Journal of Payments Strategy & Systems, Vol. 19, No. 1 2025, pp. 8-18 Henry Stewart Publications, 1750-1806 Included in The Business and Management Collection (https://hstalks.com/business/) DOI: 10.69554/MLGO8262

About the Author: Atze Faas is a payments adviser for EuroCommerce, as well as an independent speaker and consultant in the field of payments. After completing his degree in business economics, he worked for more than 30 years at bp, in various roles including accounting, engineering, shop, wholesale, health-safety-security-environment (HSSE), sales, European cards marketing and payment acceptance. In that latter role, he managed the business side of bp's European terminal and in-app/online payments landscape.  

In this paper, Atze Faas shares his perspective on merchant payments, drawing on his personal experience working for bp, a large fuel retailer, as well as his recent activity working on retail payments in the EU context. After covering the key processes for establishing and executing a payments strategy, he discusses the legislative process of the EU in general. Before diving into the current payment related files currently under discussion, he explains how Europe has non-bank payment institutions and multiple domestic schemes. He covers the lack of competition and transparency around card payments, the importance of European payment solutions, such as instant payments and the digital euro, and the acceptance of cash. He finishes with a call to all stakeholders in the payments ecosystem to keep engaging with merchants.  

Keywords: merchant payments, card schemes, instant payments, digital euro, cash, payment strategy, legislative process, competition  

Retailers, whether small to medium-sized enterprises (SMEs) or leading global brands, such as Ikea, Zara, and Carrefour, are accustomed to slim margins, typically in the range of 1-4 per cent. Compared with the margins enjoyed in other sectors, this figure is relatively small. Led by EuroCommerce, the European retail sector has therefore always been very vocal about payment-related matters, especially the associated costs. For example, the retail sector's complaint about Visa and Mastercard eventually led to the Interchange Fee Regulation² in 2015.  

As banks, payment service providers (PSPs) and consumer organisations have historically been better organised to influence European politics, associations from airlines, hospitality, retail and SMEs have formed the Merchant Payments Coalition Europe to increase awareness regarding the merchant side of payments.  

Merchants are often accused of focusing on the costs of payments only. The opposite is true. As with any product or service, they weigh value against cost. So, while a prohibitively expensive albeit superb customer experience will be judged unviable, a cheap but lousy customer experience will not cut it either. Merchants want to offer a great, not necessarily the best, customer journey at affordable costs.  

When looking at cost, merchants should include internal cost, as not all payment costs are external. Internal costs include the cost of integration, operation and changes to the payment infrastructure. Financial, operational and reporting process also use up resources. Therefore, merchants need to take an end-to-end approach to payments in support of business objectives, as shown in Figure 1.  

(Balance customer experience with cost/value)

Source: AMF Company  

This starts with defining how the payment strategy will support the merchant's business objectives. These objectives must include which countries, which channels, which type of customers, which volumes/values, etc.  

For example, if a retailer wants a new payment solution for in-store and online payments, but instead of explaining which business objectives the new payment solution should support, makes a more abstract request for something that is 'fast, omnichannel and customer-friendly', the lack of quantitative and qualitative requirements will make it hard to put out a tender.  

Business requirements are derived from the payment strategy. This strategy must include a definition of what the customer and merchant experience should look like, including in terms of speed and availability; what IT standards must be met; which languages will be supported; how support will be organised; how change management processes will work; what payment methods must be offered by when; and what payment information the customer and store receipts must contain.  

Only then should a request for proposal be shared with possible vendors. In the case of very specific requirements, a request for information might be needed to identify potential vendors and assess their capabilities.  

Once selected, a painstaking exercise will be needed to translate business and IT requirements defining the 'what' into vendor deliverables being the 'how'. In parallel, merchants will have internal approval processes, such as preparing business cases, freeing up budgets and obtaining authority to negotiate.  

After the contract is negotiated, development and implementation can start, preferably through a co-creation setup that supports an iterative process, whereby vendor developers show early versions for merchant feedback and merchant staff work alongside vendor staff. Both parties must recognise that successful client-vendor relationships need a new mindset. It also could mean that parts of the contract might need renegotiating to cater for the changes coming out of this co-creation process.  

