Can Europe free itself from Visa/Mastercard?

Europeans are dependent on American payment systems for their day-to-day commerce. What would happen if they suddenly didn't work? Christine Lagarde says a European payment system is urgently needed.

Europeans may not have given it much thought, but every time they make a payment with a credit or debit card they are dependent on the United States. That’s because the credit card companies are American, and the payment infrastructure that’s being used is American-controlled. It is not only Europeans’ military security that Donald Trump can throw into chaos with one swipe of a pen. He could also, conceivably, turn off Europeans’ ability to pay for everyday purchases.

On Friday, European Central Bank president Christine Lagarde told Irish radio that Europe needs to eliminate this vulnerability urgently. “It’s important for us to have digital payment under our control,” she told The Pat Kenny Show. “When you think of it, at the moment a lot of our digital payments, when you do e-commerce or peer-to-peers, or you use your card or your phone, you always rely on non-European infrastructure…the whole infrastructure mechanism that allows for payments, credit or debit, is not a European solution.”

“I didn’t realise this,” replied the shocked host. “It means that every time I use my credit card or my phone [to make a payment], that information about me is leaving the European Union and going to the US.”

“Yes, that is the point,” she replied. “But we have the assets and opportunities to do that [ourselves]. And if we were to remove the internal barriers that we have set for ourselves in Europe, our economic wealth would increase significantly.”

Right now, the payment solutions we use here in Europe that are not American are national-only and cannot be used outside our own country. For instance, here in Belgium we have Payconiq which allows us to make payments online or in person using a QR code generated by our banking apps. But if you’re buying something online from next door in the Netherlands, you can’t use it. The Netherlands have their own payment system called iDEAL. So when I order something from the Netherlands, I need to use Visa, Mastercard or Paypal. The European Commission has been supporting the European Payments Initiative which is trying to unite these national systems but so far it hasn’t had success. The payments dependency problem has been plagued by the same problem that has dogged efforts to lessen Europe’s military, trade and cultural dependency - Europeans have felt no urgency to do so. Since almost everyone has a Visa, Mastercard or Paypal (all American companies), they can just use those when travelling to another EU member state or buying something from a website somewhere in the EU that’s not their home country. Few have seen any problem with this.

Sam Wilkin has written about this phenomenon over at The Leopard, noting that this dependence on American payment infrastructure has resulted in the odd situation of us constantly getting prompted to participate in an American tipping culture that doesn’t exist here in Europe. It is just one way in which The Inescapable Nation dominates our daily lives here.

The inescapable nation

Some Europeans may be under the mistaken impression that they are using a European payment system when they use their Maestro debit card - a system that is accepted for payments all over Europe but isn’t accepted in the United States. But guess what - Maestro is owned by Mastercard. So even though it can’t be used in America, Maestro is still American.

Now, as the EU considers retaliatory tariffs targeting American services, these credit and debit card transactions are suddenly in play. Could Brussels put a tax on every credit card transaction? Would that encourage the rapid development of a pan-European payments solution? Or could we be looking at an even more dire situation? Could President Trump forbid Visa, Mastercard and Paypal from executing payments in Europe as an act of economic coercion? Think about it - what would you do if those three forms of payment were suddenly unavailable to you? Sure you could bring cash to the grocery store, but what about online payments?

It has been clear for some time that Europe’s dependence on Visa, Mastercard and Paypal poses a threat to this continent’s economic autonomy. There have been some small efforts to fix the situation, but each effort peters out. One year ago the EU adopted euro instant payment rules to take on Visa and Mastercard. The new regulation was supposed to allow customers to transfer euro-denominated money within 10 seconds at any time, including outside business hours, not only within the same country but also to another EU member state. Before this, these direct bank-to—bank transfers were free to make within the EU (EU law forbids banks to charge a fee for this), but they could take several days to process making them impractical for purchases. "The new rules will improve the strategic autonomy of the European economic and financial sector as they will help reduce any excessive reliance on third-country financial institutions and infrastructures," the Council of the EU said in a statement after the adoption.

But flash forward a year later and the reality is these payments are not yet instant. Banks are dragging their feet, and the changes have not been advertised to consumers or businesses as a new possibility for making transactions. In almost all circumstances, you still cannot go to a store and make a direct payment transfer to buy milk. Again, nobody wanted to go through the effort of setting up new payment methods when Visa and Mastercard are already so entrenched.

The European Payments Initiative was launched in 2020 but it has faced several challenges that have hindered its development. Similar to past initiatives, EPI struggles with the fragmentation of national interests and financial regulations across member states. Each country pursues its own solutions, leading to a lack of cohesion and standardisation essential for a successful pan-European platform to work. The involvement of numerous stakeholders, including banks, payment service providers, and national governments, has complicated the decision-making process. There have also been technological challenges. Developing a competitive payment solution requires substantial investment in technology and infrastructure. Many European banks have been slow to adapt to new digital payment technologies, which further delays the rollout of a unified system.

The risk of Visa and Mastercard suddenly becoming available in Europe isn’t the only reason for concern. There are also concerns about data sovereignty and privacy. Transactions processed by American companies are subject to US regulations and policies that may not prioritise European privacy standards, exposing sensitive consumer data to potential breaches and misuse. Dependence on foreign payment systems can lead to vulnerabilities during geopolitical tensions. Sanctions or changes in US foreign policy could disrupt payment systems. And then there is the obvious economic component: for each credit card transaction we make here in Europe, the money for the fees is flowing across the Atlantic and benefitting the American economy rather than benefitting our own European economy.

In her Irish radio interview, Lagarde said the tools are there to fix this but Europeans need to finally use them. “We should not be exclusively focused on what is happening on the other side of the pond,” she said. “We should focus on the strength that we have at home and how we can regain a degree of independence that we don’t have. That applies to defence, it applies to trade, and it applies to finance. From my perspective, it applies to the way money moves around Europe - capital markets which are completely scattered all over Europe and need to be better organised and more consolidated, and possibly singly supervised.”

Lagarde is pushing for completion of the Capital Markets Union (CMU), which was supposed to create a single capital market across EU member states. It was meant to improve the flow of investments and savings within Europe to give European businesses better access to funding and citizens better savings accounts. According to a recent report by the European Parliamentary Research Service called “Mapping the Cost of Non-Europe”, deeper integration could generate over €2.8 trillion in additional EU GDP by 2032.

“If we were to remove the internal barriers that we have set for ourselves in Europe, our economic wealth would increase significantly,” Lagarde said. “The IMF has produced some studies about that. It’s clear that our own barriers in services are equal to 110% tariffs. In goods it’s equal to 40% tariffs. We have to remove that.”

But there is a reason the CMU and the EPI haven’t been completed. Simply put, it is European laziness. It was easier to just accept the American solutions that dominate the payments market than to set up something new, and as long as Europeans were convinced that America would always be a friend and ally, there didn’t seem to be any compelling reason to put the work in to end this monetary transaction dependance. Now, as the US government makes military and economic threats against Europe and is forming a nascent alliance with Russia, Europeans are waking up. Hopefully, it’s not too late.