The EU’s own disastrous attempt to overhaul Europe’s payments system was blamed for creating a stagnant market plagued by regulation and a lack of innovation, a financial expert has claimed. The damning assessment could provide fresh ammunition for Brexit supporters, with economist Bob Lyddon arguing that Brussels created many of the problems it is now trying to solve.

The EU – led by European Commission President Ursula von der Leyen – is increasingly calling for Europe to reduce its reliance on Visa and Mastercard and develop home-grown alternatives to the US payment giants. However, Mr Lyddon argues that the bloc’s own intervention in the payments market helped create their dominance in the first place. Writing for Lyddon Consulting, he said: “The European Union itself, not Visa and Mastercard, has undermined Europe’s ‘payments sovereignty’.”

Mr Lyddon said Brussels had created its “typical EU market” through excessive intervention, resulting in “high regulation, high entry barriers, quasi-monopolies, and stagnation of the service at a level of low added-value”.

The economist examined the EU’s Single Euro Payments Area, or SEPA, which was designed to replace national payment systems with a harmonised system operating across the bloc.

But he argued that the project was undermined by the EU’s determination to impose common rules and systems rather than allowing competing services to develop.

Mr Lyddon said the EU’s strategy had left payment providers with little room to innovate, while the voluntary take-up of SEPA was initially slow.

He said: “The EU was driving the market with its regulatory vision, whilst the voluntary take-up of the SEPA schemes by customers was slow.”

A crucial mistake was the decision that SEPA payments should initially take two days to complete.

That left the system at a major disadvantage against Visa and Mastercard, where transactions could be completed instantly for the payer and payee.

Mr Lyddon described the decision as “a fatal error in competing with Visa and Mastercard”.

He also argued that the regulatory framework created barriers to the development of new products and services.

He said: “The result was that the possibilities to develop new ‘Competitive’ services… were limited almost down to nil.

“Indeed, none have emerged. The ‘Core’ service remains the only version.”

The result, according to Mr Lyddon, was a market in which providers could compete largely on price rather than functionality or innovation.

He said: “Innovation does not take place. No new competitor products emerge.”

The assessment comes as European officials push for “payments sovereignty” and seek to reduce dependence on the US networks.

But Mr Lyddon dismissed the focus on Visa and Mastercard as a distraction from the underlying problem created by Brussels.

He wrote: “EU authorities calling for a competitor to Visa and Mastercard and referring to geo-political reasons is a distraction technique.”

The analysis provides a striking example of the argument behind Brexit – that EU-wide regulation can constrain competition and innovation while making it harder for individual economies to pursue different approaches.

Mr Lyddon said the problems in the payments market reflected wider failings in the bloc.

“The EU payments market has become an archetype of the Single Market and the Eurozone,” he wrote.

He added: “The EU’s response is true-to-type: more ‘initiatives’ and, no doubt, further regulations and directives.”