European Mobile Payments - the next chapter?

Yet another run on mobile payments in Europe - or really the next chapter to build a realistic and successful counterbalance to Apple, Google, Samsung, Visa, Mastercard and alike?

An newly created alliance of European payment providers wants to create a pan-European standard for smartphone payments as an alternative that does not require Apple, Google, Visa or Mastercard. However, there are many hurdles to overcome for this alliance, such as convincing banks, merchants and customers. 

Sparked by perceived overwhelming superiority of US companies playing key roles in European payments space it is yet another experiment to create an independent European solution. Just recently the alliance of European firm joined forces and founded the European Mobile Payment Systems Association (EMPSA) in August 2019 to create a standard for mobile payments across Europe. Founding  firms come from all across Europe such as the start-up Bluecode from Austria, Twint from Switzerland, Swish from Sweden, Vipps from Norway, MobilePay from Finland and Denmark as well as the Belgian Payconiq and Portuguese Sibs. Together they cover more than 25 million customers and 1 million merchants. As an example Swish, is extremely popular in Sweden with more than 6 million Swedes using the app to pay. 

How to drive adoption in a crowded space?

The lack of usability outside of Europe will not go away for now. But covering the needs of 99% of the population for 99% of their usual day to day payments makes it worth while pursuing. But established card schemes like Visa and Mastercard are accepted almost everywhere and Apple Pay or Google Pay sitting on top of these schemes providing contactless payments through their sold smartphone base accepted at many merchant POS (point of sales) in Europe - and rest of world. In order to be device independent and to not rely on the a smartphones’ NFC chip functionality (which is not open on Apple devices to 3rd parties to use anyway), EMPSA uses the device camera in combination with QR codes, displayed on the cash register or mobile device, scanned and the payment being triggered. 

 Some new entrants like iZettle, Sumup and others have started in past years to enter the merchant acquiring space by offering free of rent terminals with slightly lower merchant fees than their house bank would be charging - and the flexibility to own their “terminal” in conjunction with a your smart device and app - instead of renting it for 15-30 EUR per month and long subscription contracts (up to 4 years!). 

Breaking into the merchant space to add yet another POS in parallel or becoming an accepted payments mechanism by existing terminals will not be easy. Providers like Ingenico  who signed an agreement with Alipay in 2016 (the world’s largest online and offline payment platform with 450m users, operated by Ant Financial Services Group) enables millions of yearly Chinese tourists to pay with their favourite digital wallet in European stores. Many merchant have seen this as opportunity to not let pass if in a tourist spot to accept Alipay. 

Large merchants are sophisticating

This is all not so new and we have seen collaboration initiatives of the past have gone similar paths such as the MCX initiative driven by large US merchants and FIS in 2013/2014 - long before Apple and Google Pay had become successful, but never got past its pilot stage - although they would have served 90,000 stores in the US and processed more than $1 trillion per year.  Europe’s fragmented merchant acquiring space provides all involved parties still enough grounds for money to be made. If you take the POS transaction statistics published by national central banks and apply simple math it provides a glimpse of the potential savings - or existing revenue franchise at risk - depending on which side one stands. Across Europe this amounts to … roughly … a range of €16-22bn per year (conservative/aggressive calc) - after deducting cash payments of course. 

With PSD2 at our doorsteps in Europe some larger merchants have done their own calculations and see the numbers work in their favour if they take payments into their own hands. Latest prominent example is LidlPay, which was recently announced by Schwarz group (German owner of LIDL supermarket chain), will launch and operate its own payments capability. How it is supposed to operate remains to be seen. It may just rely on debiting the customer’s SEPA account - or may use advanced PSD2 capabilities such as the payment initiation mechanism with almost no risk and cost - killing the traditional POS approach altogether. Will customers get incentivised using LidlPay? For sure if one can spare POS cost you can provide reductions on your shopping basket, provide personalised digital reduction coupons for your next shopping trip, and so on. Possibilities are endless.