Are Wearable Payments in Sight? •ANALYSIS: Paypal •REVIEW: Asian Cross-Border E-Commerce •COMMENT: PSD2 •COUNTRY SURVEYS: Sweden, Norway, France

April 2016 Issue 346 www.electronicpaymentsinternational.com

Are wearable payments in sight? •ANALYSIS: PayPal •REVIEW: Asian cross-border e-commerce •COMMENT: PSD2 •COUNTRY SURVEYS: Sweden, Norway, France

EPI 346.indd 1 15/03/2016 12:04:19 Multichannel digital solutions for ﬁ nancial services providers

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IE RBI final design.indd 1 17/09/2015 11:21:32 EDITOR’S LETTER NEWS

CONTENTS Cashless in NEWS Copenhagen 3: NEWS DIGEST

FEATURE lways a joy to come to a city and Also, VocaLink’s system is world class, not have to worry about not hav- having already been used as a model in 6: WEARABLES ing cash. Sweden, the US and for mobile payments in With convenience and low levels of friction It’s great to be attending Money Thailand. being the priority for consumers, wearables A MasterCard might just give Zapp the 20:20 Europe, a stellar congregation of seem to be the perfect option. But are there payment specialists to catch up with, get boost it needs to get off the ground, further any flaws? Patrick Brusnahan investigates acquainted with and glean insight from. increasing its cut of real time payments and 8: ASIAN E-COMMERCE Speaking of cashless payments, the UK mobile payments through the app. Others Xiou Ann Lim reports on the efficiency of Payment Systems Regulator (PSR) has rec- say MasterCard may want to sack Zapp the e-commerce market in Asia. Despite such ommended UK banks reduce their stake in altogether, as has also been suggested. a fragmented marketplace, stakeholders VocaLink, the UK payments system operator With the incoming PSD2, MasterCard have collaborated to make the experience smoother than ever responsible for schemes such as Bacs, LINK would be well placed with a stake in and Faster Payments. And hot off the back VocaLink to be at the heart of a burgeon- 10: PEURVIAN SHARED MONEY of that news came the rumours MasterCard ing payments arena. In fact it could be an Robin Arnfield writes on a shared mobile may make a £1bn (£1.4bn) bid. extremely shrewd move by the card issuer to money scheme in Peru that has taken the region by storm It probably shouldn’t come as too much swoop in at the advent of this change. of a surprise that MasterCard might make a Retailers, with a customer’s consent, will 12: PAYPAL beeline for VocaLink. It would be a perfect soon be able to access payment information Patrick Brusnahan takes a closer look at the addition to its payments portfolio which, from a bank to take a payment, via a PSP or financial behemoth that is PayPal and how it certainly debit card-wise in the UK, is slim. PISP, bypassing the traditional card transac- has developed since eBay to become its own fully-fledged member of the establishment It doesn’t take long to count the number of tion altogether. And with the inevitable fur- UK banks issuing MasterCard-branded debit ther growth of cross-border e-commerce, the SURVEY cards, overshadowed hugely by its cousin future here looks bright indeed. Although, as Visa. David Parker keenly points out in this issue, 13: SWEDEN Perhaps as a result of Visa’s dominance, PSD2 may not marginalise card payments at MasterCard has gone on an innovation- all. 14: NORWAY backing spree of late, getting behind projects One question, however, does overhang the 15: FRANCE such as Transport for London contactless proposed divestiture of VocaLink: is there a ticketing, Apple Pay, paving the way for guarantee the systems will best-serve all par- COMMENT higher value contactless transactions and tar- ties involved, leading to better-serving the geting challenger banks such as Metro Bank. end user consumer or SME? After all, this 2: PSD2 To have control of VocaLink would give is one of the three main objectives of the Fintech Payment Initiation Service Providers could be about to take a large cut of MasterCard a firm stake in payments gen- PSR: to promote competition, to promote e-commerce payments. A bank, a consultant erally in the UK and Europe-wide; a stake innovation and to protect the interests of its and a payments processor give the lowdown in Faster Payments would be great for users.< on the incoming regulation MasterCard, with the current international 20: GUEST COMMENT: FICO drive towards real time payments. ANNA MILNE, [email protected] Is the realm of Big Data all it’s cracked up to be or is it over-rated and a can of worms not really worth opening? Scott Zoldi writes

Editor: Anna Milne Sub-editors: Nick Midgley, Tom Langfield For more information on Timetric, visit Tel: +44 (0)207 406 6701 our website at www.timetric.com. As a Email: [email protected] Director of Events: Ray Giddings subscriber, you are automatically entitled Tel: +44 (0)203 096 2585 to online access to Electronic Payments Financial News Publishing, 2012 Group Editor: Douglas Blakey Email: [email protected] International. For more information, please Registered in the UK No 6931627 Tel: +44 (0)207 406 6523 telephone +44 (0)203 096 2636 or email ISSN 0956-5558 Email: [email protected] Head of Subscriptions: Sharon Howley [email protected] Unauthorised photocopying is illegal. The Tel: +44 (0)203 096 2636 contents of this publication, either in whole or Reporter: Patrick Brusnahan Email: [email protected] London Office part, may not be reproduced, stored in a data Tel: +44 (0)207 406 6526 71-73 Carter Lane retrieval system or transmitted by any form or Email: [email protected] Sales Executive: Alexander Koidis London means, electronic, mechanical, photocopying, Tel: +44 (0)203 096 2586 EC4V 5EQ recording or otherwise, without the prior Asia Editorial: Xiou Ann Lim Email: [email protected] Asia Office permission of the publishers Tel: +65 6383 4688 Email: [email protected] 1 Finlayson Green, #09-01 Customer Services: Singapore 049246 Group Publisher: Ameet Phadnis Tel: +44 (0)203 096 2636 Tel: +65 6383 4688 Tel: +44 (0)207 406 6561 or +44 (0)203 096 2622 Fax: +65 6383 5433 Email: [email protected] Email: [email protected] Email: [email protected]

www.electronicpaymentsinternational.com April 2016 y 1

EPI 346.indd 1 15/03/2016 12:04:22 Electronic Payments International COMMENT PSD2

PSD2 should not be feared, or should it? PSD2 will bring under regulation financial technology companies that do not enter the flow of customer funds, a development that some industry players will welcome, while others will strongly oppose. John Fernandez, PPRO Group; Jakub Grzechnik, PKO Bank, and David Parker, Polymath Consulting, take a view

ince the first Payment Services The application will include providing a e are deeply concerned about Directive in 2007, advancements programme of operations, business plans, PSD2 but at the same time we in payment technology have con - descriptions of governance and internal are familiar with the theme of S tinued at rapid pace. Authorising controls as well as security policies. These W the whole retail banking rev - payments via mobile solutions such as entities will not be permitted to hold enue stream being cut up by fintechs that Apple Pay, wearable technology or fin - consumer funds and will need to obtain are taking chunks of retail banking and gerprint recognition have become viable professional indemnity insurance. building their own businesses on it. options for consumers at point of sale It’s just that after PSD2 the fear is we will (POS). Similarly, in the online world, The major positive is that these firms will be left only with the cost and process of consumers are able to access services have an official legal framework in which to brand current accounts and all the profits that utilise bank account information operate. Banks will no longer be permitted will be taken up by the other small fintechs. such as transaction history or their ID to to draft consumer T&Cs which forbid their It is a possible scenario but we are try - simplify account switching, or to initi - customers from sharing login credentials in ing to create such a strong experience for ate payments from their bank accounts order to authorise payments. Nor will banks the customer: an integrated, multichannel from outside of their online banking be able to shut out PISPs from accessing experience, that the ‘stickiness’ customers ecosystem. This latter field of innovative accounts other than for “objectively justi- have will make it difficult for all the start-up technology providers – known as “Pay - fied” reasons related to fraud or unauthor- players and all the competitors to get those ment Initiation Service Providers (PISPs)” ised access. profitable opportunities. have quietly established a niche presence Just look back at our history. mBank is within several European markets. So Threat or promise? a formidable competitor but even with much so, that the European Commission Many banks may find the increased scope of mBank, we as an incumbent and as a tra - has directly flagged them for inclusion PSD2 a threat or challenge to their incum- ditional institution, have managed to retain within PSD2. bent market position. However, on the our market share and remain the top bank contrary it should be viewed as an opportu- in the country. PISPs are largely FinTech companies that nity to create synergies between fintech and We are all big banks trying to create a have taken the opportunity to expand in banking in order for financial service offer- customer experience, good enough for the markets where traditional online forms of ings to further evolve. Fintechs are typically customer so that the customer is too lazy to payment such as credit cards are not preva- smaller, more agile businesses that can act go elsewhere. < lent. PISPs have developed payment tech- quickly to take advantage of new opportuni- nologies which allow consumers to make ties, and this will certainly take place. Banks Jakub Grzechnik, head of mobile and internet payments online by providing their banking should actively seek out key partnerships banking, PKO Bank login credentials to a PISP in a secure manner, with fintechs in order to leverage the market in order to initiate a payment from their bank opportunity they present. account. PISPs provide a low cost manner for From January 2016, EU regulatory consumers to make payments while afford- authorities will have a two-year time frame ing online merchants a method of payment in which to implement PSD2 on a domes - he real issue for many banks is that that is secure and not subject to chargebacks. tic basis. Despite the additional compliance with the open API’s coming in under For the most part, these schemes have largely overheads associated with operating in the PSD2 many of the legacy platforms been operating outside of the sphere of direct regulated sector, innovators will be brought will have significant challenges deliver- regulation, however, PSD2 is set to change T into the regulatory spotlight and this should ing on the regulatory requirements for data this course and bring these entities under the open many doors in terms of creating aware- access. umbrella of financial regulated firms. ness within markets and improving customer PSD2 will not marginalise card payments; uptake. Twenty four months within an exist- any intermediary processing the payment So what does this mean for these ing business may seem like a long time, but between retailer and bank is going to have innovators? forward planning and effective prepara - to provide the infrastructure for a lower cost tion will be key to surviving the payments than 0.2% of the transaction, or 20 basis PISPs will need to prepare themselves for an evolution and transition into the regulated points that is now being charged on cards. application and authorisation process with arena.< This is certainly going to be challenging! < their domestic regulatory authority before being granted authorisation as a payment John Fernandez, senior legal and regulatory institution in order to offer their services. counsel, PPRO Group David Parker, CEO, Polymath Consulting

