MEPGA

Intro 0:02

Welcome to the Payments Trilogue, where three seasoned professionals discuss payments and more, for Europe and beyond.

Michael Salmony 0:13

Hello, this is Michael Salmony. Some of you may have watched the little introduction that we made, why we are launching this new channel, to talk about European payments, but beyond. What is happening also outside Europe and what is also happening outside payments. Being looked at from various dimensions, from Ralf's dimension, who comes more from the fintech and TPP sides, and Gijs, who comes from the bank side.

although both are speaking in their personal capacity. So there's a lot to be said about payments in Europe and especially beyond. There is PSD2 and there's point of sale and there's requests to pay and there's EPI and CBDC and identity and a hundred other things. So we thought we would start with one particular topic which is how to make European payments great again. MEPGA

which references a certain other person we don't mention in this podcast. The reason why we chose that is because on the one hand, people outside Europe look very much to us here to say, get the impression that things are really ahead here. But on the other hand, here in Europe, we feel some things are not working too well yet. We certainly haven't got an integrated way of paying across Europe.

And just on those two points, I mean, I work actually mainly outside Europe and the Middle East. I've just come back from Japan and South Africa and Latin America. They all look to Europe. They all think we here in Europe are far ahead of the curve. You know, we're ahead with instance. We've invented open banking. We did GDPR. We're ahead on identity. Loads of things are much better here than for example, in America.

And so a lot of people are looking at Europe and UK as inspiration of how to move ahead. And I get that from regulators, from banks, from fintechs, from everybody. On the other hand, here in Europe, we're not entirely happy. We can't pay in a single way across all the countries unless it's in cash or using an American card scheme. And surely we can do better. So that's why we're going to have this little discussion now on

Gijs Boudewijn 2:34

where we are in Europe and where we should be going and maybe Gijs maybe you could start a little bit what your thinking is on this MEPGA topic. Thank you Michael. Well, we always need to sort of be critical on ourselves and I do believe it's important to understand where we've come from with this MEPGA thing. It just happened yesterday that we realized we should have something European.

we have to realize Europe is all about creating an internal market for goods and services. And that also goes for financial services. So for decades, the European Commission and later on the European Central Bank have been promoting, of course, an internal market for financial services, which means a big, huge internal market with no borders. And if you're old enough, you will remember that even making cross border payments within Europe was a long and costly

a time consuming and costly affair. And consistently, of course, the European authorities have been working on this internal market for payments as well. I can still remember Sir Lee in Britain, a former European commissioner with a report breaking down the barriers. That's where it sort of started. So that means that if you fast forward a little bit also to the euro, especially the advent of the euro made it

especially clear that not only the banknotes should become harmonized, but also the cross -border payments should be harmonized. That led to what we now call SEPA, the Single Euro Payments Area, which unfortunately does not yet cover all member states, but a large portion of them, which was a first step. So the Single Euro Payments Area, which is based on the SEPA Direct Debit and the SEPA Credit Transfer, should have been complemented by SEPA for cards.

that we would have our own Pan- European Cards model. And that's already in, let's say, 2005, 2010. But after many attempts by the private sector, these attempts failed much to the frustration also of the European authorities, European Central Bank and the European Commission that we, in the card space, we did have the separate credit trends or the separate direct debit, but not a truly Pan- European card scheme.

Michael Salmony 4:58

we were dominated, as you said, by the international card schemes, i .e. mainly Visa and MasterCard. Then if you see it becomes a bit of a geopolitical thing, we get the Facebooks with Libra and more tension in the world, and payments are seen as being the bloodstream of the economy and those vulnerable have to be protected in a world.

where peace is not a given anymore and then becomes, payment becomes more geopolitical and you get the notions of open strategic autonomy that you refer to someone. Basically, we do not want anyone outside of Europe to be able to pull a lever anywhere after which the lights go out in Europe, which means we have to have something of our own. Assem, the card's route.

Lastly, by the European Payments Initiative, which we will touch later upon. So gave up the ambition to have a Pan- European, create a Pan- European card scheme. that is why. And then I think it's good to as well. The strategy is now not focused on trying to replicate what's already out there in the cards world, but to look at what we what we do have as an alternative infrastructure, i .e. the IBAN based account structure.

and through open banking see if there's another way to create something truly European. And think that's the heart of the debate we're having here. And that is probably the way and we will address that if that is the right way to make European payments great again. Yeah, I'm totally with you there. mean, I never understood quite honestly this drive towards a European card, right? I mean, if you're building a new system for the future,

then a card is not surely the thing that everybody's going to follow. You want something more modern, maybe like the wallets and various other approaches, which I'm sure we will discuss. So I never understood this first approach with EPI, for example, or the European card scheme, to be honest. But I know that's a controversial opinion.

