Unpacking payments in Europe.

Europe is a land of opportunity for the payments industry, with consumer applications open to further innovation and the business sector ripe with unexplored potential.

To help define the opportunities and understand the challenges, we spoke to experts Ryan Dew, Global Head of Product Solutions at Thredd, and Erik Howell, Partner at payments and fintech consultancy Flagship Advisory Partners. 

The payments landscape in Europe is a compelling mix of established providers and unexplored potential. And it’s expanding quickly, with the payments market forecast to grow by almost 16% annually to 2027.₁  

Its potential spans both consumer and business developments, but capitalising on it requires an understanding of the region’s complexities. On a global basis, it’s perhaps best described as falling somewhere between the US on one side – a big market with a lot of development – and the highly fragmented ones found in Asia Pacific and Latin America on the other. 

Yet while that fragmentation brings undoubted challenges, it also creates opportunities. In fact, according to Ryan Dew, Global Head of Product Solutions at Thredd, it’s one of the driving forces behind high levels of innovation in the region. 

Cash in decline

Despite some markets still being cash-heavy, use has been declining almost everywhere, largely due to COVID-19. The pandemic accelerated the cash to card trend in many markets as consumers valued the increasing convenience of electronic payments and followed advice to reduce the use of physical money.₂

_{Sources: European Central Bank: Study on the payment attitudes of consumers in the euro area 2022, *Statista} 

There are still major geographic differences in payment maturity and innovation levels in Europe, however. These can largely be put down to historical evolution, with cultural attitudes playing a lesser role, Howell says. 

“If you look at the UK, for example, it’s very similar to the US with US-based card schemes, whereas in some parts of Central and Eastern Europe they didn’t have any cards until after 1989,” he says. And in countries such as Germany, France, Spain, and Portugal, they developed domestic schemes.” 

Adding value for consumers 

The consumer payments landscape is well developed in Europe but there’s still plenty of scope for innovation. Virtual cards are one area set for strong growth. The size of the market is expected to triple from $51.84 billion in 2024 to $158.4 billion (€147.7 billion) in 2029, fuelled by the cards’ ability to reduce fraud risk and cater to growing demand for digital payments.₈    

Card adjacent and spend adjacent value-added services are also key for consumers, says Dew, including services such as fraud protection, spending monitoring and budget management. Account-to-account payments, where tokenisation is used to secure bank transactions in the same way as those made from cards, are another growth area. 

“You're going to see more ways to to capture funds into a wallet or an account that are essentially moving money outside of the card transaction networks,” says Dew. Both Visa (Visa Direct) and MasterCard (MasterCard Cross-Border Services) are illustrations of this, helping people move money securely to end-points around the world through multiple delivery channels and payment types.

Responding to business needs

While product development is influencing business behaviour to a certain extent, Dew says that it’s business needs that are driving innovation. A good example is travel and expense management. 

This is a major cause of frustration, with 37% of companies describing reviewing and approving expenses as "complex”. Yet 32% still manage expenses with some combination of spreadsheets, paper, and manual processes.₁₃ 

“We're just scratching the surface with those types of services because it all relies on having access to data, and being able to do something with that data such as feed it into a third-party accounting platform or expense management platform,” says Dew. “The needs are being driven by the customers and the product has to essentially catch up.” 

Looking more broadly, Howell described the integration of payments into software used by businesses as “the biggest opportunity in B2B payments in Europe.” 

New EU legislation, new opportunities 

The European Union has recently passed legislation around instant payments, which mandates that payments made to consumers and businesses must arrive in their accounts within 10 seconds. Currently only 11% of the EU’s euro money transfers are instant₁₄, and for many traditional financial institutions the new rules will mark a challenge when they come into force in mid-2025. 

But that challenge is also an opportunity for more nimble players to step in to help.  

“Fintechs as a provider to traditional financial institutions is actually a huge growth area,” says Dew. “By nature they are going to move faster, and can keep their costs down by solving problems through technology. 

Previous collaborations include Deutsche Bank and Traxpay, which enabled the bank to integrate the fintech’s supply chain financing solutions into its own offering. More recently Lloyds Bank partnered with Fiserv to enable dynamic currency conversion on card transactions, with customers seeing the cost of purchases in their own currency regardless of the one the merchant displays them in. 

For instant payments, Dew says Know Your Customer compliance could be a key area for fintechs to explore. 

“What’s most intriguing with instant payments is how banks will do the customer vetting and make sure that the person you're sending the funds to is who they say they are,” says Dew. “It's making sure that it's a valid transaction, and I think Fintechs that can make it easy for either other fintechs or traditional FIs to tap into those services are ultimately going to win.”