EPI – Episode 3 : EPI, the payer and the payee

Nov 20, 2020

Previously, in Episode 2

The official launch of EPI will accelerate the movement towards hybridization of payments and foster the emergence of the underlying technology of the Sepa Credit Transfer Instant Payment (SCT IP). The lowering of technical and protocol barriers at the national level will change the rules of the game for the whole European landscape by massifying payment processing between banks, PSPs and Fintech. But what in it for European consumers and merchants?

The payer

One might wonder what the difference will be between an EPI card, a Visa or Mastercard, a CB, Bancontact or ServiRed card? Basically nothing for the cardholder. Despite the marketing campaigns carried out by the various Schemes or Brands over the years, cardholders’ understanding of what happens concretely behind a payment transaction remains unclear. This is particularly the case in countries where a national Scheme is present. This is highlighted by the generic use of the Carte Bleue brand in France, even though the brand has not been marketed for years. Whatever the card brand, the card usage is what matters. Stating the obvious, the health crisis has indeed accelerated the digitalization of payments : the use of cards (online and in proximity), and contactless cards in proximity, has increased significantly in all European countries since the 2nd quarter of 2020, even in Germany. Even mobile contactless payment is beginning to fit into the landscape, with several countries exceeding 1% of usage volume for the first time. The first EPI products, in the form of physical cards or digitalized wallet cards, will therefore have no difficulty in coexisting with current products in a buoyant market, and in the hands of banks. On the other hand, the second products (SCT End-to-end) will depend both on their suitability to the use cases, but above all on the reception reserved by merchants for this European initiative.

The payee

This is obviously the key to the success of the initiative, beyond the geographical exansion of the first 5 countries to the whole of the European Union. In theory, the creation of a single European Scheme should make it possible to end the heterogeneity of card payment systems in different countries (around ten domestic Schemes, with as many protocols, specifications and certifications) and simplify the acceptance of this type of payment for any merchant present in at least two European countries. The second major argument is that the future hybrid payment system, based on the SCT IP rails, should turn instant payment into reality. However, in practice, the initiative will have to face 3 pitfalls. The first is the cost that will be associated with the acceptance of future EPI products. Once the interchange principle has been adopted, merchants will have to be convinced to accept these future EPI cards by 2022, which will simply be me-too of current cards. The second is its corollary. The coexistence of systems and products will add to the complexity of managing their acceptance, and will increase associated costs. The third is the environment in which the initiative takes place: the era of open banking. Although payment initiation services are still in their infancy in Europe in B2C uses, there is no doubt that in 2022, the digitalization of points of sale and the power of digital players will change the landscape and thinking patterns of the so-called “4 corners” legacy systems. The road to hell is paved with good intentions. The initiative is necessary in the current geopolitical context and this is the last opportunity to launch it. But this may precipitate the weakening of national ecosystems and definitively leave the field open to non-European actors. The train is running. It will be a one-way trip, on the IP’s rail.