February 2016 Issue 344 www.electronicpaymentsinternational.com

YELLOWPEPPER TAKING LATIN AMERICA BY STORM

•FEATURE: 2016 Forecasts •DEBATE: Digital Banking Club •COUNTRY SURVEYS: Morocco, Italy and the US •REVIEW: Cashless payments in Asia

EPI 343.indd 1 05/01/2016 16:57:00 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 Consumer demand NEWS drives innovation 3: NEWS DIGEST

FEATURE s more and more people commute impossible in the banking space that existed to and from the cities, so faster and the situation proved a catalyst for mobile 6: SIERRA LEONE methods of payments are neces - payment adoption. We report on this in depth The recent Ebola Crisis which wracked Sierra sary. Take TfL’s contactless pay- on page 6. Leone in 2015 was a catalyst for change A In Greece, when the government curtailed ments drive. Sure, there were business and brought a number of people into the motives for MasterCard but for TfL, the cash withdrawals, card payments took a leap financial system. Alexander Atkins writes main reason was having to deal with vol- forward in a very short space of time. As 7: PAYMENT SECURITY umes of traffic, now and even more so for Andrea Fiorentino, head of European go-to- Patrick Brusnahan asks security experts on future planning. market mobile propositions at Visa Europe what to expect in 2016 and how to better On a side note, however, one thing left told us in a recent interview, in the two weeks protect consumers to nail is the speed of connectivity with immediately following the introduction of 8: CASHLESS IN ASIA contactless bank card use and especially controls, there was a 135% increase in Visa Xiou Ann Lim takes a look at Singapore, with wearables. The extra two seconds or so card transactions compared to the fortnight Malaysia and India – and what makes each that it takes to go through a turnstile with before. The number of active Visa debit cards market unique in terms of cashless payments Apple Pay or a bPay wristband could be tan- in Greece more than doubled in July, com-

10: 2016 FORECASTS tamount to taking your life in your hands pared with the previous quarter’s average. What can the industry expect in 2016? From in ten years’ time when commuter volumes This shift from cash to card has is ongo- digital to contactless to data privacy, the have doubled and you are being pushed ing in Greece. Card transactions towards the year ahead looks set to have it all through at rush hour. end of 2015 were up 128% (year-on-year), Arguably worse than the wrath incurred at compared to just 9% in the quarter before 12: YELLOWPEPPER the Christmas party bar, amid the cacopho- controls were introduced. As Latin America’s smartphone penetration keeps increasing, there seems no better nous din that is your colleagues in celebra- Couple this with how fast some banks time to bring mobile payments into the tion mode, when taking fifteen minutes to implemented Apple Pay, despite the odd ini- mix. YellowPepper has done just that. Robin order the same amount of drinks two at a tial glitch or delay. Basically in seven months, Arnfield investigates time for all your mates, for example. I’ve they made a massive transformation. It just 14: DIGITAL BANKING CLUB seen it and it isn’t pretty. goes to show where there is a will there is a The final Digital Banking Club debate of Hopefully in 2016 consumers’ demand will way. In some cases, necessity is indeed the 2015 discussed where digital would take the speed this process up. mother of invention. In others, it is simply a financial sector. Alexander Atkins writes There were two payment leapfrogs in positive top-down attitude that accelerates 2015, spurred on by crises in Sierra Leone progress. COUNTRY SURVEYS and Greece. In the former, during the harrow- ing Ebola outbreak, the demand of paying Anna Milne 17: MOROCCO the sudden influx of medical workers proved [email protected] 18: ITALY

19: USA

COMMENT

2: JONATHAN WILLIAMS

20: ANDREJ EICHLER

Editor: Anna Milne Sub-editor: Tom Langfield For more information on Timetric, visit Tel: +44 (0)20 7406 6701 Director of Events: Ray Giddings our website at www.timetric.com. As a Email: [email protected] Tel: +44 (0)203 096 2585 subscriber, you are automatically entitled Email: [email protected] to online access to Electronic Payments Financial News Publishing, 2012 Group Editor: Douglas Blakey International. For more information, please Registered in the UK No 6931627 telephone +44 (0)203 096 2636 or email Tel: +44 (0)20 7406 6523 Head of Subscriptions: Sharon Howley [email protected] ISSN 0956-5558 Email: [email protected] Tel: +44 (0)203 096 2636 Unauthorised photocopying is illegal. The London Office Patrick Brusnahan Email: [email protected] contents of this publication, either in whole or Reporter: 5th Floor, Tel: +44 (0)20 7406 6526 part, may not be reproduced, stored in a data Farringdon Place, Email: [email protected] Sales Executive: Alexander Koidis retrieval system or transmitted by any form or 20 Farringdon Road, Tel: +44 (0) 203 096 2586 means, electronic, mechanical, photocopying, London, EC1M 3AP Asia Editorial: Xiou Ann Lim Email: [email protected] recording or otherwise, without the prior Tel: +65 6383 4688 Asia Office permission of the publishers 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)20 7406 6561 or +44 (0)20 3096 2622 Fax: +65 6383 5433 Email: [email protected] Email: [email protected] Email: [email protected]

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EPI 343.indd 1 05/01/2016 16:57:02 Electronic Payments International COMMENT JONATHAN WILLIAMS

Greater security and competition afoot With upcoming changes, such as the Payments Services Directive 2, making their way towards the financial sector, institutions need to up their game to remain competitive. With the cross-border payments sphere quickly morphing, what can banks do to stay ahead of the curve? Jonathan Williams argues

n two years, the Payments Services Directive 2 (PSD2) will become law. Sure, this seems a while off yet, but I with around 100 or so pages of dense legislation, it makes sense to start digesting it now! Voted in by the European Parliament to improve cross-border payments, it follows on from the first version in 2007, which created a new legal framework for pay- ments. Here are the key areas that corporates should be thinking about.

More players and improved services There are two key advantages. Firstly, corporates and consumers will be able to control their bank accounts using ‘third party providers’. If you, as a corporate, feel your current service is not meeting your specific banking needs, then you will be able to use a third party provider (or a Payment Initiation Ser- vice Providers according to PSD2) to access account information or initiate payments instead. This may be an organisation that provides your business and mobile applications, for example. You would give them permission porates and consumers, need reassurance uncertainty that was present with the to integrate, say, with your ERP or payroll that their data and systems are only being first 2007 directive around what was system. The potential is a more appropriate accessed by those who should have access covered by the laws, such as payments service for your business. to them. and receivables ‘on behalf of’, or how Under the new rules, however, third With PSD2, Payment Initiation Ser - payments should be directed. parties will be more liable and need to vice Providers must have stronger cus - Furthermore, PSD2 now covers ‘one insure themselves in case anything goes tomer authentication processes in place. leg in’ and ‘one leg out’ transactions – wrong. They must establish: something you payments that either start in Europe and While it’s certainly a good thing in my know, a password for example, some - end elsewhere, or start elsewhere and eyes, it does mean such services will no thing you have e.g. token and some - end in Europe – and includes all curren- longer be free. thing you are, such as your biometric cies. Secondly, PSD2 has created Account authentication. Until the changes actually filter down Information Service Providers – third par- Plus, fraudsters must not be able to to national and business level, it’s impor- ties, who can go into your business bank replay authentication data and get a tant that businesses start considering account and analyse your information eg successful payment. them now and recognise that PDS2 is statements. This is the first time common not just an update. Corporates can then better understand standards on how a bank establishes It will make online payments safer and their current position and see where their customer’s identity will be in it creates greater competition in the mar- improvements could be made. place. ketplace.<

Security first What’s changing? Such an open payments market raises With PSD2, providers will know exact - Jonathan Williams is the director of pay - questions about security. Everyone, cor- ly where they stand. It will clarify the ments strategy at Experian UK

2 y February 2016 www.electronicpaymentsinternational.com

EPI 343.indd 2 05/01/2016 16:57:05 Electronic Payments International NEWS DIGEST NEWS

MOBILE Ooredoo Group to deploy GoSwiff’s mPOS solution

Qatar-based telecommunications pro - As part of the agreement, GoSwiff will Bin Nasser Al Thani said: “With its compre- vider Ooredoo Group has chosen start- provide Ooredoo with mPOS (mobile point- hensive range of services and international up company GoSwiff as its global mobile of-sale) technology, mobile money, airtime experience, GoSwiff is a strong partner to payment and marketing solution pro - top-up for Ooredoo’s merchant clients and help Ooredoo build our mPOS platform.” vider. some value added services. GoSwiff CEO Simone Ranucci Brandima- The partnership that covers nine coun - The deal enables Ooredoo Group to rte said: “We are proud to have been selected tries - Algeria, Indonesia, Iraq, Kuwait, outsource managed services for mPOS to by Ooredoo Group as its global partner as Myanmar, Maldives, Oman, Qatar and GoSwiff, including merchant profiling, seg- the company introduces its offer of mobile Tunisia - will include recruiting mer - mentation and engagement with different payments to nine exciting markets across chants to the platform, from large corpo - industry verticals. North Africa, Middle East and South East rates to micro-merchants. Ooredoo Group CEO H.E. Sheikh Saud Asia.” <

Strategy Powa and UnionPay sign deal for m-commerce in China

British payments start-up Powa Technolo- China UnionPay cards. gies, through its local joint venture, has Chairman of the joint venture Hu Jinx- entered into a ten-year strategic alliance with iong said: “Our platform is a project which UnionPay Network Payments to bring its operates together with UnionPay Network mobile payment app to the Chinese market. Payment. Our mobile internet products, Powa’s joint venture was formed to help O2O products and the POS system of China retailers capture China’s huge Online to UnionPay connect together, speeding up Offline (O2O) market, which is worth integration and extending the capabilities of CNY304.9bn ($47bn) as of the first half of PowaTag. 2015. “We have a target to reach at least 50 mil- Under the new partnership, UnionPay lion consumers regularly using the platform Network Payment’s mobile payment and the country. within one year from launch.” point-of-sale solution will be integrated with By the end of 2016, PowaTag is expect- Powa Technologies founder, chairman Powa’s market mobile commerce platform, ed to allow 50 million Chinese consum - and CEO Dan Wagner said: “This partner- PowaTag, to create a co-branded version of ers to transact with one million merchants. ship with UnionPay Network Payment will the app called PowaTag UnionPay. PowaTag, which has already attracted over allow PowaTag to take a leading position Powa’s smartphone app called PowaTag 1,200 brands and retailers, will work across in the mobile commerce and O2O market allows customers to complete purchases with all sales channels from eCommerce to cou- in China.” their smartphones instantly. pons and catalogues to in-store POS. Powa Technologies Asia Pacific CEO The joint venture will first roll out in Available on both Android and iOS plat- Alessandro Gadotti said: “With this alliance, Guangdong Province to give the region’s forms, PowaTag does not depend on NFC- PowaTag will further extend its presence and 106 million-strong population the ability enabled POS systems and works with all strength in Asia Pacific, the fastest growing to transact with 400,000 merchants, before China UnionPay credit or debit cards. It can region in the world for mobile adoption, expanding to all six million merchants across also be used at any merchant that accepts e-commerce and retail in general.” <

