GOOD, BAD & UGLY

Michael Salmony 0:12

Hello, my name is Michael Salmony and Javier and Ralf and I would like to welcome you to another episode of the Payments Trilogue. And this time we have Olivier with us, who used to be at McKinsey for many years and was all over payments in Europe and I believe still is. And is one of the leading thinkers, I think, always in this space. So we're very happy to have him. So maybe Olivier, maybe you could just tell us a little bit about what you've done in the past and what you're currently working on.

Olivier 0:39

Sure. ⁓ Olivier Denecker. I was for almost 27 years at McKinsey where I was part of the payment leadership team in Europe. I spent my time not only in Europe, but all across Europe and then beyond, especially in Middle East Africa, a bit in Southeast Asia as well, working most of my career on payments. I was part, as we were discussing with Javier, of the very early SEPA days.

But in my lifetime at McKinsey, had SEPA, had PSD1, 2, and almost 3. We had the mobile, we even had the start of NFC. So I went through all of this, but I also was very strongly involved in the corporate discussions around GPI and international payments, cross-border setups. So that was a privileged observer.

in many different situations across Europe. And at the moment, I left McKinsey about two years ago, and I'm still trying to make myself very useful as an advisor in the European payment space, especially with all the exciting things happening around interoperability, sovereignty, and we can come back to a couple of these things later.

Michael Salmony 1:52

Fantastic. mean, you've come to my or our attention again with a piece you published recently, The Good, The Bad and The Ugly, where you put up two very interesting claims. One is that Europe has invented lots of things in payments like chip cards, instance, A2A, e-invoicing, et cetera. So that's point one, which we can delve into whether that's really true. mean, did, or is it just the regulations that we did that made it sort

Olivier 2:08

Yes?

Michael Salmony 2:23

more pervasive. And part two was despite having invented so many things in Europe, we still haven't managed to get a global champion. Why haven't we become the e-invoicing champion of the world, the A2A, why haven't we capitalized on our inventions? Am I summarizing that roughly right or would you like to comment on that?

Olivier 2:45

You

can single out ⁓ two things out of the article. think the good, the bad and the ugly says it more besides being a European ⁓ Western, which maybe is what we want to do now, is that there's definitely very good things happening in Europe. There's some of the things that basically hold us back. And then there is a couple of question marks, which I labeled the ugly. I think ⁓ your first comment...

I'm actually strongly apponed to the negativistic view on the European payments because in many observations we have amongst the best payment systems in the world, period. We have the cheapest payment system for users. the cost of moving money around in Europe is the lowest across. Arguably it's still different between European countries, but if you look at the average by region and even if you look at the outliers to the down, we're definitely up there. It's not only

affordable, but it's also accessible. More Europeans make digital payments than anywhere else. More than North Americans, more than... And this is something we often forget. We've created a system which is easy to use. Everybody has it. And ⁓ it is actually quite appreciated. Maybe to the point that when we see some problems coming up, we even have a problem that it may be even too systemic by now. ⁓

I think the second point is like, yeah.

Michael Salmony 4:11

Can I

just stop you there? ⁓ Because some people actually see that we've built these beautiful rails, right? Everything is efficient and connected and instant and cheap, but we're not very good at actually doing the value added service on top of it. So we've built a commodity which you don't earn much money on, but the things that add real value like the Apple Pay and the Paypal's and the wallets and that's where we're not succeeding.

Olivier 4:37

I

agree with half of your comment. think we have built value added. mean, listen, iDEAL Mobile Pay, Vipps, Payconic, all these things, they are as good as Apple Pay. I'm sorry. I mean, maybe they use QR codes. Why? Because basically in NFC was not really usable in all contexts. If you go to a marketplace in ⁓ a village in the mountains in Spain, you might not have connection all the time.

So basically you need another solution. Therefore QR codes were fantastically invented. We have taken value added services and adapted them locally. I think this is one of the things that we often see, adapted them locally. Like we still don't all speak European. We speak different languages. Payments is very different. Even between Belgium and the Netherlands, are like, you know, almost joined at the hip, even on banking systems, how people do payments is different. How people pay for payments is different. So we have basically

created value added services, but we didn't create one value added service that all Europeans use. That's one. That's the point. That's why I do not agree with you. I agree with you on the point that we failed to capture value. Why? Because basically in Europe overall, firstly, in most of the most advanced payment markets, payments is an added product that you sell on top of current accounts. Then you sell current accounts, the deposit logic, you make people save, and then basically payments are something you offer relatively

⁓ at low cost. Some other countries in Europe, we did charge specifically, but those are countries where then that earnings model became so that you also didn't want to change it too much to safeguard the earnings. So we were a bit stuck on the revenue model, but this is not only true for payments. This is part of Europe. This is part of the affordability part. We don't want to make payments expensive in a way that consumers or merchants might not want to use it. And this is a continuous concern of the regulator and they keep on pushing back on that.

