Although there isn’t a simple answer as to whether Visa and Mastercard have too much influence in Europe’s payments, that hasn’t stopped the idea of an American duopoly holding undue power within the European payment ecosystem from taking hold.
Certainly within the European Union, the inability of national card schemes to interoperate without a global, non-European mediator has long been perceived as a weakness by policymakers in Brussels.
This perceived weakness was at the heart of the now-defunct Euro Alliance of Payment Schemes (EAPS), and since that project was abandoned in 2013, the ambition to create a pan-European payment system has only grown.
With EAPS, the emphasis was on creating a unified card network to rival the dominance of Visa and Mastercard. However, the newer European Payments Initiative (EPI) is not limited in scope to card payments, instead looking to bring cards, digital wallets and SEPA bank transfers under the umbrella of a single interconnected payment network.
As EPI Chair Joachim Schmalzl commented last year, “The idea is to build a European payment champion that can take on PayPal, Mastercard, Visa, Google and Apple.”
The EPI’s vision is supported by the European Commission and more than 30 major European banks, as well as a number of national card schemes and other stakeholders. After years of incremental gains and the occasional setback, a desire to connect the dots in Europe’s fragmented payments landscape is more palpable than ever.
In parallel to the EPI, schemes such as the European Mobile Payment Systems Association (EMPSA) and the European Central Bank’s digital euro project are also addressing the challenge of fragmentation by building interoperability between divergent existing systems.
Global Card Schemes Futureproof Their Income
Against the backdrop of European calls to bring the management of critical infrastructure in-house, key acquisitions by Visa and Mastercard in the last 13 months suggest that the U.S. payment giants are wary of any lost revenues that would arise from a European payment system that doesn’t need them.
For Visa, two critical acquisitions are likely to ensure the firm still has a strong foothold in European markets no matter which direction schemes like the EPI and the digital euro project take.
In December last year, Visa completed the purchase of the London-based payments-as-a-service platform Currencycloud for £700 million.
With its emphasis on foreign exchange and multi-currency business transactions, Currencycloud exists in a space where international card schemes have been accused by European legislators of taking advantage of its dominant position.
In just the latest example of this, the Treasury Committee at the U.K. Parliament sent letters to Visa and Mastercard requesting them to explain their increases in cross-border interchange fees after the U.K. left the European Union.
In Visa’s second strategic acquisition of recent times, the company paid around $2 billion for the Swedish FinTech Tink, which operates one of Europe’s leading open banking platforms.
By getting a finger in Europe’s open banking pie, Visa ensures that even if account-to-account payments that bypass card schemes entirely become the norm for European retailers, it will still be able to generate consistent revenues in the new system.
Not to be outdone, Mastercard has spearheaded its own foray into open banking by acquiring the Danish company Aiia. Since the takeover, the firm has been aggressively pushing open banking with a string of partnerships that have seen Mastercard prioritize the new payment rails even in areas where they might compete with its traditional services.
For example, in July, the Finnish FinTech Paytrail announced that it was processing a million open banking payments each month in the eCommerce space thanks to a collaboration with Mastercard and Aiia.
And just this month, Mastercard announced that it was collaborating with NORD.Investments to allow more open banking payments on the Danish investment platform.
Payment systems evolve and in the European context, international card schemes have become entrenched in both the technical architecture of the system and in the patterns of European payment preferences.
But as Europe looks to increase its monetary sovereignty and increase oversight of the most important players, it seems likely that the future of the continent’s payment ecosystem will be dependent less on existing rails.
In anticipation of this, investment in the technologies of tomorrow is an effective strategy that may provide the companies operating today’s global card schemes with revenues for years to come.
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