MOBILE Samsung, China UnionPay to offer Samsung Pay in China

Samsung has joined forces with China fingerprint. It addresses security concerns by “The collaboration with China UnionPay, UnionPay to bring its mobile payment plat- offering triple-layered security that includes coupled with the support from major Union- form Samsung Pay to UnionPay cardholders fingerprint identification, tokenisation and Pay partner banks in China, will bring this in China. KNOX. Moreover, contactless payment on secure and easy-to-use mobile payment solu- The partnership will allow UnionPay this mobile platform is accepted in major- tion to more Samsung mobile users.” cardholders in China to manage as well as ity of the country’s POS terminals such as China UnionPay executive vice president use both credit and debit cards on Samsung QuickPass-enabled NFC POS terminals. Chai Hongfeng said: “This cooperation smartphones through Samsung Pay. Samsung executive vice president InJong between China UnionPay and Samsung will The service is expected to be launched Rhee commented: “With technological innova- combine the strengths of the former in pay- for UnionPay cardholders in China by early tion, Samsung Pay expands the usage of mobile ment and the expertise of the latter in mobile 2016, following necessary tests and certifica- payment. It simplifies the procedure for better terminals to jointly create brand new mobile tion by Chinese regulators. user experience, and adopts multi-layered pro- payment experience for consumers, and to Cardholders can make payments through tection to ensure security, allowing easier and further expand the user base of UnionPay Samsung Pay by swiping and scanning their safer mobile payment experience. QuickPass brand.” <

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EPI 343.indd 3 05/01/2016 16:57:07 Electronic Payments International NEWS NEWS DIGEST

DIGITAL Morpho (Safran) starts production of smart card modules for Elo Morpho (Safran), a provider of identity Morpho itself will manage the chip this special chip-based application, devel- and security solutions, has commenced encapsulation process into a module, and oped exclusively for their payment cards in the production of smart card modules for then securely load the operating system and Brazil. This order decisively reinforces our Elo, a 100% Brazilian payment association Elo payment application. strong position in the Brazilian payment set up by Banco do Brasil, Bradesco and The Elo chip wafers will be sent directly market and the entire South American mar- CAIXA. from silicon manufacturers to Morpho’s ket.” The smart card operating system devel - production site in Taubate, Sao Paulo state, Elo president Eduardo Chedid said: “The oped by Morpho will allow every smart Brazil, the company said in a statement. partnership’s goal is to bring important card to be used for banking applications as Morpho do Brasil S.A. VP sales payment operating earnings for Elo’s members and well as for shopping with credit and debit Marcelo Bellini Garcia said: “We are very issuers, aside from contributing significantly functions, accepted at more than 1.7 million happy that Elo chose Morpho’s leading to the development of innovative payment establishments and point of sales. smart card technology expertise to realise technology in Brazil.” < DIGITAL M&A Atlanticus and TSYS renew Citizens Financial taps Earthport payments agreement for cross-border payments Atlanticus Holdings has renewed us to serve more than 17 million American bank Citizens Finan- single connection to deliver pay- its 17-year partnership with US- customers and fund over $25bn cial Group has selected Earth- ments to any beneficiary, at any based TSYS. in loans. Throughout our history, port, a payment network for bank, anywhere in the world. Under the renewed deal, TSYS TSYS has been an integral part of cross-border transactions, to The payments company added will continue to provide Atlanti- our success." provide it with cross-border pay- that its suite of flexible APIs offer cus and Fortiva with additional TSYS North America services ments services. real-time beneficiary account services including card and state- segment president Bill Pruett Under the partnership, Earth- validation; FX and treasury man- ment production as well as fraud said: "We will continue to work port will provide a global pay- agement tools and reporting and prevention and risk management. with them to ensure we are pro- ment solution for Citizens cus- analytics. Financial terms of the transac- viding the cardholder solutions tomer base. Citizens Financial currently tion have not been disclosed. and outstanding customer service Earthport said that Citizens operates over 1,200 branches Fortiva CEO Jeff Howard said: that they expect and that we help can now access its global bank across 11 states under the Citi- "Working together has enabled them in any way we can." < payments network through a zens Bank brand. <

DIGITAL Apple partners with China UnionPay to bring Apple Pay to China Tech company Apple has joined forces with China UnionPay to actions authorised with a one-time dynamic security code. launch its payments platform Apple Pay in China. China UnionPay executive vice president Chai Hongfeng said: Following tests and certification by Chinese regulators, the ser- "We're very excited to offer Apple Pay among a diverse set of innova- vice can be accessed by China UnionPay cardholders on iPhone, tive payment options that work with China UnionPay QuickPass." Apple Watch and iPad from early 2016. Apple senior vice president of internet software and services Eddy Apple Pay will address security concerns in customer payment Cue added: "Apple Pay has revolutionised the way millions of people through use of tokenisation technology. pay every day with their iPhone, Apple Watch and iPad. China is an On adding a card to Apple Pay, no actual card numbers are extremely important market for Apple and with China UnionPay stored on the device and instead a unique device account number and support from 15 of China's leading banks, users will soon have is encrypted and securely stored on the mobile device, with trans - a convenient, private and secure payment experience."< MOBILE Pangea launches new money transfer product

Pangea, an international Consumers can now down- Pangea said its money trans- annual savings of almost $250 money transfer platform, has load the app (Pangea Money mitter license in Mexico and per user. launched a new debit-to- Transfer) and complete a trans- connectivity to the Central Bank Pangea founder and CEO debit transfer product that fer in less than 60 seconds for a payment system enables the Rahier Rahman said: “We’ve allows users to send money fixed fee of $3.95, the company company to provide faster, more created a payment platform via a mobile app using only said in a statement. secure and cheaper transfers. that allows people in the US to debit card numbers, not bank The product will enable trans- The new offering will allow send money to Mexico without account details. fer of funds to Mexico in real users to send real-time transfers having to ask for or provide The new service will initially time using the 16-digit primary on-the-go through their mobile any bank account details while be available for US to Mexico account number (PAN) on a devices and save up to 75% maintaining bank-level security transfers. debit card. in fees, which translates to an for transactions.” <

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EPI 343.indd 4 05/01/2016 16:57:09 Electronic Payments International NEWS DIGEST NEWS

MOBILE STRATEGY Wirecard rolls out mobile payment Payvision makes strategic investment solution in Spain and Ireland in PayPlaza Wirecard has launched boon, its new MasterCard, and can be topped up through mobile payment solution for Android credit card or bank transfer. Payvision, a global acquiring network, has smartphones in Spain and Ireland. There are plans to incorporate loyalty offers confirmed that it has made a strategic invest- The solution allows consumers to and financial services with the product, includ- ment in payment software company PayPlaza. make mobile payments at any NFC- ing microcredits and peer-to-peer (P2P) payments. The strategic investment will create an enabled point-of-sale terminal accepting boon has already been rolled out in Ger- end-to-end personalised payments ecosys- MasterCard Contactless. It is supported many, Austria, Belgium and the Netherlands. tem for merchants, Payvision stated. The on NFC-enabled Android smartphone with Further, Wirecard has also introduced combined solution will enable for smooth OS 4.4 or above. boon.protect that addresses security con- cross-border e-commerce processing and a The solution is based upon a Wirecard cerns by authorising all transactions with a unified, omnichannel platform. Card Solutions-issued digital prepaid PIN number. < Through this agreement, Payvision will be able to add a POS/ mPOS solution to its global payment processing offering, ena- DIGITAL bling partnering merchants to deploy a uni- Moneris unveils new payment solution for fied processing system with omnichannel functionality. petroleum businesses in Canada The deal will allow both the parties to streamline the user experience and empower Moneris Solutions, a Canada-based pay - card data is secure and also accept mobile merchants to grow their business. ment processing solutions provider, has payments including Apple Pay. Payvision COO Gijs op de Weegh said: unveiled a new payment solution, called Moneris said that PetroTrak will provide "Our omnichannel package gives merchants PetroTrak, for petroleum businesses in receipt and administrative reporting, as well an opportunity to migrate away from their Canada. as the capture of fleet vehicle odometer read- multi-vendor strategies and implement a The point-of-sale (POS) solution has been ings. totally integrated, end-to-end platform for designed to support and process all fleet card The product will allow fleet businesses to all their payment processing. transactions, fleet data management and gift customise their fleet payment cards to set "By leveraging the global card process - and loyalty programs at the POS. product purchase parameters, such as pur- ing experience of Payvision, the innovative The new solution will offer Canadian chase restrictions, for their staff cardholders. POS/mPOS technology of PayPlaza, and the Petroleum-based businesses an integrated It also features a pre-authorisation transac- complete collecting PSP platform with cards, vehicle-fleet management application for tion functionality, which allows cardholders alternative and POS payments of Acapture, their payment terminal solution. to allocate a defined dollar amount at the our clients now have access to a full suite of Using PetroTrak, business owners can POS prior to fuelling their vehicles. omnichannel tools behind one central inter- accept a wide variety of fleet and commer- Moneris chief sales and relationships offic- face and with unified reporting. cial payment cards, credit and debit card er Jeff Guthrie said: "PetroTrak is a compre- PayPlaza CEO Edgar Plasa said: "By transactions. hensive, ready-to-use solution that allows being part of Payvision's group and global The solution, which uses Moneris' swipe small-to-medium-sized businesses to accept network, PayPlaza and its merchants benefit and fleet PIN technology as well as EMV fleet payment cards and capture required from economies of scale, tremendous knowl- chip and PIN or contactless-tap functional- transaction details in line with industry edge and years of experience in the payment ity, will ensure that merchant and customer reporting standards." < processing landscape." <

M&A Global Payments to buy Heartland Payment for $4.3bn Global Payments, a provider of payment payroll, loyalty and gift solutions into provider of integrated payments technol- technology services, has agreed to acquire Global Payments' core US and interna - ogy solutions in the world." Heartland Payment Systems for $4.3bn. tional market. Heartland chairman and CEO Rob - In addition to strengthening Global The transaction, which is subject to ert Carr said: "Under Jeff's leadership, I Payments' US direct small and medium- approval by regulators and Heartland's believe the combination of our compa - sized enterprise distribution, merchant shareholders, is expected to close in the nies will become the most valuable pay - base and vertical presence, the acquisi - fourth fiscal quarter of 2016. ments company on the planet. In the US, tion is expected to create a combined Global Payments CEO Jeffrey Sloan Heartland will continue to operate under entity that will be owned by about 84% of said: "This partnership with Heartland its brand and under its business model of existing company shareholders and serve marks a major milestone for our com - fair dealing - with the Merchant Bill of nearly 2.5 million customers. pany, significantly enhancing our direct Rights and the Sales Professional Bill of The merger will create an opportunity presence in our largest market and trans- Rights guiding the way to future growth to cross-sell Heartland's point of sale, forming Global Payments into the leading and innovation." <

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EPI 343.indd 5 05/01/2016 16:57:10 Electronic Payments International FEATURE SIERRA LEONE