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EPI 346.indd 2 17/03/2016 11:27:12 Electronic Payments International DIGEST NEWS

SECURITY Morpho collaborates with Visa on biometric payment solutions

Morpho (Safran), a provider of identity and this market. strategic partnerships Bill Gajda said: "Visa security solutions, has collaborated with Visa Morpho and Visa co-demonstrated these is always exploring new technologies which to explore new payment concepts using securi- payment concepts at the Mobile World Con- enhance payment security and convenience ty technologies including biometric recognition. gress in Barcelona, Spain, as well as at Visa's for financial institutions and their customers. The technologies being studied will be innovation centre at its San Francisco head- We are excited to demonstrate and explore the applied to existing payment methods such as quarters. power of these new authentication capabilities credit or debit cards, mobile, ATMs and point- Few of the key payment concepts being with Morpho at Mobile World Congress." of-sale (POS) terminals to boost transaction demonstrated included the use of MorphoWav Morpho CEO Anne Bouverot said: "In security for financial institutions and customer technology for proximity payments. This tech- addition to touchless fingerprint recognition convenience. nology captures and matches four fingerprints for proximity payments, we are incorporating Morpho said that through its collaboration with a single hand movement in less than a facial recognition capability into smartphones with Visa it will explore innovative security second. and tablets, enabling users to validate pay- solutions in response to the strong growth in Visa senior vice president of innovation and ments through a simple selfie."<

MOBILE DISTRIBUTION Samsung Pay adds support for Visa to open Wells Fargo credit and debit cards Samsung Electronics' mobile payment plat- majority of existing as well as new POS ter- office in form Samsung Pay has added support for minals, and offers triple-layered security that Wells Fargo debit and credit cards. includes fingerprint identification, tokenisa- The latest move expands Samsung Pay tion and Samsung KNOX. Côte d'Ivoire support to credit and debit cards from 70 Wells Fargo head of virtual channels banks and credit unions, covering over 70% Jim Smith said: "We are pleased today to Visa has unveiled plans to set up an office in of the credit and debit card market in the US, announce that Samsung Pay is available Côte d'Ivoire, Africa to offer the benefits of the technology giant said. for Wells Fargo customers. Innovations like digital payments to the region's unbanked Cardholders can make payments via Sam- Samsung Pay further our commitment to population. sung Pay by swiping up and scanning their giving our customers the ability to make Citing the Global Financial Inclusion fingerprint. payments anytime and anywhere, including Index 2014, Visa said that the move will The payment platform is accepted in the from a mobile wallet."< support its financial inclusion efforts in Africa where two billion people live without access to financial services. MOBILE The company said that the launch will Barclays Kenya launches new mobile card support engagement with the region's key stakeholders; as well as government, finan- payment solution cial institutions, consumers and merchants in the ECOWAS region. Barclays Bank Kenya has launched a mobile cab to launch the solution to customers on a The company will collaborate with the card payment solution which will enable pilot project. government and clients to facilitate the users to pay for low-value transactions. Additionally, Barclays is seeking partner- electrification of payments plans, engage in The Barclays mobile point of sale (mPOS) ships with other firms for the solution. financial literacy initiatives, and offer solu- is a small phone-like GPRS device that Barclays Bank Kenya managing director tions to boost mobile-based payments in the accepts all Visa, MasterCard and AmEx Jeremy Awori said: "Barclays Bank of Kenya region. cards as a payment option on the go. is proud to be the first bank in Africa to be Visa general manager of North and Fran- The solution has been designed particu- launching the Barclays Mobile Point of Sale cophone Africa Tarek Elhousseiny said: "We larly for making card payments for home (mPOS), which is our response to the grow- plan to proactively work with the govern- deliveries, transportation, entertainment ing demand for mobile based payment solu- ments and partner banks across the region to spots among others. tions. roll out initiatives that are focused on finan- All transactions made through mPOS ter- "mPOS will enable businesses that pre - cial inclusion and help consumers realise the minals will follow the same transactional viously operated on a cash only basis to full potential of electronic payments while and payment flows as that of the traditional increase their sales and expand their cus - expanding the technology and global exper- POS system. tomer base by enhancing their payment solu- tise that would support economic growth The bank has teamed up with Pewin taxi tions."< plans in the region."<

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EPI 346.indd 3 15/03/2016 12:04:23 Electronic Payments International NEWS DIGEST

SECURITY Payments China UnionPay and Visa join Contactless forces on payment security spending trebles in UK in 2015 China UnionPay (CUP) and Visa have inked cooperation. a memorandum of understanding (MoU) in "The joint cooperation will have an impor- The latest data from The UK Cards Shanghai to partner on payments security, tant influence on the healthy development Association revealed that spending innovation and financial inclusion. of the global payments industry, providing on contactless cards rose more than The MoU will allow the companies to cardholders with more convenient, secure threefold in 2015 to reach £7.75bn collaborate on complying with regulatory and highly efficient payment services." ($10.9bn). needs to strengthen the bank card ecosystem, Visa CEO Charlie Scharf added: "We are This means that total contactless which will benefit consumers, merchants, excited to be working together on innovation spending in 2015 was more than dou- financial providers, as well as technology as digital payments transform commerce, ble the preceding seven years com - partners. resulting in safer, faster and more conveni- bined. In 2014, £2.32bn was spent CUP president Shi Wenchao said: "As ent ways for consumers to pay. Innovation using contactless. open payment networks, both companies will also play an important role in our joint Totally 1.05 billion contactless pur- follow the same business model, share the efforts to expand access to financial services chases were made in 2015, a surge of common interest of maintaining their brand for the underserved. The global payments 228% compared to the previous year. rights and promote the core concept of open industry will benefit from these efforts."< Contactless spending was up 233% on 2014. DISTRIBUTION The report said that nearly half of all debit and credit cards are now PROSA teams up with Gemalto to contactless, with a total of 79.3 mil - lion cards featuring the technology. bring mobile payments to Mexico The monthly data revealed that contactless spending grew to £1.2bn Latin American payment processor PROSA tification and verification, card digitisation in December, a jump of 17% on the has partnered with digital security firm and secure delivery to the TSH based mobile previous month. Gemalto to offer mobile payments in Mexico. devices. Around 140 million contactless Under the deal, PROSA will use Gemalto's Additionally, PROSA will operate Gemal- transactions were made in December - Allynis Trusted Service Hub (TSH) to enable to's tokenisation platform from its premises equivalent to 52 every second. new user onboarding. in Mexico, providing security in digital pay- The UK Cards Association chief Gemalto's TSH will allow banks to launch ments to reduce cross-channel fraud. executive Graham Peacop said: “The their own NFC mobile payment wallets uti- PROSA general manager José Molina swift increase in contactless usage lising host card emulation (HCE). said: "Gemalto's TSH provided us with a continued apace last year, with nearly This solution also has ability to provision full turnkey solution that allows our bank- one in eight card transactions now payment wallets from device manufactur- ing partners to plug into the NFC infrastruc- using the technology. Whether it’s to ers and mobile network operators as they ture and roll out easy, secure mobile payment stock up in the supermarket, travel to launch in Mexico, Gemalto said. services to their customers, while benefiting work, or buy your lunch, contactless PROSA is planning to offer services for from the cost efficiency and scale a world is a fast, easy and secure way to make mobile wallet development, cardholder iden- class processor like PROSA can provide."< payments. “With a contactless payment, you MOBILE no longer have to fumble around for the loose change in your purse or Google taps Oberthur for global wallet. You can simply pay using a contactless card or with your mobile phone.” deployment of Android Pay Recent figures from Transport for Google has selected Oberthur Technolo- are a big priority for Google and we're London (TfL) showed that more gies (OT) to support the internation- working to support a wide range of than one million journeys are now al deployment of Android Pay, set issuers to make Android Pay avail- made on the network every day using to launch in Australia in 2016. able to everyone." contactless. OT will help financial institu- OT's managing director of the In December 2015, total spending tions with its Digital Enablement solutions business unit, Marek across all debit and credit cards rose Platform to allow this new service Juda, said: "We are very proud to to £53bn. to be used by their customers. work with Google on the deploy- Total annual card spending reached This integration will enable end- ment of Android Pay, in particu - £622bn in 2015 from 13.4 billion users to make contactless transaction with lar in Australia which is one of the most transactions, up from respective all NFC-enabled Android devices. advanced contactless markets and therefore figures of £574bn and 12 billion in Google senior director for product man- of strategic importance for OT's digital pay- 2014.< agement Pali Bhat said: "Mobile payments ments activities."<