Ralf Ohlhausen 7:09

But the future surely is indeed more account to account payments, right? It's not where you move money directly from one account to another with far less intermediaries in between. And there are all sorts of mechanisms in place or coming into place to facilitate that. Maybe, Ralf you can expand a little bit on that because you're in the middle of these. Yeah. And I think I'm also I agree that I don't think it would make much sense to try to create better cards or better wallets.

here. And we do have a great alternative. We do have indeed the possibility of creating payments based on account to account or credit transfers, which would be, should be the most efficient way to move money from A to B. The only problem with these account based payments so far has been that

Well, they are not settled immediately. They were not instant. with those credit transfers becoming instant, instant payments, the European SCT Inst scheme, for example, that takes away that disadvantage. So this allows now to have what I think a more efficient way of

well, shifting money from A to B and in an instant with instant basic confirmation, with instant certainty, which is, which so far has been really the tricky part, how to obtain payment certainty. So, and we had all sorts of with cards, with wallets, with other types of, of mechanism to create that certainty. But if the transfer is instant by itself, then you, you should get a good level of certainty right.

inherently basically there. So which is why I think that the looking at a European way of so if we had to invent payments today I think there would be more people looking at account to account than in the past and that's I think what we are trying to do here. That's a strong statement. Can I just challenge this instant thing because

Ralf Ohlhausen 9:32

In the Netherlands, for example, they've had a scheme called iDEAL, I don't know how many years, where it looks as though it's instant, right? The guarantee gets sent instantly, the settlement actually happens later. And that seems to solve 90 % of the problem without rewiring any of the plumbing. Wouldn't that have been a much smarter approach? Gijs you co -invented this. Well, indeed, we're pretty proud. even these days, where in other countries, similar,

services are invented. Everybody thinks they are the first one, but this one was invented as far back as 2005. It has 1 .2 billion payments, not only in e -commerce, but also payment requests and person -to -person payments, about one -third, one -third, one -third split in volumes. Indeed, from the retailer perspective, and then in 2005, we didn't have instant payments, so it was just credit transfer based.

That was T plus two at that time. And of course for the retailer, was unacceptable that he would live three days in uncertainty, will I get my money or not? So that is why in the iDEAL scheme, as you said, the payment guarantee was provided instantly by the account holding bank. So it was basically a real time bank guarantee to the merchant. And that's what all he needed.

let's what we said to ship the shoes to the consumer because there was absolute payment certainty. and since it was already started in 2005, still today it has not been converted to instant payments yet. It will be, but there's no real urgent demand from the retailer side to do it because they are still, as you said, for 90 percent happy with the real -time payment guarantee.

it's not instant, it's intraday. Almost 100 % of things are present, at least intraday, maybe not instantly. But so the liquidity, the funding thing is not that big an issue. I always thought that was a really smart solution, just sending the guarantee in real time ahead, and then the download can start immediately, the shoes can be sent immediately. And it has very low infrastructure costs. And I saw it was a great shame that that never became a pan -European solution.

Michael Salmony 11:58

There we are. I mean, the thing that really worries me a little bit when we're looking at how to make European payments greater, and we all agree account to account is probably the way to go. But there seem to be so many parallel things doing exactly the same thing. Right. We have open banking with sort of initiating payments with PIS. We've got EMPSA where the mobile guys are getting together to connect their quite large existing client bases. We've got EPI.

Now a competitor EPI in the southern region is popping up. There's CBDC, which is a sort of more central bank driven. Is it wise to have sort of five different parallel A to A schemes to try and harmonize Europe? Well, you have different stakeholders and maybe I should have highlighted as well because Gijs is right that what counts is not so much the instant crediting on the recipient side. What counts is the instant certainty.

is for retail payments. So we are talking retail payments in the main. that's there is a merchant getting paid either online or in store. And what counts is that that merchant has instant certainty. And yes, with schemes like or bank owned, bank driven, bank contracted schemes like Ideal and others EPS, Austria, Giro- Pay, Germany, etc. So those are there you have that.