This, the way, if we come to the global champion, that's part of the story as well. If you don't make money, it's hard to get funding.

Ralf Ohlhausen 6:31

But

It was just about to say, I'll come in on that. Isn't that low cost part of the problem? So that there is not much or not enough to earn. There is not enough to finance innovation maybe. yeah.

Olivier 6:51

I

mean, so what is driving the innovation is different. So Michael, you were highlighting the fact that regulation might be the only thing. Well, regulation has been a big driver of innovation in Europe, maybe more than making money. So innovation we actually are getting. I mean, I'm pretty sure here now, like one of the big things that is in the bad is the rising phishing cost and fraud. And the fact that basically now in Belgium, it's everywhere in the news, policymakers are saying like, it's very simple.

Banks, will reimburse people when they get phished because it's critical because it's your system, you made them go digital. And so I can tell you that European systems to fight phishing will rapidly be better than the ones in the US because our providers need to fix it. Otherwise, they'll pay for it. So it's a different driver. And Ralf, I think you're right. It would be easier to create a different level of innovation and to conquer the world.

if basically we would start from a strong revenue base in our whole markets. I think that that is a real, that is part also of the ugly in my part. We miss the logic to get a funding space up. That doesn't stop us from being innovative and not even stop us from being competitive inside of Europe.

Ralf Ohlhausen 8:01

Thank

Yeah, but you put the regulatory overload also in the ugly. So neither good nor bad, but with all these PSD3, PSR, IPR, Dora, FIDA, MiCAR, etc. AMLR all landing within a few years, isn't that actually just plain bad? And at what point does regulation stop being, whether you adopt it or not and start being a flood that drowns investment capacity?

Olivier 8:35

Listen, I believe regulation is like winter. It's a season. ⁓ It is a fact of life. Of course you can move to the tropics. But if you look at basically where innovation happened, it's on places where you had summers and winters and where you had people needing to adapt to different situations. So I don't agree regulation is in the bad. I think some regulation is bad. And I think what is bad is a lack of... Not everything can be good, but what I think we're missing...

Michael Salmony 8:43

.

Olivier 9:05

is a policy. We have enough regulation. have very well, I mean, honestly speaking, we have well thought through regulation, but because we try to now fix the regulation as we go, we are actually creating need for add-on regulation. And that overload, that cascade is not positive. And that is because basically we don't have a North Star on where we want to end up with this entire transformation. For me, this is very obvious when you look at IPR, at Instant Payments.

Michael Salmony 9:31

Hmm.

Olivier 9:35

⁓ The regulators, basically said, like instant payments is definitely something that is European, it delivers great value, but there are problems. So let's fix the problems. For example, people might not have enough money on their account to be able to make a payment that they want to do. So let basically them change their limits in their bank account so that they can move money better, et cetera, et cetera. But that needs to be done instantly because otherwise, you know, you have a problem. Now, if you can do that instantly and digitally,

and you get scammed out of your account access, people can actually immediately improve. And banks have lost the ability to build in ⁓ delays where they can actually handle fraud. And the regulator has done this with the best of interests because it is to promote the product, but they have tried to intervene too deep into the system. another post I placed was like when regulation went from evolutionist to creationist.

Javier 10:10

Okay. Okay.

Olivier 10:33

We went from a regulator that said like, SEPA is an example. SEPA was a very, and I remember, it was a very painful decision of the regulator to push for SEPA. Banks tried murder to do that. I think if you talk to most of them by now, they say like, well, actually it was really a good thing because it allowed us to build products in a better way, to structure, et cetera, to go forward. But in SEPA, the regulator said like, I want you to do this. ⁓ They didn't say how they wanted you to do it.

Javier 10:36

.

Olivier 11:01

And now we get into a place because the regulator

has lost patience. They're telling you how to do it. And I think that that is not.

