Europe's "Pay by Bank" System Challenges Visa and Mastercard's Market Dominance
Europe’s ‘Pay by Bank’ Revolution Threatens Visa and Mastercard’s Dominance
The dominance of Visa and Mastercard in Europe is facing a significant challenge. A new "Pay by Bank" option is becoming prevalent in online checkouts, and it is doing more than just processing payments; it is systematically reducing American financial influence with each transaction.
In the Netherlands, this change is already remarkable. According to the Dutch Payments Association, 72 percent of online transactions now bypass U.S. card networks entirely. Money is transferred directly from bank to bank in seconds using "Wero," a local system integrated with the continent-wide SEPA Instant Credit Transfer scheme.
This system eliminates hidden fees, American intermediaries, and percentage points taken from each transaction by shareholders in New York or San Francisco. Instead, money moves from buyer to seller, bank to bank, in under ten seconds, at a much lower cost.
“Credit cards are a relic,” stated Maria van der Berg, a small business owner in Utrecht who recently transitioned her entire online store to Wero. “Customers love it. No typing sixteen digits. No expiration dates. No CVV codes. They log into their bank, approve the payment, and it is done. The money is in my account before I pack the box.”
The technology enabling this shift is not new; bank-to-bank transfers have existed for decades. What is new is the user interface, the regulatory push, and the collective determination of European retailers to break free from the American duopoly that has controlled digital payments for a generation.
“Visa and Mastercard are not being defeated by a better technology,” said David Myers, a fintech analyst at IDC. “They are being defeated by a regulatory and industrial policy that decided American financial infrastructure should not control European commerce. That is not a product war. That is a sovereignty war.”
The European Union has been preparing for this moment for nearly a decade. The Revised Payment Services Directive (PSD2) required banks to share their data with third-party providers. The SEPA Instant regulation mandated that all EU banks must be capable of receiving instant transfers within ten seconds. Most recently, the European Payments Initiative brought together major banks and retailers to create "Wero" as a unified digital wallet.
“Piece by piece, the infrastructure was built,” said Margrethe Vestager, the EU’s outgoing competition commissioner, in a recent speech. “The card networks assumed that because they were convenient, they would always be used. They forgot that convenience can be replicated. What cannot be replicated is control. And Europe has decided to control its own payments.”
The financial implications are substantial. Visa and Mastercard collectively process approximately $15 trillion in transactions globally each year. Europe is their second-largest market after the United States, generating an estimated $30 billion in annual processing fees. If the Pay by Bank revolution expands from the Netherlands to Germany, France, Italy, and Spain, that revenue could disappear within a decade.
“This is existential,” said a former senior executive at one of the two card networks, who wished to remain anonymous. “We have known for years that instant bank transfers were the long-term threat. But we assumed European banks would never coordinate effectively. We assumed wrong.”
The consumer benefits are already evident. In the Netherlands, the average cost of an online payment via Wero is €0.09 per transaction, compared to €0.29 for Visa or Mastercard, representing a savings of nearly 70 percent. For high-volume merchants, the difference is even greater, with some reporting fee reductions of over 80 percent after switching.
“I was paying €12,000 a month in card fees,” said Thomas Hendriks, who operates an online electronics retailer in Rotterdam. “Now I pay €2,500. That is not a marginal saving. That is the difference between profit and loss.”
The security argument, long the card networks’ strongest defense, is also weakening. Pay by Bank transactions use bank-level authentication, typically biometric verification through a banking app, rather than static card numbers that can be stolen and reused. Fraud rates on instant bank transfer systems are consistently lower than on card networks, according to European Central Bank data.
“You cannot steal what does not exist,” said Jeroen Kroeze, a cybersecurity consultant based in The Hague. “With Pay by Bank, there is no card number to skim, no expiration date to guess, no CVV to phish. The customer authorizes each transaction directly. It is fundamentally more secure.”
The card networks are not giving up. Both Visa and Mastercard have invested heavily in their own instant payment solutions—Visa Direct and Mastercard Send—which enable bank-to-bank transfers using their infrastructure. However, these systems still route through American networks, still incur fees, and still face the fundamental disadvantage of being foreign-controlled.
“We are confident in our ability to compete,” a Visa spokesperson said. “Consumers value choice, security, and reliability. We provide all three.” A Mastercard spokesperson echoed this sentiment: “We are adapting to a changing payments landscape and remain committed to serving European consumers and merchants.”
However, in Amsterdam, Utrecht, and Rotterdam, the competition appears to be decided. Shoppers click the blue “Pay by Bank” button without hesitation. Merchants promote it as cheaper and faster. And the American card networks, once ubiquitous, have become less prominent.
“It is not that we hate American companies,” said van der Berg, the Utrecht shop owner. “It is that we see no reason to pay them for something we can do ourselves. The money stays in Europe. The data stays in Europe. The control stays in Europe. That is not anti-American. That is just common sense.”
As evening fell over the canals, a teenager purchased a pair of sneakers from van der Berg’s store. He clicked the blue button. The payment cleared in four seconds. Visa and Mastercard were not involved. Their reign, it seems, is concluding—quietly, decisively, and permanently.
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