payments in Europe
SCT IP is more or less the real-time processing of a credit transfer (Sepa Credit Transfer). In itself, This is no revolution per se, although the digitalization of our daily lives also requires instantaneous financial movements instead of batch processing, that were relevant when life was not permanently connected. This evolution, which requires heavy investments within banks and interbank structures (CSM – Clearing and Settlement Mechanisms), is proving to be an ideal underlying technology for all methods of payment. In other words, SCT IP is going to become the http of payments in Europe, the single railway between a payer and a payee, which will carry any type of payer-paid interaction (in proximity by card or NFC mobile, online). This infrastructure standardization has just started. Its pace will depend on how sensitive Europe is to the need for sovereignty in the field of payments, and on what first steps will be taken by the future Brussels-based “Interim Company”, which will be responsible for defining and building the European Scheme. The change is in motion and the convergence towards the single rail system that will be the SCT IP (EPI Card for electronic payments, Request-to-Pay for the SDD) has a macro-economic consequence on the payments market: the massification of processing.
Lowering the cost of the dry payment transaction
Considering the economic model of a payment, the cost of processing the transaction will drop irremediably through the standardization of the SCT IP rail and the progressive abandonment of other “pipes” used by electronic banking or direct debits. This does not mean that the overall cost of a payment will be lower, but the value will shift towards processing the payer’s authentication to the detriment of the financial transaction alone, known as a dry transaction. Obviously, this shift in value will impact all the players in the payment ecosystem: banks, historical players, PSPs – Payment Services Providers, and more recently the fintechs involved in open-banking and its corollary in payments: payment initiation based on SCT-IP. A railway, some locomotives ?