Javier 11:09

How I see it, Olivier, and I very much agree with you on what you have said, is that ⁓ we don't have ⁓ great champions because the purpose was to bring the value to the end users. And that's what we have done. And the real beneficiaries of what has been done are the end users.

Javier 11:30

What I see ugly of regulation is that it is too paternalistic in Europe. They treat citizens as ignorant and ⁓ inefficient or ineffective ⁓ citizens or children who are not able to decide by themselves. And the authorities tell the citizens what they should do for their own benefit, which is to me bad. And we are in many occasions deviating from a well-developed market. That's what I see bad.

of regulation but I also admit that ⁓ many of the outcomes ⁓ of the implications of ⁓ regulation in Europe are very good because the only way to create an integrated Europe is by pushing it with ⁓ good rules, with ⁓ effective legislation which sometimes works and sometimes does not.

Olivier 12:24

I mean, I'm potentially more of an optimist on the regulator because I think it's all well-intentioned. that the impatience and the expectation to understand, so the omnipotence, the expectation to understand all the aspects, I think those are the two biggest threats. I mean, if you take the patience part, if at a separate creation, the regulator did not...

would not have put the requirement for interoperability of ⁓ cards at the same timeline, a different solution would have... potentially some type of interoperability would have emerged. I mean, it was difficult, but when they took away the interchange, it became easier, and so there was a number of things they did to nudge it in the right direction. But basically, they allowed the door to be opened to actually comply with the timeline for the European players to partner with Visa MasterCard and to basically take an existing international solution.

If that would not have happened, the sovereignty discussion would not be on the table today. If they would have given two more years to go to that interoperability, we would probably have found a different solution. Now, we would potentially have. I mean, I of course don't know, but I'm confident we did.

Michael Salmony 13:44

Hmm.

Olivier 13:45

When two years ago at EBAday we had a discussion around the innovation in Europe and we asked what was the biggest driver for innovation, 85 % of the audience answered regulation.

Whereas in the US, the pressure of the attackers of the hyperscalers is what drives banks for payment reactions. A lot of gets captured by an oligopoly, which is Visa MasterCard. In Europe, the local boundaries that remained and still remain today to some extent, allowed banks to be bit more passive in reacting to that, which they couldn't do in the US. That's why the regulator actually pushed the change.

Innovation, if you take the invoicing, a big push on the invoicing now is definitely the adoption is being pushed by regulation. And I think with instant payment adoption is being regulated. Chip and pin adoption was driven by regulation. mean, the invention is one thing, but adoption doesn't happen automatically in Europe. And that's where the regulator typically steps in.

Michael Salmony 14:51

That's for sure. I mean, we all love to moan a little bit about the regulation in Europe, that it's too much and it comes too quickly and it's too sort of detailed and not goal oriented. We say Europe is too fragmented and we also say there's maybe not enough funding, are not enough venture capitalists around and lots of other things. So maybe we just look at the positive side. This is usually Javier's question.

If the Europe fairy were to come to you and grant you three wishes to help create a European champion, what would you ask of her?

Olivier 15:30

So firstly, firstly, I think we need to start with accepting that we want a European champion and actually take actions to build one like the Chinese do. mean, we have a couple of European processors that actually could be the European champions. And at the moment, they're struggling and nobody is taking action to help them. I mean, we're basically building European defense infrastructure. We're like investing like crazy to build.

things which we didn't build in Europe anymore, like we're rebuilding tanks and we're rebuilding ammunition and all that kind of stuff. Like honestly speaking, funding needs to come from the private sector, but can also come from the public sector to help champions emerge. Then we can discuss about governance, et cetera, et cetera on that. So I think that that for me is one. ⁓ I think from the European very easy, like let's, let's, can we agree on the end states that we want before we start talking about how fast it needs to go?

And I think creating an end state vision and agreeing on that, that would be fantastic. That's very difficult because at the moment there is clearly an element of having your cake and eat it in regulation. One of my favorite discussions in when talking about the digital euro, mean, the digital euro is being positioned as an alternative, but it's not meant to crowd out. So it's not meant to do a lot of transactions. It's meant to do enough. But there is no such thing as a moderately successful payment solution. Either it's a failure or a success.

One of the two. If it's a success, it will crowd out. If it's a failure, it will destroy reputation at the level of the public sector. So it will be a success. It's doomed to be a success. And as a consequence, we need to think that through. Why do we think we can say something different than that? And we need to think through if we want this to be a success, how can it then work? How can we leave the sector the time to adopt? I I think if we leave the sector the time to adapt to the digital euro and allow them to actually also

create the economic flows around it, I don't see why it should not be positive. But if we do it, as you say, to interventionists, it creates a lot of downsides. And I think that that's where we are. So that's my second one.

