What is missing in the EU payment strategy?
With a new position paper, the EU Commission wants to clear the way for an European payment champion. The focus on instant payments is laudable, but not enough. Attractive customer solutions are also needed.
The way we pay today is more diverse than it has been for a long time. Credit and debit cards, cell phone apps and smartwatches are available to customers, plus of course good old cash. On the other hand, it is a few – mostly American – companies such as Visa, Mastercard, and now also Apple and Google that handle the majority of these transactions. European providers are usually too small and often without an attractive offering to attract customers. The only success stories are national isolated solutions, such as the Girocard in Germany.
The EU Commission has recognized this market dominance of the Americans as a problem and now wants to remedy it with the help of the EU payment strategy. The big goal is a pan-European solution, made attractive by making instant payments accessible to everyone and securing them in the same way as consumers are used to from other forms of payment such as bank transfers. In future, for example, they will be able to stop an instant payment transfer in the event of an error. Until now, this has often been ruled out.
In itself, real-time transfers have long been nothing new. The European Payments Council has been providing an instant payment scheme for three years now, but only 62 percent of all European payment service providers use it. So there can be no talk of complete market penetration.
Of course, there is nothing to be said against the project. Instant payments, as envisioned by the EU Commission, could provide a good infrastructure for a pan-European payment solution, especially if the costs for consumers are capped as planned. However, without accompanying infrastructure measures, the payment strategy would become a highway that no one uses because no one wants to drive.
Unfortunately, for all the good ideas, the EU is forgetting the crucial question: How will the hypothetical European payment champion gain the same acceptance among customers as the American providers? History has shown that ambitious technical solutions only work if they can be integrated pleasantly and intuitively into our everyday lives. Just think of the development of the smartphone: Nokia launched one even before Apple, which many market observers at the time believed even technically surpassed the iPhone. But in the end, the much more user-friendly Apple device prevailed. Today, the Cupertino-based company is worth two trillion U.S. dollars on the stock market, and Nokia no longer builds cell phones.
So no transformation works against the customer. The EU Commission should therefore think about what a product could look like that consumers can use comfortably and therefore gladly when they buy it. Of course, it’s difficult to get something like this off the ground in an entity like the European Union, which is dominated by proportional representation. Perhaps the minds behind the strategy are inspired by enhanced cooperation, a mechanism the EU once gave itself to implement innovation more quickly than usual: only a few member states agree on a course of action, and the others can follow suit later if necessary.
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But even if a good product is in place, Europeans must not become too exuberant. No matter how good the approach, people still want to be able to choose. In Germany in particular, the love of cash is so strong that it will probably never completely disappear. Open invoice, installment payments and other options will also endure and deserve to be addressed by the EU Commission. On this point, the payment strategy is on the right track, for example, ensuring the availability of cash. This is important, because not every European has access to a bank account.
In addition, there will be no getting around cooperating with the American providers. For one thing, they have already achieved a market penetration that Europe can certainly use to its advantage. Why not pursue the right approach of promoting instant payments in cooperation with Apple? Companies from Silicon Valley and the major credit card providers are also happy about a good infrastructure.
On the other hand, in the age of globalization, people don’t just move within Europe. One reason for the high acceptance of Visa and Mastercard, for example, is that they can be used worldwide. If you have a credit card, you don’t need a new payment method for a vacation in America. So from an EU perspective, it would be useful to link the new product to an established provider so that it also works internationally.
It is commendable that the EU Commission is using the payment strategy to rekindle the discussion about European payment solutions. However, the paper cannot – and presumably should not – be the last word in wisdom.