And but you got to participate, you got to pay what an equivalent interchange to interchange for that. and yes, that is a possibility for a bank contracted scheme. If you are, however, sitting on an open banking approach like I am there. So there is no contract there. And therefore, we are not getting that instant certainty given for free by the bank.

so that we can also let the merchant ship the shoes right away. So we need an alternative to that and Instant Payments is providing that alternative. As I said, not so much because of the crediting and again from a PISP perspective, very often the merchants, don't want the money right away. They don't want individual payments coming onto their account. You're collecting for them often.

Ralf Ohlhausen 14:24

and you settle whatever the next day, some even only whatever the next week or so, but it's that instant guarantee that counts. But it makes a difference on whether you're in an open banking perspective without a contract with the banks or you're in a more closed bank driven scheme perspective like well, EPI or iDEAL is. What do you think? Well, I think, mean, this is

This is something that has to do with the developments I described earlier, the whole internal market perspective. As experience learns every time around in the Brussels, turning wheels, the five years, we have regulation and each and every time the evaluation of the previous regulation is, but it didn't quite fulfill the promises we thought it would.

and that we still need some more incentives to add more innovation and more competition. That's how we started with payment institutions, then with account access and it goes step by step. It becomes more advanced. The reality is, think, as I've said, we have, let's say, more closed loop systems, consortia of banks that provide services in a sort of club solution and we have the open banking based solutions and they...

have to coexist because I mean, we have the law. So it's both, it's both the EPI consortium based approach, but also even if you're a member of EPI, you still need to provide open banking service on the PSD2 and quite soon on the PSR. let's say some think it's PSD3, but it's called PSR. So you have to do both anyway. And depending where the products and services are.

are produced against the best competitive pricing, the end users will take the services. Okay, you're being very careful here, both of you. I'm going to be a bit more blunt. I mean, we're here in the cooperative trialogue where we are sort of industry participants, sort of what would we do if we would got to get together and determine what would be the solution for Europe, right?

Michael Salmony 16:45

I mean, for me, open banking is the way to go. I mean, there is absolutely no doubt about it. This is such a powerful paradigm. You're basically putting apps on top of banks, sort of fintechs now on top of banks. And that's the jump from the Nokia to the smartphone. And I and many others have talked about this many times. I think this is such a powerful paradigm. This is going to win over in the end. But it's still a bit difficult because the APIs aren't working too well yet. Not all the banks are convinced it's good for them, which is understandable. They need more incentives. There are lots of things to go.

So, but beyond that, I mean, we said there are several other things going on. EPI, CBDC, EMPSA, the alternative to EPI, the SPAA the alternative to SPAA in Germany. Which one would you put your money on to say this is the one that's going to win the race?

Well, I'm heavily invested in the open banking side. As you know, we've always thought and seen very early when first APIs came out that it will not work. So we cannot compete in retail payments with the big guys in the world here, not even here in Europe.

based on a purely compliance whatever approach. So we need to have a collaborative approach. We have to get together with the banks. And thankfully the ECB at the time, well already suggested that with the what was called the SEPA API access scheme group that was created where both Gijs and I have been well spent part of the last five years in.

which eventually evolved into then creating the SPAA scheme, which we just launched end of the last month. And the idea, of course, is exactly that, is to go beyond the minimal things you can do based on compliance and add on functionality and data that you wouldn't get under PSD2 or PSD3, but you get as part of a scheme.

Ralf Ohlhausen 18:58

And so it's sort of the mixture between the bank driven schemes, iDEAL EPS I mentioned, and the scheme independent open banking, PISP. So there is this middle ground, this collaboration, which we believe is required to make this work. And so I hope that that is where

we can have that conversion and have that collaboration and we can basically try to reduce the amount of regulation and come to more self -regulation of the market. I fully support it and during that experience from fighting each other in a horrible trench war in the beginning, throwing knives at each other to where we are today.

We have to also applaud the European Commission and ECB, as you mentioned Ralf but also the Commission, who has always sort of tried to get parties to sit at the table and have a constructive dialogue. In short, it's also from the Commission's perspective, probably better if market participants sit together and try to come to a compromise solution that is workable and agreeable for both.

then the commission coming up with the legislative proposal and being lobbied by both parties. But the limits to it, this is exactly what I was thinking about. Remember 2017, we were sitting opposite on the same table that was created by the commission API evaluation group defining what is it exactly that we have to put into these API. So we had the bank or representatives you were leading on them.