The problem on the revenue

I would say on the revenue side, let's stop what I call the salami tactic because basically every part where revenue is migrating to gets basically pushed back down by the regulator. think that people have historically in the Netherlands, people were very happy to leave a lot of money on their current accounts and not getting any remuneration on their current account because they were also getting relatively free payments. In France, they were happy to pay for their credit cards. In Italy, even more.

because they were getting something else. Let's not try to push everybody into the same economic model because that will not work. If the system is sufficiently open, which I think by now it relatively is, and a market is sufficiently attractive, other people will enter that market. If the market is not attractive, you will not get competition. It's very simple. If you're a small market and you don't have margins, who wants to basically invest heavily to win that market?

Javier 18:23

.

Michael Salmony 18:42

Now, I really like those. Maybe we can just draw down a little bit on that. I mean, you said we need a sort of industrial

strategy and North Star. I'm totally with you there, right? What is our common goal that we're all aiming for? I think we've discussed this on this podcast several times as well. That surely is a gap that we have. The sort of very low level things that we have.

or the very abstract high level things are not good enough. We need something that gives real guidance to the market. And the other one about sort of funding from the states, that's also, right? mean, why are we, that the state invests in sovereignty, in quantum, in agriculture, in arms, in space, in a hundred other things, but not in payments. And that seems to me quite bizarre. That is a complete, a critical infrastructure and...

For my money, ⁓ spent on the digital euro, the billions spent on that and all the energy spent on that, if they'd instead supported ⁓ fiat solutions like Wero and ⁓ iDEAL and everything and made that stronger, that would have been a much better response if the state had invested that way.

Olivier 19:57

I mean, I'm not sure I said that they need to invest, but I think we need a policy and that policy should come with an economic leg. One of the other elements I feel quite strongly about is there is often a saying we don't have a European solution. I think that that's fundamentally false. We have several European solutions. Like a car manufactured in France is a European car. It's not because it's not a pan-European.

I think the quest to go for one size fits all, I think is not the right way of approaching this. And I think the strength in Europe in interoperability and coming from this diversified landscape is fundamentally, it's a strength in UX because it helps customers. It's a strength in stability because basically if one of the, we have no system that can down and freeze Europe.

Javier 20:26

.

Olivier 20:49

It's an element also of innovation because it basically allows different things to come up without necessarily immediately cannibalizing each other. The one thing we probably need to think is about how can we get processing, for example, to be more at scale or to get some investment components like fraud. I know Europe is doing all kinds of things with Tiber and with AMLA and all that kind of stuff, fraud protection centers, fraud protection mechanisms that are basically more structured at national or at international level in Europe.

Javier 20:50

you

Olivier 21:18

would be super helpful. Why, when we are thinking about EuroPA, and we need to build an interoperability between mobile wallets that are all doing fantastically well in their home markets, why didn't we say, let's use the digital euro to be the settlement engine between the mobile wallets? So thinking about components we need to complement rather than trying to replace an end-to-end, we will not end into the Alibaba Tencent seismic flows.

Javier 21:25

.

Olivier 21:47

like we have in China or Amazon versus Google versus Apple in the US, we will not end there in Europe. I don't see it.

Michael Salmony 21:57

Bye.

Ralf Ohlhausen 21:58

I would

also like to comment on this because when you say, well, we don't have a European champion and do we really want it? And I think from my perspective, I don't really want one single European champion. I want multiple ones. Also, I don't want one single private.

champion ⁓ digital euro and the ECB either. So I'm obviously coming from the openness side and from the open systems perspective. So if we if we look at this, then we should push that angle to basically create an environment or framework that allows everyone in Europe to flourish and not just one or two.

And also not just then funding one or two companies like pushing Wero as it was already foreseen some time ago and may come back. So that's, I think is the wrong approach. The money, I'm also in favor of ⁓ investment by government, but more into the openness ⁓ approach.

Olivier 22:45

Yeah.

So, yes, not one. The competitiveness of the European market is one of its core strengths. The lack of complete openness of borders is one of the weaknesses. So I think that we need to work with that. That will help us going forward. The big problem to create a lot of champions, as many as we have in the US basically, is that somebody will have to basically pay more for payments then. Because in terms of efficiency, honestly speaking, I can't put the numbers down, but...

