The European payments market is diverse and fragmented
The rapidly changing European payments landscape has seen the widespread adoption of digitisation, with technical innovation driven by competition from nonbanks, digital transformation from traditional banks and adaptation of regulatory developments, such as PSD1 and 2. An in increase of consumers have shifted from cash to cards usage, which has more than doubled in the last decade. Cards are now the most widely used cashless payment method in Europe, and the number of card transactions has grown year on year in every European country.
The market is fragmented however as, at a local level, payments systems have been adapted and built around specific consumer preferences (cash, credit, debit, prepaid) and their level of desire to shop across borders, which varies greatly across the nations due to deep-rooted cultural, behavioural, and even religious reasons.
Europe is not yet able to fully leverage its potential to compete at a continent level as an integrated market as, whilst the introduction of the Single Euro Payments Area (SEPA) almost 20 years ago has enabled the successful transition of all EU bank transfers and direct debits to a unified platform, the same has not yet been achieved for card payments. To enable consumers to make pan-European payments, national schemes must co-badge with an international scheme, such as VISA and MasterCard. Even though the number of national schemes is decreasing and co-badged increasing, the number of cross-border payments in Europe still remains relatively low. As such, the European payments market has not yet been able to fully reap the benefits that have come with digitisation.
In the more sophisticated European markets opportunities for card payments businesses are becoming increasingly saturated whereas in South East Europe there is a growing market opportunity for these businesses where cards are now beginning to compete with cash.
South East Europe – on the cusp of cards adoption
Western Europe and the Nordics markets are now beginning to see a peak in card transactions, giving way to e-wallets and instant P2P payments. However, South East Europe, which has up to now showed slower growth is currently experiencing an acceleration and, as the graph shows, growing four times faster than the rest of the EU, which is largely attributable to m-commerce among its younger population. The highest growth is in Romania which has a thriving ecommerce market, followed closely by Bulgaria.
As Europe strives to achieve a harmonised payments system, regulatory changes have been the catalyst for innovation and developing the infrastructure to ensure a successful transition to digital, entice customers onto digital platforms, and conform with standards that will enable a single pan-European payments area. The likes of Slovenia and Croatia are examples of this, as they ramp up their cards payments and, even though they do not yet show the same pace of growth, they have already developed sophisticated payments infrastructures of which consumers are now taking advantage.
So, whilst the cards payments market is becoming crowded in other parts of Europe, there are still huge opportunities in South East Europe to harness this new wave of card spending.
Boundless opportunities for Cards Businesses, but there are still challenges
As local EMIs (Electronic Money Issuers) look for solutions to access Mastercard and VISA rails, we at TPL anticipate significant opportunities in the SE European space. There are some challenges to overcome, for example, if the country is not a member of the European Economic Area (EEA) a license extension would be required, in conjunction with legal advice regarding local regulatory nuances, which may entail having a physical presence in the country. So, unless working with multiple companies in a given country, this may not always be cost effective.
Overall, it is essential for card businesses to understand the drivers and dynamics of the European market and the opportunities therein. Thanks to regulatory pressures and Fintech innovation driving change and standardisation in every country, those markets who have not yet adopted cards are ready to do so. There still remains huge scope for card payments businesses, particularly in the South East region – and right now is the time to act to capitalise on this exponential growth.