We had the TPP side view and we were battling this out for like six months or so. And we actually came to some conclusion of what we think should go in there. The difference was banks thought, okay, but only half of that should be an obligation because the other half is not in PSD2. And then the EBA came in and said, okay, they were then divvying it up. Okay, this is mandatory, this is not. At the end, after one year,

Michael Salmony 21:17

of discussing that we had concluded that, okay, it might not be mandatory, but it should all go into the standard. But then that didn't happen, unfortunately. So, I mean, the standard has improved a lot ever since, but in these first versions, we only had that first half, we only had that mandatory first half, because of course, you wanted to limit cost or whatever reason. So we started off with APIs, which were just not able to do everything we needed and eventually improving

But so now they might be able to do, but we are not getting it because it's not mandatory. even if it became mandatory, even if we pushed PSD3 to the sky, I'm sure there is hundred thousand millions ways of not playing ball if you don't want to, which is why that collaboration is so important. When I hear you two speak, I do get a bit worried, quite honestly.

In Europe is just so complicated, right? We have 27 member states, we have, I don't know how many regulators, we don't have a competition authority, we have several banking associations, we have several, it is super complicated, right? And when I compare that to the UK, you know, where they just have four banks who can basically determine what's going on, they have a competition authority who basically forced them all to come together and define some standards.

And that's maybe why they're a bit ahead. And this worries me on a global scale too, right? When I see what's going on in the Middle East and other places, you know, with the energy they're going in there and the stringency, you know, they're not taking the time and don't want to take the time to do have all these debates. They want to get on with it and do the innovation and the new business model. Does that not worry you at all? This is Europe, Michael. I and I can test that the UK is leading. think Europe is leading.

but the British are so much better at putting it nicely into as mother tongue English words. But on the face of it, I mean, there's no business model for open banking yet. And now the UK is looking at us because we have default fees for a SPAA. the judge is still out there, I would say, but open banking, who's wearing the crown? I'm not so sure. Let's call it equal for now and not to make too many enemies.

Gijs Boudewijn 23:45

across the channel. But we have learned to quickly. But Europe is Europe. And I think the more philosophical question is, it well, I mean, even the euro is not across all member states, right? We still have different currencies even within the EEA. But should we have the ambition to have only one solution? It's just I don't have the answer. just a philosophical question. What we see happening now, there are too many

perhaps too many differences in advancement, if you may call it that way, from cash to more digital payments. mean, there are huge differences still in payments habits, payment cultures. And the question is, is it feasible to have a one size fits all solution? Probably not. So how can you on the one hand, how can you balance the need for local flavors with pan -European reach and scale? if I may say so, I think this the competition is

very important and it is driving innovation. and maybe my two cents on that question open banking and who invented it. I think it was pretty clear that it was in mainland Europe that the principles of of TPPs, PISPs, AISPs came up. It was about 20 years ago actually, 2003 the first one. in the UK they invented the term open banking but not the matter.

And we have a long history there. And by the way, for open finance as well, because this wasn't just all about payments, it's also finance. So we have open finance in Europe. We had for 20 years. We're not on a green field like in most countries. I know that the UK basically was closed for banking up until PSD2 became effective, but it was the opposite in Germany, say. It was very open. It was actually more open than now.

So that's the thing. And what we are trying, I think, or at least what I'm trying to achieve here between the three of us is actually come to this more, well, collaborative market -driven approach, whilst the UK approach is the exact opposite. It is making more regulation, deeper regulation, having more and more prescribed by the regulator and FCA and JROC and everything there, and defining what the future entity must look like.

Ralf Ohlhausen 26:11

and all of that. it's, yeah, it may have helped to get a little bit faster off the ground with a more prescriptive approach, but in the long term, I think this this cannot succeed. So you need competition, you need especially in something that evolves so quickly, like user interfaces and all of that. having the state or having a government or a regulation telling the industry how an API should look like, I think is not a good idea.

Wonderful. I see the best way of this is me putting some controversial things in there and you challenging me. You gave some very good rebuttals there, both of you. I mean, both of the UK is not doing a scheme, which I think is going to be a real asset because we all realize it. yet. In fact, they seem to be very busy with their reorganization role. I mean, they're hypnotized with VRP at the moment, and that seems to be the only. call it DRP, dynamic recurring payment.

That for us is just one thing amongst many in the Berlin Group standards. So we're going way beyond that. And Ralf, you also mentioned that we're not stopping at open banking. We're going to open finance now and feeder. So I think Europe is on the good track. But let me trigger you with another thing then, since that worked so well. I would like to disagree with you a little bit on is there one size fits all?

