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PEPSI: Pan-European Payments System Initiative

Definition

The Pan-European Payments System Initiative (PEPSI) refers to a collective effort by European banks and payment service providers to create a unified, sovereign, and competitive payments infrastructure across Europe.

Its objective is to reduce dependency on non-European card schemes and global payment networks, strengthen regional financial autonomy, and ensure strategic resilience in retail and cross-border payments.

In AML/CFT terms, PEPSI intersects with regulatory expectations for transaction transparency, KYC harmonisation, data localisation, and enhanced monitoring across the European payments ecosystem.

By consolidating payment rails, data flows, and settlement standards, PEPSI aims to improve oversight and reduce vulnerabilities associated with fragmented national systems.

Explanation

PEPSI is a response to longstanding challenges in the European payments landscape: Fragmentation between domestic schemes, dominance of non-European players in card payments, and growing digitalisation demands across the Single Market.

The initiative seeks to establish an integrated payments framework that supports:

  • Instant payments
  • Pan-European card issuance and acceptance
  • Digital wallets
  • Unified merchant acceptance
  • Cross-border retail payments with consistent standards

For AML/CFT, the significance lies in harmonisation.

Current payment networks vary in data standards, onboarding practices, monitoring capabilities, and transparency obligations across EU and EEA states.

PEPSI envisions consolidation into a common standardised infrastructure, allowing financial institutions and supervisors to gain clearer visibility over fund flows, beneficial owners, and payment patterns.

Moreover, by reducing reliance on external global networks, Europe seeks to strengthen control over data governance, fraud prevention, and AML information-sharing mechanisms under frameworks such as PSD2, the upcoming Payment Services Regulation (PSR), and the broader EU AML Package.

PEPSI in AML/CFT Frameworks

The relevance of PEPSI to AML/CFT oversight is multifaceted:

  • Standardisation of transaction data enhances the ability to detect anomalies, reduce false positives, and allow machine-learning-driven monitoring across jurisdictions.
  • Improved traceability of cross-border retail payments supports FATF’s requirements for originator and beneficiary information.
  • Interoperability with EU supervisory bodies strengthens detection of laundering typologies such as mule networks, cyber-enabled fraud, and VAT carousel fraud.
  • Reduced opacity in correspondent flows, as cross-border transfers within the EU rely more on in-region payment rails rather than offshore intermediaries.
  • Consistent application of KYC/EDD standards across member states reduces regulatory arbitrage opportunities, especially for payment institutions and fintechs.

As the EU moves toward centralised AML supervision through the forthcoming Anti-Money Laundering Authority (AMLA), PEPSI could serve as a strategic infrastructure layer supporting more unified monitoring and reporting.

Key Components of PEPSI

Structural Features

PEPSI initiatives typically include the following components:

  • Pan-European card scheme: Interoperable across all member states.
  • Instant payments infrastructure: Aligned with the SEPA Instant framework.
  • Digital wallet ecosystem: Supporting P2P, P2B, and e-commerce payments.
  • Unified merchant acceptance: Enables a consistent consumer and merchant experience.
  • Common settlement and clearing standards: Reduce cross-border friction.
  • Data governance frameworks: Ensure compliance with GDPR and AML record-keeping standards.

Operational Use Cases

  • Retail purchases across borders with consistent AML monitoring.
  • Digital commerce payments using harmonised authentication and data protocols.
  • Merchant acquiring processes consolidated into pan-European rails.
  • Government-to-citizen or citizen-to-government payments with unified transparency and reporting.
  • Banking and fintech platforms integrating under a single European payment architecture.

Risks & Red Flags Associated With PEPSI-Enabled Flows

While PEPSI intends to strengthen financial sovereignty, the consolidation of systems introduces new AML/CFT considerations:

  • Scale-driven vulnerability: A single failure or exploit in unified infrastructure could have an EU-wide impact.
  • Higher transaction volumes may obscure micro-laundering or high-velocity typologies.
  • Fintech onboarding variations may persist despite harmonisation, creating gaps in beneficiary verification.
  • Cross-border instant payments can accelerate the movement of illicit funds before detection controls trigger.
  • Interoperability with non-EU institutions can reintroduce transparency gaps if foreign partners have weaker AML frameworks.

Red flags to monitor include:

  • Sudden spikes in payment velocity across multiple EU states.
  • Use of PEPSI-supported wallets for P2P transactions inconsistent with customer profiles.
  • Transaction chains routed through multiple EU PSPs within short windows.
  • Repeated failed authentication attempts or abnormal device-based activity.
  • Merchants with limited transaction history suddenly receiving high-value or high-frequency payments.

