Several groups are continuing to push for a pan-European EMV smart card to compete with cards sponsored by Visa Europe and MasterCard Worldwide. But whether a new card scheme actually will emerge remains as murky as when the efforts first were launched several years ago.
The addition of a third scheme is part of the card framework portion of the Single Euro Payments Area initiative. There is a “very strong political will to push [new card schemes] ahead as having a pan-European debit card scheme is part of the SEPA vision, contends Malte Krueger, senior consultant with Frankfurt, Germany-based PaySys Consultancy GmbH.
SEPA is an initiative the European banking industry launched in 2002 to link European Union and other euro-based countries’ disparate national payment systems into a standardized, cross-border system, not only through cards but also through credit transfers and direct debits. The credit-transfer initiative launched two years ago.
Previous attempts to create another scheme, however, have not been very successful because some European banks did not see a strong enough business case, Krueger says. In 2008, three groups launched initiatives designed to create a pan-European debit card scheme but have made little progress (
Despite slow beginnings, supporters of the Euro Alliance of Payment Schemes, PayFair and Monnet all continue to work toward creating a pan-European debit scheme.
The main issue with adding another scheme is that both Visa and MasterCard already provide “perfectly valid alternatives,” Zil Bareisis, a senior analyst with consulting firm Celent, tells PaymentsSource. “However, many European institutions see them as American schemes.”
Several European officials believe a third brand would help keep interchange rates in check. In fact, European regulators have pressured both Visa and MasterCard to lower their interchange rates.
Visa Europe in December agreed to cap its weighted yearly average intraregional multilateral interchange rate for immediate debit transactions at 0.2% of the sale for four years (
Given the size of the European cards market, the Eurosystem, which includes the European Central Bank and the central banks of 17 member states that have adopted the euro as their currency, expects that one or more additional card schemes would function well alongside the two international schemes, Francisco Tur-Hartmann, an adviser in the market-integration division of the European Central Bank, tells PaymentsSource.
Indeed, a new European card scheme may bring both economic and political benefits, Tur-Hartmann says. Economically, another scheme may help maintain the “efficiency and relatively low fee levels currently provided by a number of national schemes,” he explains.
Newly established schemes may be able to offer low fees if they concentrate on the payments functionality and avoid expensive rewards or other programs such as insurance coverage that will ultimately lower costs on the issuing side, Tur-Hartmann says.
Moreover, the Eurosystem expects new schemes to focus on new technologies such as chip-and-PIN, Tur-Hartmann adds. And the move from magnetic stripe cards to chip-and-PIN cards hopefully will eliminate some aspects of card fraud, which also may lower costs for issuers, he notes.
The Eurosystem also expects enhanced competition between card schemes, processors and banks by providing more choices for cardholders, merchants and banks, Tur-Hartmann adds.
Despite the positives, emerging card schemes still may face a variety of issues, not the least of which is cost.
“The very nature of the payment cards market makes it difficult for any new initiative to overcome the start-up problem,” Tur-Hartmann says. Many banks are hesitant to join a new initiative because the investment is too high or because they “feel better with one of the international schemes for cross-border transactions,” he says.
To overcome the obstacle, the Euro Alliance of Payment Schemes is working to unite some of Europe’s numerous national debit networks. The Belgium-based not-for-profit organization plans to process cross-border debit transactions in Europe, including purchase and ATM transactions within Germany, Portugal, Italy and the United Kingdom and hopes to become Europe’s largest card-acceptance network by 2015.
Despite not using the euro, the UK still can participate because it is a member of the European Union, according to the alliance.
As part of that initiative, the organization in August 2009 forged a partnership with Germany-based Zentraler Kreditausschuss and Italy-based Consorzio Bancomat, Peter Blasche, chairman of the alliance board, tells PaymentsSource. Through the partnership, consumers reciprocally may conduct cross-border ATM withdrawals in the two card-payment networks, Blasche says. Some 44,000 ATMs in Germany and 8,500 in Italy are among the machines participating, he notes.
