Things Are Looking Up: Payments innovation In Europe

Commentary by Alex Mifsud, CEO, Ixaris

Rewind to ten years ago and innovative payments companies in Europe were thin on the ground. The card schemes, banks and traditional money transfer services such as Western Union dominated the European payments landscape, apart from a few brave attempts like Beenz, which ended in failure.

Fast forward to 2012 and the scene is very different. In recent years a host of pioneering payments start ups have emerged from across the value chain: prepaid card firms, international money transfer services, digital wallets, peer-to-peer lending marketplaces, and companies in countless other parts of the payments industry show that payments innovation is alive and kicking.

Back in February Finovate Europe 2012, in only in its second year, showcased thirty five groundbreaking financial technology companies, many in the payments sector, and acted as an excellent litmus test for the rude health of European payments. London, Berlin and other cities in Europe are now hotbeds for innovation.

Why is the European payments scene now flourishing? As elsewhere, significant technological developments have certainly played their part. A maturing Internet and the rise of smartphones and tablets offer the payments entrepreneur new playgrounds in which to develop innovative products. Also notable is the greater willingness in recent years of angels, VCs and corporate venturing arms on both sides of the Atlantic to invest in European financial technology. All these factors simply suggest that the recent surge of European payment innovation is a replay of the familiar story of Europe following the US with variations.

The real home-grown factor for European payments is regulatory change. Under a general drive to create a uniform European payment market – the Single Euro Payments Area (SEPA) – has, despite delays and dithering, created a fundamentally changed landscape for banks and payments companies in the region.

Three complementary developments are behind this change. The first, and most obvious, is that by allowing payment service providers to offer their services across the EU’s borders, SEPA fosters competition, and in turn spurs innovation, in the payment sector. The second is the mandatory opening up of card scheme membership to licensed non-banks which has introduced competition into what used to be a closed shop of banks that could comfortably sit in their secure place within the payments value chain charging premium pricing without great compulsion to innovate at pace. The third is the EU’s robust treatment of the card schemes’ pricing power which has rewritten the economics of the payment. The established business models for card-based payments have been seriously disrupted by the dramatic reduction in interchange fees forced upon the card schemes, and, to a lesser extent, by the limitations imposed on the ease with which prepaid card operators can claim funds left unspent in expired cards.

Alongside regulatory change, the recent financial crisis has also had a significant effect. Banks have lost the trust of many of their customers, especially consumers and SMEs. These groups are more willing to use alternative financial services.

Together these forces have opened up unprecedented opportunities for entrepreneurs to devise new services and take advantage of new technologies to address the challenges presented by the traditional banking sector.

And yet, we are only at the start of much unfinished business. Although some progress has been made, we are still a long way from a truly competitive payments landscape in Europe – regulation is not yet uniformly applied across Europe’s member states, and this hampers payments innovation in Europe. The rules themselves have gone through various iterations as experience is gained by regulators and industry bodies on their impact. Therefore, wily payments innovators should understand, and sometimes challenge, the boundaries the law which are still shifting to accommodate experience and practice. By doing this, payments innovators can shape the landscape and take advantage of opportunities that are arise from change.


Alex Mifsud’s extensive technology background and solid management experience proved to be invaluable assets when he and William Lorenz founded Ixaris in 2000. Before Ixaris, Alex worked as a senior consultant in the Cambridge-based technology practice of Arthur D. Little, a global management consultancy. There, he provided information technology guidance and innovation to blue chip clients such as Telia, VW Group, Granville Baird and 3i. Alex holds a bachelor’s degree in electrical engineering from the University of Malta and master’s and doctorate degrees in computer science from the University of Edinburgh. He has lectured in the University of Malta’s Department of Computer Science and Artificial Intelligence.