While the technical implementation might be challenging, the business and financial process integrations are even more crucial. Broken processes will cost more in customer dissatisfaction and manual intervention on the merchant side than any saving on the technical implementation costs. The same applies to operating the payments solution: technical, operational and financial processes must work seamlessly together both at store level and in the head office. In particular for large merchants, standardisation and simplification are fundamental. This will generate benefits from economies of scale and easier transposition to other business lines or countries.  

Consider the following example, where the offer development team approached the payments team with their latest innovation: a robot barista. Customers would order their coffee-con-whatever from the robot, who would then prepare it swiftly and perfectly. It was quite late in the process when the offer development team realised that customers would also have to pay. The payments team obviously asked about payment methods, volumes, countries, integrations, suppliers and how to record sales and reconcile payments; the offer development team replied: 'it's only a pilot let's see if it takes off before we worry about the details', and got the supplier they had found to provide the functionality with a few lines of code. And, of course, once the pilot worked and was scaled up, the non-standard PSP had to be integrated into the overall landscape, because reintegration with the merchant's usual vendors would be too costly and complicated.  

An essential stage that is often overlooked is closing the feedback loop. Ensure that reporting and performance management feed back into the strategy; ask how the payments solution has helped to achieve the business objectives. What can be done to improve further and what problems must be corrected in what way. This should lead to updated business objectives and an updated payments strategy, and the whole cycle continues from thereon.  

Because getting paid is such a crucial part of doing business, larger merchants should ensure the payment function is addressed sufficiently high in the organisational hierarchy. Even though no such official title existed, I often referred to myself as 'Chief Payment Officer' including the quotation marks, and a wink. It certainly got the attention of senior management.  

Merchants' prime focus is serving customers. Any propositions from suppliers and service providers to merchants will be evaluated against how it will help their customers and/or how it will improve their processes and cost. Of no help to merchants are the numerous pieces of European legislation (see Figure 2) that contain payments elements that merchants must somehow make sense of and plan for, not to mention the Payment Cards Industry standards and scheme requirements. The additional interplay of these regulatory requirements makes life for merchants increasingly difficult, and merchants continue calling upon the legislators to reduce the cost and burden of regulation for merchants.  

Figure 2: A non-exhaustive list of European payment legislation

Source: EuroCommerce  

The EU and the wider European Economic Area are by nature complex. The law-making process is lengthy and somewhat convoluted through the Ordinary Legislative Procedure, with the European Commission usually taking the initiative, as with the 2020 Retail Payments Strategy, for example. When an initiative leads to legislative proposals, the European Parliament and European Council will discuss them and agree a negotiation mandate with possible amendments. The three parties the European Commission, European Parliament, and European Council will then start a three-way negotiation called 'trilogue'." When they eventually reach agreement, European directives and regulations become final. Member states are then required to implement these, either 'as-is' for regulations or for directives via 'transposition' into national law. In both cases, the 'entry into force' and 'applicable as of dates are important milestones, because different obligations from the legislation can become applicable at different dates well after the date of entering into force. While regulations will achieve the highest degree of harmonisation between member states, directives give more freedom to member states to adapt the directive's principles to specific national situations. The latter often leads to different interpretation or application of the legislation by national competent authorities, making it harder for merchants to operate in the single European market.  

During the entire process, external interest groups are invited to submit their views but may also send in unsolicited views and positions, hoping to influence lawmaking to suit their constituencies.  

Merchants are calling on the EU institutions to prioritise enforcement of existing legislation in the new term that started in 2024 rather than introducing new legislation.  

Unlike in most parts of the world, non-banks in Europe can obtain payment licences. Where credit institutions (banks) can also offer loans and mortgages alongside holding money and performing transactions, E-money institutions (EMIs) cannot give credit but can hold money on customer accounts. Third-party providers, such as payment initiation service providers (PISPs) and account information service providers (AISPs), cannot give credit nor hold money, but they can respectively execute a payment transaction or obtain data from a payment account, such as transactions, addresses and account holder details. Towards the end of 2024, approximately 300 of these third-party providers (PISPs and AISPs) were active in Europe.  

