What: Local card schemes in Europe face decline as global payment providers dominate with superior technology and cross-border capabilities.

Why it is important: The decline of local card schemes could lead to reduced competition in the European payment market, potentially affecting pricing and innovation in financial services, including department stores’ own credit card systems.

Europe's local card schemes, once the backbone of domestic banking systems, are rapidly losing ground to international giants like Visa and Mastercard. This decline is primarily driven by the local schemes' struggle to innovate at the same pace as their global counterparts, who leverage economies of scale to remain at the forefront of payment technology and user experience.

Key factors contributing to this shift include the local schemes' slow adoption of digital wallets, limited investment in robust online payment capabilities, and confined geographical reach. In contrast, global providers offer seamless cross-border transactions, a critical feature in an increasingly interconnected economy.

The integration costs for local schemes remain high, requiring significant investment in technical infrastructure, regulatory compliance, and security measures. Additionally, these schemes struggle to forge strategic alliances with high-growth stakeholders in the payment ecosystem, while new market entrants often default to partnerships with Visa and Mastercard.

This trend is further exacerbated by the e-commerce boom, where local schemes have failed to establish a strong presence, leaving them vulnerable in the rapidly evolving digital payments landscape. As a result, the European payment market faces the risk of reduced competition, potentially impacting innovation and pricing in financial services.

IADS Notes: Recent developments in the payment industry underscore the challenges faced by local card schemes. Visa and Mastercard's USD 30 billion settlement with US retailers over credit-card swipe fees (BoF, March 2024) demonstrates the significant market power of these global giants. This settlement, which includes measures to reduce swipe fees and allow merchants more flexibility in payment processing, highlights the influence these companies have on retail transactions worldwide. Simultaneously, traditional financial institutions, particularly department stores, are grappling with potential changes to credit card regulations. The Wall Street Journal (February 2024) reported on the impact of proposed caps on credit card late fees, which could significantly affect the profitability of store-branded credit cards. These events illustrate the evolving landscape of the payment industry, where global players are strengthening their positions while local institutions must adapt to new regulatory and market pressures.

Europe's local card schemes on a steady decline