Global Payments

ECB Official Challenges FinTech Firms On Payment Services Inroads

SWIFT and EU Payment Services

Might Europe strive more and more for financial independence in the payments services space?

News came last week that Yves Mersch, who serves as a member of the executive board of the European Central Bank, has advocated for a European card payment system that would challenge entrenched services.

Mersch’s call for a separate system is among the latest salvos from Europe, where some policymakers have urged the continent to lessen its reliance on systems and companies that trace their genesis to the United States.

In this case, Mersch took issue with firms like PayPal, Apple, Facebook, Amazon and others, where payments capabilities – especially online payments – have made inroads in Europe.

The domestic players, he said in a speech presented at a financial conference in Paris, have their sights set on national efforts, possibly to their detriment and to U.S. players’ advantage – so much so that European bans have “surrendered” business.

“Our reliance on non-European card schemes for domestic payments in Europe is suboptimal,” Mersch said last week. “I fear that global giants from outside Europe will use their network power to increase their presence further.”

One aid for U.S. payments, along with inroads made by firms such as Tencent and Alibaba Group Holding, as Mersch remarked, comes from the very regulatory structure in place within the European Union.

PayPal now dominates the market for online payments in Europe, using the pan-European SEPA credit transfer and SEPA direct debit schemes to provide harmonized services,” Mersch said in the speech. “Meanwhile, Google, Apple, Facebook and Amazon — often referred to collectively as ‘GAFA’ — are also offering significant payment services with pan-European reach, some of which involve joint ventures with individual banks at a national level.”

The gains seen by those non-European firms, said Mersch, come as the regulatory frameworks “are often exploited by multinationals from outside Europe offering innovative, consumer-friendly solutions.”

The banks themselves have been integrating PayPal and other services and offering them to their customers without eyeing pan-European functionality. And by way of illustration of the fragmented offerings, card payment systems in separate markets are incompatible with one another, where Mastercard and Visa have far more reach and interoperability.

There’s a geopolitical component here, one that echoes controversy and some loud calls for European efforts to become more visible on the financial/payments stage.

We have to be mindful of the fact that extraterritorial jurisdiction could, in a worst-case scenario, affect the operation of those companies and disrupt payments between European counterparties,” Mersch said. The implication here is that U.S. political actions, if they influence U.S. firms and payments in general, can have a ripple effect internationally, perhaps even hobbling transactional activities beyond its own borders.

That speaks at least somewhat to August’s events, where the German Foreign Minister Heiko Maas said that Europe should develop its version of interbank messaging systems, embodied by SWIFT, in an effort to foster payment mechanisms that are “not dependent on the USA.”

The embrace of a Europe-centric SWIFT alternative came on the heels of the Trump administration’s withdrawal from the deal with Iran governing the latter’s nuclear weapons program, where that program was frozen and Western nations eased economic sanctions against the Middle Eastern nation.

Late in the month, Finance Minister Bruno Le Maire of France said he supported Maas’ volley across the international payments system. “I want Europe to be a sovereign continent, not a vassal, and that means having totally independent financing instruments that do not exist today,” Le Maire said, as quoted by Handelsblatt.

The deadline for SWIFT to cut off Iranian banks from the network looms at the beginning of November. But in the meantime, expect the debate over payment services, done globally, to continue.

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