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EPI 346.indd 4 15/03/2016 12:04:25 Electronic Payments International DIGEST NEWS

Competition UK payments systems shake-up; Rich Wagner comments

The UK’s Payment Systems Regulator (PSR) VocaLink’s comment on the announcement the banks were a direct beneficiary of the has proposed that banks reduce their stakes in was as follows: system, VocaLink now serves a diverse pool VocaLink with a view to promoting competi- “We look forward to working with the PSR of clients. tion and innovation, two of its key objectives. to ensure that the proposals are pragmatic “With this in mind, the need to create even “Our proposals will increase competition and effective for all participants. VocaLink is wider access for non-banks is vital, and the and create more opportunities for challeng- committed to supporting a competitive and recommendation made by the PSR today is ers, fintechs and other organisations looking innovative payments industry.” a move that is aligned with that objective. to enter the market. This will create the con- Rich Wagner, CEO and founder of “While this call to action from the PSR ditions for greater innovation- which is in the Advanced Payments Solutions (APS), pub- shows great momentum for non-banks, I’d interests of those that use the infrastructure lished a report in February outlining a new like to see banks’ stake in financial systems services directly, and the UK economy as a model for smaller PSPs to access the system addressed in areas where we will see a real whole.” they are currently priced out of, among other impact. VocaLink processes over 90% of salaries, problems, said of the proposal: “The BACS payments system for example, is more than 70% of household bills and almost “I definitely support the recommendation dominated by the largest banks, across both all state benefits. In 2015 VocaLink processed made by the Payments Systems Regulator its membership base and its board of directors. over 11 billion transactions with a value of (PSR) that banks should sell their stake in “We need to see real diversity across the full £6trn and most businesses and people in the VocaLink. suite of payments infrastructure in the UK if UK use its technology “This would ultimately allow VocaLink we are to truly drive innovation in this space; The systems currently owned by the small to operate as a commercial entity, and this this initiative cannot be limited to VocaLink number of big UK banks are BACS, Faster is a necessary step to accommodate today’s alone.” Payments System (FPS) and LINK and the financial services environment. The question remains who will buy the same group controls the single infrastructure “Whilst there were a good number of rea- shares and will they satisfy the third PSR provider that they use to process payments, sons for the banks to own VocaLink when objective: ensuring the systems serve all par- VocaLink. it was set up, mainly down to the fact that ties fairly, ie keeping the costs down.<

DIGITAL Visa to bring secure payments to Internet of Things Visa has revealed plans to expand its Visa payments into their products and services. Its ing Chronos and Pebble, to embed secure pay- Ready programme to include Internet of partners receive access to industry best prac- ments in consumer devices. Things (IoT) companies, such as manufac- tices, tools and resources, and Visa's Digital Visa executive vice president of innovation turers of wearables, automobiles, appliances, Enablement Programme (VDEP), which and strategic partnerships Jim McCarthy said: public transportation services, and clothing. includes streamlined access to Visa Token "By adding payments to these devices, we are The announcement was made at the Mobile Service (VTS). turning virtually any internet connection World Congress in Barcelona. Coin, Fit Pay, and Samsung are among the into a commerce experience - making secure The Visa Ready Programme gives com- first IoT firms to join the programme. They payments are seamless, and ultimately more panies one seamless path to integrate secure will work with device manufacturers includ- accessible, to merchants and consumers."<

Exclusive: VocaLink kicks off global research into Millenials’ behaviour

Amid the news that VocaLink is due to be responses to be gathered are triggered by recent app product development and design. divested, the payment systems company has use of a payment application. “A lot of people talk about millennials but kicked off a study into the behaviour and VocaLink will be looking for assurance that nobody has done a robust, statistically signifi- preferences of millennials when it comes to speed is of the essence for this group of peo- cant study that can showcase what the millen- payments. ple and will be interested to find out whether nials are thinking about so this is an attempt The first set of data will be collected in security is something they worry about or to do exactly that. We are making sure that the United States this quarter, moving on whether they just expect not to have to worry in each market it will be a statistically signifi- to Asia in Q3 and Europe towards the end about security full stop. Ubiquity is another cant representation of the market. It's quite a of 2016. key angle of questioning- whether or not this big study that we're undertaking,” said David An initial round of 32 focus groups across group require global functionality from a Daniel, head of communications at VocaLink. America will provide a snapshot of what may payments app, or merely domestic capability, “Previously in the UK we have researched be to come and by the end of the US survey, explained David Daniel, head of brand and attitudes towards payments, this one is about 5,000 millennials (aged 16-30) will have par- communications at VocaLink. money going in and coming out- very much ticipated and had their views counted and Ipsis Mori will conduct the survey through- the full life cycle of payments and the moni- behaviour measured using sophisticated data out all three regions and depending on the toring side of people's life.” analytics. results, further regions may be examined in If it is indeed MasterCard that takes owner- VocaLink will release an app to the groups 2017. ship of VocaLink, who knows what develop- before commencing the research, so that the The results will be used to inform future ments this research may play into.<

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EPI 346.indd 5 15/03/2016 13:22:08 Electronic Payments International FEATURE WEARABLES

Wearing payments well As technology moves forward, it becomes easier for consumers to make payments. When cards moved payments into your wallet, smartphones arrived and moved them to your mobile. Now, with the emergence of wearable technology, you don’t even need to reach into your pocket. Patrick Brusnahan investigates

rictionless is an often-used buz - Facebook provide. The wearables can be an that, the appeal is broad. It really does reach zword when talking about financial important part of this.” from the ages of 12 to 84 in terms of our technology. While moves had been Barclaycard has made several strides into customer base,” Hargreaves adds. made in this space previously, the wearable technology, primarily through its Interestingly, we do get feedback around F the different customer preferences around game-changer was the introduction of bPay arm. Launched in July 2015, bPay contactless solutions. offers NFC-enabled wristbands, key fobs the range. I think we’ve been able to offer From near-field communication (NFC) on and stickers to make payments across the them a choice, and a choice on how to pay payment cards to host card emulation (HCE) UK, as well as utilising it on Transport for differently has been very appealing. on mobile phones, contactless is making London’s (TfL) network. “It’s not necessarily for everyone in the itself known in every sector. This has led to more experimental and market today, but those who have adopted This has now coincided with the weara- fashionable concepts, including contactless have found it sticking.” bles trend. From wristbands to gloves, and gloves, a contactless jacket in partnership CaixaBank has also found success with its even eyewear, it seems that every item of a with fashion company Lyle & Scott, and a work in wearable technology. After months consumers’ ensemble will be able to make range of products with Topshop. of testing and simulations, it was the first payments in the near future. Why has this This move has seen ‘great engagement’, bank in Europe to create Visa contactless taken the industry by storm? according to Barclaycard. Since launch, there bracelets in August 2014. have been 250,000 transactions for travel A spokesperson from the bank tells EPI: Engaging with something new alone. “At the end of 2015, CaixaBank has more Speaking to EPI, Balazs Vinnai, digital chan- Tami Hargreaves, commercial director of than 80,000 users of wearable technology, nel general manager at Misys, says: “At this digital consumer payments at Barclaycard, which means a remarkable result for an moment, financial life is full of different tells EPI: “While the trends we’ve seen in emerging technology. frustrations. Not just going into the [bank wearables have been significant globally, I “But wearable devices are only just begin- branch], but using old-school digital solu- think there’s a lot more promise in the indus- ning to emerge from the market, and are far tions which, sometimes, are really frustrating. try today about new technology. from being in widespread use. Thus, this “One of the reasons some people feel this “Technology is now becoming huge with innovation stands out for its qualitative frustration is because people don’t compare other functional devices; whether it’s fash- rather than quantitative value. banking solutions to other banking solutions. ion, and smart clothing, or fitness, there are “Feedback from clients is very positive; If they are using a digital banking solution, a significant number of trends which are making contactless payment the most used they compare it to Google or another web about bringing together relevant and prac- system by the client. The main advantages service; something they use on a daily basis. tical functional features that make people’s the clients underline are comfort, ease and “That’s why we need to harmonise our lives a bit easier. security, because clients receive a push noti- solutions better, because of the level of “We’ve had some great early adopters; that fication in their smartphone every time they service that companies such as Google or youthful, tech-savvy market. Having said use the bracelet.”