This 'unbundling' is intended to promote competition and innovation, but on the flipside, it can lead to fragmentation and supervisory headaches. Indeed, as all participants throughout the ecosystem need to make a margin in the end, this disintermediation can actually lead to the overall cost of payments rising for merchants, also because more providers have to be managed.  

Merchants increasingly focus on payments, because getting paid is a crucial part of the customer journey. Payments are no longer just complex and costly, but an immense source of value. Some big European merchants have therefore set up in-house PSPs, either EMIs, PISPs or AISPS, to 'own' the payments experience from A to Z (eg Carrefour has MarketPay, while Rewe has Paymenttools). These in-house PSPs can of course offer their services to other (smaller) merchants, who feel better 'understood' by them than by PSPs from the financial services industry.  

Domestic debit card schemes, such as Girocard in Germany, Bancomat in Italy, Cartes Bancaires in France, and Multibanco in Portugal, are on a steady decline." Although their acceptance is limited to one country, with non-domestic transactions using Mastercard or Visa rails, these 'co-badged domestic cards are important to merchants who appreciate their attractive fees and the competitive edge they represent versus the international card schemes.  

Increasingly, however, domestic schemes are under threat. Issuers are more inclined towards mono-badged Mastercard or Visa debit cards, which are usually Interchange++10 (or a blend thereof) percentage-based priced, and bring in more money than domestic schemes, and as such are almost always more expensive for merchants than domestic schemes. Domestic schemes usually have a lower single percentage or even a fixed fee per transaction. International card schemes sometimes incentivise merchants to stop accepting a domestic scheme; however, the economics seldom work out.  

Lack of competition and transparency

European merchants are concerned that retail payments are hugely reliant on US providers, particularly for cross-border payments. Card schemes such as Mastercard and Visa, and other providers such as Paypal, as well as Apple and Google, have given consumers and merchants great benefits in terms of convenience, security and speed. This comes at a price, however, and has made European merchants, and indeed Europe as a whole, quite dependent on these providers. As payments are crucial for a functioning economy, focus on European strategic autonomy and resilience on payments is needed to stay alive and competitive globally. Recent examples show how payments can be used to further geopolitical goals through sanctions, pricing, non-EU legislation and scheme rules. As the Draghi report shows, Europe's share in the world economy has fallen by some 50 per cent in recent years.  

European merchants worry that Europe seems to move too slowly and is too fragmented. Some seven initiatives instant payments, 12 digital euro, digital identity, European Payments Initiative (EPI), 15 European Mobile Payments Solution Association (EMPSA), European Payments Alliance (EuroPA)17 and SEPA Payment Account Access (SPAA) 18 are fighting for priority not just in the regulatory process but also for resources in the private sector. The strong position of predominantly US providers is only increasing, causing significant amounts of money and data flowing to the US, with little control on how they are being governed or how the money and/or data are invested back in Europe.  

With a new US administration taking office and the increasing assertiveness of the BRICS nations, the momentum and political will to establish pan-European digital payment solutions with sufficient scale, whether private or public, appear greater than ever. European merchants want European payment solutions to succeed; not to replace cash or cards, but to gain a significant market share and thus help lower the average costs of payments (which have only gone up in recent years due to the increased popularity of e-commerce and buy now pay later) and, in doing so, increase competition, transparency and innovation in the European payments market.  

The lack of transparency and comparability of (increasing) scheme fees as flagged by merchants and acquirers, has caught the attention of regulators in the UK and in the EU. The acceptance side has little to no room to influence or negotiate these scheme fees, which have risen by 50 per cent in recent years, 19,20 all but negating the effect of the reduced consumer interchange fee capped under the Interchange Fee Regulation of 2015.  

Scheme fees are notoriously complex to understand and apply. International cards schemes are failing to justify them to consumers and business in terms of value or cost trends. As schemes compete for issuer preference, they use scheme fee rebates/incentives to convince issuers to select their brand, and in many cases stop co-branding with domestic schemes. This leads to net scheme fees decreasing or even a net credit for issuers.  

