European Payments Industry Expands, As American Competition Looms

The fast-growing European payments sector may soon get new competition from American players.

The financial technology or fintech industry includes disparate sectors: funds transfer, investment management and virtual currency, among others. One of the most currently dynamic fintech sectors is payments. Until the last decade payments had been a mostly invisible business but it has gained momentum as business has moved online. Analysts see electronic payments growing at a rate of 10 percent a year well past 2020.

Tech-savvy payments companies see a jumping off point to compete with big banks for an expanding set of services including lending and online deposits.

Foundationally, European payments industry is still moving ahead. One sign of the robust interest it is attracting could be found at the 13^th annual EBAday in Munich.  This meeting attracted 1500 of Europe’s leading payments experts and over 70 exhibitors demonstrating the spectrum of payment processing services from leading banks, ACHs, technology vendors and consultancies.

Meanwhile, one of the most successful American financial startups of the last decade, Square, may be setting its sights on the European market. Square, whose CEO Jack Dorsey is also CEO of Twitter, recently established a European beachhead in the U.K.

Like some other payments firms, Square’s approach is to work on the edges of existing players like banks and credit card companies instead of trying to replace them. Its little plastic white square allows small businesses to accept credit card payments via their iPhones. Square is growing into a broader financial services company. Its Square Capital line of business offers small loans to businesses and is making Square look more like a bank every day.

Square Cash is often described as a competitor of another American player, Venmo, the popular app owned by PayPal that makes it possible for friends to send one another payments by smartphone. PayPal recently acquired iZettle, a European startup that sells payment platforms and has a presence in stores in Germany and France.

As the European payments industry grows, companies and regulators will face a challenging issue: how to deal with multiple stakeholders—including consumers, merchants, banks and wireless carriers— that have an interest in payment transaction data. Determining who has rights to what data, even when the customer has consented to its use, will need to be resolved.

Every indication is that the payments industry in Europe will continue to grow, stimulated by increasing competition from across the Atlantic—and potential acquisition interest from tech giants like Google and Amazon. Like other branches of fintech, this is a sector that investors should be following closely.