Sierra Leone paves the way for mobile money Financial inclusivity is not what Sierra Leone has been known for. Until now, only 16% of the country had access to a bank account leaving over three quarters excluded from the financial system. But the recent Ebola Crisis which wracked the region last year provided a catalyst for change writes Alexander Atkins

he response by the United Nation in Sierra Leone. “Paying the workers on time ence but as an avenue to ensure that as many Development Programme (UNDP) was the most critical element to avoiding Sierra Leoneans as possible are included in and the World Health Organi - strikes. The idea of paying through mobile the formal financial system of our country” sation (WHO) to the epidemic wallets helped us to achieve this.” Kargbo stated. “This is the first step towards T The UNDP devised a mechanism that encouraging people to adopt electronic chan- was swift, hoping to tackle the disease before it swept out of control. To do this, would allow digital hazard payments to be nels of payments and move away from the they recruited well over 24,000 Ebola made to the Ebola response workers. Tenzin traditional use of cash as means of payments response workers, operating under the explains that the benefits became apparent and settlements of financial obligations.” United Nations Mission for Ebola Emer - almost immediately: “After we successfully However, the new system does not cut the gency Response, to help in aiding the instituted the mobile wallet, we realised banks out; their role is instead transition- fight against Ebola. there were so many other improvements. ing towards a partnership with the mobile This monumental force was key in stop- Payments were more transparent, the recipi- network providers. As Tenzin explained, ping the spread of this lethal disease, yet one ents’ experience was vastly improved and the “Banks will be the account underwriters, of the major challenges for these staff came whole idea lowered the costs for the govern- while MNOs offer the network. However when payday arrived. With so many health ment and development partners for paying different kinds of revenue sharing and risk workers spread through such a large area, these workers.” sharing models are possible. “ and all receiving different levels of payment But as the Ebola crisis was slowly brought To further the drive to move from a cash through different means, there was sure to be under control, the idea gained momentum based system to a digitised financial econo- a problem. The result was numerous strikes and interest, especially from an administra- my, the Sierra Leone government has joined by staff all over the country that left not only tion governing over a country where the an international partnership known as the Ebola patients unattended but also normal mass majority are not included in any formal Better Than Cash Alliance (BTCA). The medical cases such as pregnancies. The effect financial system. As Tenzin says “The finan- organisation includes sixteen governments was crippling. cial disclusion is huge, the products offered as well as partners such as Visa, MasterCard, The government of Sierra Leone needed a by banks are not designed for the masses so USAID, and The Ford Foundation among solution. They had to devise a way to pay digital financial inclusion has a big role to others. The Alliance aims to move the global the army of staff that worked throughout the play in West African banking.” economy to a cashless system and is working country the right amount at the right time, Fast forward to November 2015, and the with government the world over to achieve no easy task when one realises that until mobile money system has moved one step digitalisation. then, it was very much a cash in hand situa- further. The Bank of Sierra Leone and The In joining, Tenzin explains, Sierra Leone tion. The UNDP put themselves to the task, Central Bank has partnered with UNDP and becomes part of a group of governments and looking to find a common factor that could the United Nations Capital Development organisations who are looking to a digital connect the scattered legion of workers. That Fund (UNCDF) to launch the country’s first future. “Its membership highlights its com- common factor was mobile usage. Whilst a mobile money regulations. The Central mitment to continue the nation’s digitisation tiny amount of the population had access to Bank believes that these regulations will be of payments to realise additional benefits for a bank account, the majority had access to crucial to accelerating the delivery of mobile its people” Tenzin says. “Through BTCA, a mobile network, as there is 82% coverage finance to the majority of people in Sierra Sierra Leone joins the league of other coun- across Sierra Leone. Leone. When asked what effect these regula- tries and engages in peer-to-peer learning.” Mobile money schemes are certainly not tions would have, Tenzin believed they are a With the new regulations, the mobile new to Africa. The success of MPESA in major step: “These guidelines bring mobile money system looks set to grow and Sierra Kenya, the mobile money transfer service money under the purview of the Central Leone will be hoping for it to be one of the started there by Vodafone through Safari- Bank, increasing scope for Mobile Network financial success stories of the future. From com, is testament to that fact. But the idea Operators (MNOs) and licenced financial its early beginnings during the Ebola Crisis was to go further than MPESA had gone, institutions to collaborate. This is also the to the announcement of the new regulations, and connect the mobile with a bank account. first step to protecting consumers during it looks set to provide financial inclusiv - “We needed to devise a way to pay front line digital payments.” ity to the majority of the population, bring- workers on time, pay them the right amount The bank governor, Momodu Kargbo, ing many under the digital wing. Although and pay the right frontline workers” says was adamant that these measures would there is still a long way to go, it is certainly Tenzin Keyzom Ngodup, a programme man- create total financial inclusion across the an example of Africa looking to a digital ager and technical specialist with the UNDP country. “This is not only for the conveni- future.<

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EPI 343.indd 6 05/01/2016 16:57:14 Electronic Payments International PAYMENT SECURITY FEATURE

How can payments become more secure in 2016? According to technology firm Ovum, 61% of banks will significantly increase their payment technology expenditure in 2016. The firm also found that this boost in spending can be partly attributed to a larger emphasis on security. Patrick Brusnahan talks to experts on why security is set to take 2016 by storm

vum’s report, 2016 Trends to High-profile breaches number represents the tip of the iceberg. The Watch: Payments, stated that While keeping customers’ data and finances frequency of known data breaches will increase banks’ raising investment in pay - secure is crucial, another important aspect is in 2016, due not only to increasing privacy and ment tech is aided by growing maintaining banks’ reputations. breach disclosure laws, but also the increasing O failure of traditional perimeter-focused security concerns over security and the need for 2015 saw a number of high profile breaches. regulatory compliance, with over 70% of A security hole in Halifax and Bank of Scot- investments to protect valuable data. retail banks reporting a rise in expendi - land’s online banking facilities left tens of thou- “Employees’ use of mobile devices and ture of security and anti-fraud technolo - sands of customers at risk of fraud. JPMorgan companies’ migration of IT workloads to gies. Chase was also hacked during 2015 in what the cloud will also contribute to a sharp rise In addition, 34% of banking respondents may be part of the ‘largest US bank breach in breaches. Over time, this should help to cited biometric technology as a priority in ever,’ according to the US attorney’s office. And shift priorities towards investing in more the coming year. this is after 500 million financial records were proactive data-centric protection, but it is Gilles Ubaghs, senior analyst at Ovum, stolen overall in 2014. likely things will become worse before they explained: “Security is always a core issue for Nick Mothershaw, UK&I director of iden- get better.” both vendors and enterprises alike and the tity and fraud at Experian, thought that 2015 Gibson added: “In recent years, we have market is set to see renewed levels of invest- was bad for fraud. He said: “We’ve seen ID seen the careers of several top executives suffer ment activity in 2016. This will be driven by fraud attempts soar this year, led primarily by in the wake of cyberattacks. This will acceler- the need to find new means of authentica- current account fraud, which gives IS thieves ate in 2016. Blame for data breaches is shifting tion while reducing risk and the burgeon- a stepping stone to a wider range of financial from IT to the C-suit. ing growth in tokenisation technologies. products. “Data impacts every facet of an organisation. Investment in the US in particular is likely “The brunt of recent increases in fraud has If management is not investing in and focus- to be high as the country continues its shift been felt by older members of society, who ing heavily on securing data and its use, it is towards EMV.” often have a good credit rating and have lived now understood that they are putting the entire at the same address for a long time. They now company and its stakeholders at risk.” Prepaid offerings account for one in twenty detected current Narayan Sivaram, vice-president and One solution offered to combat fraud and account frauds in the UK.” regional head of cards and payments at Infosys, increase security is prepaid cards. The simplic- Anthony Duffy, director of retail banking at believes a way to alleviate security concerns is ity of the product also allows financial institu- Fujitsu, expects this issue to enter the limelight cashless payment technology. tions to reach out to the unbanked populations in 2016. He commented: “In 2016, security and trust of the world. He said: “I anticipate continued focus will be high on the agenda for payment provid- Ross Macmillan, head of research and intel- around security. I fully expect this to remain ers. As providers seek to fulfil their objective of ligence at allpay, said: “Globally, there is huge a hot topic throughout the new year. Recent gaining new customers in 2016, they will also demand for prepaid cards for the unbanked data breaches have highlighted how vulner- invest in fraud prevention. This will be espe- across Europe and Africa. able some organisations are to cyber-crime. cially important as contactless payments can “Governments around the world are looking The consequences of such breaches can be leave users open to fraud. towards prepaid for electronic payment solu- significant for customers and institutions alike “Therefore in 2016, it will be important for tions to fight fraud, combat corruption and – financial loss, reputational damage and an providers to secure customer trust by investing deliver social benefits – particularly in Africa.” adverse impact on the company share price in technologies which protect them from losing John Sharman, CEO of Tuxedo Money Solu- might all be expected. money to fraudsters.” tions, said: “Prepaid card usage varies across “The fact that hackers only have to get lucky Dan Salmons, managing director of Pay- Europe. Italy currently leads the way and has once, while banks have to remain vigilant and Point Mobile and Online, takes an alternative the highest growth prospects both in terms of ahead of all the criminals all of the time, means view that security is not a huge deciding factor transaction value and volume of cards in issue. that this will remain a key area of management for consumers. Conversely, the Austrian prepaid marker is in focus in 2016 (and for years to come).” He said: “Will security become a new dif- its infancy and, in Germany, 80% of all con- David Gibson, vice president of strategy and ferentiator for brands? I’m not so sure; I think sumer transactions are conducted in cash. market development at Varonis, believed that people view it as a ‘hygiene factor’ they can “The need for an alternative method of pay- the situation will worsen before it improves. take for granted. But, building that trust with ing for goods and services abroad has paved He told EPI: “The Identity Theft Resource consumers will undoubtedly require merchants the way for new ‘cashless’ options, which has Centre (ITRC) reports a total of 641 data to depend on their PSP as an expert adviser on prompted further advancements in prepaid breaches recorded publicly in 2015 through payments security and compliance, as much as payment technologies.” November 3. Most organisations know this a technology provider.”<

www.electronicpaymentsinternational.com February 2016 y 7

EPI 343.indd 7 05/01/2016 16:57:16 Electronic Payments International FEATURE CASHLESS IN ASIA

Going for broke: Asia’s cashless initiatives Diversity in Asia presents both opportunities and challenges when implementing cashless initiatives across certain areas of the region. How is Asia faring on this front and what are the obstacles? Xiou Ann Lim takes a look at Singapore, Malaysia and India – and what makes each market unique

number of hawker centres in system by the Monetary Authority of remains king is India. To encourage Singapore’s suburbs – which Singapore (MAS). Today, it remains an increase in electronic payments, the are purportedly the final fron - one of the key drivers for Singapore’s Indian government proposed measures tier of the cashless payments cashless initiatives. such as awarding tax benefits to mer - A chants who have at least half of their space in the country – started accept - Malaysia introduced its answer to ing non-cash payments as far back as NETS in the form of the Malaysian transactions conducted electronically. July last year. Electronic Payment System (MEPS) Apart from the merchants, consumers Despite this apparent progress, there in 1999 as part of the nation’s cash - would also benefit in that they could are still a few international food out - less initiative. More recent steps to collect income tax rebates if a certain lets in the heart of Singapore’s business drive this agenda forward include the proportion of their expenditure were district that have put up adamant ‘cash Malaysian central bank’s Payment cashless. These measures are meant only’ signs at their payment counters. Card Reform Framework, which aims to improve financial inclusion, reduce Such is the disparity in adopting the city to ensure fair and reasonable cost of the risks and costs of handling cash as state’s cashless initiatives and this con- accepting payment cards. The frame - well as increase transparency. trast is a microcosm of the general state work also imposes ceilings on inter - of affairs in Asia. change fees that acquiring banks pay Asia in numbers to card-issuing banks. According to data from the Cards & Embracing cashless Analyst at CIMB Research Mohd Payments Intelligence Centre, Singapore Singapore’s history in promoting cash- Shanaz Noor Azam says that this ini - is leading the way in the volume of less transactions goes as far back as tiative is spurred by the increase in cashless transactions per capita among 1985, when the National Campaign cash-handling costs, which amounts to the three countries – with an average to Minimise Cash Transactions was more than MYR500m ($115m) a year. of 124 cashless transactions per person launched to promote electronic trans - He says that about 90% of transac - in 2014. actions. tions in Malaysia are still conducted “Singapore is leading the mobile wal - This was due, in large part, to the in cash and that the central bank is let space in the ASEAN region,” says estimated $24.5m that the government targeting to reduce this to 60% by Leslie Choo, ACI Worldwide’s vice could save in manpower costs if cash 2020. To support this, the country president of ASEAN & Greater China. transactions were reduced. That same aims to increase the number of point- “If you compare it to China – where year, the Network for Electronic Trans - of-sale (POS) terminals from 240,000 cashless transactions largely happen fers (NETS) was also established and to 800,000 units by 2020. online – retailers in Singapore are read - it is recognised as a national payment Another Asian market where cash ier than those in China to push forth