The European systems, even in small countries, are more efficient than most of the systems in other regions in the world. So even in small markets like Portugal or like Belgium, it's like the payments are very cheap to produce. So we won't build our margins based on cost reductions. The synergies are there, but they're not massive. So the way in which we can then do it is to basically increase prices. And then the question is like, who will stand for that?

Ralf, say I'm in favor that, but I'm not sure that you're keen to pay. Like in some European markets, we still pay one euro per transaction if you want to do a P2P transfer. I am happy to try to do that in Belgium or the Netherlands, but I think this is going to end up with basically hanging off bank CEOs if we do that. This is not possible. And the merchants, we can go to our friends at EuroCommerce suggesting that they actually pay a comparable price to what we have to pay in the US.

that's just not going to fly. It's actually going the other way, is the fact that I was part of the discussion in Belgium where the previous government, the Minister of Economic Affairs, it's scandalous the price that merchants have to pay for debit cards because they have to pay like 40 % more than in the Netherlands. Because in the Netherlands they paid 4 cents per transaction, in Belgium they paid 7. Now Javier, don't know what they do still in Spain, but 7 cents per transaction for a merchant, I think they will take it. So the problem is we are trying to...

Make everybody happy and that is really, really difficult.

Michael Salmony 25:02

But I'm still struggling to see how we're going to get a European champion out of this. I mean, I totally take your point that Europe is very diversified and people have different habits and the UX is different. But how are we going to compete to people who have global scale and efficiencies of volumes and also Europeans like to shop in Asia and in the US?

Olivier 25:24

Michael,

mean, American Express is the diners club. They're still there. they're in diners club is essentially now a local with Discover. I mean, there is a lot of local solutions that are doing extremely well. Europe has half a billion, more or less, give or take, citizens which have a higher spending power than the average Chinese or Indian. So why do we have China Union pay that is basically universal and not something like that in Europe?

I'm not against basically trying to establish the fact that maybe we don't need one, we can have several, I think that's perfectly fine. But we have the scale to do that. The reason, the reality is that we're failing to cooperate on some of the layers of the element. I think we're trying to focus too much on the UX and creating a single UX for all Europeans and I think that that's not needed. I think we're focusing very strongly on creating one economic model, which would be helpful, but it's very difficult to achieve.

Javier 26:07

you

Olivier 26:21

think we all were at some point involved in one of the efforts to create an interchange interoperability or local debit cards, which is just very, very difficult to do. So for me, the champions do not need to be at the level of Wero or like a card. think I'm much more on the ⁓ industrial infrastructure behind it. So it's the processors for me that we need as champions. It's the ⁓ infrastructures. And I think there it's easier because they're basically, it's already quite consolidated.

⁓ And it's facilitating and enforcing the consolidation of systems, which is not easy as well, so that you can get synergies and you can basically get a single corporate logic going on some of these things.

Michael Salmony 27:06

That's a strong argument, yeah. But can I just push back on one of the things you pushed back on? I put out that I thought it's a good idea for the state to also put some money into payments as a sovereign infrastructure. And I think you disagreed with that. Can you explain your reason for that?

Olivier 27:23

No,

I didn't disagree. But I'm not not argumenting for a nationalization of payment systems. if the state invests as a shareholder, it's nationalization. So basically, I think we need the state to understand and I think the ECB is trying to do that, but I'm not sure that it's always right. But what are the missing building blocks we need to be able to basically complement and to make sure that everything actually is enabled? There are things that are not very economically

Michael Salmony 27:30

No, of course not.

Olivier 27:52

attractive to build. I said, phishing centers and fraud protection, it's very, very cooperative. We can facilitate collaboration between players and actually even enforce it to some extent and provide funding to that level. We can basically also make it easier in terms of dealing with regulators. We don't have, mean, for me, the element of single supervision on payments players is not where it should be.

If you have a payment processor today and that is active in 15 European countries, especially when they're in the CSM space, they have to basically deal with 15 different central banks. While a bank could actually get away with basically taking one primary, especially if they're systemic and they go to the ECB, they have a clear primary and then secondary. So think we have some elements there to make life easier for certain of these things. The funding part, I think it can happen on multiple things. can fund the infrastructure, fund acceptance.

And it can be to basically fund certain pieces of innovation, which at the moment is being pushed through by...

I think at the moment, the regulators are basically pushing the banks to fund payments. I think that that is the sidestep. You could actually, you you could do that differently.

