Digital Sovereignty In Payments Is Creating An Operational Headache

For decades, European financial systems have relied heavily on US infrastructure. In fact, US card networks processed about 61 per cent of euro-area card transactions in 2022, according to European Central Bank data.

In the past, this was less of a concern. But geopolitical alliances across the world have shifted, and some in the European Parliament fear Washington might suddenly “cut off” the continent. If that happened, payments could face disruption, delays and loss of control.

As a result, Europe has become wary of being overly dependent on systems that are not in its hands. Payments are increasingly being recognised for what they are: critical national infrastructure. Efforts are now underway to strengthen regional networks, support digital sovereignty in payments and create greater control over financial data and transaction flows.

For example, the European Central Bank (ECB) is developing the digital euro, a proposed central bank digital currency (CBDC). The aim is to ensure European citizens can pay digitally with sovereign money. Meanwhile, the European Payments Initiative (EPI) has created Wero, a European digital wallet designed to offer a unified, instant payment solution.

Managing the infrastructure

The move towards digital sovereignty in payments addresses Europe’s desire to become more self-sufficient and less reliant on the political weather in Washington. However, as new regional systems and frameworks emerge alongside existing global networks, another problem arises: complexity.

Alongside established networks and messaging services such as SWIFT, Visa (V) and Mastercard (MA), banks may need to support additional payment options, including the digital euro, Wero and domestic instant payment systems. These can bring different rules, messaging formats, APIs and other complexities.

This could lead to higher integration and maintenance costs, longer time-to-market for new products and friction in cross-border payments owing to interoperability issues between systems.

In short, the proliferation of payment options could add complexity to an already multi-rail, multi-standard ecosystem. Financial institutions will need to manage the cost, complexity and risk of connecting these systems.

Managing the data

Yet dealing with the infrastructure is just the first step. Once a financial institution has unpicked the tangle of systems and can manage their connections, it needs to do the same with the information they carry.

Otherwise, an organisation could find itself controlling the pipes without knowing what flows through them. It’s all well and good to handle a Wero payment, but without a full view of the available data, there’s a risk of having only a partial or siloed understanding of the transaction. This can make it hard to build a full view of customer behaviour or manage compliance.

Once a financial institution has a handle on the data, it then needs to interpret it. Raw data alone is not enough. It needs to be normalised so different types of payment can be viewed side by side in a standard format. Enriching it with contextual information can also help institutions understand it.

In an increasingly fragmented payments ecosystem, it’s not enough to simply connect to multiple infrastructures. A coherent data layer can help institutions make sense of the information flowing through them.

Managing the risk

The next challenge is managing risk across different schemes. Where transactions pass between systems or messaging formats, information may be altered or reduced along the way.

Each party handling a payment may see only a portion of the journey rather than the full chain of events. That can make it harder to answer key questions. Is the payment part of a larger pattern? Are there indirect links to sanctioned entities? Is the value being split or