Common Methods & Techniques for Misuse

Criminals could attempt to exploit PEPSI-aligned systems through:

  • Exploiting instant payment speeds to quickly layer funds across multiple EU jurisdictions.
  • Synthetic or stolen identities onboarding through fintechs connected to unified payment rails.
  • Use of mules across member states, taking advantage of standardised wallet formats and interoperability.
  • Fraud-to-laundering pipelines, especially cyber fraud and social-engineering scams followed by rapid dispersal of funds.
  • Merchant-based laundering, where shell merchants leverage pan-European acquiring networks.

Examples of PEPSI-Related AML/CFT Scenarios

Cross-Border Instant Payments Chain

An illicit actor initiates instant payments across five EU jurisdictions within minutes.

The harmonised infrastructure facilitates seamless transfers, making the layering phase more efficient unless institutions deploy behavioural analytics capable of tracking cross-provider velocity.

Fintech Wallet Abuse in a Unified Scheme

A fraud network uses stolen IDs to open multiple digital wallets offered under a PEPSI-compatible framework.

Consolidated merchant acceptance allows these wallets to be used widely for laundering the proceeds of cybercrime.

Merchant Laundering via Unified Acquiring

A shell merchant registers under a harmonised PEPSI standard and begins routing high-value card transactions with no legitimate business footprint.

Because the merchant is accepted EU-wide, laundering proceeds flow rapidly across borders.

High-Risk Non-EU Counterparty

A payment institution outside the EU connects to PEPSI-compatible rails through a partnership agreement.

Weak AML oversight in its jurisdiction introduces opacity into inbound flows routed through its customers.

Impact on Financial Institutions

PEPSI’s rollout carries both strategic benefits and compliance obligations. Key impacts include:

  • Enhanced monitoring requirements to detect anomalies across harmonised, high-volume payment environments.
  • Need for upgraded analytics to profile behaviour across EU-wide flows.
  • Reduced reliance on external schemes, improving data visibility for European institutions.
  • Greater supervisory scrutiny, especially for PSPs participating in cross-border wallets and instant payments.
  • Higher expectations for data standardisation, including mandatory fields for AML monitoring, sanctions screening, and travel rule compliance.

Institutions failing to adapt could face regulatory consequences, operational disruptions, or reputational damage if PEPSI-enabled infrastructures are used for illicit financial activity.

Challenges in Detecting & Preventing Abuse

Key challenges include:

  • Volume and speed of instant payments reducing reaction windows.
  • Heterogeneous onboarding standards across fintechs and PSPs even under harmonised rules.
  • Cross-border complexity in correlating behavioural signals across multiple states.
  • Interoperability layers that may hide transaction origins if not properly designed.
  • Data-sharing limitations due to privacy regulations.
  • Fragmented supervisory maturity across EU jurisdictions.

Institutions must therefore adopt an intelligence-first AML architecture supported by machine learning, real-time analytics, and unified risk scoring across the EU payments landscape.

Regulatory Oversight & Governance

PEPSI aligns closely with EU regulatory instruments and initiatives, including:

  • PSD2 and the upcoming PSR, governing payment transparency and fraud controls.
  • SEPA and SEPA Instant Credit Transfer schemes, setting standards for EU-wide transfers.
  • The EU AML Package, including the AML Regulation, AMLD6, and the creation of the Anti-Money Laundering Authority (AMLA).
  • FATF Recommendations, especially those relating to wire transfers, beneficial ownership, and cross-border cooperation.
  • ECB and European Payments Council oversight, ensuring scheme compliance.

Governance requirements for participating institutions will involve:

  • Contractual clarity on AML responsibilities.
  • Enhanced monitoring of payment intermediaries.
  • Implementation of unified risk-based frameworks across borders.
  • Regular audits and data-quality reviews.
  • Ability to provide full transaction traceability to supervisors on request.

Importance of Addressing PEPSI Risks in AML/CFT Compliance

Robust AML/CFT integration within PEPSI infrastructures is essential to:

  • Safeguard EU financial sovereignty and credibility.
  • Prevent illicit actors from exploiting harmonised payment rails.
  • Ensure high-quality, standardised data across all EU payment channels.
  • Strengthen detection of cross-border laundering typologies.
  • Maintain trust among banks, PSPs, merchants, and consumers.
  • Align with Europe’s long-term digital finance strategy and AML supervision architecture.

As Europe moves toward a cohesive, high-speed, and interoperable payments ecosystem, strong AML/CFT controls are indispensable for maintaining financial integrity.

Related Terms

  • SEPA
  • Instant Payments
  • Payment Service Provider (PSP)
  • Correspondent Banking
  • Digital Wallet
  • AMLA (EU Anti-Money Laundering Authority)

References

All URLs validated and sourced from authoritative publications.

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