• A group of sixteen banks from euro zone countries are spearheading the project
  • The new system is expected to be up and running in two years
  • The project hopes to eventually control at least 60% of electronic payments in Europe.

A group of sixteen banks from euro zone countries said they will establish a "truly European" payments system that is designed to completely digitize a region where one-half of all retail transactions are still conducted in cash.

The new system, called ‘European Payments Initiative,’ or EPI, is expected to become operative in 2022 and would challenge the market dominance of U.S.-based payment firms Mastercard (MA) and Visa (V).

"It is aimed at strengthening Europe, at making it more independent and robust," said Thierry Laborde, deputy chief operating officer of France’s BNP Paribas, which is involved in the project. "We will do it collectively, by pooling our resources. As for distribution systems, prices will differ from one bank to another, but the infrastructure will be pan-European."

Laborde added that the major innovation arising from the project will be that people and businesses will be able to make payments throughout Europe “seven days out of seven, instantaneously and, for example, with the telephone number of the beneficiary.”

The cards that will be provided to consumers and retailers across Europe will cover various kinds of transactions, including in-store, online, cash withdrawal and 'peer-to-peer.’

Other banks involved in the enterprise include BBVA (BBVA), Commerzbank, Deutsche Bank (DB), Santander (SAN), ING Group (ING), UniCredit and Societe Generale.

The project, which is expected to cost several billion euros, seeks to eventually control at least 60% of electronic payments in Europe.

"EPI’s objective is to offer a digital payment solution that can be used anywhere in Europe and to supersede the fragmented landscape that currently still exists," the banks said in a statement. "The Covid-19 crisis has underlined the need for a unified European digital payment solution," since fewer people are using cash during the pandemic.

The European Central Bank, or ECB, noted that in recent years “significant progress” had been made towards developing a safe, efficient and integrated European payments market. Nevertheless, the market rremains highly fragmented in the way people actually pay.

Moreover, ECB said, ten European countries still have national card programs that do not accept cards from other EU member states.

“The European Payments Initiative will have to tackle the fragmentation in European retail payments and should encompass all euro area countries, and eventually the entire European Union”, said ECB Executive Board Member Fabio Panetta. “The foreseen effective implementation and a growing number of participants have the potential to strengthen the role of European providers.”

The European Commission, the executive branch of the European Union, praised the banks' decision to introduce the unified European payment system, having long advocated for such a program to compete with non-European payment companies.

“The Commission, which will adopt later this year its own strategy for retail payments in Europe, fully supports the European payments initiative as a new, ambitious and European project,” the agency said. “The Commission believes that EU citizens and businesses should benefit from fast, efficient and reliable payments solutions. The European payments initiative… would be a critical and decisive step in that direction.”

Valdis Dombrovskis, executive vice-president for an Economy that Works for People at the Commission said: “I hope banks from other countries, innovative European fintechs and other European payment service providers will join the first 16 members, bringing their own expertise and assets to this groundbreaking project, and making it even more innovative and competitive at global level.”