I think this thing of sort of having five different parallel approaches not helpful, quite honestly. I do think something like India, UPI or Brazil PIX has put an enormous catalyst in there and really made an explosion of competition and innovation and harmonization. Isn't that something we could be thinking about rather than having five parallel sort of half initiatives?

But that's my two, maybe even three cents. That is a bit of the problem. If we all want to, I mean, if you look behind all the initiatives that are going on, they all have the ambition to make European payments great again. And I recall quite vividly at the 20th anniversary of the European Payments Council, it was a big conference in Brussels where Mr. Panetta and the commissioner spoke.

Gijs Boudewijn 28:34

And we were talking about the European payments initiative. We were talking about the open banking equivalent, which has become a SPAA. We were talking about the digital euro, all aiming for the same and even more, but all aiming for the same goal, make this open strategic autonomy. And we said, but guys, what is the plan here? The private sector, i .e. the banks, we cannot do a 100 % all three or all four of them. We have to make choices.

which one is the one we, that was my words, is the one we were going to plug. This is the one that is solely meant to provide us this open strategic autonomy and the others come later or whatever. But we're asking now banks to all, to do three at the same time, you've been payments -initiated. And also with a lot of insecurity, what is the digital you're going to mean for us in terms of infrastructure because there is...

Some think that a lot of existing infrastructure can be reused, should be reused. That's a nice discussion separately. But I mean, the prioritization and what is the bigger plan? There is no overall governance that says this is how we're going to do it. To achieve this geopolitical goal of making Europe payment. There's no overall plan and that runs a tremendous risk of fragmentation because everybody, we can begin, but...

you run the risk that all these initiatives get this famous stuck in the middle scenario because you will not get everybody on board unless there is somebody telling you to, like in India or in Brazil, which has done the easy way, the more top -down one. But we're all working bottom up. Well, maybe not the digital hero, but the risk of fragmentation, which we already have, also there at the Pan European between the various initiatives. But that's, I find that pretty worrying.

If I were a bank, where do I put my money? Or would I just wait until everything fails and then the ECB says, since everything has failed, we now have to go to a digital euro. No, I totally see what you're saying. And I will remember the EPC event. I ran the technology panel on that day where technology will take us, which is a whole topic in itself.

Ralf Ohlhausen 30:54

But who would you point the finger to? I mean, we agree that it would be great if somebody would say this is the way to go. And we also have a feeling that maybe the regulator shouldn't be telling us everything. But the banks have not been able to come up with a common view on what the pan -European payment should be, right? You could also point the finger a bit at the banks. Is that unfair?

If I may point that finger or maybe say something about that. that's exactly why I think that the open banking has that huge and big advantage of being where we already spent all this money, millions, billions. We spent five years more now into building this infrastructure, the Open Banking, or PS to two APIs and all that.

It allows us to reach every single payment account in Europe. don't have that critical mass problem with starting in one country or two with whatever these five banks, but not those five and having this yeah, chicken and egg and critical mass issues there because we've spent billions and we can reach everyone. But don't you see that is, you said, we

As in us, you could also, us from the US, if we can reach everybody and that those were in the first days of open banking, theoretically Google could have an easy job to do open banking payments initiation from all payment accounts in Europe. That again, of course, from the bank's perspective, okay, so we are just pushed back into the value chain to dump piping.

and the fintechs and the big techs, will sit between us and the customers do all the payments initiation. And we will just sit there waiting for someone to knock on our door. Can I please, can you please execute a payment for me, preferably for free, you would say, Ralf and then the door closes and then where does that lead you? So from a strategic perspective, where are you as bank in that whole value chain is...

Ralf Ohlhausen 33:12

Well, not a nice perspective. Well, but hang on. So 20 years ago, I was in telecoms and I was exactly on a challenging side as well. Actually on a British telecom, challenging all the European telecoms, incumbents there with competition. And at the end of the day, what has happened is that all those incumbents and all those national telecoms are still significant big players. So the banks are not pushed into doing the plumbing.

