President of the European Central Bank (ECB), Christine Lagarde, recently spoke about Europe’s overreliance on US and Chinese payment firms in the midst of an ongoing trade war between the two nations.
Lagarde highlighted the influence US card processing networks such as Mastercard and Visa have on European consumers, as well as the payment processing stranglehold Chinese companies like Alipay are having on market competitiveness.
The ECB President spoke out regarding her concern on the dominant market share these companies have in Europe on The Pat Kenny Show, where she called on those inside the ECB and consumers to “make sure there is a European offer”.
Lagarde said: “When you think of it at the moment, a lot of our digital payment, e-commerce or when you use your card or your phone, you always rely on non-European infrastructure
“Whether you use a card or a phone, typically it goes through Visa, Mastercard, PayPal, Alipay – where are all those coming from? Either the US or China. The whole infrastructure mechanism that allows for payments, credit and debit, is not a European solution.”
Concerns may have heightened for Lagarde in regards to the recent 20% imposed tariffs on imported European goods by US President Donald Trump, who has imposed similar trade taxes on other countries like China in order to solidify domestic economic growth.
Trump’s ongoing tariff battle has caused stock markets across the world to significantly decline to levels not seen since the onset of COVID-19. This is not only affecting large-scale businesses, but the payments sector too.
This has brought about wider conversations, highlighted by Lagarde in particular, over the need for Europe to have a standalone payment rail that does not rely on the backing of US and Chinese companies.
Steffen Vollert, Co-Founder and Interim CEO of London-based real-time payment company Volt, echoed these same sentiments to Payment Expert.
“Growing macroeconomic and geo-political uncertainty is accelerating the push for domestic payment rails in Europe,” he said.
“Governments and Central Banks want to own their payments infrastructure, the very foundation of economic activity.”
Has Europe grown tired of Visa & Mastercard?
It’s no secret that Visa and Mastercard own a duopoly over the card issuing and payment processing market, which estimates to 95%.
This dominant market share has seen both payment giants increase processing fees attached to each transaction over the past several years, climbing by 25% since 2017, and businesses and policymakers alike have grown tired of this domination.
The UK’s Payment Systems Regulator (PSR), in particular, called out both Visa and Mastercard over the increase of these attached fees, believing that it is impacting small businesses and stunting competitive growth within its fintech and payments sectors.
Vollert noted that the UK and Europe have begun to place increased focus on developing US and China alternatives, prioritising homegrown methods to their advantage.
He shared: “The UK and Europe are both very clear on the imperative to build stronger local alternatives to the US-centered Mastercard and Visa. The European Central Bank has made this clear in recent public statements. The UK has made this policy, making Open Banking adoption a top priority in its National Payments Vision (2024).”
While it can be argued that Visa and Mastercard remain the only reliable card issuing partner, the UK and Europe’s fintech and payments developments in Open Banking, real-time payments and other facets have made alternative payment methods the backbone of their core offerings now. But are they ready for wider consumer and business adoption?
Are alternatives ready?
As previously mentioned, Europe and the UK have developed payment rails and methods that are increasingly becoming more favourable and flexible for users.
Whether it’s the instant payment boom that has occurred in the Nordics, Klarna pioneering Buy Now, Pay Later, or the developments seen within account-to-account (A2A) payment methods like Pay by Bank.
While consumers have more choice over their preferred payment method than ever before, one could argue that this litany of payment methods fragment the European payment landscape and a more unified approach is needed.
The shining light of a unified, instant, consumer-friendly payment rail of recent years is Brazil’s Pix, which now accounts for over six billion monthly transactions. While Europe can boast a more traditional and developed payment ecosystem, Brazil highlights how a willingness to embrace new payment innovations can lead to a new way of consumer adoption.
While the ECB can press for a payment rail that goes against US and China-backed systems, are consumers willing to broaden their horizons and begin to adopt a payment method they have never used before?
European providers have never been shy when it comes to offering new payment methods, but Vollert concludes his thoughts by asserting that the age of the card may be coming to a close, and real-time, A2A payments, will lead this new world payments order.
He concluded: “We’ve taken cards for granted for the better part of a century as ‘owners’ of the global payments infrastructure, but are they about to be replaced in the new world order? This is 100% the prediction that Volt has always maintained; this long-term evolution of the world is the very foundation of our vision and mission.
“The ‘alternative’ to Visa/ Mastercard is already here: it will be real-time A2A payments in local markets, glued together with stablecoins for cross-border transactions.”
