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The European Payments Initiative (EPI), a project to build a regional payments scheme designed to compete with – and potentially replace – the global networks, has announced its intention to adapt its plans as more than half of its original members pulled out and an appeal for public funding was unsuccessful. The remaining 13 members, including six French banking groups and leading processors Nets and Worldline, are refocusing their efforts on building a pan-European digital wallet leveraging instant payments, and shelving plans to compete more directly with Visa and Mastercard. Among the banks to pull out are BBVA, CaixaBank, Commerzbank, DZ Bank and Unicredit.
Though the project had potential long term economic benefits for the stakeholders given the fees they currently pay to the payment networks, the aims were also somewhat political, with many European banks uneasy with the region's dependence on two American companies to process card payments. Another motivating factor was the prospect of connecting the various domestic schemes in Europe which currently operate independently. Ultimately though, it appears to be financial factors which doomed the project. Though governments and the EU appeared supportive of the idea, they were unwilling to fund it so it fell to the banks to cover the costs, which many were unwilling to do.
On Tuesday the BIS released its report on project Dunbar, which explores how multiple central bank digital currencies (mCBDCs) may be used to reduce friction when it comes to international wholesale payments. This was done in conjunction with the central banks of Australia, Malaysia, Singapore and South Africa. This is the latest step in a string of projects involving the BIS and various other central banks exploring this topic.
The project involved the creation of prototypes for a common shared platform that may permit the settlement of international payments using mCBDCs issued by central banks. This should allow institutions in different countries to directly settle payments using different currencies, therefore reducing the costs and time involved in such transactions. One of the main questions addressed by the study concerned which institutions would be permitted to hold and transact mCBDCs. Another was how regulatory differences across various jurisdictions could be ironed out, as well as how international payments may be simplified. Another challenge addressed was how to preserve the security and sanctity of a nation's payment system, which is a crucial part of a country's national infrastructure.
The intention of this project is to attempt to replicate national instant payment schemes, but on a regional and/or global basis for cross-border payments. This will dis-intermediate parties that currently facilitate such transactions, mainly the commercial banks. The next step along this path involves the possible creation and testing of a regional mCBDC platform. The following step would be to develop at least a second such platform, and then to begin transactions between the two as a proof of concept.
It emerged this week that Apple has acquired Credit Kudos, a UK startup which uses open banking to generate credit scores for consumers. Credit Kudos is registered as an Open Banking Account Information Service Provider (AISP) which means it can view a consumer's banking information once given permission. By assessing things like balances and transaction history, they make an assessment as to the persons creditworthiness. Credit Kudos does not operate as a Payment Initiation Service Provider (PISP) which allows the licensee to initiate payments from the customer's account.
Apple is famously secretive when it comes to sharing its strategy – even this acquisition was not publicly announced – so speculation as to what the company plans with this purchase is rife. Apple has made several forays into financial services in recent years including Apple Pay, Apple Card and Tap to Pay and this move suggests a further interest in the sector. One possibility is that Apple could be planning to launch its card in the UK. However, this would suggest a departure from its US business model where it partners with an issuer (Goldman Sachs) which handles credit checks. Perhaps more likely is a foray into Buy now pay later (BNPL) where open banking could enable quick credit decisions appropriate for the size and duration of typical BNPL loans.
Other stories of interest this week...
South Korean super app Toss takes on SoftBank-backed Grab in south-east Asia
Mizuho Financial Group partners with Google to improve digital offerings
Revolut launches bank in Ireland
Robinhood ups fintech competition with new debit card launch
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