Ralf Ohlhausen 29:06

Yeah, and the public is funding, well, the digital euro. talking, or maybe, would you have a view on how a public-private partnership could actually work between private payment solutions? So all the EuroPAs, the Wero, the also open banking, hopefully, and the digital euro, so to have them all, well, work together in a way that and also share the money invested somehow.

that is profiting all sides. Is there a win-win-win-win?

Olivier 29:40

I win.

I think the acceleration of the interoperability in Europe was definitely triggered by the public sector, by the digital euro helped basically get everybody around the table ⁓ to create this. I think that that's one.

I am personally, I would find it very exciting if the ECB would join EuroPA and the digital euro would be one of the connected systems. But of course that is not possible because the ECB doesn't see itself at par, of course, with the private sector solution. ⁓ So I think there is definitely a win-win, as I said, in the element of helping to build missing components of infrastructure, like creating a settlement engine at the middle of EuroPA.

instead of having participants building it and having say the ECB like, listen, we are building this digital euro thing. Why are we not using that? It doesn't have to be, you know, a digital euro on it. ⁓ I think there is other elements by also aligning some of the policy pieces a bit better. I think the digital euro for me makes a lot of sense if we do it a little bit more like we did it, they did it in India. You link a payment engine to identity. And that means that basically we push, we make it dependent on the rise of ⁓

eIDAS and the European Digital Identity Initiatives. And then you say like, if you get born in Europe, you have European identity card, you have a wallet attached to it. And if you don't want the bank account, you can put your money there and there is a way to do that. For me, that is logic. Don't necessarily make it independent on the financial industry to do actually the entire KYC and frauds. I mean, because that's the thing we try to have our cake and eat it. And that's very, very difficult. I can see some of the elements of

mutual benefits there, but it is.

It is agreeing on what the shared space is and is agreeing on the shared objective. And we're missing that. We don't have the shared objective.

Michael Salmony 31:39

Yeah, and then we keep coming back to that.

Olivier 31:40

Still

today, banks are telling me like, we don't understand why we need the digital euro. And from a policy perspective, it's very easy to understand why we need digital euro. From a customer use case perspective, it's very difficult to understand why we need the digital euro. But the fact that you're talking next to each other there is not very helpful.

Javier 32:00

Mm-hmm.

Michael Salmony 32:01

Yeah, the role model of UPI and PIX and some of these others, surely should set us thinking. Yeah, so do we have any more questions for Olivier?

Ralf Ohlhausen 32:09

Well, yeah,

well, because talking about that situation and also about the sovereignty thing, I'm somewhat puzzled that the open banking ⁓ framework and infrastructure that we've developed over the years is not recognized as the ⁓ savior of European sovereignty these days.

So if any of the currently dominating card payments would go down tomorrow, what would we do? So Olivier, which solution do you think would be there other than cash that everyone in Europe could use?

Olivier 32:51

⁓ Well, I'm in Belgium, so especially had an outage yesterday, but I would use Bancontact.

Ralf Ohlhausen 32:58

Yeah, well, you have Bancontact for, I don't know, was it 50 % of the people maybe?

Olivier 32:59

No one

No,

you have 11 million Belgians and 17 million bank contact cards, I think. the percentage of usage is about 70 % of all debit transactions. It's 40 plus something percent of e-commerce. So no, is like iDEAL in the Netherlands shows that you can use something similar, but it's not true in every market. In the Netherlands, they gave up their local debit card. In the Giropay in Germany, there is a number of things that...

Ralf Ohlhausen 33:20

Yeah, if...

Olivier 33:32

that worked and didn't work, but I'm...

Ralf Ohlhausen 33:34

Yeah,

but that's exactly the point. You pick those two countries where there is maybe some local solution, but what about the other 25? So what would you do? In Spain, now you have Bizum but you can't use Bizum really much for paying merchants. the only alternative, well, the only thing that we have that every single one person in Europe, 400 plus million, ⁓ that could use the...

Olivier 33:43

So, so, so, no.

Javier 33:45

.

Ralf Ohlhausen 34:02

tomorrow for making electronic payment is their bank account and not through a bank solution but only through an open banking solution.

