European fintechs: Uniting against US payments hegemony

Visa and Mastercard are the dominant forces in payments globally. As intermediaries, both Visa and Mastercard are central to the relationship between banks, merchants and customers.

So too are they looking to be this essential third-party cog that brings banks, neobanks and fintechs together into partner ecosystems. 

We speak to Christian Caumont, CEO and Co-founder of YowPay, on the monopoly over payments shared by Visa and Mastercard, and how fintechs in Europe are putting up a veritable shield against them, honed on the retail sector.

Can you detail the monopoly of US payments leaders? 

Visa & Mastercard have acquired a leading position in Europe. Today, when ordering a bank card, the only options are Mastercard or Visa. And even then, only when the bank offers a choice. 

Thanks to a history of strategic moves, the two American leaders have made every effort to become as central to relations between banks and neobanks as they are between banks and merchants. 

The duopoly invests heavily in fintech and competing technologies to stay at the cutting edge of innovation, particularly in open banking. Benefiting from their high capacity for innovation, they are in the process of revolutionising usage, particularly on mobile with Apple Pay and Google Pay. 

The potential cross-fertilisation of personal and payment data could give them a competitive edge that will be hard to catch up with banks, which take a dim view of the GAFAs' incursion into payments. 

Many European payment players are joining forces to limit this hegemony and look for alternative payment solutions. 

Sixteen major European banks have joined forces to achieve an ambitious common goal: to offer consumers and merchants a new 100% European payment solution that is "global and innovative", covering "all types of transactions". 

This European Payment Initiative (EPI) aims to regain European sovereignty and limit data leakage to the USA. 

This trend towards European alternatives is supported by government initiatives. The European Commission, for example, wants to accelerate access to and sharing of financial data between banks and fintech.

In particular, the PSD3 directive should enable fintechs to access all European payment systems and improve open banking infrastructures to provide new services while strengthening the fight against fraud and consumer rights. 

Why is it retailers who are on the front line? 

The two American leaders have gradually increased their transaction fees, taking advantage of their dominant position and strong bargaining power. 

On the one hand, customers also have to pay interchange fees (transaction fees paid to card providers). On the other hand, merchants are also victims of these fees. That's why some retailers refuse to accept card payments for amounts under €5 €10.

Large retailers, in particular, are worried that their card payment fees will increase. A development that will have an impact on prices. 

Retailers in particular are concerned about the growing influence of the major American players Visa and Mastercard, whose card fees are substantial and whose virtual monopoly gives them ever greater power. 

In an omnichannel context, technologies are changing consumption patterns and payment methods are adapting to new consumer expectations. 

The challenges facing the retail industry are many and varied: 

- Ensure lower transaction costs for both the brand and the customer - Secure payment, protect bank data, and limit fraud 

- Guarantee fast, seamless payment at checkout and online 

Retailers are constantly on the lookout for the most effective solution to streamline the purchasing process, secure transactions, limit fraud, trigger and increase shopping baskets, and offer unified payment. 

Faced with these constraints, fintechs are vying with each other to come up with innovative solutions. Some now offer a fixed price per transaction, rather than a percentage of the transaction amount. 

Others are banking on the advantages of the Saas (Software as a Service) model, which enables rapid deployment and external management by distributors. 

For others, technological innovation is based on software customization to meet the specific needs of the merchant, while guaranteeing an optimised level of system integration. 

Fintechs offer intermediary solutions: between accounting software and ERP software, they can bring together all transaction services. 

They use all kinds of technologies, such as peer-to-peer and QR codes, to make payments more fluid in all their forms (instant SEPA transfers, refunds between friends, payment at the table, etc.). 

How can fintechs democratise payments beyond retail?

Beyond the retail sector, fintechs are taking an interest in all areas of finance, and are becoming a real challenger to the sector's traditional players. 

From credit card issuers (Visa and Mastercard) to banks, investment funds, and even insurance companies, fintechs are innovating and challenging traditional players. 

In France, over 900 companies have launched in the fields of financing, insurtech, banking services, regtech, asset management, functional services, payment, and risk management. 

The vast panorama of these new solutions makes it possible to integrate and democratize new uses, particularly for payments. Their goal: 

- Remove the friction for consumers that leads to shopping baskets being abandoned both in-store and online 

- Limit blockages of traditional means of payment at checkout (bank caps) - Facilitate cross-border payments, primarily within the eurozone

- Integrate international payment solutions (e.g. Asian payment wallets like AliPay) 

At the service of their users and consumers, the new fintech players represent a real counterweight to the American financial leaders. 

They are now supported in their actions by traditional players and by government initiatives at the national and European levels. 

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