8 y February 2016 www.electronicpaymentsinternational.com

EPI 343.indd 8 05/01/2016 16:57:18 Electronic Payments International CASHLESS IN ASIA FEATURE

n MAIN REASONS FOR ASIA-PACIFIC n NUMBER OF CASHLESS TRANSACTIONS PER PERSON CONSUMERS TO USE MOBILE PAYMENTS (%) Time and cost-saving 83 Singapore Malaysia India 150 Ease of use 79 Preference for cashless 62 120 Round-the-clock access 52 Source: Cards & Payments Intelligence Centre 90

the cashless initiative,” he observes. On the other hand, Malaysia saw 60 an average of 32 cashless transactions per person in 2014. “Given that cus - 30 tomers in Malaysia strongly trust the e-commerce space, Malaysia might be 0 the first among the emerging markets 2012 2013 2014 2015*2016* in Asia to successfully achieve the sta - tus of a cashless society,” Choo says. * estimates He also notes that the market is strong in terms of mobile wallet adoption and Source: Cards & Payments Intelligence Centre usage. Despite the deceptively promising n GROWTH IN TOTAL VOLUME OF CASHLESS TRANSACTIONS (%) total number of cashless transactions a year in India – which runs into billions Singapore Malaysia India – the penetration rate is actually still 40 pretty low. As seen in Figure 1, the country saw only two cashless transac - 35 tions per capita in 2014. This indicates 30 that while India’s volume of cashless transactions may be helped along by its 25 sheer population, the actual adoption 20 rate isn’t very high. India, Malaysia and Singapore con - 15 tinue to witness year-on-year growth 10 in the cashless payments space. When it comes to the percentage of growth 5 in total volume of transactions, India saw a significant improvement in 2013 0 2012 2013 2014 2015*2016* at 36.8%. However, this slowed slightly in 2014 to 24.8%. * projected growth % Meanwhile, Malaysia and Singapore both saw accelerated growth from 2013 Source: Cards & Payments Intelligence Centre to 2014 – with 11.9% to 20.1% and 7.4% to 11.5% respectively. However, this exponential growth and rural areas are also still somewhat be overcome: “For some Asian consum- may not be sustainable in the long term. sceptical about the fee that they have to ers, holding on to a large amount of According to the Cards & Payments cough up for each card-based transaction cash feels more secure than keeping that Intelligence Centre, the total volume of – according to Shanaz. same amount in a mobile wallet.” But cashless transactions in all three coun- “Education on the merchants’ and con- he believes that this can be improved by tries will continue to grow in the follow- sumers’ parts are still lacking,” he says. creating more awareness among consum- ing years – albeit at a slower pace. Shanaz points out that another chal- ers on the benefits of going cashless and lenge – and one that is unique to by getting them into the habit of using Challenges Malaysia – is the country’s history of cashless modes of payment. Although there appears to be consider- widespread credit card fraud, which has But Choo is optimistic: “I think we able progress within the cashless pay- caused distrust among consumers. He can clear these hurdles over time. I’m ments space in Asia, its journey towards explains that this was why Malaysia was not saying that it will be easy. But we being a cash-free society is hampered by one of the first South East Asian coun- are already consolidating so many of urban-rural divide as well as large pock- tries to adopt smart chips in their cards functions into a single device. So, I ets of the unbanked. as opposed to retaining the use of mag- think mobile wallets will definitely take Apart from these geographical and netic strips. off. Perhaps our smartphones will be the socio-economic challenges, small- and Choo also cites consumers’ distrust only item we will need to carry around medium-sized enterprises in suburban in the system as a hurdle that needs to with us in the future.” <

www.electronicpaymentsinternational.com February 2016 y 9

EPI 343.indd 9 05/01/2016 16:57:19 What can we expect from 2016? Electronic Payments International approached experts in the payments field to see what trend will take the New Year by storm. What from 2015 will carry onto the next year? What new developments are on their way? Is 2016 the year that digital finally plants its flag on the payments industry?

BETHAN COWPER, HEAD amount of cash in circulation. The rest of the ferent regions show a distinct preference for OF MARKETING AND PR AT globe is not quite as prepared to support the cash based on traditions and customs that COMPASS PLUS demise of cash, however, 2015 was the year define them, for example, the ability to bar- that digital payments finally eclipsed cash ter. The Middle East is not suddenly going to 2016: the year that digital takes the in the UK and in the US non-cash payments move away from cash on delivery in 2016, payments crown are set to grow exponentially, fuelled by eco- however, the options available mean that nomic recovery. consumers in this region can now explore Predicting the future of the payments indus- The dawn of the mainstream digital age is other avenues such as mobile or the prepaid try a year at a time has never been that chal- by no means exclusive to the more developed cards and merchants can incentivise this lenging in the past, though some payment regions of the world. On the contrary, many behaviour. experts might argue otherwise. Payments global innovations are being led by emerging In the UK, 2016 looks set to be the year generally isn’t a fast moving space, new ideas markets, born out of a combination of neces- of the contactless card, whilst Japan looks are generated quickly, however adoption sity and government initiatives. Stepping to continue the growth of biometric authen- comes at a much slower rate. For example, aside from our favourite case study of mobile tication at the ATM. In the US, the debit mobile payments have been around a long payments in Kenya, Nigeria has introduced a card market is predicted to take off as FIs time; since Coca-Cola introduced vending contactless, prepaid, and biometric national become more rate-sensitive, and cash use machines that could accept mobile SMS pay- identity card to combat financial inclusion, will continue to decline in Belgium, France ments in 1997, contactless payments have whilst Brazil is pushing both mobile and and Canada. It is possibly the most exciting been offered by a number of global giants contactless in the run up to the 2016 Olym- time in payments since the introduction of since 2008, and NFC has had a much more pic Games. Zimbabwe, Mexico, Bangladesh the payment card, and this is without delv- volatile journey approved as an ISO/IEC and the Philippines are making substantial ing into the ongoing technical developments standard in 2003, with its success completely headway with P2P payments, and according into payments security and open develop- dependent on the support of hardware device to The Mobile Consumer, more consum - ment platforms. In short, 2016 will be the manufacturers. ers in Asia Pacific use their mobile to buy year that digital wears the payments crown. The difference between 2016 and previ- goods and services than any other region in ous years is that now need, technology and the world (at 46%) and in China there are adoption are ready to converge; not only is three times more mobile phones than there LIAM LANNON, PAYMENTS the industry ready, but financial institutions, are bank cards. merchants and consumers are finally getting With the correct groundwork in place, TRANSFORMATION on board as well. Whilst there might be dis- 2016 looks set to become the year the predic- CONSULTANT, SOPRA STERIA crepancies in behaviour between demographics tions the industry has been making around and culture, consumers are increasingly aware contactless, mobile and even biometrics Payments Industry –2015 Highlights and more accepting of the digital age, which is evolving out of the niche finally come into and 2016 Trends now poised on the cusp of stepping out of the fruition, geography depending. Not at the niche and into the mainstream. expense of the death of cash however; the It’s the season when people look back over The Nordics are leading the way in the race availability and increasing popularity of the the year just passed - the good and the towards cashless societies, with the Danish digital channels on offer provide options not bad - and also start thinking ahead to what government recently proposing that retailers replacement. Cash is a very culturally impor- the next year holds for them: their hopes, should no longer be obligated to accept cash tant channel within the payments ecosystem; expectations and fears. The retail payments payments, and Sweden severely reducing the not to be ignored or underestimated. Dif - industry in the UK has similarly seen a year

10 y February 2016 www.electronicpaymentsinternational.com

EPI 343.indd 10 05/01/2016 16:57:22 Electronic Payments International 2016 FORECASTS FEATURE

of highs and lows and the industry can look cards, Oyster cards and good old-fashioned tions have adopted, has seen launch dates forward with hope and high expectations - if cash. However, it does promise a future come and go. not a little fear - to 2016. where all you need to take with you when Maybe 2016 will be the year where every- Firstly, the highs of 2015 - it was all about you leave home is your smartphone, certainly thing falls into place and the market will be xPay: after a year or so of hype, Apple Pay if your day will involve a retail payment or flooded with mobile payment products. We finally launched in the UK on 14 July, to a two - and perhaps even a Tube ride. can only hope. mixed response. While Apple ‘fanboys’ and Overall, the arrival of Apple Pay heralds a ‘fangirls’ were eager to embrace this ‘new new dawn for mobile contactless payments way to pay’, some of the UK’s leading issu- and allows users to load their own (partici- STUART LACEY, CEO AND ers - HSBC, Lloyds Bank, Halifax, Bank of pating) bank cards directly into the iPhone Scotland and TSB – didn’t queue to join up Wallet via a very straightforward registra- FOUNDER OF TRUNOMI on Day One. tion process: as such, it can be seen as a user- Nonetheless, HSBC and First Direct were friendly success. 2016: Time to comply with Data only a little late, announcing the launch of Of course, 2015 wasn’t all about Apple Privacy law their support for the mobile payment prod- Pay: other newcomers have thrown their hats uct on 28 July, with Lloyds and HBOS join- into the mobile payments ring in 2015, nota- 2015 bore witness to a huge disruption in ing on 28 September, and TSB on 17 Novem- bly Samsung Pay and Android Pay. While financial services, with a range of fintech ber. The stand-out omission is Barclays who Samsung Pay has already launched in South companies coming to the fore. Advances in have announced their intention to join but Korea to some success (and confirmed a US customer-led financial technology have led who so far have been focused on promoting launch in October 2015) and Android Pay is to increased industry transparency, empow- their bPay wearable products instead. live across the US, neither of these two solu- ering consumers. And the verdict? Statistics are hard to come tions has so far confirmed a UK launch date, Trunomi’s platform is a good example of by but feedback so far has been broadly posi- even for 2016. At this stage, therefore, it is this movement, giving end users a way to tive, with 51% of Apple Pay users who were difficult to make any comparisons between share their personal data with informed con- surveyed saying they are extremely satisfied these two planned implementations and the sent, while providing financial institutions with the service and 40% of those who have live Apple Pay product. with the framework to handle and process an Apple device confirming that they have So what about the lows of 2015? EE have this data securely. used Apple Pay to pay for goods and ser - decided to close Cash on Tap to any new sub- This comes at an opportune time for vices. Contrast this, however, with the 75% scribers, suggesting that it may be the end for financial institutions, whose new year reso- who have yet to see Apple Pay pay points or one of the more successful mobile contactless lutions need to include an overhaul in how symbols and it is clear that overall customer payment solutions to hit the streets in the UK. they acquire and manage customer data, due awareness of the product still has a long way That it took Apple a number of months to to incoming legislation. to go . Generally, the news is good for Apple launch in the UK after its successful debut In 2016, the European Union has resolved with Apple Pay performing well in most envi- in the US in 2014 was also a disappoint - to unify customer data laws with the EU ronments, the London Underground being ment, although much of that could be down General Data Protection Regulation (GDPR), a notable exception, where commuters are to the UK issuers negotiating with Apple which was approved in December 2015. sometimes frustrated by having to wait while over the distribution of interchange fees for This legislation, to be fully ratified in 2016, an “Apple Payer” tries to use his iPhone or Apple Pay transactions at point of sale. Per- controls the security and management of cus- Apple Watch to negotiate his entry to the haps the greatest disappointment of 2015 is tomer data, putting the power of back into Tube system. that, despite the fairly extensive coverage of the hands of consumers themselves. It has What? I hear you say. Apple Watch? Yes, contactless terminals across the UK, there significant ramifications for the financial ser- the Apple Watch debuted on 10 April with has not been the level of mobile contactless vices sector, who will need to seek a solution limited stock available soon after. When payment solutions (either NFC-based or this year in order to meet a 2017 deadline. Apple Pay was launched in July, watch-based HCE-based) which the analysts have been Globally, the financial world is experienc- payments became a reality for Apple Watch forecasting for a number of years. ing a compelling convergence of regulatory owners, and independent research published With the likely arrival of Samsung Pay risk, governmental policy, consumer aware- in August by Wristly revealed that 80% of and Android Pay to the UK next year, per- ness and technological innovation. Apple Watch owners had used Apple Pay to haps 2016 will see a burgeoning demand for Financial institutions must rethink how pay for goods and services . mobile payments and a significant spike in they manage, store and share customer data While these statistics are impressive, it activity, encouraged by the increase in the in 2016, implementing more rigorous and must be noted that even a large percent - contactless payment limit to £30 and a sig- auditable KYC and customer data manage- age of Apple Watch and iPhone 6 “Apple nificantly larger pool of compatible smart- ment processes. Payers” still only represents a very small phones - Apple, Samsung, LG and others. LG With advent of GDPR, supporting cus- number of consumers. The payment system have even announced the launch of their own tomers’ digital rights management for per- may never reach the same level of ubiquity mobile payment system for the South Korean sonal data will become mandatory, which is as contactless cards, even if over time the market, but there’s no news on when (or if) why we have created a platform that enables majority of iPhones in the UK market even- that system will be rolled out across Europe banks to connect to their customers with a tually become Apple Pay-compatible, so or the US. Dare I mention that the UK mar- customer-driven data sharing platform. should we be making such a fuss about it all? ket is still waiting for the arrival of Zapp I believe this trend of transparency and Well, yes and no. mobile payments? This payment solution, personal data control will define 2016, fun- On the one hand, it’s only another way supported by VocaLink and based on the damentally shifting the power dynamic to pay, competing with the aforementioned Faster Payments Service, as opposed to the between financial institutions and their cus- contactless cards as well as chip and PIN card-based solution which the ‘xPay’ solu- tomers. <

