Europe’s Banks Introduce New Products to Challenge Visa and Mastercard Dominance

The largest banks in the European Union are working on a new payment system designed to provide customers with the option to forgo traditional Visa and Mastercard services, according to recent reports.

This initiative, referred to as Wero, is currently being rolled out across much of Western Europe with the backing of 16 major banks and payment processors, including prominent institutions like BNP Paribas, Deutsche Bank, and Worldline.

Wero will facilitate direct payments from a customer’s bank account to merchants, allowing, for instance, a German user to pay for a hotel stay in France without relying on existing card networks.

While this may appear straightforward, the introduction of Wero could lead to significant financial losses for Visa and Mastercard, potentially costing these companies billions in transaction fees incurred by merchants across Europe.

This development highlights increasing concerns within Europe regarding its reliance on U.S. financial infrastructure. Such anxiety intensified after Russia’s invasion of Ukraine, which saw Visa and Mastercard immediately suspend their operations in Russia, prompting numerous countries to reconsider their dependency on these networks.

Martina Weimert, CEO of the European Payments Initiative behind Wero, pointed out that the dominance of Visa and Mastercard gives these companies substantial market power. Wero aims to offer a distinctly European alternative to compete with these dominant players.

Although Wero holds significant promise, it faces considerable challenges to rival Visa and Mastercard, which, together, process trillions of dollars in transactions each year. Weimert has noted that framing Wero as a challenger might be premature since it operates similarly to a startup, yet it benefits from strong support, including a funding pool of €500 million and an established customer base from participating banks.

The drive for Wero is also influenced by the lessons learned from the recent events in Russia. In light of potential future scenarios, countries are beginning to explore the establishment of their own payment systems to ensure financial autonomy. This is particularly pertinent in Europe, where there is a growing apprehension about dependence on U.S. payment networks.

Various national payment systems have already emerged in Europe, including Sweden’s Swish, Switzerland’s Twint, and the Netherlands’ iDeal. However, none have reached the broad usage of Visa and Mastercard. Wero, which recently acquired iDeal and Payconiq, aims to fill this gap by providing services accessible through its dedicated app and the platforms of participating banks.

Efforts to create a unified payment system in Europe have faced obstacles in the past, such as the Monnet project and earlier visions of the European Payments Initiative. These initiatives led to a narrower focus on account-to-account payments, motivated by the necessity for simpler and more cost-effective integration for member banks. In accordance with EU regulations mandating instant payments, Wero plans to extend its services into both e-commerce and in-store transactions in the future.

The initiative is also seen as a response to the mounting demand for payment sovereignty, which carries its own economic and political implications. With the euro already in use across over 20 countries, there is a focus on making cross-border transactions more user-friendly for consumers who currently depend on American or Eastern payment alternatives.

Last year, Visa and Mastercard processed approximately $14.8 trillion and $9 trillion in transactions, respectively. Despite facing criticism over their transaction fees, especially with the rise of regional competitors, both companies remain alert but unconcerned by emerging alternatives like Wero. They see value in increased competition within the European payment landscape but are also aware of the challenges related to scaling new payment solutions effectively.