The alliance also connects the systems’ debit networks to enable cross-border point-of-sale card acceptance. Currently 3,600 Italian POS terminals are open to German cardholders, Blasche says, noting access to German terminals will start after the migration to chip-and-PIN technology has been completed.
The alliance also established a connection last year with Link, the United Kingdom’s ATM network. The collaboration enables holders of Germany’s girocard to withdraw funds from 63,000 Link ATMs across the UK, Blasche notes. Girocard is a debit card service and interbank network connecting all German ATMs, payment terminals and cards.
Besides Germany, the UK and Italy, the alliance also has connected with banks in Spain and Portugal.
The initiative still is in the early stages, but in the third quarter of 2010 the alliance facilitated 860,000 cross-border debit card ATM and purchase transactions, Blasche says.
“The alliance is focused on creating interoperability and connecting existing infrastructures, particularly the ATM networks, rather than building a new scheme, which is bound to have its own set of challenges,” Celent’s Bareisis says.
Visa and MasterCard also operate the respective Plus and Cirrus international ATM networks, giving card issuers and ATM owners proven and reliable connectivity.
Other initiatives, however, are working to create a card that enables both debit card ATM withdrawals and purchase transactions through a single card.
One such initiative is PayFair, a nonbank, SEPA-compliant payment scheme designed to rely on open governance and a clearer fee structure, Stephan Becker, PayFair CEO, tells PaymentsSource. It also is positioned to replace domestic debit card schemes, which are not SEPA-compliant, Becker adds.
The transparent price structure is different from the international card schemes because it does not include numerous fees, Becker says. “MasterCard and Visa both have an impressive number of different fees in that sometimes banks and merchants do not even know the actual cost of a transaction,” he explains.
In fact, several European banks have noted that 170 to 320 different fees exist among the international payment schemes, Becker says. Such numbers make it difficult for users to control or even know the real costs of the service, which is why PayFair plans to limit the fee categories to five, he notes.
PayFair did not immediately comment on the exact rates or what the five categories would cover.
PayFair’s fee structures will benefit both issuing banks and merchants because it will enable them to make transaction costs more attractive to customers as banks and merchants will negotiate the interchange fees directly and may make them lower than MasterCard’s and Visa’s rates, Becker says, noting the interchange will reflect the rates of the country where the card is issued.
To assimilate PayFair into the European Union, “we suggest that each country develop a specific formula, taking into account their current financial situation,” Becker says. Once that is accomplished, it will be easier to slowly begin to migrate toward a more “harmonized European pricing,” he says. Becker hopes a unified European pricing scheme will go into effect by 2012.
The PayFair scheme also enables banks to become less dependent on the dominant American schemes and provides an option for co-branding with various merchants to gain more brand recognition, Becker says. Currently, co-branding of Visa and MasterCard products on the same card is prohibited by each company’s rules and regulations.
Banks also may use PayFair to support multiple applications on the same EMV chip such as credit, prepaid, decoupled debit/credit, virtual cards and contactless payment, Becker notes.
The PayFair initiative so far has focused on merchant relationships. PayFair recently piloted the card at five Belgian-based Colruyt Group grocery stores. PayFair plans to broaden the rollout sometime this year.
Similar to the PayFair project, German-based Deutsche Bank AG and France-based BNP Paribas SA began a pan-European debit card initiative called the Monnet project in 2008. Named after a 20th-century French economist who was a key proponent of European unity, the scheme now includes 30 banks across more than 10 countries (
Few details, however, have emerged regarding Monnet, which may be a sign that the project is still in its infancy, Bareisis says (
As the European Union migrates to SEPA, some of the domestic schemes may disappear, and some fear Visa and MasterCard will dominate. That domination already may be crushing the efforts of Euro-area efforts to create a pan-European debit scheme to compete.
What do you think about this? Send us your feedback.