What they were pushed or what the telecoms happened was that the companies were pushed into splitting up between a plumbing infrastructure part of the business and the value added service part of the business less regulated. So the infrastructure heavily regulated, the value added services, less regulation, more freedom, more innovation, more competition, and most of the incumbents, and I would not expect differently in banking have managed.

to be in the top one, two, three positions there for also on the value added services side. This is one of the big surprises to many banks that actually the banks are often the winners in open banking. It's the idea of some of them, the fintechs would push them to one side, but actually they're the winners. That's a story I spent a lot of my time with. Yeah, but there's a realization that has come after some years, but

in the early days, I mentioned it often at a conference when PSD2 came open banking, payment account access came about access to a some banks couldn't believe what was happening. They would have to open up their payment accounts and would have to provide their crown jewels for free to the likes of Ralf right. I mean, it's about it's always the seven stages of grief. The first the first stage is is as deep

denial. cannot be true. Third parties having access in an unsecure sort of screen scraping way to our payment accounts and stealing our crown jewels. was how it was felt. And then you go to all the other stages of grief and the last stage, and this is where we are now, is acceptance in the realization that things will never be the same as before. But that takes time. Very good.

Ralf Ohlhausen 35:37

We got a little bit locked down into the open banking topic now. We don't have that much time left on our topic. What other things did you feel would help make European payments great again? Do you want to say anything more on EPI or on CBDC or on maybe identity or on any of the other topics we've raised?

Well, I see what we had in the past 20 years was a lot of bank driven approach, OBePs, we call it open banking e -payments. We had the bank independent way, the PISP way. We still have those. So we have that open banking approach and we have on the independent side, you have the EPI iDEAL, et cetera, OBeP approach on the bank side. And we have these national approaches, which are, you know, the Swish, the Vipps, the Twist, Twink, Blick, Bizum, Bankomat pay.

coming together, well, being independent national and coming together in this telecoms roaming approach, which is another way of doing it. And so that's where I see a big difference. So do we wanna have more European thing where with EPI on once acquiring something European?

or all the PISP, each one of them creating something European, not a single entity, but multiple, but all sort of European -wide typically, or this more national approach and having the focus there and only do the bit of roaming if and when necessary. So I think it is not surprising that we have these two different ways and I can't see them just going away. What...

I think is what is a bit worrying is that, well, with all of these and as you say, marginalization of that, we now have a lot of the ECB putting their foot down and coming with a digital euro, another way of making electronic payments in real time and all of that. yeah, obviously they said they don't want to crowd out.

Gijs Boudewijn 37:49

the private systems, but it may happen. But the CBDC is, I mean, not sure how much of a threat that's going to be, right? I mean, it has a different timeline for a start, right? They've only just decided in Europe to go to the next phase and there hasn't been a final decision. It's probably going to be really limited, you know, 3000 euros is a sort of thinking. So

there will be competition, but they have said they want to limit that. I we need something in place before the CBDC gets running, I would have thought, right? I do think you're underestimating the risks involved. If you look at the draft legislation we have in Brussels, and I can still hear myself saying at Money 2020 a few years ago when I was in a panel with Martina Weimert,

the CEO of the European Payments Initiative and Inge van Dijk, the Director of Market Infrastructure, is also responsible for the digital euro at the Dutch Central Bank. These two mantras, the no crowding out and the do no harm doctrines of the European Central Bank, will not, and no crowding out of existing commercial bank solutions and the do no harm doctrine, the digital euro is not intended to harm existing market participants.

I said to someone, did you ever hear Facebook or Google say no crowding out or do no harm? So if I were you, if I were a bank, I would know I would run into the arms of the ECB with those two doctrines. But those are doctrines and the way they are playing out are not quite reassuring. Even if you say 3000 euros is my holding limit of my wallet, which the banks need to provide for free.

As the legislation now says to the consumers have to provide all the funding and defunding between the payment account and the digital euro wallet must be for free. Banks should get the money from the retailers that pay an interchange from sort of an interchange. The whole compensation model is quite worrying, but only the holding limit. If Joe average and maybe has only 3000 euro net to spend on a monthly basis. So it would be easy to get 3000 euros net from my

Michael Salmony 40:14

employer, I could just fund them into my digital euro wallet, my payment account, that my bank would be empty, and I would live my life off the grid, totally from the digital euro wallet. Think about that. No, no, I get what you're saying. And a lot of banks have come out, maybe understandably very critical of CBDC, because they have to do all the work they have to provide the wallets, they have to do the KYC, they have to answer the hotlines, they have to do all the heavy lifting.

and it reduces their liquidity potentially, which means their core business of lending may be impacted because their balance sheet gets renewed. So I totally follow what you're saying there. I'm just not convinced yet that CBDC, even if it's a big success, would basically be a viable alternative, would be the pan -European payment solution. What's the problem that it solves that we cannot solve today?

commercial solutions in good collaboration between market participants. That is still the hammer looking for a nail, or the nail looking for a hammer. Yeah, and I tend to agree, and there is a lot to be said about CBDC, I think, and maybe, I guess we'll have a separate session on that one day. And maybe I should keep my thunder for that. Okay, well, we definitely call that up.