www.electronicpaymentsinternational.com February 2016 y 11

EPI 343.indd 11 05/01/2016 16:57:24 Electronic Payments International FEATURE YELLOWPEPPER

YellowPepper focuses on Latin American mobile payments market Latin American mobile banking services pioneer YellowPepper has reinvented itself as a provider of mobile payments platforms in the region, Robin Arnfield reports. The move reflects the rapid growth of smartphone penetration in Latin America and the opportunities this provides to banks and retailers

rivately-owned YellowPepper “We now focus on banked customers,” overnight and will be a long and somewhat was founded in 2004 to provide says YellowPepper’s CEO Serge Elkiner. “At arduous task.” value-added services for US cell - the beginning of 2013, we did an in-depth The other key trend is the very rapid phone users. In 2007, the Miami, analysis of our market, our financial results, growth of smartphones in the region, which P the positioning of the banks, and the future Florida-based company decided to focus offers the potential for point-of-sale mobile exclusively on the Latin America and of mobile in the region. We decided we had payments, Elkiner says. Caribbean mobile financial services mar- done well with our mobile banking product “We have bank clients that have trusted ket, offering mobile banking services for banked consumers.” us for the last six to seven years, and they to banked and unbanked consumers In early 2013, YellowPepper had 3.5 mil- were asking us what the next innovation is through partnerships with local banks, lion users and were processing 200 million that they can get into,” Elkiner says. “So telcos and cash-in/cash-out agent net - mobile banking transactions a year. “We initially we considered using our mobile works. now have nearly 5.5 million users, and are banking app to provide a bridge from bank- In 2010, YellowPepper became the recipi- processing over 400 million banking trans- ing into mobile payments. We then realised ent of the World Bank-owned International actions a year,” says Elkiner. “But providing we needed to develop a stand-alone app for Finance Corporation’s (IFC) first equity banking services to the unbanked wasn’t payments which wasn’t an extension of our investment in a Latin America mobile finan- paying enough for us to survive, so for the banking app, and which would be offered cial services company. As of December 2015, time being we’ve left that market.” either under the brand of a single bank or YellowPepper has raised $39m from five Currently, YellowPepper offers its mobile a group of banks or under our own brand. investors. banking platform on a white-label basis in Our mission is to make mobile payments a In June 2015, YellowPepper appointed partnership with local banks in Colombia, reality in Latin America, so we don’t mind if mobile payments industry pioneer Moham- Ecuador, Mexico and Peru. Its mobile bank- banks push their own brand on our platform mad Khan as chairman of its board. Khan is ing software, which is available as a mobile or whether they use our brand.” former president and founder of ViVOtech, app and via SMS and USSD (Unstructured an NFC technology company that helped Supplementary Service Data), enables cus- Yepex Smart Wallet paved the way for mobile payments. tomers to check balances, pay bills, send YellowPepper has developed the Yepex Smart money and perform cardless ATM with - Wallet mobile payment app and platform Refocus drawals instantly. which offers similar functionality to Apple YellowPepper received a lot of kudos for Banking partners include Scotiabank, Wallet and which it describes as technology- providing the underlying software for Grupo Aval, Banamex, Banco Pichincha, agnostic. Haiti’s TchoTcho Mobile money service, Banco Davivienda and BCP. “We don’t believe any one technology will which was launched in 2010 by mobile fulfill every single use case or consumer telco Digicel and Canada’s Scotiabank and Trends demand,” Elkiner says. “For example, if you funded by USAID and the Bill and Melin - Elkiner identifies two major trends in Latin don’t have an iPhone 6, you can’t do Apple da Gates Foundation. It also helped set up America. “We see bancarisation happening Pay, as you don’t have NFC on your phone. mobile money services in the Dominican at the speed and investment priority deter- If you have an iPhone 5, you can’t do NFC, Republic, Mexico and Peru. mined by local banks and pushed by gov - but you could pay via Bluetooth or by QR However, YellowPepper found the cost ernment policies and regulations,” he says. code or generate a one-time token.” of operating mobile money services for the “For example, the banks in Peru have come YellowPepper provides a SDK (software unbanked was too high for the volume of together to develop a national mobile bank- development toolkit) for banks that want to revenues it received. So, for the time being, ing platform for the unbanked called Bim integrate their own white-label system with it has stopped providing services to that (Billetera móvil/mobile wallet), but it has the YellowPepper mobile payment platform. segment, no longer has agent networks, taken them four years to do this. Setting up Alternatively, banks can offer Yepex to their and isn’t working with Digicel. services for the unbanked takes time.” customers. “Although YellowPepper has pulled out “According to Mercator Advisory Group Yepex is capable of supporting NFC pay- of the unbanked mobile money business, it estimates, in 2013 there were approximately ments using HCE (Host Card Emulation); will offer services to the unbanked if banks 170 million unbanked or underbanked adults Bluetooth Low Energy (BLE) payments via are willing to pay properly for these ser - in South America,” says Tristan Hugo-Webb, BLE beacons; QR codes; and six-digit one- vices,” says Jeffrey Bower, Digital Finance associate director of US-based Mercator’s time passcodes that are generated on the Specialist at the UNCDF’s (United Nations International Advisory Service. “The migra- user’s phone and manually entered into a Capital Development Fund) Better Than tion of 170 million individuals into the elec- POS terminal. Yepex can also be used for Cash Alliance. tronic payments mainstream won’t occur cardless ATM withdrawals.

12 y February 2016 www.electronicpaymentsinternational.com

EPI 343.indd 12 05/01/2016 16:57:25 Electronic Payments International YELLOWPEPPER FEATURE

“All our different implementations of our Smart Wallet called AvalPay in partnership POS terminals enabled to accept Yepex pay- platform – NFC, QR codes, BLE and one- with Colombia’s Grupo Aval and Crediban- ments “We are now in beta trial stage in time passcodes - use tokenisation, where Co. Mexico and plan to do the official commer- card numbers are turned into security tokens Grupo Aval, the largest financial services cial launch in Mexico in Q1 2016,” Elkiner which are only valid for one transaction,” group in Colombia, owns Banco de Bogota, says. says Elkiner. “Only the form of the token dif- Banco de Occidente, Banco Popular and fers between the implementations. So far, the Banco AV Villas. The goal is to make Aval Success factors mobile payment platforms we have rolled Pay available to 60,000 POS terminals in “Several factors have been important for out in Colombia and Ecuador only use one- 20,000 retail locations in Colombia. the success we’ve seen with the launch - time passcodes.” In November 2015, YellowPepper es we did in September and November HCE technology enables an NFC-enabled launched PayClub, which is based on Yepex, 2015,” says Elkiner. “Firstly, we work smartphone to make secure, contactless card in Ecuador in partnership with Diners Club with the banks to build the ecosystem transactions without the need to store card of Ecuador, the largest credit card issuer in needed for success in mobile payments. data in a hardware Secure Element. “Our the country. Diners Club of Ecuador has an For example, we are integrated with the HCE implementation use the major card estimated 600,000 active credit cards and local processors and we set up infrastruc - schemes’ tokenisation technology,” says over 450,000 clients. ture at these processors. Also, we inte - Elkiner. “Diners Club of Ecuador is part of Grupo grate with the local POS system used by “We tell banks that, before deciding to do Pichincha, which is the largest bank in Ecua- the merchants.” HCE-NFC mobile payments, they need to dor and issues Visa, MasterCard, Diners and Elkiner says that, in YellowPepper’s busi- know what percentage of their customers Discover cards,” says Elkiner. “Also, through ness model, there is no extra fee to the mer- have NFC-enabled phones and they need to its processor, Diners Club of Ecuador issues chant for accepting YellowPepper mobile have a strategy for enabling retailers for NFC Visa and MasterCard itself.” payments. “The merchant fee doesn’t payments,” says Elkiner. “In the US, less than PayClub lets users make mobile payments change with a YellowPepper mobile pay - one percent of transactions at POS are NFC. with their Diners and Discover cards and ment transaction, as we charge the same If you only have a low number of custom- Visa Interdin (Visa brand) cards. They can as for standard credit and debit cards,” ers with NFC-enabled phones, then it isn’t also view promotions, locate them on a map he says. “Our competitors who are offer- worthwhile going with NFC and you can inside the app and receive notifications as ing closed-loop mobile payments in Latin reach a lot more merchants and consumers if well as view their transaction history and America charge an extra fee over and you use a solution like one-time-passcodes.” manage their cards. above what merchants pay for accepting The advantage of one-time-passcodes is standard credit and debit cards.” that no additional hardware is needed at the Adoption Because YellowPepper is integrated with POS. In Colombia, YellowPepper and its part - the local processor, merchants receive Yel- ners signed up 45,000 users in the first two lowPepper transaction information in the Loyalty/rewards months from the September 2015 launch. same file as their traditional credit and YellowPepper says Yepex integrates with loy- “We’ve succeeded as people find the system debit card payments. “We use the same alty and reward programmes and gives users easy to use and very fast,” Elkiner says. clearing and settlement as for existing card exclusive access to promotions and discounts, “McDonalds Colombia accounts for 55% payments,” says Elkiner. “As the merchant “YellowPepper layers mobile payments of our Colombian transactions, as they did gets one file from the processor showing over loyalty and rewards on behalf of key a big promotion. You get two McDonalds which transactions were mobile-initiated merchants for existing banked customers,” combos for the price of one if you use the and which involved plastic cards, there are Better than Cash’s Bower says. “The com- YellowPepper wallet. But if you pay with no operational and technology changes pany works closely with its clients to enable plastic cards or cash you get one combo.” for the merchant. All they have to do is to them to access a level of customer infor - While not disclosing actual user figures for train their staff to accept mobile payments mation they couldn’t access on their own. Ecuador, Elkiner said that there had been a from customers.” Banks, merchants and marketers get a level very good response in the first 10 days since The opportunity for growth in Latin of unprecedented access through YellowPep- launch in that country. “We had a very high America is huge for a company like Yel - per’s services.” percentage of new users registering their lowPepper, Bower says. “It has developed credit cards with us, which contrasts with a business of working with the emerging Partnerships Apple Pay’s US rollout, where only 12-15% middle class, which has been growing At the end of 2014, YellowPepper announced of people downloading Apple Pay have reg- exponentially over the past decade,” he it had formed partnerships with Colombian istered their cards.” says. “As these customers expect more and processor CredibanCo and Mexican proces- “The biggest use case we have in Ecuador more from their digital services providers, sor eGlobal to roll out its mobile payment is for home delivery services,” says Elkiner. YellowPepper will play an increasingly platform to local banks in Colombia and “In Ecuador, McDonalds, pizza takeout firms important role in providing digital services Mexico respectively. and pharmacies are using our platform for at the point of sale. “In Mexico, we brand our mobile payment home delivery. When you phone in your “YellowPepper’s new focus on mobile app as Yepex, and in Colombia it is called order, instead of taking the security risk of purchases and loyalty has resulted in higher Smart Wallet,” says Elkiner. giving your credit card number, expiry date revenues and the development of a digital In September 2015, YellowPepper and CVC code, you just give the six-digit customer engagement process, leading to launched Smart Wallet in Colombia in part- passcode generated by your YellowPepper higher user by customers across key mer - nership with Citibank and Banco Davivienda, wallet. The passcode is only valid for one chants in Latin America. Right now, Yel - and is currently adding more bank partners. transaction for a few minutes.” lowPepper is leading in the specific niche it It also launched a white-label version of In Mexico, YellowPepper now has 6,000 has created for itself.”<