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EPI 346.indd 6 15/03/2016 13:23:00 Electronic Payments International WEARABLES FEATURE

“Moreover, clients who use this payment technical security; we must also ensure that “I think more and more, as the market grows, system have increased their use of electronic clients perceive transactions via bracelets to particularly throughout 2016, we’ll get into payments. In CaixaBank, we keep betting on be fully secure. not payment-only devices, but when you innovation to serve clients,” the spokesper- “CaixaBank wristbands have all the same start to think of what the generation looks son explains. security features as normal contactless cards. like, integrating the payments technology Thanks to EMV technology, purchases made into other devices that function. Credibility with the band are fully encrypted. Besides, “Whether you integrate it into a fitness While this new solution is gaining traction, clients have full control of operations made device or something else, it brings many work is needed for it to become a main - with their bracelets, and receive a push noti- functions together for the consumer,” Har- stream option for consumers. One aspect of fication for each transaction.” greaves adds. this is to improve the technology. Hargreaves believes that the security issue “Barclaycard is developing the concept of Vinnai believes this lies in two aspects: is top priority and the solution might have competing for space on the arm, in terms of proximity payments and voice command. already been found: biometrics. multiple bands doing multiple things. More He says: “Today, voice command can be a would move towards multiple functionality frustration, but if you remember what touch- “Whether it’s fashion and in one or two devices that could be connect- screens used to be before smartphones, they smart clothing, or fitness, ed with each other. were also a frustration. “Globally, we definitely think there’s an “If voice recognition is unable to under- there are a significant interest. We are very interested,” comments stand your language or accent, then it is a number of trends which are Hargreaves frustration, but it is getting better.” about bringing together Research from Misys finds that of banks However, the mentality within financial which have no wearables strategy in place, institutions also needs to change. The atti- relevant and practical 78% are in the EU and the US and also that tude has to shift to truly consider wearable functional features that there is a stronger appetite for innovation technology. make people’s lives a bit from Latin American and Asian regions. Vinnai adds: “The general issues are that easier” However, the demand tells a different story. digital transformation is not just a new, sexy A study from The NPD Group found that user interface on existing solutions. Develop- Tami Hargreaves, Barclaycard 15.6 million smartwatches and activity track- ers need to change the paradigm of what they ers are forecast to be sold in North America are thinking. She says: “Some of the wearables designers and 12.5million in Western Europe in 2015. “We believe that all of the thinking needs to are already experimenting with biometrics Vinnai says: “The banks have tried to start from the customers’ eyes and, of course, and we’re seeing a huge amount of biomet- implement [wearables] in their roadmap. this is not a new thing. ric innovation, not just in wearables, but in However, this is very region-orientated. The “[Banks] are always talking about it, but, other forms. more developed parts of the world, such honestly, in the last 15 years, even if they talk “Being alert to fraudster attacks in weara- as the US and the EU, are less interested in about CRM or Big Data, they don’t do that bles is at the forefront of our minds, we have wearable technology, while Asia-Pacific and much. This isn’t just a technology thing, but a tonne of experience in that as a financial Latin America are very enthusiastic about it. also a transformation issue and how banks institution. “I think that most of the banks are just are able to change their processes to provide “One of the benefits of having bPay as a waiting to see how these things go forward, or give a better service on the digital front,” sub-brand of our core is that we can bring particularly how many devices each provider Vinnai continues. all that expertise and leverage that knowl- sells. This is getting very close to inflexion “If you look at some of the examples in edge. We have a kill switch in the app, level, and banks will change their minds.” the banking market, the real disrupters are which can also just disable the wearable,” Another study conducted by Misys, in col- already there: Fidor, Mondo, or any of these Hargreaves continues. laboration with Efma, claims that banks are types of services mainly based on mobile ser- “Money can be transferred back to your toting the next three years as the era in which vices or a mobile strategy. account. It’s about staying alert and con - digital customer-driven sales will usher in “This side of customer experience already stantly monitoring the data we see and wearables. The forecast leap from 13% exists in the market. For banks that already making sure that we are able to select and today to 75% of sales conducted via digital have the legacy, it is much more difficult to introduce new triggers and control when we channels by 2018 is staggering. change in this direction.” need to. With 82% of banks predicting that smart- “It’s going to be an interesting evolution as watches will facilitate financial transactions Security we move forward in the next couple of years in the future, it is ‘not a trend to be ignored’. As wearables are an easier solution with around how wearables interact with other Vinnai concludes: “I believe in the watches. less friction, questions are raised on the identifiers, such as your heartbeat; there will The Samsung Gear 2 and the Apple Watch security of it all. Contactless fraud, accord- be advancements in that going forward,” she are easy to use, particularly with proximity ing to Which?, is ‘too easy’ and consumers added. payments. It’s a good, easy way to make a could be exploited. Vinnai agrees that it payment. For normal daily-life usage, this is ‘is an issue’. Entering a global scale an important point. CaixaBank says: “One limitation for any While bPay has been success in the UK, “We never know, and I never know, what financial device is the need to ensure airtight where contactless is booming, the rest of the will come up in the future. There are interest- security. It is vital that the same security lev- world is a less sure prospect. ing new experiments, such as contact lenses, els are upheld, regardless of whether pay- As Hargreaves comments, there are some which can change the whole dynamic of ments are made by cards or bracelets. examples of payment wearables in other wearables, but at the moment, I believe the “This extends beyond providing the actual markets in existing financial organisations. watches are the solution.”<

www.electronicpaymentsinternational.com April 2016 y 7

EPI 346.indd 7 15/03/2016 12:04:33 Electronic Payments International FEATURE ASIAN E-COMMERCE

A glitchy affair: Six challenges to building a successful cross-border e-commerce payment network in Asia

Developing an efficient e-commerce payment network can be daunting. Doing it in a region as fragmented as Asia? Even more so. An online merchant, a fintech start-up and two payment solutions providers weigh in. Xiou Ann Lim reports

hile e-commerce transactions growing online fashion retailer that runs ment method for cross-border e-commerce. in Asia have dramatically localised platforms in nine countries. Offer- He also believes that established and well- increased year-on-year, the rate ing various payment options from all major penetrated Asian markets such as South of shopping-cart abandonment credit cards, debit cards, eNETS and PayPal, Korea, Singapore and Japan are ideal desti- W it even offers cash-on-delivery for new shop- nations for cross-border business. is also rising – resulting in major losses for e-commerce retailers. pers or those without credit cards. “The growth of the marketplace e-retail This is according to CyberSource, an While this wide range of payment options model in 2015 was a catalyst for a smoother e-commerce credit card payment system may not be necessary in other regions around cross-border shopping exchange,” Op de company. Why so? The Visa-owned corpora- the world, it is essential in Asia where there Weegh says. tion reckons that this is due to friction during remain large unbanked populations in The marketplaces – essentially online shop- the payment lifecycle – which impacts cus- emerging markets who still rely on cash. ping malls – allow uniformity and familiarity, tomer experience, especially when consum- In fact, Gijs op de Weegh – chief operating adding perceived trustworthiness for hesitant ers expect convenience and speed in this day officer of Payvision, a payment transaction cross-border consumers. They attract high and age. processing services provider – believes that volumes of local traffic, enabling immediate “Consumer power has eroded traditional the flourishing e-commerce market in Asia domestic visibility without requiring local- product-based advantages, and organisa- is partly driven by a surge in mobile com - ised search engine optimisation. tions are increasingly competing against each merce, due to mobile internet adoption in “The marketplaces are the ideal starting other to create better customer experience emerging Asian markets. In turn, he says that point for merchants to gauge overseas mar- at every touchpoint,” says Chew Ann Wee, this is driving consumers to shop online both ket potential without large capital outlay or senior regional director of Southeast Asia at domestically and across borders. resource investment,” he adds. CyberSource. Citing China as an example of a leading Asia’s fragmented geography is emblematic Chew is of the opinion that e-commerce e-commerce market, Op de Weegh says that of its payments ecosystem – no one-size-fits- merchants need to provide a wholesome the Chinese payments landscape was tradi- all approach will work across all markets. end-to-end customer experience – from the tionally cash-based. Yet with explosive tech This effectively puts a dampener on cross- moment a customer visits their website to adoption, increasing mobile penetration border e-commerce growth if players – mer- the delivery of the product and beyond. Ulti- and the desire to shop online – especially for chants and payment service providers alike mately, this means that businesses have to overseas products – the online payment pref- – are unable to adapt and localise. provide customers with a variety of options. erence is shifting. Commenting on the challenges that cross- “For instance, payment gateway service “Chinese consumers now prefer to pay with border e-commerce merchants have to over- providers need to provide e-commerce mer- credit and debit cards or AliPay – largely come, Op de Weegh says: “Consumer rights chants with the solutions to allow their cus- through mobile applications,” he reveals. laws differ considerably from one place to tomers to pay the way they prefer – regard- Almost 80% of the 18m online cross-border another. Similarly, privacy and data pro - less of device or currency,” he says. shoppers in China are cross-border mobile tection laws vary – as well as the require - He also believes that they can enhance cus- shoppers, he adds. ments for some inter-regional personal data tomer experience and capture more sales in Op de Weegh believes that credit cards exchanges.” doing so, ultimately boosting the competitive continue to glue together the global cross- Adapting to the local language and culture advantage of their e-commerce business. border e-commerce markets, and that they can also pose problems when embarking into Take Zalora for example, Asia’s fastest- are still considered the most popular pay- overseas markets if there are social sensitivi-

