The European Central Bank (ECB) has welcomed an initiative by European banks to develop a rival payment system to challenge the dominance of Visa and Mastercard and the threat from Chinese and US BigTech firms.

Backed by twenty French and German banks, the The Pan European Payment System Initiative (PEPSI) would seek to handle all forms of cashless transactions.

In a speech to a central bank summit in Brussels, ECB board member Benoît Cœuré, said: "The Eurosystem welcomes the strategic initiative of a number of major European banks to create a true pan-European retail payment solution that has the potential to meet the vision of our strategy.

"The proposed solution would be based on the Sepa credit transfer instant (SCT Inst) scheme, which is in our view the correct approach as it is future-oriented, and it could capitalise from day one on existing powerful and sophisticated infrastructures, such as the Eurosystem’s TIPS."

He called on the banks to develop a clear roadmap "so that we can see tangible actions emerge soon" and hinted at public policy initiatives to drive private sector solutions, for example by imposing legislation obliging payment providers to adopt instant payments within a certain period if a critical mass has not been reached.

"For its part, the Eurosystem stands ready to provide additional technical assistance where useful and required," Cœuré added. "For example, we will analyse how we could support the search for solutions that ensure that SCT Inst-compliant clearing mechanisms can be fully integrated.

"Current private solutions for the clearing of instant payments still have not addressed interoperability issues in a satisfactory manner - this requires further analysis and action."

Cœuré also suggested that central banks should step up their research into the development of digital currencies as demand cash falls away.

"A central bank digital currency could ensure that citizens remain able to use central bank money even if cash is eventually no longer used," he commented. "A digital currency of this sort could take a variety of forms, the benefits and costs of which the ECB and other central banks are currently investigating, being mindful of their broader consequences on financial intermediation."

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