Europe finds itself at a crossroads on payments: years of regulatory frameworks, significant development of public infrastructure and private sector investment have created an ideal environment in which European digital wallets are finally finding real success and growth. The development of local payment champions is a key goal of European policymakers, who are increasingly aware of their dependence on non-European retail payment providers and the risks it presents in an increasingly unpredictable geopolitical landscape.
Yet despite tailwinds in favour of substantial European wallet growth, several headwinds cannot be ignored. The payment landscape across the whole of Europe — both within the European Union (EU) and the broader European Economic Area (EEA) — is extremely fractured.
Current initiatives to increase cross-border interoperability in Europe are a step in the right direction but are too narrowly focused inward. That is, they focus too much on inter-European interoperability and miss the greater opportunity for global interoperability. For European wallets to truly scale and be able to compete with global payment systems, policymakers and wallet operators need to be bolder and enable cross-border connectivity beyond the continent.
Payments in Europe Still Face Barriers
Europe has been a leader in both payment policy and public infrastructure investment. The open banking regime created under the Payment Services Directive 2 (PSD2) created a more level field between wallets and traditional payment providers, enabling new solutions and technologies. The development of the TARGET Instant Payment Settlement system (TIPS) along with relevant schemes (e.g., SEPA, SEPA Inst) created a common rulebook for wallets providing instant payments to use.
These initiatives and a robust supervisory regime have created a modern, safe, and increasingly competitive payment ecosystem across Europe. This has enabled considerable growth of local mobile payment wallets in many markets across Europe, providing new and convenient ways for consumers to pay and affordable and innovative ways for merchants to receive payments.
However, despite this growth, new geopolitical realities have highlighted European dependence on non-European payment providers, and key policy objectives related to greater domestic competition, autonomy, and resilience remain largely out of reach. Few options exist for consumers to pay cross-border using European wallet solutions, even within the single-currency eurozone, and Europe is still wholly dependent on U.S. payment providers for these services.
Additionally, despite recent growth, regulatory constraints and international competition make the prospects of commercial viability of domestic champions difficult in some markets, especially …
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