So maybe as a final topic before we close, we've been a little bit rude about CBDC. Can we be a little bit rude about EPI? I'm struggling a little bit with the EPI approach, quite honestly, right? Initially the cards approach I thought was very backward looking. Of course you can get a quick win because a lot of sort of point of sale payments are all cards and you can get that quickly. But as a future looking new initiative based on cards that never made much sense to me. that's.

that's mercifully gone. But now the new approach, which makes much more sense for me, is sort of wallet based, but then buying iDEAL and Payconic. How is that the scalable approach to make a pan -European solution? Can anybody help me with that?

Gijs Boudewijn 42:24

I take that silence speaking volumes. Well, not on the iDEAL deal. I hope you understand. I don't feel a position to shed much light on that. But the good thing is there is an existing solution that has now been taken on board as inspiration for what the eventual EPI solution would look like. And that will be an account to account based wallet like solution. So that they're on the right track there, I think. And how exactly this is going to

transpire in the coming years is perhaps another matter. But on the cards thing, you should not forget there is still a lot of cards stuff out there. have not in my country, but most countries still have their own domestic card schemes. It's not like that everything is running over the systems of Visa and MasterCard. It's just mainly the cross border stuff. Plus in some countries like mine where they don't have a domestic scheme anymore. But in Germany, for instance, Ralf lives

there's about a hundred million Giro cards out there that have nothing to do with Visa and or MasterCard. same with Card Bancaire, et cetera. So we still have the European Card Payments Association, which is the association of the remaining domestic card schemes. And we haven't talked about it because it's not an official initiative, but we're also still involved there. We're still looking, how can we without the international card schemes,

still get to some degree of interlinking of the domestic card scheme because cards we can think anything we want of card scheme, domestic card scheme, but they are there and they will be there for a very long time to come. So we still have a separate for cards which is fragmented and the only interconnecting way is through non -European solution. So it's still worthwhile looking at it. Reinventing a totally new European card scheme is probably not the right way, but

we still have to deal with the existing card schemes. And by the way, cash is another one. We forget about cash, but cash is also on the revival tour, it seems. So the basic problem based on all the negative experiences in the past of trying to pretty creative, a separate for cards, Pan- European card scheme is I think the reason why the whole thinking behind EPI's, are not, we will start from scratch.

Ralf Ohlhausen 44:50

we will not talk about interlinking or interoperability because those are proven mistakes enough from the Monet and whatever other initiatives have proven that that's not the bottom up way doesn't work. So we need to work top down. The participants need to be able to kill all their darlings and start from scratch. That's the basic idea how EPI started. Of course, practice is a little bit more thorny there.

I think they have become a little bit more relaxed. The idea seems to prove that it might be a good idea to choose a winner and then buy it and build on it. But the basic idea was trying to make existing domestic stuff compatible. Interoperable is a dead end street, as history has proven. It's probably somewhere in the middle. top. But you know, what I my problem with EPI is that it's

it's reinventing another wheel or it's basically building new infrastructure again. So my hope would have been that all that investment into these PS2 APIs would be, well, you build on that, you improve on that, you basically make these APIs good enough so that banks want to eat them themselves. They want to eat their own lunch. And rather than keeping them, you know, some

some rudimentary APIs for come for perceived competitors, TPPs, and then doing their own better, bigger, better, faster stuff infrastructure for themselves. No, I'm on that same page. If I were EPI, I would base it on APIs. That would be the way to get pan -European reach. I think that would be the right approach. But we agree to differ on a number of things and that's great. This is part of the fun of doing a podcast like this.

that we have different opinions. So I think our time has come. I would like to really thank Gijs and Ralf for being up for this controversial discussion, sharing their insights, which have been very enlightening for me and I hope for everybody watching too. So please join us for the next episode, which where we will delve more into European payments. Thank you for watching. Many thanks for watching and listening. We hope you enjoyed this episode.

Outro 47:15

Looking forward to seeing you again next time.