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November 23rd 2021

The European Payments Initiative: Boosting Competition, Or Hindering It?

Earlier this month, German merchants were hit with the news that ING bank is set to begin charging consumer fees on cards badged solely with the domestic Girocard scheme. Similar announcements have been echoing across Europe, a region that has seen multiple domestic card schemes abandoned over the past 20 years.


Many hope that a new, pan-European card scheme will offer a lifeline in the face of these developments. But what if the EPI doesn’t compete with the global schemes at all, and harms domestic competition in the process?

Domestic Card Schemes Under Threat

Although ING holds a relatively small market share, its recent announcement is nothing new to German merchants. In fact, the growing practice of ‘mono-badging’ – or issuing payment cards branded with only one scheme – has been making the country’s headlines for some time. So far, this has come in the form of exclusivity deals with the global schemes, as well as deals that make the global brands’ mono-badged card top-of-wallet (with Girocard-only cards available on request). Now, they’ve seen the first case of those requested cards attracting consumer fees.

But Germany isn’t alone. Take Denmark, for example, where the fourth largest issuer (according to data from Euromonitor International (2021)) is expected to migrate over 200,000 debit cards away from the domestic Dankort scheme. Further afield, in Australia, regulators recently intervened to prevent the rising issuance of so-called ‘single network debit cards’.

Why are merchants so concerned?

Cards badged with two schemes don’t just allow for international transaction processing; they can also give merchants the choice over which of the badged schemes to use when processing each card’s transactions. Choosing a scheme like Dankort or Girocard can be more efficient than using the rails of their global counterparts. In fact, CMSPI estimates that the presence of Girocard saves German merchants approximately €200 million in card fees every year (see CMSPI’s white paper on co-badging in Germany).

This freedom of choice also opens the door for negotiations based on securing a merchant’s volume, leading to significant cost savings for retailers and consumers alike. With a mono-badged card, merchants are stripped of this choice. The remaining scheme no longer has to compete for the card’s transactions, limiting competition and potentially leading to the demise of domestic schemes as a whole. That is the ultimate fear for European merchants: the reality that local schemes could join their long-abandoned counterparts from Finland, the Netherlands, Ireland, and more (Centre for European Reform (2021). Don’t imitate – innovate! Why Europe doesn’t need a rival to Visa and Mastercard.)

Is the EPI a Solution?

With the European Payments Initiative, banks and payments providers across Europe are aiming to create Europe’s very own card scheme. It’s by no means the first attempt, but with scheme fee increases from the global schemes since 2015 estimated to cost European retailers over €1.4 billion every year (CMSPI estimates and analysis), retailers need a saviour now more than ever.

But the EPI – even if it is successful – isn’t necessarily a silver bullet. In fact, onlookers note that its presence could either boost competition in the market, or bring an end to any competition that already exists. The fears arise because the EPI’s stakeholders are yet to announce what exactly the scheme will look like: whether it will be an option on every card alongside other schemes, whether it will compete with those schemes on cost, and whether that competition will cover both scheme and interchange fees.

With all these unknowns, there are concerns that merchants could end up with yet another international scheme that does not compete for merchants’ custom. And that’s not all. If the ECB is right, and the EPI “[S]eeks to replace national schemes for card, online and mobile payments”, then it could remove the only competition merchants currently benefit from in the process.

Safeguarding Merchants for the Future

Luckily, it isn’t all doom and gloom. With the EPI comes a long-awaited opportunity to tackle head-on all the problems that European merchants have been fighting for years; another scheme could extend the benefits of domestic competition to new transaction types, payment methods and technological frontiers such as instant payments.

The question for merchants? How to make sure that it does.

One option from the global marketplace is competition-driven regulation. In payments, that comes in the form of ‘co-badging’, which authorities across the world have been using to ensure that schemes compete for the fee-paying party: merchants. In the U.S., for example, regulation requiring that all debit cards be badged with at least two competing schemes has led to a system wherein the country’s merchants regularly generate significant cost savings by negotiating both scheme and interchange fees. Similar ‘strategic rates’ are commonplace for Australian merchants, where the global brands offer interchange incentives to compete with the domestic Eftpos scheme. Australian regulators, too, are now acting to secure that competition by limiting the practice of mono-badging in the market.

With a similar requirement in Europe, merchants could be sure of one thing: choice. CMSPI’s experience with hundreds of merchants across the globe shows that with that choice comes competition, innovation, and a more productive payments landscape for all.