Introduction to European Dependence on US Payment Systems
Europe has been concerned about its dependence on the United States, particularly in the area of digital payments, since Donald Trump’s return to power. This concern is centered around the potential risks to European security. The President of the European Central Bank (ECB), Christine Lagarde, has expressed her concern, stating that Europe needs to reduce its weaknesses resulting from its current payment platform’s foreign ownership and ensure a "European offer is available" in the event of a crisis.
Dependence on US Card Networks
Europeans are avid users of cashless payments, with 56% of all cashless transactions being carried out using cards in the first half of 2024, according to ECB data. However, the extent of dependence on US card networks like Visa and MasterCard varies significantly among EU member states. Some countries, such as Ireland and the Netherlands, are completely dependent on Visa and MasterCard, while others like Germany and France have their own domestic card systems and are less dependent on US companies.
Levels of Dependency
In Germany, the Girokard (formerly known as the EC card) holds over 70% of the market share, while in France, national payment systems account for almost 80%. This disparity highlights the need for a unified European approach to reduce dependence on US payment systems. An expert, Hugo Godschalk, offers a more skeptical view, stating that if one looks at the entire European payment transactions, US systems account for less than 1% in terms of value creation.
The Problem of Dependency
The ECB claims that national systems do not work for cross-border payments, which could apply to purchases in physical shops abroad. However, Godschalk questions this claim, stating that it does not apply to online purchases in Europe. The Europeans are experiencing a "global shift into a multipolar currency system, whereby payment systems and currencies are increasingly being exposed to instruments of geopolitical influence and competing jurisdiction."
Increase in App-Based Payments
Europe’s vulnerability does not end with card payments. Consumers are increasingly paying with smartphones via apps, with American technology companies like Apple Pay, Google Pay, and PayPal dominating the market. These app-based payments already account for almost 10% of all retail transactions, with annual growth rates in double-digit numbers.
Russia’s Model as a Potential Solution
What remains a thought in Europe has already become a reality in Russia. After the invasion of Ukraine in 2022, Visa, Mastercard, American Express, and PayPal stopped operations in Russia. However, President Vladimir Putin had prepared for such a scenario by ensuring that the processing of domestic Visa and Mastercard transactions took place in Russia. This approach could serve as a temporary solution for Europe, enabling intra-European card payments to avoid Visa and Mastercard networks.
The Digital Euro
The ECB has been working on the digital euro project since 2021, which aims to promote a currency issued by the central bank with no credit risk, like cash. The European Commission submitted a draft law in June 2023, but the European Parliament has not yet approved it. Important questions remain unanswered, such as whether all banks must offer digital euro accounts and whether retailers must accept them.
Wero: A European Payment System
A project introduced in 2020, named European Payment’s initiative (EPI), works on a local alternative to US payment systems. The initiative’s new payment system, called Wero, was introduced in July 2024 and allows users to send money with a mobile phone number or an email address, similar to PayPal. However, hardly anyone is aware of Wero, with a survey showing that almost 90% of respondents in Germany did not know what Wero was.
The Need for a European Credit Card Network
This raises the question of why Europe could not build its own credit card network to keep up with American giants. Godschalk found that several attempts were made to establish a European card system, especially in large countries like Germany and France. However, most domestic systems were sold to US companies, highlighting the need for a unified European approach to reduce dependence on US payment systems.