www.electronicpaymentsinternational.com February 2016 y 13

EPI 343.indd 13 05/01/2016 16:57:25 Electronic Payments International FEATURE DIGITAL BANKING CLUB

“We have only seen about 5-10% of what digital banking can actually be” The final Digital Banking Club debate of 2015, hosted in London, featured panellists from both established and challenger banks, as they discussed where digital would take the financial sector and if institutions are doing enough to realise fully digital’s potential. Alexander Atkins writes

he Digital Banking Club’s final debate In terms of the opportunities from digital something that’s completely different? What of the year saw a wide variety of growth he said: “We’ve seen a lot of interest a challenger bank can bring to the table is answers and opinions to the major in mortgages, in self-serving mortgages, lots addressing customer’s three basic needs question that is circulating the finan- of interest in areas that have been untouched which are that they need to pay someone, T so far, such as vehicle and asset finance, cial world today of ‘How far will digital go?’ they need to borrow something or they have A recent report by McKinsey reported that insurance and private wealth.” too much and want to protect it,” he added. only 20 to 40% of customer experience has This comes after Anthony Thomson, been digitised by retail banks suggesting that Digitisation vs being natively digital the co-founder of Atom and Metro Bank, the established banks still have a long way to As to how this digital disruption would released a forecast stating that in two or three go in terms of digitisation, and are begging change the traditional banks, Alessandro years, the established players may not exist the question of where the opportunity for Hatami, an advisory board member at in the same way as we recognise them now. growth will come from. Advanced Payment Solutions, believed that Tom Blomfield, CEO and founder of chal- Simon Cadbury, Director of Strategy and there is going to be a profound change in lenger digital bank Mondo, was of the same Innovation at Intelligent Environments, was how banks would look in the future because opinion. “I totally agree. I think the really quick to agree with the statement that digital of changing customer adoption. interesting future of banking is about data adoption still has a long way to go, stating “Customers feel increasingly comfortable and identity,” said Blomfield. that in the last twelve months, only one quar- in accessing financial services through these “But I think within that digital space, ter of all current accounts taken out have digital devices and people in this country are you’ve got talk of digitisation versus being been taken out through digital channels. He extremely supportive of digital as a means of natively digital and that’s really important further stated that 58-62% of people are engaging with banks,” he said. because some digitisation of processes only now managing their accounts as an individ- “But what must be asked now is if I was to means you take one or two steps forward. ual digitally, whilst only 30% of the UK has build a bank today, would I design it as a tra- But having to fundamentally rethink what adopted mobile banking. ditional bank but in a digital way or design banking is and then build from the ground

14 y February 2016 www.electronicpaymentsinternational.com

EPI 343.indd 14 05/01/2016 16:57:26 Electronic Payments International DIGITAL BANKING CLUB FEATURE

upwards - that is the real chal- “Being able to talk to some- lenge.” one is very important but you As to what this new bank can provide that without a should be offering, Blomfield branch. Often you go into agreed that simplicity was key: branches to talk to someone “By offering a very simple ser- about a specific product and vice that you can sign up to they say you can use the phone quickly, store your money, pay over there, and this is a result people, pay bills, pay friends, of banks being complacent that’s all it is.” because historically they’ve never been challenged,” he The right time for challengers said. With new challenger banks He continued to talk about appearing more often now, the how most processes didn’t need question over timing for new human contact but were made entrants was raised. complicated through digitising Chris Gledhill, CEO and the traditional processes, such founder of digital challenger as account opening, which he Secco Bank, thought that the asserted should take thirty sec- timing for new challengers to onds and could be done not in- enter the market was almost branch, but on the smartphone. perfect. The role of branches Blomfield brought up a useful example of “We’ve got a progressive regulator, we’ve The question of what role branches will play Blockbuster versus Netflix. “Blockbuster had got London which is the fintech ground zero in the future of banking has been asked fre- a huge market share and loads of branches and we’ve got a load of very good start-up quently and was sure to come up. and when the internet came along, its ver- technology,” he said. Wilkinson was quick to challenge the idea sion of digitising was to post people their But Gledhill was quick to differentiate that branches are dead and have no role to DVDs. Meanwhile, Netflix came along as a between challengers following traditional play any longer. “They serve a purpose, they truly digital business and took most of the methods and challengers doing completely are converting people, and they’re an educa- market,” he explained. new things. tional resource,” he said. “It’s figuring out what a branch should be He said: “There are plenty of challenger “So it’s not about should we have them or there for and what services do our customers banks but from our point of view they are not. You’ve got them, so how can we utilise want and then asking what is that transac- not really challenger banks, they’re like start- them better and the first thing to do is to stop tion going to look like and how do we get up banks doing the same thing as traditional thinking about them as branches,” he added. there?” said Berry, reiterating the point that players, just in a more agile way.” Hatami, however, was sceptical that banks branches needed to evolve. Outgoing head of group innovation at would see past the bottom line to make the Blomfield, continuing on the theme of the Nationwide, Daryl Wilkinson, also believed transition within branches. simplicity a digital bank could offer said: now is an exciting time for challengers. He Hatami said: “It’s about how you build “I feel like we’ve only seen 5-10% of what justified the reasons for his setting up Lab12 transition, because transition requires digital banking can really be. Right now it’s Innovation, explaining that current banks investment and a rethinking of the way you a statement with a list of transactions that’s and challengers had approached him for do business and looking at banks today, do two days out of date on your mobile, but help. they have the appetite to make that transition that’s not mobile banking, that is your state- “A number of current banks came to us when they are doing alright now?” ment on a mobile. There is ten times more we asking how they should translate their physi- The focus on branches also put the spot- can do with data functionality.” cal branches into online and mobile. And a light on the two challenger speakers, Gledhill few challengers also needed help with scale, and Blomfield, digital challengers with little Use of cash and Apple Pay structure, talking to the regulator and we apparent need for branches. The debate then turned to whether the big realised there’s a lot of opportunities here,” Blomfield asserted that the majority of banks and challengers could team up to tack- he explained. Mondo’s customers wouldn’t need to access le this digital future. Whilst Blomfield was From another perspective, digitisation a branch, but for that ‘one in 1,000 custom- adamant that a challenger should aim to stay cannot be limited to specific sectors of the ers who has a cheque from their granny and away from the reputation associated with financial industry as Rhys Berry, director of needs somewhere to put it, we have a box big banks and ‘turn down the offer’, Hatami collections technology and operations for somewhere that you can put that cheque in’. offered a different view. Santander, explained. He stated that the col- Gledhill stated that Secco wouldn’t have a He said: “There’s nothing wrong with a lections industry had experienced little digital physical channel in the traditional sense. “In big bank buying a start-up. All they are doing change in the last twenty years and was still Secco, the customer’s smartphone is essen- is adapting their business model and making going through the same processes, trying to tially their bank,” he said. “They can just as investments in the ideas of the smaller chal- replace systems that worked well in 1997. easily become an ATM to other customers lengers so that if they succeed then they have He added: “The other challenge with just walking around.” their beta bank.” collections is regulatory change and how Asked whether they felt that some sort of Gledhill did not seem hostile to the idea to digitise a process when the regulator is human contact was needed, Blomfield con- but pointed out the danger of non-banking redefining what that process is, it’s a practi- ceded that there certainly is still a need for it, players using challengers as a way of getting cal issue.” but that it is done in the wrong way. their foot in the door.

www.electronicpaymentsinternational.com February 2016 y 15

EPI 343.indd 15 05/01/2016 16:57:27 Electronic Payments International FEATURE DIGITAL BANKING CLUB

