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Aims to counter low-cost competitors like Revolut, Wise

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Initiative sees banks dropping fees by as much as 75%

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Criticism of reliance on US finance amid geopolitical

tensions

By Tom Sims

HANAU, Germany, Oct 10 (Reuters) - Germany's savings

banks are turning to a leading U.S. financial firm to help

customers with international payments, a move aimed at fending

off upstart low-cost competitors that has raised concerns over

the sovereignty of Europe's financial services.

The banks, or Sparkassen, are teaming up with BNY,

formally The Bank of New York Mellon ( BK ), to process customer

transfers of up to 3,000 euros ($3,475.50) to recipients outside

the European Union, four bankers told Reuters.

The effort is in the test phase at two smaller German

savings banks and will be rolled out more broadly in the coming

months, they said.

EMPOWERING GERMAN BANKS TO COMPETE WITH FINTECH CHALLENGERS

By lowering the fees they charge by as much as 75% in some

cases, the savings banks hope to win back business lost to the

likes of Revolut, Wise and others. They also aim to

capture a growing segment of German residents: migrants who

make low-value transfers abroad.

Savings banks are a major force in Europe's largest economy,

collectively holding 1.5 trillion euros in assets and more than

36 million bank accounts for individuals and 4.6 million for

businesses.

A BNY document seen by Reuters describes the joint project,

called Crossmo.

"It empowers the German savings banks to compete effectively

with fintech challengers," it said.

The savings bank in Hanau, close to Germany's financial

capital, Frankfurt, is currently testing the new system after a

banker there, Jan Miska, read an article that described many

people making transfers abroad to support their families.

"But it wasn't something we were seeing at our bank. We

wondered why are there so few transactions. Why are people not

doing it here? So we looked into it," Miska said.

Customers, the savings banks found, were turned off by their

high fees and were instead withdrawing money and using cheaper

alternatives to send it. They fear those customers may be lost

for good if they then open accounts with those competitors.

Miska showed how the new initiative allows his customers to

make a transfer to a recipient at a bank outside the EU using

the Sparkasse website or app for a fee of 5.50 euros, compared

with a previous charge of 22 euros.

CRITICISM AND A CALL FOR EUROPEAN ALTERNATIVES

But the effort comes amid criticism of Europe's heavy

reliance on U.S. finance infrastructure, ranging from Visa

to PayPal ( PYPL ), at a time of heightened geopolitical

tensions.

"The time has actually come to think about purely European

alternatives or projects ... That should be the top priority,"

said Carolina Melches, a finance expert at the Berlin-based

advocacy group Finanzwende.

But Axel Weiss, who oversees payments at the savings banks'

national umbrella association DSGV, addressed criticism of

partnering with a non-European institution, saying the issue of

sovereignty does play a role.

"However, we believe that we need good strong partners who

have a global network with extensive country coverage and who,

of course, also offer secure and cost-effective transaction

processing," he said.

($1 = 0.8632 euros)