EXCLUSIVE: ‘Joining the European payment dots’ – Martina Weimert, European Payments Initiative Interim Company and Craig Ramsey, ACI Worldwide in ‘Discover Sibos 2021’
Martina Weimert, CEO of the European Payments Initiative Interim Company, and Craig Ramsey, Head of Real-Time Payments at ACI Worldwide, on why this time the EU’s dream of instant integration could just become reality
The idea of unifying European payments is hardly new.
There have been several ambitious initiatives over the years, including the short-lived Jean Monnet Project (2008-2011), while the Single Euro Payments Area (SEPA), established in 2008 and now spanning 36 countries, is very much alive. It only partially realised the harmony it set out to achieve, though, particularly in the area of card payments and now a new, industry-led contender is determined to finish the job.
The European Payments initiative (EPI) is the latest effort to build a pan-continental system for cross-border payments in the region. There are, however, some notable differences to what has gone before. It is the first to address all types of retail transactions, including card and instant payments, peer-to-peer (P2P) transactions and digital wallets, in physical and online environments. And it’s upfront about taking on the hegemony of American operators Visa and Mastercard.
While that was also the European Central Bank’s (ECB’s) aspiration for a still-not-realised ‘SEPA card’, the EPI will instead attempt to cover an important part of European card volumes by leveraging the ECB’s TARGET Instant Payment Settlement (TIPS) for transactions via smartphones, PCs and in-store point-of-sale. Europe’s seven local schemes account for around half of domestic payments using cards, but where the US operators dominate is in transactions across borders in the EU. While the EPI has no direct contact with the schemes, it does onboard banks and acquirers who can be shareholders in them.
The EPI also sets out to address the rising influence on European payments of Asia’s super-app financial platforms WeChat Pay and Alipay, as well as any other, non-EU super-apps yet to emerge. So, with more than 30 banks and seven countries so far on board, and just a few months from launch, will the EPI align the payment planets this time? The political prospects for success seem good, but it’s still a big step to unite Europe’s fragmented payment systems and ensure ongoing cooperation among the EPI’s stakeholders – banks, credit institutions and other payment interests.
As CEO of the EPI Interim Company, Martina Weimert is driving the new solution, and she believes it’s learned from past European payments projects’ successes and their mis-steps.
“The idea is to create a fully-fledged European ecosystem, on both the issuing and the acquiring sides,” she says. “We know that if you just serve one side, you’ll never be successful. We’ll involve other players and build up our technology platform so that we can offer connectivity to all these players.”
Real-time connectivity and Interoperability are key challenges for payments, which is something Craig Ramsey knows all about from heading real-time payments at ACI Worldwide, a specialist software provider offering end-to-end payment processing solutions. Supporting many of the world’s payment systems, ACI takes an independent view. Having watched many of them evolve across the world, though, Ramsey sees the EPI as the start of a long-overdue journey towards harmonising European payments infrastructure and creating an enabling environment for much-needed new products and services in the region, thus validating the EPI’s business case. Instead of reinventing the wheel, it’s using Europe’s existing payment infrastructure.
“The EPI is a great example of an overlay service,” says Ramsey, “because it sits on real-time rails. Many countries have deployed real-time rails to enable account-to-account transactions, but that wasn’t the end game here. The goal is to have overlay services driving the need for those real-time rails, bringing new ways to pay and be paid, increasing liquidity and speeding up reconciliations while lowering the cost of transactions.”
Weimert, in fact, describes the EPI as a ‘fully-fledged front-end solution’ that draws strength and meaning from back-end, rules-based structures like SEPA and TARGET.
“Infrastructure should create additional value,” she says. “So that’s our challenge and, I agree, it’s a long journey, because we’re not starting with a greenfield situation. We have to migrate a lot of things and build a new solution while not losing the clients, value and trust that have been built up over years.”
