Inside EPI: the Pan-European Lending Initiative

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COVID-19 has highlighted the need for a pan-European digital payment solution and plans to establish the European Payments Initiative, also known as EPI, are on track. Launched by 16 Eurozone Tier 1 banks in July 2020, the lending initiative aims to create a unified, Europe-wide payment system to compete with those of U.S. card networks like Mastercard and Visa, as well as large tech companies like Google, Apple, PayPal and AliPay which are active in financial services.

By making their intentions known, the founding institutions, which are from five countries (Belgium, France, Germany, the Netherlands and Spain), announced the creation of a Brussels-based PPE interim company to lead the implementation. of the joint payment initiative, with the appointment of payments expert Martina Weimert as CEO in December 2020.

Read more: European Payments Initiative Seeks to Overthrow US FinTechs

In the same month, Poland’s largest bank, PKO Bank Polski, and Finland’s leading retail bank OP Financial Group, joined the lending initiative as founding shareholders, with PKO being the only EPI member in outside the euro zone. Another consortium formed by a group of 12 Spanish credit institution banks also joined the interim company EPI as a collective founding shareholder.

From 16 banks, the number of institutions has grown to over 30 European banks and credit card processors as well as two major payment service providers – Worldline and Nets, showing growing support from the private sector.

Supported by the European Central Bank, the initiative is expected to become fully operational in 2022.

Here are five things the payments ecosystem needs to know about EPI:

Monnet 2.0 project?

This is not the first time that we have tried to create a pan-continental payment network. In 2008, a group of 24 European banks from seven countries founded the Monnet project with the aim of creating a new SEPA-compliant European card system.

The project was dissolved in 2011 before it even took off, its failure being mainly attributed to a lack of clarity on the regulation of interchange fees.

Related: The Monnet Project and the Future of Payments in Europe Integration

However, in the case of the EPI, it is confirmed that with regard to card transactions, income will come from interchange fees, capped at 0.2% of the value of a transaction for debit cards and 0.3% for credit cards.

There will be “an alternative business model that does not rely on an exchange” for other types of payments, EPI CEO Martin Weimert reportedly told UK-based Raconteur Media, adding that he would offer also more transparency and would be more economical for traders.

See also: The Monnet Project – Our challenge

Benefits for consumers

The EPI will use instant payments in the form of the European Central Bank’s SEPA Instant Credit Transfer, with a card service and digital wallet available to consumers and merchants across Europe to cover all types of transactions from retail, including online, in-store and between individuals. – Peer-to-peer (P2P) payments in one convenient app.

Consumers will have either bank account linked to the app to ensure full transparency, with the ability to view their transaction history and select a payment method of their choice.

In addition to instant payments, consumers will also have the option of using alternative payment methods like buy now, pay later (BNPL) and the EPI will have a currency conversion system, which will be tested first. Poland.

Incentives for traders

Interim company EPI has shared very little about incentives for merchants, other than that it will “enrich merchant and consumer choice in terms of payment solutions,” as reported on the website created to inform the consumer. audience of the project launch. .

He adds that “PPE, as a new and innovative player in the market, is expected to increase competition in terms of quality and conditions”, suggesting that PPE lacks certainty as to the extent to which it can. help traders compete effectively in the market.

As it prepares for implementation, the EPI is working on a collaborative approach and interacting with merchant associations in Europe to gather feedback on the solution and on how best to meet their needs.

Challenges involved

Even if European banks plan to collectively create the EPI through pooling of resources, there could be a significant risk from a distribution point of view as prices will always differ from institution to institution. This defeats the goal of creating a unified system and would make it difficult to achieve its goal of supporting active systems and Big Techs in Europe.

Another challenge would be to get consumers to want to use the network, which will determine the value that merchants and issuers see in issuing the EPI, and whether they choose to adopt it.

FinTechs will also have to see the value of getting on track and issuing the products, which will add to the list of challenges ahead.

After that ?

The EPI seeks to expand beyond the seven countries currently involved, targeting more financial institutions, banking associations and payment service providers in other European countries who can apply and join the initiative. .

Converting PPE to PPE Target Holding Company is the next goal the company is aiming for later this year, which is a milestone symbolizing a firm commitment to its market launch.

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