8 y April 2016 www.electronicpaymentsinternational.com

EPI 346.indd 8 15/03/2016 12:04:35 Electronic Payments International ASIAN E-COMMERCE FEATURE

ties that differ from one country to another, 0.80%to 1.39%. cially when dealing with fragmented markets as well as regional payment preferences such “With digital sales expected to be a much in Asia. as AliPay. bigger source of revenue for all retailers, “It alters customer experience and imposes there is then a greater risk of online fraud,” burdensome requirements, particularly for The new global consumer Chew says. smaller players with insufficient financial Apart from that, Op de Weegh says that a Op de Weegh agrees. “Online criminals strength. It can take a toll on competitive- global challenge with both cross-border and and fraudsters make a concerted effort to ness, as resources invested in compliance are domestic e-commerce is adapting to a new communicate with each other and share tac- removed from business-related initiatives,” type of global consumer. tics on circumventing the regulation of the Op de Weegh says. “Mobile commerce is creating a new breed card schemes. As such, cybercrime is still on Chris Larsen – CEO and co-founder of of super-shopper, born out of a need to be the rise,” he says. Ripple, a venture-backed start-up that offers continually connected to friends, retailers, He believes that the financial sector com- financial settlement solutions – believes regu- services and finances. Consumers in 2015 munity could benefit from increased commu- lators will need to find new ways to imple- want an omnichannel experience – they nication as well. ment global, cooperative regulatory frame- expect to shop anywhere, at any time of day, “But stakeholders within the payment and works for emerging financial technologies. from any country, device, machine or chan- acquiring industry work independently – “We envision a framework similar to that of nel. They expect the same experience from without sharing information and without the 1997 Bonn Declaration for e-commerce: one touch-point to another,” he adds. a common strategy to fight cybercriminals,” robust, secure and with built-in consumer Chew agrees: “The new breed of digitally he adds. protections,” he says. savvy consumers is driving the convergence of channels. In response, payment gateway Poor infrastructure service providers have also embraced the Not only that, Larsen says that Asia has a change. They continuously harness innova- “Understanding a target high diversity of currencies and a fragment- tive ways to help merchants reinvent and ed infrastructure, which can lead to a lower deliver a true cross-channel experience, while market, preferred local likelihood of a payment reaching its final simplifying back-end operations.” payment methods and destination on the first attempt in today’s In short, payment gateway solutions devel- consumer idiosyncrasies payments ecosystem. op the payment infrastructure necessary to is absolutely essential in “Merchants, consumers and card issu - support fast and convenient transactions. ers all face the same problem – the limit - successful cross-border ing factor of an outdated 1970s payments Localisation e-commerce expansion” infrastructure that results in slower, more For cross-border consumers themselves, Gijs Op de Weegh, Payvision expensive payments. Op de Weegh believes there can be a lack “Today’s payment networks are siloed and of trust in shopping from retailers in other are not interoperable with one another,” countries if currency and language are not Larsen says. correctly localised. Card chargebacks While consumers are demanding real-time However, he also believes that as more So, what are some more common issues that payments, a payment typically takes two to merchants are embracing cross-border occur at the payment stage? four days to move across borders in today’s e-commerce, there is a renewed focus on According to Op de Weegh, card charge- correspondent banking system. improving localisation and payment meth- backs – when there is a dispute between the “The world needs a way to move value ods. merchant and the cardholder over the valid- without a central operator, which is where Meanwhile, e-commerce merchants such ity of the transaction – occur quite frequently. distributed financial technologies like Ripple as Zalora have to adapt to the nuances “The cardholder requests the return come in,” he adds. of local markets – especially with third- of funds through the issuer if the goods party payment providers, as each coun - were not received, were faulty or that the Conclusion try has a number of providers that offer cardholder lacks knowledge of the transac- Education and research are key starting payment services. tion,” he explains. points to overcome the challenges associated “We are very selective about whom we He adds that there are more digital vul- with cross-border e-commerce. choose to partner. Each provider has its own nerabilities in Asia that cybercriminals can “Understanding a target market, locally strengths and weaknesses, but we always probe – with the high number of financial preferred payment methods and consumer work with the strongest,” says Abhishek institutions, consumer patterns and very var- idiosyncrasies is absolutely essential in suc- Vats, regional director of business intelli - ied regulatory schemes. cessful cross-border e-commerce expansion,” gence and payments at Zalora. “As such, Asia is twice as likely to be a says Op de Weegh. victim of cybercrime. Credit card fraud in This has never been more crucial than now, Fraud and cybercrime Asia represents over $100bn of deferred and a time when Asian e-commerce is accelerat- When it comes to card issuers, financial insti- delayed transactions,” he discloses. ing and American and European businesses tutions, schemes, banks and acquirers, fraud are more frequently expanding into the and cybercrime can be very real concerns Regulation region to capitalise on this growth. with cross-border e-commerce. With the rise of fraud and cybercrime, one Applying an identical business model, A recent LexisNexis study on online fraud may be inclined to think that regulation is work ethic, marketing plan and payments found that large e-commerce companies saw the solution. process directly into Asia will never work for an increase in fraud as a percentage of total But this may not always be the case. In fact, Western businesses without local presence or revenues between 2013 and 2015, up from it can present its own set of challenges – espe- flavour. <

www.electronicpaymentsinternational.com April 2016 y 9

EPI 346.indd 9 15/03/2016 12:04:37 Electronic Payments International FEATURE PEURVIAN SHARED MONEY

Peruvian banks launch shared mobile money scheme

Peru’s banks and telcos have collaborated to launch a mobile money scheme which is being viewed as a model for other emerging markets. With the aim of serving the country’s unbanked and the ambition to have two million active users by 2020, it’s one to watch. Robin Arnfieldreports

he Bim (Billetera Móvil/mobile cajas (credit unions), microfinance insti - by 2020, but we think we can achieve it.” wallet) mobile money programme tutions, and three licensed non-bank elec- will provide unbanked and tronic money issuers along with the coun- Strategic planning T underbanked Peruvians nation - try’s largest telcos. “Most of Peru’s FIs have ASBANC played a key role in establishing wide with access to digital financial joined, and represent the vast majority of the Modelo Perú initiative. The country’s services such as prepaid accounts, P2P deposits on record,” says Bower. “Some banking association invited technology transfers, bill payments, and point- smaller FIs who can’t afford the technical companies to submit tenders to develop of-sale purchases, irrespective of who development work haven’t joined yet.” a national mobile payments switch that their bank or telco is. The goal is to Bim is being implemented by Pagos would work with all Peru’s state-owned reach 5 million out of Peru’s 10 million Digitales Peruanos (PDP/Peruvian Digital and private-sector FIs, microfinance pro- unbanked by 2020, with two million Payments), a company founded by Mod - viders, and telcos. active users by 2020. elo Perú in July 2015. Peruvian bank - Sweden’s Ericsson won the contract “The messaging is clear: ‘If you have a ing association ASBANC’s (Asociación in August 2014 to supply its mobile phone, you have Bim,’” says Jeffrey Bower, a de Bancos del Perú) financial education wallet platform, after a selection pro - digital finance innovation specialist with the institute has an equity stake in PDP, and cess which included bids from major United Nations Capital Development Fund’s the project is being supported by addi - mobile financial technology players (UNCDF) Better Than Cash Alliance. Bower tional funds from the Multilateral Invest - such as MasterCard, Visa, and Com - was closely involved in the development pro- ment Fund (FOMIN), the Better than viva/Tech Mahindra. cess for Bim. Cash Alliance and Development Bank of “The selection criteria didn’t just According to a Better than Cash Alliance Latin America (CAF). involve technology,” says Lars Arvidsson, blog by Bower, with over 40,000 banking “The December launch involved nine Senior Advisor at Ericsson. agents and branches and 10.6 million debit financial entities with a total of 10,000 “ASBANC was looking for a cards, Peru has a relatively well developed branches and agents and Spanish telco Tel- (technology)-agnostic partner and plat - formal financial sector. “However, over 70% efónica’s Peruvian subsidiary Movistar,” form that would support the establish - of Peruvians still don’t use formal financial says Miguel Arce Tellez, assistant commer- ment and growth of a local and regional services due to a combination of high trans- cial director for the Bim programme at PDP. ecosystem. Also, the solution had to action costs, financial illiteracy, and lack of “In January 2016, we will add another telco, offer multi-tenancy and interoperability accessibility in remote areas,” Bower wrote. Claro, to Bim, and will also commercially allowing multiple legal (financial) enti - “High levels of mobile phone use nationwide launch the service with media advertising. ties to perform services from the same (over 87% of households) means that Peru In February, we will add a third telco, Entel, platform.” shows potential for significant financial followed by Bitel in March 2016. Movistar, “What’s interesting is that Peru is the first inclusion through financial services innova- Claro and Entel together account for 90% country where the FIs are co-operating on tion, particularly with mobile money.” of the cellphones in Peru.” infrastructure in order to compete on prod- A further 18 financial entities will be ucts,” says Bower. Soft launch connected to Bim in March 2016, says Tell- “The FIs are putting together their agent Bim had a soft launch in mid-December ez, as well as providing purchases, links to networks, branches and existing customer 2016, offering P2P transfers and mobile bank accounts and a B2B payments func - base in Bim and then trying to attract new top-ups, after being in preparation for tionality within Bim during 2016. users to the banking system. Bim won’t be three years. Eventually, all the financial entities competitive with the banks’ existing busi- Bim is the first service to be introduced involved in Bim will be connected to the nesses, but will be additive.” by Modelo Perú, a partnership of nearly service, representing over 40,000 branches 40 Peruvian financial institutions includ - and agents. It will be a challenge to reach Competition ing private-sector and state-owned banks, our target of two million active Bim users The FIs will compete with each other for

10 y April 2016 www.electronicpaymentsinternational.com

EPI 346.indd 10 15/03/2016 12:04:38 Electronic Payments International PEURVIAN SHARED MONEY FEATURE

n VALUE OF TRANSACTIONS BY TYPE OF n NUMBER OF TRANSACTIONS BY TYPE OF n E-COMMERCE VALUE OF TRANSACTIONS IN PERU INSTRUMENT (PERU, 2015) INSTRUMENT (PERU, 2015) ($BN) Payment Direct Cards Debits 4 Cheques 5% 4% 6%