These trends in scheme fees leads to 'reverse competition', in other words 'a race to the top', because greater scheme fees mean bigger incentive budgets, so better chances of winning issuers. This creates an upward pull on the merchant fees of domestic schemes, as well as new stakeholders, such as EPI, to keep things interesting for those issuers.  

In the context of financial literacy, consumers and merchants deserve to have access to transparent and comparable payment cost data in order to be able to make informed decisions.  

The proposed third Payment Services Directive (PSD3) and first Payment Services Regulation (PSR) are due to succeed the revised Payment Services Directive (PSD2) in the coming years. In PSD3, the prudential rules around providing payment services as well as e-money services will be bundled and updated. The PSR contains the (updated) rules of conduct for payment and e-money services. Both are more an evolution of PSD2, which was more of a revolution of the first PSD.  

Merchants want specific amendments to align legislation with their reality and ensure the better functioning of the EU single market. For instance, merchants need to retain the right to surcharge for certain payment methods in order to be able to influence consumer behaviour and to maintain commercial pressure. Unfortunately, consumers tend to think 'payments are for free' and do not realise they have a choice. Merchants are convinced that surcharging and discounting are invaluable tools to enable consumers to make an informed choice regarding which payment method to use. In their recent special report, 25 the European Court of Auditors recommended the removal of surcharging bans in the absence of proof that they work.  

With respect to gift cards and meal vouchers, merchants need the legislation amended so these stay attractive for both consumers and merchants. On refunds, merchants need the proposed legislation to oblige issuers to credit consumers immediately, rather than days later, as this is what consumers have come to expect in the digital age.  

On strong customer authentication (SCA), changes are proposed to reduce friction while maintaining the additional fraud prevention it brings. Merchants also do not understand why transactions where SCA has been applied successfully can still be priced differently. Merchants see no reason why commercial card transactions should be more expensive than those with consumer cards, credit cards more than debit cards, e-commerce more than in store, and interregional more than domestic. With SCA and authorisation correctly performed, a transaction is out of the merchant's hands, and those pricing differences are therefore not justified.  

In support of greater European autonomy and resilience in payments, merchants see the potential of the digital euro and instant payment acceptance in stores and in web shops (see Figure 3). Merchants expect competitive pricing while meeting the needs both consumers and merchants with respect to speed, convenience and security.  

Figure 3: Why merchants love instant payments and the digital euro

Source: EuroCommerce  

On the back of the 2024 Instant Payments Regulation, that requires all banks and PSPs that offer 'ordinary' credit transfers, to offer instant (ie real-time) credit transfers from 2025 onwards, account-to-account schemes like EPI, EMPSA, EuroPA and SPAA use instant payments as the basis for their propositions.  

While merchants welcome competition, they fear consumer confusion, fragmentation of volume and high implementation costs from this European infighting. They prefer to see these private initiatives somehow converging into a European winner that can also compete globally.  

In 2021, the European Central Bank (ECB) launched an investigation into a central bank digital currency (CBDC) for the euro area. In 2023, the digital euro project moved into the preparation phase until end of 2025, during which time the rulebook will be further developed, experiments will be undertaken and suppliers sourced. The ECB is keen to work with the private sector to ensure the digital euro will be a success while meeting the expectations of private sector stakeholders. A go/no-go decision by the ECB can only be made when European legislation is passed to enable the digital euro. Currently there is no sight on when this will happen, so a digital euro will not appear before 2026 or even 2027.  

In general, merchants welcome the digital euro as a more cost-effective alternative to most other current payment methods, bringing more competition and innovation. However, merchants worry about consumer uptake and costs. If the digital euro is positioned simply as a 'digital form of cash', and in the context of explaining the role of 'public money' in European autonomy, resilience and privacy, winning the hearts and minds of consumers will be easier than including the more sophisticated functionality (eg conditional payments) and use cases (eg recurring payments) from the start, as the ECB seems to wish. With free basic use for consumers and potentially mandatory acceptance, merchants are vulnerable to PSPs charging similar fees for digital euro services as for cards, which will cause merchants to lose interest.  

For both instant payments and the digital euro, merchants expect a fee-per-transaction (and no fee for low-value transactions) or, as a minimum, a cap on percentage-based fees. Merchants will then benefit from economies of scale when transaction volumes and/or values increase.  