The subject of the role of non-banking players in innovating inevitably led to Apple Pay and what it has brought to the table. Cadbury was quick to state that the stats show it still has some way to go. “Apple Pay adoption in the US is at 1.6% and it’s a great sign of where things are going, but it comes back to the issue of cash,” he said. He added: “Cash still represents 60% of transactions in the UK and I suppose the thing for the start-ups is that every time a customer needs an ATM, they are going to incur an ATM fee of whatever amount of pence just for a cash withdrawal. “We’ve got other banks here such as Bank of Ireland or Sainsbury’s Bank and one of their biggest revenue streams is their ATM network.” However, Blomfield asserted that, despite the continuing high use of cash, Apple Pay had begun a process that could lead to digital to have now is about how they can improve at that point in time” payments, something that would add to the and disseminate their support better,” he Gledhill concurred on the importance of strength of digital-only challengers. said. data: “People will start to realise the value “The main challenge to going cardless is However, Hatami reminded everyone of their data and they’ll start using banking that you have to get the merchants to adopt what the actual role of the regulator is and to invest their data. We’ll start to see people it as well as the customer. You need very high why they exist. realising the value of their information.” adoption rates to achieve success and I think He said: “We must not forget that these “I think digital will go all the way” assert- Apple is one of the few companies in the guys are there to protect the financial well- ed Blomfield, stating that the process of digi- world who can achieve that,” he argued. being of the whole population and if they get tising would kill the incumbent banks. Few seemed to doubt that Apple Pay was it wrong, the cost is not just a few pennies, Furthermore, he believed that data would a serious disruptor and that a key strength you might lose your livelihood, your savings, be the key to providing a digital relation- lay in being a non-banker as Hatami argued: so they have to be very strict.” ship with the customer that covered all their “The other thing about Apple Pay is that it Rhys Berry concurred with this, talking needs. does not care about financial services. It just about how the regulator was going through a “I think we have only seen about 10% of wants to sell products.” lot of challenges trying to keep up with such what is possible with data usage,” he said. a changing industry and, at the same, was Daryl Wilkinson was in partial agreement Regulator: help or hindrance consistently under pressure to both help and believing that digital would kill the current The debate then moved onto the role of the protect the industry. banking model. regulator and whether they had been a help However, he believed that it will only be “I think we’ll see some of the incumbent or a hindrance in digitising banking. a matter of time until the regulator can get banks become utility providers and I think Blomfield held the view that there had defi- comfortable with business models that fin- some banks are already having the conver- nitely been improvements. tech start-ups are bringing to the market. sation now, asking how do they become a He said: “The number of new challengers Finally, the question of where digital utility,” he said. in this market is growing, so there has been would be in ten years was put to the panel. Finally, Berry concluded that the banking some movement. I think that they are wor- Simon Cadbury believed that the 50s rela- model will change hugely. “Banks will look ried about the possibility of a new challenger tionship model of banking where the banker to digitising as a means of reducing costs and failing on their watch but I think we need to knew the customer personally and antici- I think they will have this issue of how they accept the possibility of some new banks fail- pated their needs will be gone but replaced leverage digital to reduce their costs versus ing to really push innovation further. in a digital way so that technology will help the test of having to reinvent as a proper “Ultimately, the net result will be beneficial people to understand the vision of what challenger,” he said. for customers because you try lots of differ- one’s needs are, underpinned by the ability “As a result banks will have a spate of ent business models, and while many fail, a to make contact digitally. partnering up with small firms to help them few succeed.” He added: “I think people won’t be going reinvent themselves whilst at the same time Wilkinson agreed with this, and stated he into branches, it will be fully digital, but I do pushing a very slow digitising process as a believed they were beginning to understand think some form of the human element will means to reduce costs,” he added. their changing role. remain.” The conclusions differed slightly and the “I think the regulators help in hindering Hatami focused on how data would bring opinions throughout the debate varied. the potential for poor business models to the customer and the bank closer together What did emerge, however, was that digiti- emerge under their watch that impact inno- so that they would both know much more sation is changing the financial industry and vation in a different way. about each other and stated: “I see a future the players will have to change with it. As “But I think they have recognised that they where banking is a service that is an exten- for how far digital will actually go, only time are hindering and the conversation they need sion of me through whatever means I choose will tell. <.

16 y February 2016 www.electronicpaymentsinternational.com

EPI 343.indd 16 05/01/2016 16:57:28 Electronic Payments International SURVEY MOROCCO COUNTY

Morocco’s payments recovering post-crisis Morocco’s economy was adversely affected by the financial crisis. However, domestic demand for goods and services, driven by a fiscal policy to push stimulation and the protection of purchasing power, helped to sustain non-agricultural activities and was an engine of growth for Morocco’s payments industry

n 2014, cheque payments and credit n MOROCCO’S CARD TRANSACTION VOLUME BY n MOROCCO’S PAYMENT CARDS BY TYPE OF CARD transfers were the most popular CHANNEL (MILLION), 2010–2019 (THOUSAND), 2010–2019 payment instruments, having a Year Debit Cards Credit Cards Charge Cards combined industry share of 97.1% Year ATM POS I 2010 117.1 10.0 2010 5,522.5 245.3 271.5 in terms of transaction value, while the share of payment cards doubled from 2011 148.6 12.4 2014 9,065.7 332.6 373.9 0.5% in 2010 to 1% by the end of 2014. 2012 171.9 16.2 2015 10,190.8 359.5 407.0 The share of payment cards is rising as 2013 186.8 19.5 2019 15,063.6 457.0 528.0 the government and banks promote aware- ness levels and associated benefits among 2014 205.6 23.6 Source: Timetric consumers and merchants. The adoption of 2015 224.6 27.7 EMV standards and growth in e-commerce 2016 243.4 32.2 order to boost card sales, banks and card issuers and retail industries also supported the are offering EMV-compliant cards and bespoke 2017 262.9 36.5 industry’s growth. products to meet specific customer needs. While leading card issuers push for growth 2018 282.9 40.5 The average transaction value for debit by offering improved products and services 2019 303.1 44.5 cards declined marginally at a CAGR of and aggressive marketing campaigns, the Source: Central Bank of Morocco and Timetric -0.17%, from $99.50 (MAD837.40) in 2010 government is also keen to encourage elec- to $98.90 in 2014. As consumers especially tronic payments and bring in a large num- n MOROCCO’S CARD TRANSACTION VALUE BY in rural areas prefer to use cash for purchases ber of the unbanked population within the CHANNEL ($BN), 2010–2019 and coupled with low acceptance by mer- formal banking system through its financial chants, the total average transaction value inclusion (FI) programme. According to sta- Year ATM POS for debit cards decreased in recent years. tistics from the World Bank, the number of 2010 11.9 0.8 Banks are trying to attract their customers’ total deposit accounts relative to the popu- 2011 15.1 1.0 to spend frequently at POS terminals using lation increased to 50% in December 2010, 2012 16.8 1.2 their debit cards, by offering them wide 54% in December 2011, 57% in December range of benefits including reward points 2012, and 58% in June 2013. 2013 18.9 1.4 and discounts at partner retailers. Transaction values at ATMs were the main 2014 21.0 1.6 contributors between 2010 and 2014, repre- 2015 20.4 1.7 Approval for Islamic banking offers growth senting a dependence on cash. However, with 2016 22.2 2.0 prospects for credit card market governments and domestic banks making In June 2014, the Moroccan government 2017 24.2 2.2 sustained efforts to increase awareness levels approved a new banking law relating to estab- and benefits of electronic payments, a gradu- 2018 26.1 2.5 lishing a fully fledged Islamic finance industry al shift is anticipated over the next five years. 2019 28.1 2.8 after years of false starts. The draft bill will Source: Central Bank of Morocco and Timetric allow both domestic and foreign banking com- Payment infrastructure driving card growth panies to establish Islamic banking branches in Banks and retail outlets in Morocco expand- tions processing solutions provider, installed Morocco. The new bill, which also contains ed their infrastructure networks during the a contactless ticketing system in the Casa- legislation pertaining to the establishment of a review period into rural areas, to increase blanca tram system and in January 2014, sharia committee formed in coordination with their customer base and improve financial the technology was extended to M’Dina bus the central bank, will help build a robust regu- access for consumers. The increasing accept- network. latory environment for the financial sector. ance of payment cards at retail outlets and Presently, Attijariwafa Bank, which is a consumer shift towards making purchases Debit cards continue to dominate part-owned by Moroccan King Moham - directly with cards resulted in an increasing In terms of transaction value, debit cards med VI’s holding company Société Nation- number of POS transactions between 2010 remained the most popular payment card ale d’Investissement has an Islamic banking and 2014. Consequently, the use of payment over the last five years. The Moroccan popu- subsidiary. Anticipating the approval of cards is expected to register widespread lation is dominated by a Muslim population the new banking law, other banks such as acceptance between 2015 and 2019. who generally avoid credit cards for religious BMCE Bank and Banque Centrale Populaire Similarly, contactless technology is being reasons. Consequently, the debit card mar- du Maroc (BCP), have equipped themselves gradually rolled out across Morocco. In ket registered growth in terms of volume and to set up new banking branches adhering to 2012, M2M Group, an electronic transac- transaction value between 2010 and 2014. In Islamic standards. <

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EPI 343.indd 17 05/01/2016 16:57:28 Electronic Payments International SURVEY COUNTY ITALY

Italy’s government encourages the payment market Italy is one of the world’s most developed economies, although it was affected between 2010 and 2014 by the eurozone crisis. The country’s real GDP growth declined from 1.7% in 2010 to -0.4% in 2014. The economy is expected to stabilise, with GDP growth rising from 0.6% in 2015 to 1.1% in 2019

n a bid to revive the economy, the n ITALY’S CARD TRANSACTION VOLUME BY n ITALY’S CARD TRANSACTION VALUE BY Italian government introduced CHANNEL (MILLION), 2010–2019 CHANNEL ($BN), 2010–2019 austerity measures and shifted its focus towards increased financial Year ATM POS Year ATM POS I 2010 714.6 1,502.4 2010 163.9 158.9 inclusion through the Save Italy plan in December 2011. The plan included 2011 707.0 1,566.9 2011 173.4 170.4 mandatory opening of a free current 2012 751.0 1,629.0 2012 176.5 158.4 account or a basic payment account by financial institutions for socially dis - 2013 801.7 1,813.2 2013 195.5 172.1 advantaged customers with an annual 2014 851.9 1,990.3 2014 208.6 180.8 income of less than $9,950.50 (€7,500). 2015 895.1 2,145.8 2015 187.0 160.1 2016 931.0 2,288.9 2016 196.1 166.4 Government initiatives to limit cash transactions 2017 963.6 2,423.7 2017 206.2 173.9 While other European countries such as 2018 996.0 2,545.2 2018 216.6 181.3 France, Spain and the UK are moving 2019 1,025.4 2,648.7 2019 226.5 188.4 towards becoming cashless economies, cash Source: European Central Bank and Timetric Source: European Central Bank and Timetric is still the preferred payment instrument for Italians. Cash accounted for 85.6% of the n ITALY’S PAYMENT CARDS BY TYPE OF CARD n NUMBER OF ATMS AND POS TERMINALS IN cards and payments industry’s transaction (MILLION), 2010–2019 ITALY (THOUSAND), 2010–2019 volume in 2014. The government banned all cash-based Year Debit Cards Credit Cards Charge Cards Year ATM POS transactions over $1,390 on December 8, 2010 36.2 12.7 21.2 2010 51.4 1,496.5 2011, as part of efforts to reduce the annual 2014 48.1 10.5 16.5 2011 51.8 1,434.0 tax loss of nearly $139bn, and an additional 2015 51.3 10.3 16.2 2012 50.7 1,510.7 $13.9bn lost to processing cash-based pay- ments. 2019 61.4 10.6 16.2 2013 50.0 1,584.2 The government introduced a regulation in Source: European Central Bank and Timetric 2014 49.4 1,655.8 July 2014, making it mandatory for service 2015 48.9 1,721.0 providers such as wholesalers and retailers to lation increased at a CAGR of 18.13% 2016 48.4 1,780.7 install POS terminals to accept payments for between 2010 and 2014, from 12.4 mil - transactions over $39.80. These initiatives lion in 2010 to 24.1 million in 2014 and is 2017 48.1 1,837.5 are anticipated to reduce dependence on cash, expected to further increase to reach 32.4 2018 47.8 1,890.6 and encourage payment card transaction val- million by 2019. Growth in the prepaid 2019 47.7 1,938.8 ues and volumes. card market can be attributed to improved Source: European Central Bank and Timetric infrastructure of POS terminals, security Traditional credit-averse environment features and promotional offers by card nerships with various companies to offer supported growth in prepaid cards issuers. co-branded products. For instance, UBI The debt crisis and subsequent austerity To capitalise on rising demand for pre - Banca offers prepaid cards for readers, policies led to a decline in overall consum - paid cards among consumers, card issuers for club and disco enthusiasts and for the er spending. The traditionally credit-averse are now adding extra features to prepaid Alpine club. nature of Italian consumers, coupled with cards such as online functionality, global Card personalisation is an important their conservative spending attitude, is usability, easy reloading and contactless marketing strategy adopted by issuers to expected to result in a decline in credit functionality. The Intesa Sanpaolo prepaid market prepaid cards. Issuers now enable card-based transactions. card can be recharged online, using mobile customers to customise their cards by add- This is expected to reduce new credit phone or at retail stores. ing photos, themes, designs or company card issuance over the next five years and According to Timetric research, Poste logos. increase the issuance of prepaid cards as Italiane, UniCredit and UBI Banca are the For instance, Intesa Sanpaolo offers card customers prefer pre-planned or budgeted leading companies in the Italian prepaid personalisation services on its Flash Visa spending. cards market. To maintain their domi - payWave and Flash Card Expo prepaid The number of prepaid cards in circu - nance, these banks are entering into part - cards. <