Cheques 2 27% Credit Payment Transfers Credit Cards 1 68% Transfers 48% 42%

2010 2011 2012 2013 2014 2015

Source: Timetric Source: Timetric Source: Timetric

acquisition of new customers through Bim. participate in Bim and issue e-money,” says mal national mobile money switch connect- “Bim is similar to MasterCard and Visa Bower. “These companies, which are partici- ing traditional and non-traditional FIs would in that it is based on an interoperable net- pating from Bim’s launch, include Gmóvil, look like, and wants to promote this concept work/switch with one national brand, Bim, which worked with Latin American mobile worldwide. It sees Peru’s switch as a model and participating entities provide their own payments firm YellowPepper to set up the to be replicated, as it allows traditional and competing services based on the Bim scheme, GMoney mobile P2P remittance programme non-traditional players to cooperate in devel- just like MasterCard and Visa card issuers,” in Peru. Now that YellowPepper has pulled oping a programme that brings new people Bower says. out of the unbanked mobile money market, into the banking system. Hopefully, Bim is a “However, no matter which bank the Bim Gmóvil wants to connect its existing Gmon- model that will be copied around the world, client goes with, they can transact with ey customers with Bim.” as it is getting a lot of interest internation- anyone with a cellphone and with any Bim Bower says that Bim resulted from the ally.” account-holder across Peru. Also, they can challenge the Peruvian banks faced with Bim is a model that will be particularly access their Bim account at any branch or two pan-regional mobile money ser - attractive in regions where there is already agent of a Peruvian bank.” vices: Wanda (now rebranded as Tu Din - substantial financial services infrastructure “By pooling existing financial infrastruc- ero Móvil/your mobile money), Telefónica such as Asia and Latin America, Bower says. ture across Peru, members of Modelo Perú and MasterCard’s Latin American ser - “In Africa, the telcos had to take up the will use the Bim platform to issue afford - vice, which was launched in Peru in Janu - work of building financial services infra - able products for those formerly financially ary 2015; and Transfer, Citigroup and its structure for the unbanked, as the banks excluded,” Bower wrote in his Better than Mexican subsidiary Banamex’s offering didn’t see the value in investing in building Cash Alliance blog. with America Móvil. large-scale financial infrastructure,” he says. “What small profits are made from the “As it happens, MasterCard and Citi’s low fees will be directly invested back into pan-regional mobile money services Open-loop the platform, further ensuring low costs haven’t been successful,” says Bower. Bower stresses that, while technology and for users. The ultimate goal is for mobile “But the fact that telcos cooperated with products are important, they are not as vital as financial transactions to flow without fric- MasterCard and with Citi meant that having good partnerships if the banking indus- tion - between banks and other approved smaller banks in Peru would never have try wants to build systems that reach everyone. entities, across telecoms networks, while been able to achieve scale with their own Many mobile money services are closed- making use of existing financial infra - mobile money efforts. So the decision was loop in that they are restricted to a single structure (banks, branches, agents, ATMs, made for ASBANC to get all the banks and bank partnered with a single telco, he notes. online channels), so that a payment can be telcos to work together. The idea was also “If partnerships aren’t enabled to allow a accepted by anyone, everywhere, at any for Wanda’s Tu Dinero Móvil customers to digital money service to reach scale, and if time; in person, at distance, and online.” be able to transact with Bim customers,” this service is restricted to a few FIs and tel- says Bower. cos, then people won’t use it,” Bower says. Legislation “I won’t adopt digital money if I can only Under Peru’s Electronic Money law, which National switch use it with 60% of the population, since was passed in 2012 and is the cornerstone “Bim is the first example anywhere of a cash works with everybody. of Modelo Perú, non-FIs are eligible to national digital financial services switch,” The lesson from Peru is to use existing participate in financial services and offer says Bower. payments and telecoms infrastructure, banking products. “Three non-FIs have “The Bill and Melinda Gates Foundation bring in partners and then incentivise peo- been approved under the regulations to has developed a definition of what an opti- ple to join your service.”<

www.electronicpaymentsinternational.com April 2016 y 11

EPI 346.indd 11 15/03/2016 12:04:39 Electronic Payments International FEATURE PAYPAL

What’s the deal with PayPal? If you regularly purchase items online, then you are most likely familiar with PayPal. The alternative payments service provider has moved forward leaps and bounds from its humble beginnings in 1998. Patrick Brusnahan, with the help of Timetric’s research, takes a closer look at this financial behemoth

ayPal is the one of the largest alterna- DATE ACQUIRED COMMENT tive payments service providers glob- ENTITY ally, second only to Alipay, in terms November Xoom PayPal acquired online money transfer and remittance provider Xoom Corporation P of transaction value. It enables digi- 2015 (Xoom), which provides P2P money transfer services. It offers its services through xoom. tal payments and offers acceptance solu - com and walmart.com online in 37 countries. The acquisition is likely to strengthen tions for consumers and merchants. PayPal’s P2P business in key international markets including Mexico, India, the The firm specialises in online payments, Philippines, China and Brazil. mobile and e-commerce, fund transfers, pay- August Modest In a move to expand its presence in mobile commerce, PayPal acquired Modest, a ment processing, payment security and moneti- 2015 developer of a mobile shopping platform for retailers, which became a part of PayPal’s sation services for developers. It has expanded Braintree business. The acquisition enables PayPal to focus on Modest’s ‘buy’ buttons, which allow users to purchase items directly from mobile apps without having to load its capability in the payments and money trans- another web page. It allows retailers to embed ‘buy’ buttons in their own apps and fer businesses with the acquisitions of Zong, emails. Paydiant, CyActive, Modest, Braintree and April 2015 Paydiant The acquisition of Paydiant is expected to help PayPal expand its mobile technology Xoom. The platform supports access to money capability to QR codes and NFC. The acquisition also helps PayPal expand its client base, on multiple devices. This includes smartphones, as Paydiant provides the mobile wallet platform for MCX – a network of US merchants. It tablets, personal computers and wearables. also offers services to brands such as Subway, Harris Teeter and Capital One for mobile While it is a global company, PayPal is partic- payments. ularly active in the US, the UK, Germany, Aus- December Braintree eBay acquired Braintree for a cash consideration of $800m, with Braintree operating tralia and New Zealand. Following its spinoff 2013 as a separate service within PayPal. Braintree is a payment platform provider which from eBay in 2015, PayPal now operates as an allows merchants to accept online and mobile payment methods such as PayPal, Venmo, independent publicly traded company. and credit and debit cards. Braintree works with most leading e-commerce and billing In 2014, it held host to four billion transac- platforms, including Bigcommerce, Shopify, Magento and Wufoo. The acquisition enabled PayPal to bolster its global online and mobile payment operations. tions with a total value of $235bn. In Septem- ber 2015, it had 173 million active users. In n n between the first and third quarters of 2015, REVENUE, NINE MONTHS ENDED 30.09.2014 REVENUE, NINE MONTHS ENDED 30.09.2015 net revenue was recorded as $6.7bn with a net income of $861m. Headquartered in the US, PayPal is near UK UK synonymous with online transactions. Avail- 14.4% 12.8% able in 203 markets, it entered ten new mar- Rest of Rest of kets in 2014, making the service available to a the world the world potential new 80 million internet users. Users 37% 37.3% can accept payments in more than 100 currencies. 74% of the largest online retailers in the US US US accept PayPal. 48.6% 49.9% According to a survey conducted by Niels- en, PayPal is also popular with cross-border purchases in all surveyed markets. 79% of respondents had used PayPal for a cross-border

transaction in the past twelve months. Source: PayPal and Timetric Source: PayPal and Timetric

Products and services retailers, and POS manufacturers VeriFone the person and the transaction is completed PayPal provides a variety of services for and Equinox in the US. The company uses QR without sharing sensitive information with the consumers and merchants. Users can make codes and facial recognition to enhance its in- retailer. online or mobile payments for online shop- store payment initiative. Money can be transferred with just the recip- ping using a PayPal account. In addition, One element utilises geolocational solutions. ient’s e-mail address or mobile number, as long they can bypass guest checkout pages to PayPal users can find merchant locations in as the user has a PayPal account. Moreover, avoid entering billing and shipping informa- their app and check in there. After checking PayPal Here, PayPal’s mPOS terminal, is com- tion. in, the user’s PayPal information is held by the patible with Android iOS and Windows and In 2012, PayPal entered into in-store pay- store’s POS system. When checking out, the allows merchants to accept debit and credit ments through partnerships with 15 large POS attendant clicks on the photo matching card payments through all major cards. <

12 y April 2016 www.electronicpaymentsinternational.com

EPI 346.indd 12 15/03/2016 12:04:39 Electronic Payments International SURVEY COUNTRY SURVEY: SWEDEN COUNTY