In order not to be seen as neglecting cash, European legislators have proposed a 'legal tender status' for euro banknotes and cash. 26 The proposal calls for the ubiquitous acceptance and availability of cash with very few exceptions. The increasingly popular 'no cash' signs in some member states would be outlawed.  

Merchants are not against accepting cash, provided it is safe, practical, affordable and meets customer demand. For instance, in manned fuel stations, public transport or night shops, the mere presence of cash causes safety risks where criminals violently endanger staff and consumers. In unmanned use cases, such as vending machines, EV chargers, unmanned fuel stations and parking machines, retrofitting cash acceptance will be very expensive if at all possible. In Nordic countries and also the UK and the Netherlands, consumers are quite used to cash-free payments in specific use cases, so it does not make sense to force merchant investments in a cash acceptance infrastructure that will likely remain largely unused. Finally, if cash acceptance becomes mandatory due to its public money nature, any fees relating to the handling of cash must be capped in order to protect merchants from the excessive fees charged by banks and cash-handling service providers.  

As shown in Figure 4, stakeholders in the payments ecosystem should take note of the following in order to help merchants:  

Figure 4: What European merchants need

Source: EuroCommerce  

Keeping merchants engaged: All too often, the focus of legislators is largely on banks, PSPs and consumers. Merchants represent the acceptance side of transactions and must be better included in future.  

Strengthening SEPA: Merchants want to see stronger European payment solutions. Only a competitive European payment solution will bring the expected volumes, increase competition and reduce Europe's reliance on non-European providers.  

Converging legislation: More effort is needed to ensure that the various pieces of payment legislation fit with each other.  

Clear prioritisation: As with banks and PSPs, merchants have limited resources. Merchants call on the EU institutions to provide more guidance/leadership in what should be implemented first and what can come later.  

Keeping the end-to-end perspective in mind: The effect of turning one or two screws in the technical and/or operational processing of payments needs to be evaluated from the end-to-end perspective. Legislators, banks, schemes and PSPs often underestimate the impact of changes to the holistic ecosystem of merchant operations.  

Merchants need payment services to work for them too, not just for consumers and PSPs. In other words, it is vital to start thinking about payments from the merchant perspective.  

(1) EuroCommerce is the leading trade federation for retail and wholesale in Europe, representing some 26 million jobs, around 10 per cent of EU GDP and some 250 million transactions per day, available at: www.eurocommerce.eu (accessed 18th December, 2024).

(2) European Commission (EC) (2015) 'Regulation (EU) 2015/751 of the European Parliament and of the Council on interchange fees for card-based payment transactions', available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32015R0751&qid=1678101164620 (accessed 18th December, 2024).

(3) EuroCommerce (2024) 'Payments are the lifeblood of commerce', available at: www.eurocommerce.eu/payments (accessed 18th December, 2024).

(4) PCI Security Standards Council (PCI SCC), available at: https://www.pcisecuritystandards.org/ (accessed 18th December, 2024).

(5) European Council (n.d.) 'The ordinary legislative procedure', available at: https://www.consilium.europa.eu/en/council-eu/decision-making/ordinary-legislative-procedure/ (accessed 18th December, 2024).

(6) European Commission (EC) (2020) 'Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on a Retail Payments Strategy for the EU', available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52020DC0592 (accessed 18th December, 2024).

(7) European Union (EU) (n.d.) 'Trilogue', available at: https://eur-lex.europa.eu/EN/legal-content/glossary/trilogue.html (accessed 18th December, 2024).

(8) Statista (2025) 'Number of open banking third party provider (TPP) registrations in Europe as of the 2nd quarter 2024, by country , available at: https://www.statista.com/statistics/1214254/number-of-open-banking-third-party-registrations-in-europe-by-country/ (accessed 18th December, 2024).

(9) Flagship Advisory Partners (2024) 'Europe's Local Card Schemes on a Steady Decline', available at: https://insights.flagshipadvisorypartners.com/europes-local-card-schemes-on-a-steady-decline (accessed 18th December, 2024).

