How EU Banks Can Ensure EPI’s Success

What is the European Payments Initiative?

The EPI was launched last year with the goal of establishing a singular pan-European payment solution for the region. EPI is currently backed by more than 30 European banks and credit institutions as well as two third-party acquirers. It also has the support of the European Commission and the European Central Bank (ECB) and other financial players. An interim company, known as EPI IC, has been established to oversee the initiative. 

What is the European Payments Initiative’s Purpose?

EPI has Two Key Objectives. 

Objective #1. Establish a Cohesive Payment Ecosystem Across the EU

European Union nations have established local domestic payment schemes that enable a local ecosystem of payment services in each country. However, these schemes are also dogged by fragmentation between borders that can make it challenging for users in one nation, like France, to make payments with their cards in another nation, like Germany, without relying on existing global payment networks like Visa and Mastercard. 

EPI’s primary objective is to leverage existing payment infrastructure, including EU’s Instant Payments/SEPA Instant Credit Transfers (SCT Inst) and TARGET Instant Payment Settlement (TIPS), to establish a more unified payment ecosystem for both European consumers and merchants. This infrastructure will also establish a new payment card and digital wallet option that can be used for in-store purchases, eCommerce transactions, person-to-person (P2P) transfers, and cash withdrawals.

Objective #2. Bolster Europe’s Economic Sovereignty

The second objective behind EPI is to establish a new European payment network to compete with the big-name global payment networks that operate in the region, Visa, Mastercard, and UnionPay. Meanwhile, other global payment methods, including GooglePay, ApplePay, SamsungPay, AliPay, and WeChat, are expanding their global reach. Merchants and consumers currently depend on these financial giants to make cross-border payments and are therefore beholden to the existing networks’ fee structures. 

Martina Weimert, chief executive officer of the EPI corporation, said the initiative can provide the European economy with more “sovereignty” and “independence” and ultimately make the EU “masters of our own destiny.” On its website, the EPI corporation says its scope is both euro and non-euro markets, which indicates the network has global expansion goals.

Why is EPI Becoming a Reality Now?

The concept of EPI has been floated for years. However, three major factors are driving the initiative to become a reality. 

1. Expansion of Immediate Payments 

The first factor is the launch of numerous regional instant payment initiatives across the region that enable residents to quickly make account-to-account transfers to other bank members. The debut of these systems has enabled European consumers to move money instantly, sometimes without using a payment card. This instant payment infrastructure provides the foundation that EPI will ultimately rest upon.

2. Widespread Digitization

The adoption of smartphones and connected device technology also contributes to EPI’s launch. As recently as 2017, 70% of Europe’s population had a smartphone. That figure is on track to reach 83% by 2023. This means a growing share of European residents use connected devices to access financial services on a 24/7 basis.

3. Demographic Changes

Finally, consumers in the millennial and Generation Y age groups are expanding their economic influence in the market. These consumers are accustomed to getting what they want instantly, from streaming movies to ordering rideshares to getting food delivered. They have the same expectations for their banks. If banks can’t deliver an experience that is seamless, secure, and instant, they could risk losing these consumers to competitors.  

Tips to Ensure EPI’s Success

Getting EU consumers and merchants to trust the new system is the biggest priority in this endeavor. Here’s how EPI can establish trust with EU residents as it builds up its brand. 

1. Make Sure the Network is Reliable

Even if the system is as secure as Fort Knox, it will be considered useless if frequently goes offline. EPI must be capable of running on a 24/7/365 basis in order to gain consumers’ trust. Relying on proven pan-European payments infrastructures, SCT Inst, and TIPS will help ensure EPI’s reliability.

2. Ensure it’s Easy to Use

EPI must provide a seamless payment experience no matter which payment method EU consumers prefer to use. This can include physical credit cards and debit cards, digital wallets, and online banking portals. Consumers will also expect to be able to make P2P transfers seamlessly. At the same time, EPI must easily integrate into European merchants’ payment acceptance flow, providing reliability and interoperability across different acceptance platforms like POS, mPOS, softPOS, eCommerce, and wallets without impacting customer experiences.

3. Keep the System Secure for Customers, Safe from Fraudsters

Once EPI is live, it will need to demonstrate that the network is trustworthy for merchants, banks, and consumers. EPI also needs to prevent and detect fraud to provide assurance to consumers that their payments will be protected. It will also need to incentivize merchants by offering competitive fees and reducing the risk of chargebacks. The system will live on proven and secure SEPA, SCT Inst, and TIPS infrastructure that can deliver a secure consumer experience, and a Strong Customer Authentication as part of the PSD2 initiative.

Fraudsters will search for opportunities to steal money from consumers and merchants once EPI goes live. So where will fraudsters strike first? These bad actors are unlikely to target EPI’s underlying infrastructure or payment rails. Instead, fraudsters’ key points of entry into the system will be through the devices, payment terminals, and websites used to make payments. 

Keeping these points of entry secure from fraudsters will be a top priority for banks when EPI goes live. EPI will need fraud solutions that deliver seamless experiences for both consumers and merchants and keep fraudsters from exploiting vulnerabilities. 

Types of Fraud to Watch For When EPI Debuts

Certain types of fraud are likely to increase following EPI’s launch. Identity-related frauds pose high risks once EPI goes live. Once customers have a more seamless ability to make payments with merchants across borders, identity logins will become the key point of compromise. Banks will need to be mindful of different types of fraud that could increase once EPI debuts. This includes:

Synthetic Identity Fraud 

This type of fraud, in which fraudsters create new personas and fake identities to defraud banks, is a high risk in the EPI era. Especially if banks are less likely to interact with customers in person, they could remain unaware that fraudsters are using fake identities. Banks will need to quickly and thoroughly verify the identities of parties that request and submit payments on the EPI network.

Social Engineering

This is a type of fraud in which fraudsters often impersonate a victim’s co-worker or CEO and convince the victim to approve a fake invoice or transfer money to an account controlled by the fraudster. As money is able to flow faster across borders, banks will need controls in place to stop social engineering fraud before funds are lost for good. 

Card-Not-Present Fraud

Card-present fraud is less of a threat thanks to the availability of credit cards and debit cards affixed with EMV chips. As a result, fraudsters shifted their attention to card-not-present (CNP) fraud which saw a 650% increase during the pandemic. One of the goals of EPI is to encourage consumers to switch from cash to more modern payment options. The unintended effect of this could be another surge in CNP fraud. 

To put it mildly, establishing a new regional payment network is no easy task. As Europe heads for a more unified payments landscape and step up competition with existing payment networks, banks will need to ensure that customers and merchants get an experience that is both seamless and secure.

Payments can move from sender to receiver in a matter of seconds. But how can banks be sure that the recipients are legitimate actors and not fraudsters attempting a scam? Download our infographic Rules to Stop the 8 Types of Transfer Fraud Losses to learn how Feedzai’s rules prevent eight different types of fraudulent transactions.