Sweden’s card market set to soar Scandianavia is often looked at as one of the most innovative markets with regards to finance. This innovation is particularly apparent in cards and payments within the region. This has greatly aided the booming e-commerce market, which, in turn, helps growth prospects in the financial sphere

he Swedish payment cards market is According to the World Bank’s Global Fin- only 100,000 contactless cards, 0.4% of all highly developed. Average monthly card dex survey 2014, the percentage of the Swed- payment cards. transactions and average annual spend ish population aged 15 or over with a bank According to Timetric analysis, this low per card are higher in Sweden than in account reached 99.7% in 2014. This result- adoption is because banks have not been push- T ed in high penetration of bank accounts and other European markets such as the UK, NL ing for it, although ICA Banken plans to issue and Germany, though they lag behind Nordic debit cards. Banks in Sweden are therefore 560,000 contactless cards by the end of 2016. peers Denmark, Norway and Finland. looking to differentiate their product offer- The rising number of businesses and street Payment card use in Sweden has been driven ings, eg with card customisation. Marketing vendors accepting payment cards for small-val- by concerted government and bank efforts, and strategies include serving niche segments ue transactions, contactless technology is antici- consumer willingness to adopt. As a result, pay- such as students, high-income consumers pated to further drive payment card transaction ment cards are gradually replacing cash, and and SMEs. volumes over the next five years. are now used even for small-value transactions n by newspaper vendors, homeless magazine sell- SWEDEN’S CARD TRANSACTION VALUES BY E-commerce market offers growth prospects CHANNEL ($BN), 2010-2019 ers and for church donations. Overall, the pay- The e-commerce market grew from $6.7bn ment cards market grew at a CAGR of 6.87% Year ATM POS (SEK48.4bn) in 2010 to $12.4bn, at a CAGR between 2010 and 2014, in terms of transac- 2010 31.2 108.6 of 16.48%. Rises in internet and smartphone tion volume, and 5.66% in terms of transac- 2011 32.2 122.6 penetration, and investment in online payment tion value. A similar trend is anticipated over infrastructure supported this growth. the next five years. 2012 28.5 125.3 To make online payments more efficient The Swedish government’s policy for a cash- 2013 34.7 138.2 and secure, the European Banking Authority 2014 35.4 138.9 (EBA) published final regulations on the secu- n SWEDEN’S CARD TRANSACTION VOLUMES BY 2015 30.6 119.1 rity of online payments in December 2014. The CHANNEL (BN), 2010-2019 guidelines are applicable to all 28 EU members, 2016 33.0 127.5 Year ATM POS including Sweden, for implementation from 2017 35.2 135.9 August 1, 2015. These include strong identity 2010 241.0 1,940.3 2018 37.5 144.9 verification measures, customer awareness pro- 2011 225.0 1,982.4 2019 39.6 154.2 grammes, and consumer data protection. 2012 214.0 2,190.0 According to a 2014 central bank study on Source: Central Bank of Sweden and Timetric 2013 236.0 2,398.0 the payment behaviour of Swedish consumers, Measures to tackle deflation drive spending credit cards were the most preferred payment 2014 248.6 2,596.7 The central bank of Sweden is using the repo method for online purchases. Payment cards 2015 260.4 2,793.5 rate to tackle deflationary pressure. This rate accounted for 39% of the overall e-commerce 2016 271.0 2,984.1 was gradually reduced from 1.25% in Decem- transaction value in 2014. 2017 281.0 3,170.9 ber 2010 to 0.00% in October 2014, and remained 0.00% until the end of 2014. As a n SWEDEN’S PAYMENT CARDS BY TYPE 2018 289.9 3,355.6 result, bank lending grew, resulting in increased (MILLION), 2010-2019 2019 298.1 3,536.6 consumer spending and economic growth. Year Debit Cards Credit Cards Charge Cards Source: Central Bank of Sweden and Timetric To combat deflationary pressure, the central 2010 9.83 9.54 0.67 bank decreased the repo rate to -0.10% for the less society and prevailing negative interest first time in February 2015, and to -0.35% in 2014 10.88 10.99 0.67 rates are anticipated to further drive card November 2015, resulting in negative returns 2015 11.00 11.38 0.66 transaction volumes and values between on savings and deposits with commercial banks. 2019 11.30 12.36 0.68 2015 and 2019. The move led consumers to spend rather than Source: European Central Bank & Timetric In Sweden, payment card transactions over- save money in banks. took ATM cash withdrawals in 2002. The These three instruments accounted for 64% increase in POS terminals has been paralleled Contactless technology still at a nascent stage of the total e-commerce transaction value in by a substantial increase in the use of payment Despite the popularity of payment cards, adop- 2014. However, emerging payments such as cards, with the volume of card transactions at tion of contactless cards is still very low in Nor- digital wallets and m-payments- including POS terminals increasing substantially to reach dic countries including Sweden in comparison mobile wallets and carrier billing- are also 2.6 billion in 2014, accounting for 91.3% of to other European countries such as the UK increasingly being used for e-commerce trans- the overall payment card transactions. and France. At the end of 2015, there were actions.<

www.electronicpaymentsinternational.com April 2016 y 13

EPI 346.indd 13 15/03/2016 12:04:40 Electronic Payments International SURVEY COUNTY COUNTRY SURVEY: NORWAY

Is Norway the vi-king of payment cards? Norway is becoming impressively digital when it comes to payments. E-commerce is driving a sizable amount of growth in the card market while digital and m-payments are continuing to gain greater prominence in the region. Not only that, but contactless is also entering the field to add scope to solutions

he strength of Norway’s cards and BankAxept’s acceptance network created a cards and credit transfers are more popular in payments industry is the result of a convenient payment method with tight security. Norway, however digital wallets, mobile wal- robust economy, an efficient domes- BankAxept cards were used 1.48 billion times lets and carrier billing are gaining prominence. Ttic debit card scheme (BankAxept), in 2015; an increase of 3.6% over 2014. and an increasing consumer appetite for BankAxept is the sole scheme provider of Digital and m-payments gaining prominence credit. The average number of monthly debit cards in Norway. Overseas spending on For online purchases, Norwegians mostly card transactions, and the average annual cards is done via Visa. BankAxept also offers use payment cards and credit transfers. Pay- spend per card are higher in Norway than contactless cards and m-payment solutions. ment cards accounted for 65.3% of the total in more developed markets such as the US, BankAxept, however, faces competition e-commerce transaction value in 2014, fol- the UK, France, Germany and Australia. from both Visa and MasterCard. Although lowed by credit transfers with 11.5%. Electronic payments (e-payments) have Visa has a co-badging relationship with Alternative payments accounted for 7.7% gained ground during the last ten years, as BankAxept, the company has been working of the total e-commerce transaction value in the government has invested substantially in on building its own network in Norway. 2014; an increase from 5.2% in 2012. Seqr, building long-term infrastructure for cashless mCash and MeaWallet are some of the options n payments. Cash use is now largely confined to NORWAY’S PAYMENT CARDS BY TYPE available to Norwegian consumers. (MILLION), 2010-2019 rural areas and senior citizens. DNB Bank and Danske Bank launched a new m-payment Nordea Bank Norge are making their branches Year Debit Cards Credit Cards Charge Cards service, MobilePay, in September 2015, part- cashless and closing down ATMs to further 2010 6.62 5.04 0.53 nering with 100 retail outlets. reduce the country’s dependence on cash. 2014 7.32 4.95 0.57 n NORWAY’S CARD TRANSACTION VALUES BY n 2015 7.46 5.00 0.56 NUMBER OF ATMS AND POS TERMINALS IN CHANNEL ($BN), 2010-2019 NORWAY (THOUSAND), 2010-2019 2019 7.81 5.11 0.56 Year ATM POS Year ATM POS Source: Central Bank of Norway & Timetric 2010 17.6 75.6 2010 2.2 123.5 2011 18.7 88.0 2011 2.2 128.2 MasterCard is also looking at introducing a debit card. A combo card product, it would 2012 17.4 92.2 2012 2.2 135.9 feature both debit and credit functionality. 2013 16.4 96.5 2013 2.1 139.9 This approach has already been successful for 2014 14.7 94.7 2014 2.1 143.4 MasterCard in Denmark and Finland. 2015 11.3 79.5 2015 2.0 146.7 E-commerce driving Norwegian cards 2016 10.8 81.9 2016 2.0 149.5 E-commerce posted a CAGR of 14.68% 2017 10.5 84.2 2017 2.0 152.0 between 2010 and 2014, increasing from $6bn 2018 10.2 86.3 2018 1.9 154.0 (NOR36bn) in 2010 to $10.3bn in 2014. High 2019 10.0 87.9 2019 1.9 155.6 internet and mobile penetration, economic growth, a large young population, consumer Source: Central Bank of Norway and Timetric Source: Central Bank of Norway and Timetric confidence in online transactions and the pres- Cheques have almost been phased out in ence of secure online gateways are the key fac- Contactless will increase scope of cards Norway, primarily due to the associated pro- tors driving e-commerce. NFC payments have grown in popularity cessing costs. According to a 2012 survey on e-commerce among both consumers and retailers in Nor- A rise in the economically active population in Norway by DIBS Payment Services, online way. DNB Bank, Danske Bank and Svenska and per capita disposable income, the grow- purchases from foreign sites were more popu- Handelsbanken issue contactless cards. ing popularity of online shopping, increased lar than from domestic sites. The survey indi- To increase contactless uptake, banks are try- acceptance of cards and the adoption of EMV cated that travel and services, clothing and ing to differentiate their product offerings. standards supported the growth of cards over sportswear were the most popular online pur- In May 2015, Danske Bank announced that the last five years. This trend is anticipated to chases among Norwegian consumers. the bank is planning to roll out MasterCard- continue from 2015 to 2019, according to Consumers prefer to shop on foreign sites to branded contactless cards featuring an inte- Timetric’s analysis. benefit from the exemption of the 25% value- grated fingerprint sensor in 2016. add tax (VAT) on goods and services valued The project is still in the pilot stage, and is BankAxept maintains stranglehold less than $25.40 purchased abroad. being developed in partnership with the Nor- Debit card use primarily grew in Norway, as Conventional payment instruments such as way-based company Zwipe.<