A universal payment solution that embraces all payment options and is also pan-European would, undoubtedly, simplify things at the point of payment for consumers and, ideally, reduce processing costs for banks/payment services providers.
However, the two biggest hurdles are likely to be a reluctance among customers, who are already familiar with and trust their existing payment options, to adopt the EPI, and, as Ramsey points out, the fact that ‘one of the things the payments industry is very bad at is shutting down old schemes’. As the head of the European Payments Council (EPC) has said many times, businesses will respond to demand. And, unless there is a strong business case, why would a bank make significant investment in the technology and process needed to accommodate another payment system?
The EPC’s SEPA Inst is a case in point. It was introduced in 2017 as a voluntary alternative to banks, for making pan-European transfers of up to €100,000 in seconds. It currently still only accounts for 10 per cent of all SEPA Credit Transfers (which take the standard amount of time) and only 56 per cent of all payment service providers (PSPs) are signed up to it, although the EU may well compel the others to join at some point. Weimert, perhaps keenly aware of past promises, resists the urge to herald the EPI as a new age of instant payments.
“I think it’s a hope but definitely not the new normal yet,” she says. “We’re only at the start, having figured out the clearing and settlement layer and, hopefully, the API-based middle layers, as well as all the required rules, especially for commerce around such things as chargebacks and refunds. Then we can innovate on top of this. Through instant payments, we can offer far more use cases than with cards, for example There are many more situations, such as unattended commerce, which are easier to provide with instant payments. The industry must offer this kind of choice to the consumer, but it’s not there at the moment.”
Despite SWIFT’s Global Payments Initiative (SWIFTgpi), and the pioneering role played by the likes of Paypal, she adds: “I ask you, who is, today, providing the infrastructure to allow international instant transactions? Nobody allows this, so far. t’s definitely not on the same level as cards, which are available everywhere, and which function cross-border as well as domestically. There’s a long way to go still.” According to Ramsey, a big part of the challenge in getting there is figuring out how to escape the limitations of inflexible legacy systems. But he agrees that:
“For consumers, It’s all about instant gratification. The Amazon mindset is shaping payments today and the biggest use case for instant payments is P2P.” Among the most compelling circumstances in which that can be used is putting earnings in people’s pockets fast. Earned wage access (EWA) providers that facilitate payments outside of the usual monthly batch run, are increasingly prevalent in the gig economy.
Ramsey also cites Request To Pay (RTP) as an example of an overlay service that will give consumers reasons to use and confidence in the EPI infrastructure – because they’ll only need their phone and existing banking app and won’t have to share account details with anyone else. For billers, the attraction is that payments won’t be rejected. It also means faster and more efficient reconciliation, with useful data accompanying the payment. Weimert highlights the advantage to banks and PSPs of a single digital interface with the EPI, to embrace the full range of payment options, such as P2P, in-store, online, mobile commerce and cash withdrawals, complemented by a wide range of value-added services.
“Instant financing is the first of those,” reveals Weimert. “It’s a kind of buy now, pay later solution, available with just one click.”
Like her, Ramsey looks forward to a new age of user choice and diverse services, but doesn’t underplay the challenges involved in introducing a cross-border payments ecosystem in the EU. That said, he believes ISO 20022, the international standard for exchanging electronic messages between financial institutions, is a good basis for collaboration and innovation around real-time payments. The standard has been hailed as a major step towards harmonisation, although, as
Weimert points out, there’s no guarantee cross-border instant transactions will be any more simple to achieve, even if all parties use the same currency!
“Even if we’re all on ISO 20022, we might need additional conversion features to allow various solutions to work,” she says. “Take QR code solutions as an example. In one country, a QR code could be set up to work as a push payment, and in the other as a pull payment, and that won’t allow a transaction to go through. So, I think it takes much more than simply having a common standard somewhere at the back.”
No one said joining the European payments dots was going to be easy, but at least the EPI knows the picture it ultimately wants to create.