Made in Europe
A comparison of European account-to-account payment methods and wallets
Last week I covered the cost of accepting payments in the UK, including BNPL, cards, account-to-account (A2A) and cash, for a £34 purchase (the approximate average value of all UK card payments)1.
This week I look at the cost of accepting digital wallet payments in Europe, in-store and online, focusing on the larger digital wallet/A2A/pay-by-bank payment networks in the Nordics, Poland, the Netherlands, Switzerland and Spain (read about these in a previous article here).
Each of these networks support primarily account-to-account payments, although Vipps (Norway), Twint (Switzerland) and MobilePay (Finland and Denmark) can be termed hybrid as they allow users also to register a debit card or credit card to fund a payment to a bank account. Additionally, iDEAL is slightly different to the others as it is available through mobile banking apps (and online banking) rather than through a standalone mobile app/wallet.
Cost Comparisons
As before, I have used published tariffs to calculate the fee on a standard transaction, this time a €38 payment2, or equivalent in the local currency at the current exchange rate – the cost is expressed as a percentage of €38.
I have used tariffs as of 28 Oct 24 published on payment system websites, or where the payment method is available through a payment services provider, from the websites of Adyen, Mollie and Stripe (using the relevant country website). These tariffs are shown in the table at the end (contact me through the button above the table if you wish to have an excel table with URLs).
Figure 1 – comparison of A2A/digital wallet fees for in-person/POS payments
Figure 1 shows the cost of a €38 payment for in-person (POS) payments and Figure 2 for online payments – only some of the payment methods publish in-person tariffs, hence Figure 1 has fewer payment methods than Figure 2.
The blue bars are the cost for each payment method, or average cost where a payment method has different tariffs (from different providers, for surcharges, for method variations, for different tiers of annual payments value), the vertical lines show the range between the minimum and maximum costs where there is one.
Figure 2 – comparison of A2A/digital wallet fees for online payments
Vipps
In this set of payment methods, Vipps has an interesting history. It is a merger of three wallets, Vipps Norway, MobilePay Finland and MobilePay Denmark. They merged in 2022 into one company, Vipps Mobile AS. Since March 2024 all three countries run on the same technology platform and app.
However, each country has its own set of tariffs and as you can see in the graphs, the variations are noticeable – costs in Norway are over 1% higher than Denmark for both in-person and online payments and Finland is in between.
Vipps has still to make a profit as a merged business, having lost 989m NOK ($90m, €83m, £69m) in 20233. With transaction income growth of 30% last year and the merger and platform consolidation complete, it will be interesting to see if Vipps becomes profitable this year.
Insights
Key points to draw from my research on these tariffs and these graphs are:
1. POS, in-person payments are cheaper than online, on average by about 0.5%
2. A wide variation in costs is apparent for the same transaction provided by similar services across the different countries, even with Vipps where the same platform and app are used in three countries – for in-person (POS), the difference of the average cost is 1.1% between the highest (Norway) and lowest (Spain) and for online, the difference is 1.85% between the highest (Norway) and lowest (Netherlands)
3. Only three payment methods cost less than 1% for a €38 payment - iDEAL (online), Bizum (in-person) and Mobilepay Denmark (in-person)
4. iDEAL stands out as the cheapest payment method by far, costing less than half the average of the other online payment methods in the sample and less than the lowest in-person payment method. It is also the only payment method which has no ad valorem tariff, only a fixed fee per payment in a range of €0.29 - €0.33 in the PSPs researched. Ad valorem tariffs, a percentage of the payment principal are usually to compensate for risk (counterparty risk if the PSP holds funds in the payment flow, fraud risk, credit risk etc). This confirms iDEAL to be a low-risk payment system, especially so given its longevity, widespread use and high volumes in the Netherlands
5. Digital wallet/A2A/pay-by-bank payments require continual investment – SOFORT, one of the originals dating back to 2005, seems to be fading away, owned by Klarna, it is difficult to find any information on it and Adyen has discontinued it making it available4. I suspect this may be due to lack of investment, ironic given SOFORT’s complaint to the EC in 2013 led directly to the PSD2 regulation which has shaped the competitive landscape for European payments ever since. Paydirekt in Germany is being discontinued5, the pan-European Mybank seems to be on tick-over and in Ireland the Yippay A2A bank wallet was cancelled last year6. In contrast, I had a strong sense of continuous improvement and investment when researching Vipps, iDEAL (also going since 2005), BLIK, Twint and Bizum – their growth seems in large part due to keeping relevant and up to date with their markets.
I have no comparison of how these digital wallet/A2A/pay-by-bank payment costs compare to the cost of card payments in their respective countries. They are higher on average than the UK card costs of 1.24% (weighted average all cards, POS and online) I analysed last week and higher than the UK A2A average cost of 1.1% (unweighted - although the UK has nothing to compare with the richness and penetration of the payment methods used in the graphs).
This is surprising as I would I have expected all the payment methods would be like iDEAL and cost a lot less than cards - A2A payments are more secure and designed for the modern age, mobile and online. My hypotheses for why this may be the case are:
1. The UX for digital wallets using A2A is so much better than cards that retailers and billers have no option to accept the costs given the strong demand from consumers to use digital wallets for payments. iDEAL may be the cheapest because there is no separate wallet for it - it is used within banking apps therefore should be lower cost to operate, but also it may have to compete more on price for acceptance without a wallet
2. In countries where cash usage is low, competition from cash is weak, so payment providers can keep costs high for in-person payments in the knowledge that consumers are unlikely to go back to cash, giving retailers little option but to accept the tariffs.
To test this last point, Figure 3 shows a plot of the the in-person cost of using a wallet (€38 payment) .v. percentage of cash payments at POS by country. This does show a general trend where the higher the cash usage the lower the wallet cost, although Denmark is an outlier. However, with only five data points and with the cash usage data supplied by ChatGPT which I am unable to verify properly7, better data and more work is needed to test this hypothesis.
Figure 3 – possible trend of higher wallet fees in countries with lower cash usage
Conclusion
Overall, as shown in my previous article on Wero, digital wallets using A2A payments have become established in multiple countries in Europe and will continue to grow. In particular, iDEAL’s fixed fee tariff proves that A2A payments can be very low-risk and thus can be trusted and used widely by consumers and retailers.
The utility of these wallets and the quality of the user experience appears to enable their providers to maintain relatively high tariffs (for now at least), making for an enticing mix of growth, scale and resilient pricing.
Tariffs used in the analysis and graphs for this article (as published on payment method websites or payment provider websites where shown, as of 28 Oct 24)
A Sea Full of Fees: https://jeremylight.substack.com/p/a-sea-full-of-fees?r=axqgy
based on the same £34 average card payment transaction I used in last week’s article, converted into Euros
Adyen payment methods: https://www.adyen.com/en_GB/payment-methods/sofort
Payments, Cards and Mobile: https://www.paymentscardsandmobile.com/german-banks-pull-the-plug-on-paydirekt-giropay/
chart 18 on page 19 of this report from Norges Bank, Norway’s central bank is the closest I can find to corroborate ChatGPT – the relative order of countries, where shown is the same, but % values are different https://www.norges-bank.no/contentassets/6cd1f3e27fe84a2c8e143156ec2051d4/nb_papers_1_24_notat_engelsk.pdf?v=07062024101735
"This is surprising as I would I have expected all the payment methods would.....cost a lot less than cards" - yep, I find this strange too, especially given that in the UK, the a2a players generally operate on a value proposition of lower fees than cards, sometimes substantially lower. Maybe there is something historical about these markets, maybe lower cards penetration or something, that allows them to charge a premium?