(10) Interchange fee (what the issuer gets) + scheme fee (what the scheme gets) + acquiring fee (what the acquirer gets).

(11) European Commission (EC) (2024) EU competitiveness; Looking ahead', available at: https://commission.europa.eu/topics/strengthening-european-competitiveness/eu-competitiveness-looking-ahead_en (accessed 18th December, 2024).

(12) European Commission (EC) (2024) 'Instant payments in euro', available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52024AP0065&qid=1734524199624 (accessed 18th December, 2024).

(13) European Central Bank (ECB) (n.d.) 'Digital euro', available at: https://www.ecb.europa.eu/euro/digital_euro/html/index.en.html (accessed 18th December, 2024).

(14) European Commission (EC) (2024) 'Regulation (EU) 2024/1183 of the European Parliament and of the Council amending Regulation (EU) No 910/2014 as regards establishing the European Digital Identity Framework', available athttps://eur-lex.europa.eu/eli/reg/2024/1183/oj (accessed 18th December, 2024).

(15) EPI Company (n.d.) 'Changing the way Europe pays', available at: https://epicompany.eu (accessed 18th December, 2024).

(16) European Mobile Payment Systems Association (EMPSA) (n.d.) 'Enabling seamless mobile payment across Europe', available at: https://empsa.org/ (accessed 18th December, 2024).

(17) SIBS/Bancomat/Bizum (2024) 'Leading European mobile payment solutions BANCOMAT, BIZUM and MB WAY pioneer interoperability launching first instant transactions', available at: https://www.sibs.com/wp-content/uploads/sites/13/2024/11/241113_Leading-European-mobile-payment-solutions-BANCOMAT-BIZUM-and-MB-WAY-pioneer-interoperability-launching-first-instant-transactions.pdf (accessed 18th December, 2024).

(18) European Payments Council (EPC) (2023) The SEPA Payment Account Access (SPAA) Scheme Rulebook, Version 1.1', available at: https://www.europeanpaymentscouncil.eu/document-library/rulebooks/sepa-payment-account-access-spaa-scheme-rulebook (accessed 18th December, 2024).

(19) European Central Bank (ECB) (2024) 'Innovation, integration and independence: taking the Single Euro Payments Area to the next level, available at: https://www.ecb.europa.eu/press/key/date/2024/html/ecb.sp240424~12ecb60e1b.en.html (accessed 18th December, 2024).

(20) European Commission (EC) (2024) Study on new developments in card-based payment markets, available athttps://competition-policy.ec.europa.eu/document/65d4f65a-6b23-49c7-91cb-e5cd166a19ed_en (accessed 18th December, 2024).

(21) Payment Systems Regulator (PSR) (2024) 'Market review of card scheme and processing fees interim report', available at: https://www.psr.org.uk/publications/market-reviews/mr2219-market-review-of-card-scheme-and-processing-fees-interim-report/ (accessed 18th December, 2024).

(22) European Commission (EC) (2023) 'Proposal for a Directive of the European Parliament and of the Council on payment services and electronic money services in the Internal Market amending Directive 98/26/EC and repealing Directives 2015/2366/EU and 2009/110/EC', available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52023PC0366 (accessed 18th December, 2024).

(23) European Commission (EC) (2023) 'Proposal for a Regulation of the European Parliament and of the Council on payment services in the internal market and amending Regulation (EU) No 1093/2010', available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52023PC0367 (accessed 18th December, 2024).

(24) European Commission (EC) (2015) 'Directive (EU) 2015/2366 of the European Parliament and of the Council on payment services in the Internal Market, amending Directives 2002/65/EC, 2009/110/EC and 2013/36/EU and Regulation (EU) No 1093/2010, and repealing Directive 2007/64/EC', available at: https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32015L2366&from=NL (accessed 18th December, 2024).

(25) European Court of Auditors (ECA) (2025) 'Special report 01/2025: Digital payments in the EU', available at: https://www.eca.europa.eu/en/publications/SR-2025-01 (accessed 20th January, 2025).

(26) European Commission (EC) (2023) 'Proposal for a Regulation of the European Parliament and of the Council on the legal tender of euro banknotes and coins', available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52023PC0364 (accessed 18th December, 2024).