Can Europe wean itself off US credit card firms?

Visa, Mastercard, and PayPal dominate the cashless payments landscape in the EU and the European Central Bank warns about the region's reliance on US payment giants. But what alternative does Europe have?Since Donald Trump has returned to power, Europe has been concerned about its reliance on the United States, and how it could potentially threaten European security. One such area under scrutiny is digital payments.

The president of the European Central Bank (ECB), Christine Lagarde, has said she is alarmed.

Lagarde told independent Irish radio broadcaster, NewsTalk, recently that Europe would need to "reduce vulnerabilities that arise from the current payment platform's infrastructure being foreign-owned" and make sure there is a "European offer available -- just in case."

For her, it is "important to keep digital payments under our control."

Various degrees of reliance among EU countries

Europeans enthusiastically adopt cashless payment methods, with 56% of all cashless transactions in the first half of 2024 conducted via cards, as reported by the ECB. This accounts for over 40 billion transactions.

However, the degree of dependence on American payment networks such as Visa and Mastercard differs considerably among EU countries.

According to ECB data, some nations, including Ireland and the Netherlands, heavily depend on Visa and Mastercard. In contrast, others like Germany and France possess their own domestic payment card systems, making them less dependent on American companies.

In Germany, the Girocard — previously called the EC card — commands more than 70% of the market share, whereas in France, domestic payment systems make up almost 80%.

To what extent does this issue pose a concern?

A more cautious perspective comes from Hugo Godschalk, a seasoned payments consultant with over forty years in the financial sector. According to him, when examining overall European payment activity—which encompasses business-to-business transfers—less than 1% of the monetary volume moves through American systems, as reported by DW.

“You truly cannot discuss dominance in that scenario,” stated Godschalk, the managing director of PaySys, a payment systems consulting firm located in Frankfurt, Germany.

He disputes the ECB's assertion that domestic systems fail in handling cross-border transactions. While this may hold for buying goods in brick-and-mortar stores outside one’s country, he argued, it doesn’t apply to online purchases across European borders.

Rise of app-based payments

Europe’s susceptibility does not stop at card payments. Consumers are increasingly using their smartphones through various applications for transactions, an area dominated by U.S. technology companies such as Apple Pay, Google Pay, and PayPal.

ECB Chief economist Philip Lane informed attendees at a conference in Cork, Ireland, earlier this March that these app-based payment methods now make up almost 10% of total retail transactions. He also noted that their yearly growth rate is currently in the double digits.

Europeans are seeing a worldwide move toward a more multipolar financial system, where payment systems and currencies are being used increasingly as tools for geopolitical leverage and rival legal domains. These changes aim to allow entities to become less dependent on “dominant foreign monetary authorities,” according to him.

Lane cautioned that this reliance makes Europe vulnerable to economic pressures and intimidation tactics, which could undermine our strategic independence and hinder our capacity to manage crucial elements of our financial systems.

Can Russia’s approach be effective for Europe?

While what still exists as a theoretical discussion in Europe became actuality in Russia after the 2022 invasion of Ukraine. Following this event, major payment companies like Visa, Mastercard, American Express, and PayPal halted their services within the country. However, Russian President Vladimir Putin was ready for this possibility.

He had previously required that several years ago, the handling of domestic Visa and Mastercard transactions should occur inside Russia," explained Godschalk. This implies that tasks such as authorization, clearance, and settlement are managed entirely by Russian processors.

Consequently, Russians would be able to keep using their locally issued Visa and MasterCard cards—but solely for transactions inside Russia.

Godschalk proposes that this method might act as a short-term fix for Europe, enabling internal European card transactions to sidestep the Visa and Mastercard systems. This would make it more difficult for American firms to interfere with exchanges inside the EU.

However, putting such a system into place is not an easy shortcut. According to Godschalk, enacting EU-wide rules or laws to this extent would require at least two to three years.

Awaiting the arrival of the 'digital euro'

Godschalk thinks that the ECB’s cautions regarding payment dependencies could be partially aimed at advocating for what is known as a digital euro — a centrally issued currency akin to cash, which does not carry any credit risk.

On the contrary, funds held in bank accounts are generated by commercial banks and are generally considered less stable. In case of a bank failure, these funds might disappear — though deposit insurance usually shields account holders from experiencing such financial loss.

The ECB has been working on the digital euro project since 2021. The European Commission presented a draft law in June 2023, but the European Parliament has yet to approve it.

Key questions remain unanswered, such as whether all banks will be required to offer digital euro accounts, and whether merchants must accept them. As a result, the launch of the digital euro remains uncertain and could take years.

Up until now, the banking industry hasn't displayed much interest, as they're concerned about losing portions of their customer base. Additionally, customers haven't had strong incentives to move over to an alternative system, according to Godschalk.

Wero: A nascent European payments system

A project launched in 2020 and called European Payments Initiative (EPI) is also working on a homegrown alternative to US payment systems. It brings together European banks and payment service providers from several countries.

The latest payment system introduced under this initiative goes by the name of Wero and made its debut in July 2024. Several German banks have already integrated mobile payments through Wero into their services. In contrast to conventional bank transfers, which typically necessitate a lengthy 22-digit International Bank Account Number (IBAN), Wero allows for transactions simply with a mobile phone number or an email address—much like operations on platforms such as PayPal.

The problem? Hardly anyone has heard of it. A survey conducted in October 2024 by German price-comparison portal Verivox found that nearly 90% of 1,000 respondents in Germany said they didn't know what Wero is.

What about a credit card network in Europe?

This brings up the issue of why Europe has not managed to establish its own credit card network to compete with the major American players.

Godschalk pointed out that multiple efforts have been undertaken to create a European card system; however, significant nations such as Germany and France have shown minimal enthusiasm. This lack of interest mainly stems from the fact that the volume of transactions occurring across borders remains comparatively low.

Ultimately, the majority of these homegrown systems ended up being sold—ironically—to corporations based in the USA.

The article was initially composed in German.