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J.P. MORGAN REPORTS
What’s the buzz in EMEA?
5 minute read
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Europe, the Middle East and Africa are proving fertile grounds for innovation...
REGIONAL TRENDS WATCH
Europe, the Middle East and Africa (EMEA) comprises a diverse set of countries with a multiplicity of cultures, business environments and consumer preferences. What unites the whole region, however, is that payments innovation is typically driven by regulation. To navigate this diverse ecosystem, and the challenges and opportunities it presents, it is therefore essential to understand those regulatory drivers and the payments themes that are taking shape in response.
Click on number below for more information on each country
1. Netherlands
“PAY BY BANK” GOES INTERNATIONAL
In the Netherlands, 70 percent of e-commerce payments are by bank-to-bank transfer (a.k.a. “account-to-account”) via the iDEAL system, a sign of what can be achieved through the combination of open banking and instant payments. In 2023, iDEAL was acquired by the European Payments Initiative (EPI). This association of 16 different European lenders wants to create a pan-European payments system, and the acquisition heralds the potential for the development of a cross-border account-to-account network.
2. UK
Digital money gains momentum
The concept of Central Bank Digital Currency (CBDC) continues to gain momentum in the UK, with the Bank of England recently publishing a consultation paper on a potential digital pound, written in conjunction with HM Treasury. The focus will now move onto a design phase over the next two to three years, which will examine the technology and policy requirements, and seek input from the public.
This is happening in parallel with CBDC activity on the continent. The European Commission published a proposed legal framework for a digital euro on June 28th 2023, and the European Central Bank is leading reviews to determine how a digital euro could be designed, distributed and regulated.
3. Saudi Arabia
Leading the Middle East in real-time payments
The Middle East is now the fastest-growing RTP market in the world. RTP transactions are expected to increase at an annual rate of 30.6 percent between 2022 and 2027, reaching a value of $2.6 billion. This is being driven by Saudi Arabia, which is attempting to modernize its payments infrastructure and increase the adoption of digital payments as part of its 2030 Vision. With around two-thirds of the Saudi population currently under the age of 25, digital wallet usage is already high, and by 2027, it is estimated that the majority of payments in the Kingdom will be electronic.
4. Germany
Watching the development of PSD3
Open banking is booming in Germany. According to analysts, it has the highest number of third-party providers (TPPs) in continental Europe. These are the companies that use APIs to access customer bank account information in order to provide commercial services. The sector is watching closely, therefore, as the European Commission moves to update its laws governing digital payments. The upcoming Payment Services Directive 3 (PSD3) framework has ambitious, wide-ranging goals, including “improving the functioning of open banking”. In practice, it will almost certainly require banks and financial institutions to move towards standardized APIs, improving quality and accessibility.
5. Brussels
European Lawmakers say yes to digital ID wallets
The European Parliament has voted in favor of creating a European Digital Identity (EUDI) wallet, where citizens can store IDs, health cards and other documents in a smartphone wallet. The goal is to have a digital ID solution available for 80 percent of the population by 2030 (approximately 350 million people). Use cases include payment verification and opening bank accounts, among many others. This will build on the groundwork done by local solutions such as DigiD in The Netherlands and SPID in Italy, and is considered an important step towards creating a digital ID card in the region.
6. Nigeria
In Nigeria, 63 percent of all point-of-sale transactions were conducted in cash in 2022. Yet e-payments are rising fast, driven by the wide availability of mobile phones. Electronic payments revenue is now growing by 35 percent per year, the fastest across the continent. Other African countries are also rapidly following suit, with the continent’s domestic e-payments market expected to grow 20 percent per year until 2025. This compares to a global revenue growth in e-payments of seven percent. What’s more, growth is set to remain high for the foreseeable future, as electronic and digital payments still account for only five to seven percent of payments in the region.
One driver is new technological standards. The UK, South Africa and Switzerland, for instance, have all migrated to ISO 20022, and the Eurozone has expanded its existing use. This standard aims to move towards one common language for payment messaging, and enrich the data in payments messages for better, faster and more secure processing.
Another trend is the new series of regulations and initiatives in the Middle East that are enabling incredible progress towards real-time payments (RTP), with Saudi Arabia, Bahrain and the UAE leading the way.
And then there are the regulations relating to local programs such as UK Faster Payments and the Single Euro Payments Area, which are evolving as digital retail places ever-greater emphasis on the seamless secure processing of payments. For example, the UK has recently quadrupled its faster payments limit from £250,000 to £1 million.
Payments innovators within EMEA approach this fast changing landscape with expertise, curiosity, and a clear belief that payments can deliver more value tomorrow than ever before.
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ILLUSTRATION: MANUEL BORTOLETTI
