It sounded like a good idea 10 years ago, but not much makes sense any longer regarding Europe establishing a third card scheme to compete with Visa Inc. and MasterCard Worldwide.
Various initiatives have unfolded with the intent to create another card scheme in Europe, but they always seemed to have clouds hovering over them (see story). Moreover, the payments industry and technology have changed so much since the concept was first encouraged, it is time for Europe to shelve that effort and concentrate on emerging payments to complement cards, a new report from industry research firm Celent suggests.
The European Central Bank and European Commission first suggested another scheme as a way to bolster the massive Single Euro Payment Area initiative and overcome a fragmented domestic-only debit card market. In response, European banks and payments industry companies created alliances to address the concept of another payment card for the wallets of European consumers.
The central bank and commission were concerned Visa Europe and MasterCard could create a “duopoly” in the payments industry and would stand as the only SEPA-compliant options without a viable third card scheme available, says Zil Bareisis, a London-based Celent analyst and author of “In Search of a Third European Card Scheme: Time to Move On.”
“The Europeans did have a separate scheme in the past called Eurocard, which eventually was sold to MasterCard,” Bareisis tells PaymentsSource. “Some consider, in hindsight, Eurocard’s sale to MasterCard was perhaps a mistake.”
Eurocard International N.V. and Interbank Card Association entered a strategic alliance in 1968 to accept each other’s cards on either network. Interbank Card Association was renamed as MasterCard in 1979, while Eurocard became Europay International S.A. through a set of mergers in 1992.
Europay merged with MasterCard in 2002 to create MasterCard International, leading to the company name becoming MasterCard Worldwide in 2006, according to the MasterCard website.
For Bareisis to suggest the loss of Eurocard was a mistake makes sense, considering his report reveals the “major contenders” behind recent initiatives in Europe fell well short of developing a scheme worthy of considering as a viable option.
The report cites PayFair International GmbH, the Monnet project, the Euro Alliance of Payment Schemes and European Savings Banks Financial Services as viable contenders for creating a third scheme. Yet each entity demonstrated glaring weaknesses, leading Bareisis to conclude “the market has moved on, and the case for a European-only card scheme created from scratch is simply no longer there.”
A group of professionals from a range of industries launched the PayFair initiative in 2007 with a vision “to make PayFair the leading universal card solution in the world,” the report states.
PayFair’s “interchange-free” concept tested successfully in Belgium, but PayFair executives have not been successful in convincing any major banks to issue PayFair debit cards, the report concludes. As a result, PayFair has settled in as a “niche” product, and its backers probably should concentrate on e-vouchers and gift cards, the report suggests.
The Monnet project represents an effort from German and French banks in June, 2011, to create a new debit card scheme, yet it became “the most mysterious of all initiatives” because public announcements and information were lacking, the report indicates. Yet the most recent information from the Monnet Project Association reveals the banks spent the past seven months conducting a feasibility study centered on an “all-in-one concept” scheme covering hybrid cards and contactless and mobile payments, the report states.
Citing sources familiar with the project, the Celent report concludes the Monnet project can’t be taken seriously because the feasibility study revealed the project’s business case was not viable.
The Euro Alliance of Payment Schemes seeks to create a framework for existing national schemes to develop cross-border connections with each other, enabling cardholders in one European country to use their cards for ATM and point-of-sale transactions in another country, the report states. Because the alliance focuses so much on ATM transactions, it does nothing to further the third-card concept, the report contends.
As such, Bareisis provides a blunt conclusion regarding the alliance. “If Celent were a doctor, it would put a ‘Do Not Resuscitate’ sign next to this particular patient,” he writes.
European Savings Banks Financial Services withdrew from the Euro Alliance of Payment Schemes and announced it would pursue its own card scheme in 2011, the report states. Because this bank group has mostly concentrated on operating an ATM scheme for many years, the report concludes it may be too early to determine its effectiveness in creating a third card scheme.
The European market should not be concerned about any of the stops and starts regarding a third card scheme because arguments for it have always been “vague and mostly politically driven,” the report states.
Companies such as PayPal Inc. and others like it looming with new mobile-payment technologies and concepts could better accomplish the original intent of a third card scheme and create competition in pricing and innovation for Visa and MasterCard, Bareisis suggests.
“If we think creatively, particularly about how mobile can be used, there are a number of viable alternatives to cards that are likely to emerge over the next few years,” Bareisis contends.
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