EPI ... was that it?

Following the withdrawal of many important banking partners across Europe, the question arises as to how to proceed with the EPI (European Payment Initiative).

What is the future of the EPI in Europe? There are many opinions, including those of Syngenio AG colleagues Florian Barthel, Principal Business Consultant and Portfolio Manager for Digital Payment, and Mark Spiessl, Principal Business Consultant and Product Owner for the Syngenio Platform Payment System.

Germany’s press (e. g., Handelsblatt) recently announced Commerzbank’s withdrawal from the EPI. In addition, the Spanish press reported that virtually all banks except Santander are withdrawing. Together, a total of 16 participants plan to leave EPI.?

On the one hand, this might only be that typical German strategy of "watch & wait", on the other hand, after two years of pandemic, the banks are not exactly bedded on roses, and understandably shy away from the quite substantial investments required by the EPI.?

It may even be that the participants who are now withdrawing are also playing a bit of poker, along the lines of "hold out your hand and let's see what the politicians do next.” The withdrawal of Commerzbank also shows that the German banking industry has missed a good opportunity to present a united and strong front. Despite all the typical German self-criticism, we must not forget that Germany is still the most economically powerful and populous country in the EU. Thus, the word of a united Deutsche Kreditwirtschaft would certainly have had a strong weight also on the political level in the EU: But, alas: the German love of federalism (or, in this case, "Verbandism"?) has triumphed over unity here as well.?

Is EPI now dead in the face of these developments? - We think not. It may be wobbling more than before, but it is not dead yet.

Because the political will is still there. The arguments for a European payment system also still exist. MasterCard and VISA still dominate card-based payments in Europe - in parallel, MasterCard is additionally trying to strengthen its dominance by discontinuing Maestro. The intended shift toward a debit MasterCard (and thus native e-commerce capability) and similar products is digging at the national payment systems - for example, the German Girocard still does not have e-commerce capability across the board.

The solutions of the American schemes are, of course, economically much more attractive for the banks - after all, many of them already have the debit products of the schemes in their program, be it as a physical card or as a virtual card for payment via smartphone - even if a pan-European scheme would have some advantages with regard to the processing of intra-transactions.

And, thus, the infrastructure for processing the corresponding transactions is already in place across the board. Yet, even with all these arguments, it should not be forgotten that Asian payment systems are gaining ground. It is common knowledge that AliPay has already arrived at Aldi...

So now the ball is in the court of politics - both German (if we still see ourselves in a leading role in the EU) - and European. Or, to stay in the picture, the flank has already been kicked with the announcements and the ball is now in the air. Now it's up to the politicians to decide whether they want to volley it into the corner with a lot of risk or do they want to take the ball, try to work with it - but thus also lose momentum towards the goal again. From our point of view, the following options remain:

• Volley top left: There will be a funding for the investments, either as complete financing of the EU or as support for the banks. The example of Airbus shows that this option can work: if European aircraft construction had been a purely economic decision and not a political one, there would be no Airbus today.
• Volley straight down the middle: The EU acts according to the Porter hypothesis "strict environmental regulations can induce efficiency and encourage innovations that help improve commercial competitiveness" - Prof. Dr. Michael E. Porter, Harvard School of Economics - and prescribes the implementation (if necessary, completely without financing) with the regulatory crowbar (also called the "basta method").?
• Take the ball first and try to keep it. Given the dueling strengths of MasterCard and VISA, however, one should then not be surprised if one runs into a counterattack and the banks migrate in the direction of the corresponding US card scheme debit products. That could mean Game Over, since surely no one would want to undertake a second migration of the card portfolio within a few years.?

Now it seems to be the case that (without big German and Spanish participation) EPI will be an issue for the remaining strong French and Italians - which would nevertheless be quite possible (maybe even more efficient in the definition), as the French are currently leading on the European market. But their willingness to bear the costs alone, so that the German and Spanish competitors can jump on the bandwagon later, is likely to be very limited.

The next political move stands and falls with the question of how much the French and Italians (and in persona Messrs. Macron and Draghi) want to push this issue in a timely manner.