Olivier 34:11

But in essence, me, Bizum is an open banking solution. mean, it is not completely open because you don't want to the keys of the castle to everyone. So basically banks are saying, making it open, but we're making it open under our conditions, which I think is as smart as you can do it. And I think if you look at the EuroPA content or the EMPSA constellation, you've got the same type of systems working. Some of them on card rails, some of them on account to account rails.

all of them based on an interface that is connected to a rail. So an open banking logic, if you want. ⁓ For me, think open banking has its impact. It's not as generic and as standardized as you would want to have it. But I think that all of these wallets are actually consequences of the combination of instant and open and then some of the other regulation plus, you know, sometimes erratic behavior of the global oligopolists.

But, ⁓

I'm strong believer in the sovereignty discussion. I think we are too dependent on global solutions that we don't control. So I'm very much in favor of that. I am very much in favor of an interoperability logic rather than a replacement logic. So rather use what you have and then basically use from that, whether it's through open banking and account, account and instant payments as a rail or alternatively to bespoke rails, which can be card rails that exist already.

or hybrids. mean, in all honesty, carte bancaire in France is a hybrid because it actually settles payment transactions, card transactions using an account payment solutions. Not instant historically, but why not instant? ⁓ So these things for me work. Your point on like, what are we doing for the countries that do not have a local solution? The reality is that rapidly they're basically going there. mean, France and Germany were not successful in having their local solutions.

They now are part of the Wero construct. think that that's their bit. Ireland didn't have anything for the longest time. They never had a local debit card. They're creating their own mobile wallet. ⁓ Also to earn a seat at the table. I if you have nothing, you can't be interoperable if you have nothing to be interoperable with. And I think that that was always a point that I think the CEO of EPI made very strongly. Like this is not a solution. need to build it for, we need to impose, we need to bring existing solutions into markets that don't have their own solutions.

Javier 36:24

Okay. .

Olivier 36:32

think that's an option. On the other hand, see markets, some of them are building it despite being late in the game. ⁓ So I'm not a pessimist on that. I think that the problem is that we cannot afford to have somebody to leave the keys somewhere else. mean, Spain, Javier, you will know better than me, but Visa and MasterCard, of course, do all the card payments in

Spain, but I think their processing center is completely in Spain.

Javier 36:55

Absolutely, yeah, that's true.

Olivier 36:56

So

in Russia, they were doing all of the transactions, but the moment they cut it down, the Russians just said, like, thank you very much. Now you hand me over the keys of the processing center and we just do it in your place. you know, maybe we should decide that all the processing centers of Visa MasterCard need to be relocated onto EU territory. So that would not be good for the UK. But we could decide to make sure that we have rules of duplication of centers. mean, as we do sometimes with banks, make...

we make ⁓ interoperability mandatory. We say like, if the Visa processing center is down, MasterCard needs to take over the volumes. That's the separation of scheme and processing. That was the logic. We didn't really go very far on that. I think we can still improve in some of these dimensions. I'm not making friends with some of these statements, but anyway.

Ralf Ohlhausen 37:46

Before we run out of time, have one question about the future because don't we run the risk that all of this is getting overtaken by AI? So you mentioned, I think, agentic systems as part of the technology frontier, but here in Europe, we haven't done really anything about it. So all this innovation comes from

basically the US and the open source version from China. ⁓ otherwise here in Europe, have even the new regulation, PSD3, SCA, ⁓ is all built on human interactions. So there is nothing really foreseen in this space.

Olivier 38:20

I mean, sovereignty is not only a payment question. think you're mentioning AI. think AI will not take over everything. AI is fact, it's going to be part of the construct of everything. It's not going to take it over, it's part of the construct. The fact that we don't have a strong European AI alternative, I find also sovereignty-wise concerning. Like not having a very strong European cloud solution, which I think is more urgent than the AI, because at least with the AI we can use an American or a Chinese one. We at least have some choice.

Yeah. But for example, ⁓ in European cloud, for me, find exciting. was in a conference and again, I had two banking CEOs that we're talking about. Like we want to establish at least for a region a cloud alternative, a European private cloud or European open cloud alternative to ⁓ some of the American elements. The problem is that that costs money to replace an infrastructure that you can buy relatively cheaply today on the market. That is not an easy

economic decision and therefore again we go to how do we win champions. ⁓ I have seen public sector tenders where they basically put as a condition solution needs to be in the cloud but it needs to be European cloud. I mean if we have some of those I'm sure we'll have one eventually but that is not a payment industry decision I would say that is a much bigger decision and I would I would welcome like we like we have a European defense pact we should have a European

technology cloud and AI packed emerging. Same with, I mean, we don't even go into quantum cryptography and all that kind of stuff because, you I don't know how many quantum computers we have running to try to test these things right now in Europe, but I haven't seen one myself, so I don't know.

