ECB chief says instant payments could break Visa/Mastercard duopoly

ECB chief says instant payments could break Visa/Mastercard duopoly

The European Central Bank is floating the idea of using instant payment rails to link up national card schemes as a means to break the duopoly enjoyed by Visa and Mastercard, who between them account for over 80% of all EU card transactions.

The ECB has for the past twelve years been seeking a mechanism to challenge the dominance of Visa and Mastercard in the European payments landscape. Interchange fee caps have brought a measure of control, but calls for banks to set up a rival third scheme to take on the might of the global giants and promote increased competition have so far fallen on deaf ears.

In a presentation at the American European Community Association in Brussels, ECB board member Yves Mersch lamented the bloc's failure to implement a true Singe Euro Payment Area (Sepa) for cards.

"Cardholders cannot use their national payment cards to make payments across Europe unless they go through a global card payment scheme that can execute such intra-European payments," he notes.

In this respect, the arrival of instant payments across the continent could be a game changer.

"The industry sees the implementation of a European infrastructure for instant payments as an opportunity to instantly clear and settle card transactions, which would offer a possible way of supporting the interlinking and interoperability of national card schemes," he says. "Efforts to ensure the interoperability of schemes should be strengthened and should aim to foster a European identity, for example by using a common European logo to show users that their cards can be used across the EU."

A more radical supposition entails the extension of instant payments to the point-of-sale, bypassing traditional card schemes altogether.

"For merchants, instant payments at the POI (point of interaction) could be a cost-efficient alternative to cards," says Mersch. "Such solutions are currently emerging across Europe. It is important to ensure that they have pan-European reach so that end users can make and receive payments without restriction across national borders"

To this end, the Euro Retail Payments Board - set up by the ECB to help foster the development of an integrated market - has established a working group to analyse in detail the barriers to pan-European reach and usability and ways to overcome them.

Comments: (6)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 08 February, 2019, 16:532 likes 2 likes

8 years ago, I wrote in Why I Think EBA Clearing's myBank Will Be A Hit, "By using SEPA / PE-ACH rails, myBank shouldn't cost merchants any more than credit / debit card fees. Therefore, merchant acceptance of myBank should be a cinch."

I haven't heard much about myBank since then.

ECB has been trying for a long time to break the V/MC duopoly. It should carry out some serious introspection about why its persistent attempts have met with failure instead of using its bully pulpit to make yet another grandiose prediction.

Dinesh Katyal
Dinesh Katyal - Financial Data Exchange - San Francisco Bay Area 11 February, 2019, 03:302 likes 2 likes

The success of V/ MC duopoly is in its revenue model, and universal identity/ trust. The back-end payment linkage will be toothless without incentives.

A Finextra member
A Finextra member 11 February, 2019, 08:061 like 1 like

The use of instant payments at point of sale has a long way to go. It needs to be present in the merchant cash register system or desk top payment treminal so that the clerck can see that a payment has been made before hadning over valuable goods. Furthermore it needs to resolve the merchant deposit requirements - what would a supermarket CFO say if they receive 10 000 deposits per day into their corporate account - how do you reconcile the  receivables account from the cash register then? Also instant payment needs to manage exception handling, i.e. returns, partial returns, charge-back requests by the payer... and also be better / more convenient / faster than contactless card payments in the user interface and of course have a business model that forsters volume expansion. If the instant payment cannot be better than cards in these aspects nobody cares to change since consumers are focusing on consumption and merchants on smooth and secure sales, not on "beating the amercian duopoly".

Robin Setty
Robin Setty - ACI Worldwide (EMEA) Limited - Watford 11 February, 2019, 09:53Be the first to give this comment the thumbs up 0 likes

The talk is always of the benefits to the merchant in receiving instant payments at the point of sale. Until customers can be convinced that a good part of those benefits will be transferred to them (lower cost, more reward points etc...) why would they choose to stop using their convenient, tried and tested cards?  This is especially so, given the loss of protection rights they get through cards.


For international payments, these benefits should be more obvious. After all, generally there's a lot of cost in using a card abroad. Unfortunately, when the true cost includes an FX rate at an undetermined point in time, the cost is unlikely to be fully known.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 11 February, 2019, 15:46Be the first to give this comment the thumbs up 0 likes

I have a theory about all existing digital payments: 

Consumer Benefit + Merchant Benefit = Constant. 

There's no doubt that credit cards have dominated the field for decades despite numerous threats from alternative payment rails (e.g. Career Billing). That suggests that credit card has struck the best tradeoff between consumer benefit and merchant benefit.

For that to change requires a new method of payment that increases benefits to both consumers and merchants without taking away from one and distributing to the other.

A truly disruptive MOP would be one that delivers (say) 2X Rewards and charges only 0.5X MDR as the V / MC duopoly. While it might not make a profit, there's no shortage of VC funding for disruptive products that make losses for ages. I've always wondered why there hasn't been such a disruptive payment method in a long time.

In the early days of PayPal, people could charge their PayPal payments to their credit card on file without incurring any fees, with VC funding enabling PayPal to eat the 2-3% MDR levied by the card issuer.

Steve Wainwright
Steve Wainwright - Utimaco - New York 11 February, 2019, 18:05Be the first to give this comment the thumbs up 0 likes

Today when consumers present V/MC cards anywhere they are accepted without question because merchants know they will be paid. That is trust. V/MC success stems from that trust. 

With no card how can a merchant trust a consumer? By asking someone they trust if the consumer can be trusted. Who do merchants trust? Again, V/MC. The change is the mechanism for conveying that trust.



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