14 y April 2016 www.electronicpaymentsinternational.com

EPI 346.indd 14 15/03/2016 12:04:40 Electronic Payments International SURVEY COUNTRY SURVEY: FRANCE COUNTY

France’s cards proving their value As one of the largest payment cards markets in Europe, France has a high standard to maintain. With a high penetration of payment cards and average annual spend compared to the rest of Europe, things seem to be close to perfect in the marketplace. However, regulation is rearing its head to possibly spoil the party

rance is one of Europe’s largest pay - n FRANCE’S CARD TRANSACTION VOLUMES BY n FRANCE’S CARD TRANSACTION VALUES BY ment cards markets, accounting for CHANNEL (BN), 2010-2019 CHANNEL (US$ BN), 2010-2019 11.5% of Europe’s total transaction Year ATM POS Year ATM POS value and 14.0% volume in 2014. F 2010 1.65 7.39 2010 170.5 481.0 France has a high penetration of payment cards, at 1.3 cards per inhabitant as of 2011 1.68 7.91 2011 185.6 547.1 2014 and the average annual spend per 2012 1.67 8.47 2012 173.5 541.7 card is high compared to the rest of Europe. 2013 1.66 8.96 2013 180.1 581.9 A typical feature of France’s payment cards 2014 1.64 9.38 2014 180.4 600.1 is multifunctionality, where debit and credit functions, provide access to several accounts. 2015 1.62 9.77 2015 151.4 517.4 Crédit Agricole’s MasterCard Dual Action, is a 2016 1.61 10.14 2016 151.8 532.4 credit card which can be used as a debit card by 2017 1.60 10.48 2017 153.6 550.5 selecting the ‘Cash’ option at the POS. 2018 1.60 10.77 2018 155.5 567.1 Consumer awareness, infrastructure, and contactless technology has grown transaction 2019 1.60 10.98 2019 157.4 582.3 volume and value, and to compete, mobile Source: European Central Bank and Timetric Source: European Central Bank and Timetric operators and technology providers have introduced quicker and more efficient digital pay- lion in 2010 to 50 million in 2015, represent- of e-commerce was an increased focus on cus- ment platforms such as Orange Cash, Hype ing 60.1% of all French payment cards. tomer retention tactics by retailers, including and SlimPay. The same trend is expected over the next customised e-mails based on buying patterns, five years. Banks and POS solution providers product and services ads on their social net- n FRANCE’S PAYMENT CARDS BY TYPE (M), are introducing product and service offerings working pages, and on-site shopping person- 2010-2019 to increase the uptake of contactless payments. alisation features. These initiatives have led Year Debit Cards Credit Cards Charge Cards to a healthy relationship with customers, and E-commerce driving card-based payments resulted in repeat purchases. 2010 71.1 31.6 24.3 E-commerce in France posted a CAGR of With slightly more than half of all internet 2014 80.6 16.5 24.2 16.40% over the last five years, growing from users in France shopping online, lower levels of 2015 81.2 14.3 24.5 $41.1bn (€31bn) in 2010 to $75.4bn in 2014. debt compared with other European countries, 2019 83.9 10.8 25.2 High online and mobile penetration, increas- and a relatively young population, banks and Source: European Central Bank and Timetric ing consumer confidence in online transactions, card issuers have a platform for growth. and secure online gateways drove this growth. Payment cards remain the most popular Banks in France focus increasingly on pro- Another contributing factor to the growth payment method among online shoppers. Issu- viding services through low-cost digital chan- ers such as BNP Paribas, Crédit Mutuel and nels. BNP Paribas launched the first ‘digital n NUMBER OF ATMS AND POS TERMINALS IN Banque Accord offer perks such as cashback, only’ bank in France in June 2013. Likewise, FRANCE (THOUSAND), 2010-2019 discounts, purchase protection insurance, the German-based financial service provider Year ATM POS extended warranty, zero card fraud liability Number26 launched the ‘mobile only’ bank 2010 56.2 1,426.7 and flexible repayments for online purchases. in France, Greece, Ireland, Italy, Slovakia, and 2011 58.2 1,443.7 Spain in December 2015. Regulation may thwart prepaid market Orange France acquired a 65% stake in 2012 58.5 1,400.0 In the wake of terrorist activity, the French the French bank Groupama Banque in Janu- 2013 58.6 1,344.4 government in March 2015 introduced a regu- ary 2016, with plans to launch a ‘mobile only’ 2014 58.7 1,604.5 lation laying restrictions on the usage of cash bank early 2017, offering savings, loans, insur- and prepaid cards to curb any form of terror- 2015 58.8 1,705.0 ance and cards. From October 2014, Twitter ism financing. Under the new regulation, any users in France, no matter who they bank with, 2016 59.1 1,782.8 cash transaction above $1,110.80 cannot be can tweet money to one another through BCPE. 2017 59.5 1,843.8 accepted by merchants. Similarly, card issuers 2018 60.0 1,889.4 may not issue prepaid cards without valid ID. Contactless on the increase While this is expected to encourage electronic 2019 60.6 1,925.0 The number of contactless cards increased payments in general, growth in the prepaid between 2010 and 2014, going from 3.4 mil- Source: European Central Bank and Timetric cards market is likely to be challenged.<

www.electronicpaymentsinternational.com April 2016 y 15

EPI 346.indd 15 15/03/2016 12:04:40 Electronic Payments International COMMENT GUEST COMMENT: FICO

Can we really trust analytics? Scott Zoldi, vice president of analytic science at FICO, examines this trend. With Big Data capturing the imagination of corporation and consumer alike, it seems ready to become a hugely utilised tool. However, is it the solution which everybody believes it to be? Or is it a red herring in the financial world?

nalytics is becoming more and through modern ensemble learning algo - decision alternatives). This approach greatly more ingrained into every aspect rithms that can discover unexpected and mitigates any selection bias issues, and helps of our lives. From tracking our complex relationships. This is a good meth- pave the road to transparent, data-driven, steps on a fitness band to a music odology for balancing accurate data fitting prescriptive modelling. A with understanding and domain expertise. streaming service foretelling the songs we would like to hear, there is no escaping 4. Use sequential decision analytics to real- data analysis. As such, there is a growing 2. Understand the process that generated the ise the benefit of information-gathering need for people to trust in analytics, par- data and be mindful of biases actions ticularly in the way organisations use it. The idea for this article came to me Learning from a data set about causality Conventional prescriptive analytics following Gartner’s recent announce - is a more demanding scientific task than exploit the available data to arrive ment describing the ‘trust factors’ that finding humble correlations, and it can at a decision. For some decisions or influence the ethical use of analytics as sometimes be an impossible task. Two customers, the available data may be ‘transparent, accountable, understand- key challenges relating to data conditions too sparse, too stale, or too biased to able, mindful, palatable and mutu - are omitted variable biases and historic make data-driven decisions with con - ally beneficial’. In their announcement, treatment selection biases. For example, fidence. In those cases, falling back Gartner highlights that leading data- a model for price elasticity of demand on a default treatment (which may be driven organisations must recognise that for ice cream could be severely biased if sub-optimal), or gathering additional people’s trust in analytics is as valuable historic prices had been managed based information are your only real option. as the business outcomes. on weather conditions and if we were to I find it beneficial to think about This made me reflect on some lessons I’ve omit weather-related control variables analytics as an element of a virtuous learned as a data scientist, how they relate from our model. feedback loop. to the interplay between data, models, trust, For a transparent causal modelling Data is constantly being turned into and results: methodology that fosters trust (and predictions and decisions that affect for alerting the analyst when treatment consumers and outcomes, and in turn 1. When developing models, balance data selection bias is too strong to infer lead to new information which can fitting with your understanding and domain data-driven causal relations) I recom - improve future models and future expertise mend treatment propensity score devel - decisions. The feedback loop perspec - opments and matched sampling prior tive offers various interception points For credit risk scoring, models must con - to ‘mining’ non-experimental data for and modes of operation to foster form to regulations, and adverse credit causal effects. transparency, learn about causes and decisions must be explainable to affected their effects, and enshrine trust. consumers based on the score formula used. 3. Think strategically and design safe exper- A customer must believe that when In any domain, a business unable to explain imentation right into your feedback loop data is collected it is in their interest, important analytically derived decisions and the business must act on the received could come under pressure one day for fail- Every business treatment on a customer information in a way that creates a win ing to offer explanations, and possibly lose applied today not only impacts the custom- for both sides. The music streaming ser - trust with customers if a decision was to be er’s future journey and metrics, but it also vice I’m using is a simple example of trust regarded as nonsensical, unfair, or unethical. yields new data samples that could, and earned that pays dividends. So, how can we balance human judgment should, inform future decisions. Whenever I’m happy to volunteer my ratings with letting the data speak for itself? I’m we’re plotting a long-term analytic roadmap, information in exchange for improved fond of the transparency, flexibility, and let’s think about optimising today’s decisions future recommendations. Seeing these ability to incorporate palatability con - - not with a myopic view (which is to exploit recommendations actually improve over straints provided by segmented scorecards, our current best estimates of today’s optimal time makes me a loyal customer. Ulti - and I prefer to benchmark these models and action), but with a strategic view (which is to mately, we trust in data that is used in guide their design (such as binning, vari - balance the exploration-exploitation trade- a transparent and mutually beneficial able selection and segmentation schemes) off by continually testing ethical and safe way.<

16 y April 2016 www.electronicpaymentsinternational.com

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