Michael Salmony 40:03

The sovereignty thing goes through all layers, right? It goes right down to Cisco routers, which run the internet right up to applications. And if we want to get sovereignty, we have to do lot more than just payments, that's for sure. Sorry, Javier, you were going to say something.

Javier 40:17

Just a comment I've made several times. I still don't fully agree that sovereignty in payments is a big issue in Europe because nobody has quantified what's the problem. I can assume there is dependencies in payments in Europe, but not deep as having to talk about sovereignty. Sovereignty is a very big word. Sovereignty affects when there is a foreign power interfering in the decision-making of a...

otherwise sovereign ⁓ jurisdiction. And I think we are not there. And what I see is that even if there are some problems that you can characterize as sovereignity problems, it's not a high priority. There are many others as Ralf was saying with ⁓ the cloud and with AI. It's like the example I usually put is that there is also a sovereignty problem in a

cola flavored soda beverages in Europe. There is a foreign oligopoly, but is that that relevant? What would happen if there are no Coke or no Pepsi? And what my question is, what would happen if there were no Visa and MasterCard? And I don't see a big problem because if there was, if that was the case, something would happen that would solve the issue. Quite right.

Olivier 41:23

Yeah.

But I think, again, the timing element and some of these things could be abrupt. And some of the markets in Europe are completely dependent on the processing centers of Visa MasterCard. I I saw there was a spoof circulating. It's not a true image, but it's so-called a tweet from the president of the United States in his previous campaign that is complaining that people are abusing the great innovations being done in the US and not paying enough for it and that he would personally impose a one cent tax on every Visa MasterCard transaction done globally.

That's not completely inconceivable. Visa MasterCard would not fight that. It doesn't hurt them really. And basically it would mean that overnight billions of European money would move to the US. And I think that that's the type of thing that makes policy makers very nervous. With Cola, I agree some people are very dependent on their Cola. I think I could live without Cola myself. So I could probably not live without my cards. mean, honestly speaking,

Again, yesterday there was an outage in Belgium, which is not very frequent, but happened. This is crippling and then basically it stops the economy from turning. So I am more supportive of the sovereignty debate than you are Javier. I understand your point. I'm also not so very pessimistic. I think what we do not want to do, what I actually want to tell the regulator not to do, don't kill the things that work locally. Because the fact that if you can't get...

Javier 42:53

Okay.

Olivier 43:03

Cola, basically, know, the Spanish Fanta factory was working in the past and I'm very fond of the Spanish Fanta, which is different from the American Fanta. So let's also embrace that we have this possibility of being diverse and resilient based on our local diversity. And let's build the interoperability part like we did with roaming. mean, another innovation, Michael, is like GSM and GSMA and roaming is again a new European invention as well. Like, let's work on that.

Javier 43:32

Absolutely.

Michael Salmony 43:33

Wonderful. Okay, Olivier, it's always very stimulating talking to you. We haven't agreed on everything, but that's great. think that's always very... No, absolutely, I see that as possibility when we hear different voices and people can make up their own minds. I think that's always very, very fruitful.

Olivier 43:40

You didn't ask me to agree on everything, then we should have prepared something.

Javier 43:42

All right.

I agree 99%.

Olivier 43:53

Yeah, that's already good.

Michael Salmony 43:54

I

it took away, I thought your idea that we should stop chasing the single UX, the single solution in Europe, but instead acknowledge that Europe is diverse and local solutions work well. And we think more about interoperability. thought that's that's a topic really worth thinking about. Maybe we're trying to aim for the wrong goals. If we're trying to create a European champion, which tries to force 27 countries into one size fits all. I thought that was a very powerful argument.

And for the European champion, you said maybe it's in the infrastructure. So I'm sure the Worldlines and Adyens will be delighted to hear that. That they should be global champions, maybe also building on the fraud expertise that you pointed out that we're going to really need. So I thought there were some really stimulating things and I've only just out a few. So thank you so much, Olivier. As always, it's been a fireworks of new ideas talking to you.

Olivier 44:52

Thanks

a lot, gentlemen. Very good to see you all.

Michael Salmony 44:53

Thank

Javier 44:54

Thank

very much.

Michael Salmony 44:54

and look forward to seeing everybody next time.