18 y February 2016 www.electronicpaymentsinternational.com

EPI 343.indd 18 05/01/2016 16:57:29 Electronic Payments International SURVEY USA COUNTY

The US expands its large payment market The US has the world’s largest payments market, as well as one of the highest levels of card penetration. In 2014, the US accounted for 86.6% and 88.2% of North America’s transaction value and volume respectively. However, the cheque market is slowly falling in the US, as it is in many areas across the globe

lectronic payments steadily gained n USA PAYMENT CARDS BY TYPE OF CARD n USA CARD TRANSACTION VOLUME BY ground in the US between 2010 and (MILLION), 2010–2019 CHANNEL (BILLION), 2010–2019 2014, and in terms of transaction Year Debit Cards Credit Cards Charge Cards volume they have overtaken the once- Year ATM POS E 2010 49.5 19.2 1.2 2010 5.9 64.1 dominant cheque. The decline in cheque transactions gath- 2014 65.8 26.4 1.8 2011 5.9 71.0 ered pace in the last ten years, largely due 2015 69.4 28.5 2.0 2012 5.8 75.7 to a surge in the conversion of cheques into 2019 82.3 35.5 2.5 automated clearing house (ACH) debits. The 2013 5.9 81.8 shift towards electronic payments has also Source: Timetric 2014 6.0 88.0 been aided by contactless technology, which 2015 6.1 93.8 n USA CARD TRANSACTION VALUE BY CHANNEL launched in 2004 and is now gaining signifi- 2016 6.2 99.3 cant momentum. US consumers have a variety ($BN), 2010–2019 2017 6.3 104.4 of contactless choices, as all major payment Year ATM POS 2018 6.4 109.2 networks – Visa, MasterCard, American 2010 636.3 3,517.3 Express and Discover – have contactless cards 2019 6.5 113.9 2011 663.1 3,898.0 available. As contactless becomes more widely Source: Timetric accepted, payment card transaction value and 2012 687.0 4,200.7 volumes are expected to increase further over 2013 709.6 4,530.0 The Durbin Amendment caps the amount the next five years. 2014 740.3 4,921.9 banks can charge retailers for swiping debit Focus has also increased on m-payments, cards. The cap limits the fee to an average of 2015 770.5 5,315.4 with the launch of new solutions such as Sam- $0.21 per transaction instead of the previous sung Pay, Android Pay, Apple Pay and the Star- 2016 798.4 5,695.8 industry average of $0.44. The new limit took bucks mobile wallet. Competition in the indus- 2017 823.0 6,059.4 effect in the summer of 2011. try is likely to intensify further with the launch 2018 845.3 6,400.3 The current account fees that banks have of CurrentC and Chase Pay in 2016. found necessary to charge, to compensate for 2019 865.4 6,728.4 In a highly competitive and mature market, the Durbin Amendment, is gradually driving Source: Timetric banks and card issuers are facing changing consumers away from debit cards. In the US, regulatory, competitive and customer dynam- credit card delinquency, banks have again the regulatory burden on retail banking has ics. While card issuers are subject to rising regu- started to focus on credit card business, albeit compelled many to increase charges on their latory requirements and increased competition, adopting a more cautious approach in terms current accounts to maintain profitability. Free consumer behaviour has also changed; con- of issue. In addition to targeting consumers current accounts are diminishing, as banks sumers are becoming increasingly value-driven with high FICO scores, banks and card issu- impose fees to improve profitability. Wells and are looking for benefits beyond traditional ers are now also offering cards to consumers Fargo ended its free current accounts in August products or services. This has put increased with low credit ratings. For consumers with 2012, making it mandatory for customers to pressure on profitability, forcing issuers to reas- poor or fair credit histories, the average per- pay a monthly service fee of $7 on all essential sess products, costs and revenue streams. centage rate (APR) is higher than normal, and current accounts. the cardholder is required to make a security However, the Durbin Amendment only Credit card market recovering from the deposit with the bank to obtain a credit card. applies to financial institutions (FIs) with assets recession of more than $10bn – only a small proportion The US economy and employment levels were Banks’ profitability under pressure due to of the number of FIs in the US that issue debit badly hit by the global financial crisis of 2008– interchange fee regulations cards, but also most of the cards in circulation. 2009, forcing many consumers to default on Profitability in the US cards and payments As a result, many larger banks have changed credit card payments. Banks subsequently industry decreased following the regulation on their focus on debit cards, and some are invest- recorded high volumes of bad debt. Most interchange fee in 2011. Consequently, large ing more considerably in credit cards. banks cleaned their customer bases and deacti- banks saw their revenues on checking account Furthermore, for smaller banks and FIs, vated bad credit accounts; the number of credit and debit cards decrease, forcing them to adopt debit cards largely remain a profitable product cards in circulation fell as a result. new strategies. To combat revenue erosion, to promote, and with the big banks’ emphasis Employment opportunities have improved banks increased checking account minimum- on debit cards shifting, there may be an even with US economic growth since 2010. Sup- balances, maintenance fees and restricted greater opportunity for them to expand their ported by a strengthening economy and low reward programmes. debit card business. <

www.electronicpaymentsinternational.com February 2016 y 19

EPI 343.indd 19 05/01/2016 16:57:29 Electronic Payments International COMMENT ANDREJ EICHLER

BPO Urged as Interchange Solution for Banks Andrej Eichler, Head of Financial Industry Services at SIX Payment Services, looks at a possible solution to an upcoming problem regarding interchange fees in Europe. Some markets are going to be affected more than others and financial institutions need to prepare. BPO might be the answer to this conundrum

he European cap on debit and credit The prospect of global payment service pro- recoup this money by withdrawing reward and card interchange fees (0.2% and 0.3% viders (mainly based in the US) offering a similar cashback schemes, for example. It’s also possible respectively) which takes effect on 9 option is possible, but I doubt whether they will that credit card issuers will raise their interest December 2015, promises to reduce be able to tailor their services to a local Euro- charges for users who fail to repay balances dur- T pean market and the particularities of the bank. ing the free-funding period and increase upfront costs for merchants across the continent and potentially benefit consumers through In order to preserve customer loyalty, some banking fees. lower prices. banks will also be keen to maintain their tai- The effects of the Interchange reduction Yet for Europe’s banks, the outcome is not lored version of credit cards for their local cus- change will be particularly felt in certain mar- necessarily so positive. In seeking ways to tomers. Here again, an outsourcing partner can kets, where card fees are higher. In Germany, for absorb the new cost pressures that this sweep- help, offering a ‘white label’ card branded to the example, average credit card rates are 1.8%; in ing change will bring, processing efficiency is a local bank, yet with outsourced processing. This Poland, debit card charges are 1.6%. logical direction to investigate. Many banks are scenario will not affect the banks’ cardholders, When the European Commission published using legacy platforms that have reached the yet will provide massive efficiency gains for the its Explanatory Memorandum in 2013, set- end of their lifecycle, and – for the smaller play- bank. ting out why fees should be capped, it used a ers – lack the economies of scale that might help Looking at the other side of the ecosystem, ‘Merchant Indifference Test’, aiming for a rate digest the reduced revenue flow. I expect that there will be a differentiation at which merchants didn’t care whether they Pressure continues with compliance issues. between the approaches of different merchants: accepted cards or cash. This was to address the PCI DSS, the payment industry’s bible, takes most smaller merchants tend not to bother with widespread misconception that cash is cheaper its toll on resources. Even some large and mid- the complex fee structure and appreciate paying for merchants than cards. sized European banks are not yet fully PCI com- an ‘all-in’ charge. The new regulations follow an extended pliant – relating to the level of their data security Larger merchants on the other hand are more campaign by the European Commission to standards – and are already struggling to adapt aware of potential savings and are more pre- bring down interchange fees stretching back to to the huge demands stemming from the con- pared to participate in the expected volatility of the 1990s. And it draws on the experience of sumer side: to stay in the game when it comes interchange fees. regulators in the United States, Australia and to innovative solutions or new payment devices Yet whether lower interchange rates will lead Switzerland, where there has been stiff resist- such as smartphones. to lower prices for consumers remains to be seen. ance from some banks to the changes. So far, European banks have used interchange Merchants will certainly be tempted to keep any The European Commission believes that fees to fund a lot of their investment costs. With savings to themselves, whatever national gov- lower fees, besides being ‘good for consum- the new caps on fees, these banks will need to ernments or EU regulators would like to happen. ers, good for business and good for Europe’, look at alternative sources of investment finance. We have already seen that as the differences as Competition Commissioner Margrethe The solution for some banks may be to con- in interchange rates between debit and credit Vestager said, will bring both lower prices and tract a payment services provider to do Business cards reduce, card acceptance increases. I greater cost visibility for customers. ‘It reduces Process Outsourcing (BPO). would expect that these new reduced caps will a ‘tax’ levied on business by banks in the form Under this scenario, banks would retain also boost card acceptance across Europe and of interchange fees, and releases the brakes that their customer relationships and would will, together with contactless payments and have so far held back innovation,’ she said. outsource not just the technical processing other innovations, further enhance consumer According to the Financial Times, the value of including card management, authorisation, behaviour. card transactions across the European Union in clearing and settlement etc. but also a choice I would like to see more benefits for all parties, 2011 was €1.9trn ($2trn), and retailers across of their business processes, such as cardhold- from loyalty schemes and other bonuses for card the continent have paid banks €13bn a year to er-setup, contact centre, statement printing, holders, to data analytic services for merchants, handle card transactions – 70% of which was fraud management or even the license spon- helping them to understand their customers, to for interchange fees. soring with the international card schemes, cross-selling opportunities for card issuers and In the UK alone, the drop in interchange fees allowing them to leverage security, volume additional services for card acquirers. is expected to account for savings of £480m and the expertise of their outsourcing partner Besides the various benefits that may accrue, ($703m) a year, according to the British Retail and providing a convenient starting point to there should be the overall advantage of con- Consortium, based on around 10.7 billion cred- take on new customers. venience, as both card and mobile payments it and debit transactions per year. We believe this will become an attractive become faster and more responsive, using near So for the banks, the loss of hundreds of mil- option for many smaller to mid-sized banks, field communication and other technologies. lions of euros per year in interchange fees will with portfolios of several hundred thousand This should also assist in convincing merchants certainly make a dent in their budget calcula- cards up to a few million, as they reconsider to see card acceptance as an opportunity rather tions. their strategy in the light of the changes to debit than an inevitable cost factor. Outsourcing their payment processing and credit card interchange fees. The impact Will card issuers compensate the Interchange together with the related business processes of these changes is likely to be felt in the first Reduction by cutting on cardholder services? could help banks to offset these costs and get months of 2016, as banks adjust to the new cap There is a danger that as banks find their revenue ready for new payment methods at the same on charges. from interchange fees falling, they will seek to time. <

20 y February 2016 www.electronicpaymentsinternational.com

EPI 343.indd 20 05/01/2016 16:57:30

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