December 2015/January 2016 Issue 342/343 www.electronicpaymentsinternational.com

IS BLOCKCHAIN THE HOLLY GRAIL IT’S CRACKERED UP TO BE?

•ANALYSIS: Forecasts •REVIEW: Cards and payments in Europe •UPDATE: US EMV migration •COUNTRY SURVEYS: Egypt, China, Malaysia

EPI 342_343.indd 1 15/12/2015 11:18:24 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 Another exciting year in payments NEWS draws to a close 4: News digest

FEATURE he year ends with some big payments And speaking of card payments, London cab- 8: DISILLUSIONMENT THREATENS TO news stories- and positive ones at that. bies have at long last agreed to accept not only SOUR BLOCKCHAIN HYPE The EU interchange fee cap has been card payments but contactless in 2016. What took The excitement surrounding blockchain is introduced and while the repercussions them so long? It could be said, as has been pointed expected to wane as the industry realises T out, that this may result in a boost for cash, as won’t truly be felt until halfway through 2016, that “opportunity up close looks like hard work”. Jane Cooper writes we can expect some changes in the industry. cabbies may offer discounts to cash payers, but Already in the UK, supermarket giant Tesco has this will be insignificant. The benefits of dealing 10: CI PREPAID SUMMIT EUROPE implemented a slashing by half of loyalty reward in cash will be outweighed by the disadvantages Dine out on prepaid via luncheon vouchers points on its Clubcard scheme- as big a sign of (cost, risk) and the increased ease, speed and cus- and transport ticketing and move towards things to come as any in markets where the inter- tom that card payments will bring. digital or be out of the game. Anna Milne reports from the Cards International and change rate will have a significant reduction, such After attempts to render Uber’s operation Electronic Payments International annual as the UK. Clubcard holders now receive one unlawful proved futile, black cab drivers have conference and awards in Milan. point for every £8 spent. Before December 2015 it decided to join rather than beat their nemesis 18: EGYPT was one point for every £4. drivers. And they still have ground to win back- Card issuers will have margins squeezed by up after all; at peak times, a black cab is more likely 20: CHINA to 1.8 percentage points for debit cards and 1.7 cheaper than Uber surge pricing. Plus the drivers 22: MALAYSIA percentage points for credit cards. Some, such tend to know their way around a little better. as esteemed Electronic Payments International And last but not least, blockchain. Investment COMMENT editorial advisory board member and CEO of and general talk; dedicated conferences and start- Advanced Payment Solutions, Rich Wagner, say ups have all increased at a rate of knots in 2015, 2: JACKIE BARWELL, ACI WORLDWIDE that it is the final straw that will usher in the end amid a fair amount of counter-hype. The director of fraud product management for ACI Worldwide discusses the impact of of free banking as banks’ issuing revenue is hit. Is it just another dotcom bubble? Is it more trou- EMV migration in the US on fraud, both in Others say issuers can still make gains from cor- ble than it’s worth (see Jane Cooper’s feature page the US and Europe. porate and credit cards and others still that cus- 8)? Or is it simply something that will take hold tomer data will be the new route to profitability. further down the line, that does indeed represent 14: PAYMENT FORECASTS Will it be a race between issuer and scheme? See the bright future of financial services and a host Industry experts, including some of our very own editorial advisory board members, page 24 for a round-up of comments on the effect of other services, but will be such an enormous put forward their reflections on 2015 and of the new rules. global transition that there is not really any rush predictions for 2016. Speaking of data, the US EMV shift is ongo - to implement it at present because its benefit will

24: EU INTERCHANGE FEE CAP ing, if by no means as complete as it should be, only take hold once adoption is more widespread? EPI has collated a range of comments from and is shifting data fraud online. Merchants are Probably the latter, but why be last to pitch up? industry experts on the likely impact of the fully braced for increased e-commerce fraud as For now though, EPI wishes you a very happy EU’s new interchange fee cap. mag stripe machines become obsolete, along with Christmas- enjoy the holidays. Here’s to 2016. < opportunity for card data fraud. We look at this in Anna Milne depth on pages 2 and 3. [email protected]

Editor: Anna Milne Sub-editor: Tom Langfield For more information on Timetric, visit our Tel: +44 (0)207 406 6701 Director of Events: Ray Giddings websiteat www.timetric.com. As a subscriber, Email: [email protected] Tel: +44 (0)203 096 2585 you are automatically entitled to online Email: [email protected] access to Electronic Payments International. Financial News Publishing, 2012 Group Editor: Douglas Blakey For more information, please telephone Registered in the UK No 6931627 Tel: +44 (0)207 406 6523 +44 (0)203 096 2636 or email customer. Head of Subscriptions: Sharon Howley Email: [email protected] [email protected] ISSN 0956-5558 Tel: +44 (0)203 096 2636 Unauthorised photocopying is illegal. The London Office Reporter: Patrick Brusnahan Email: [email protected] contents of this publication, either in whole or 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 London, EC1M 3AP means, electronic, mechanical, photocopying, Xiou Ann Lim Asia Editorial: 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)203 096 2622 Fax: +65 6383 5433 Email: [email protected] Email: [email protected] Email: [email protected]

www.electronicpaymentsinternational.com December 2015/January 2016 y 1

EPI 342_343.indd 1 15/12/2015 11:18:25 Electronic Payments International COMMENT JACKIE BARWELL, ACI WORLDWIDE

Lock up your data; card fraud migrates Jackie Barwell, director of fraud product management, ACI Worldwide tells EPI about the effect of the recent and ongoing US EMV migration and its impact on online fraud both in the US and in Europe. To what extent are retailers aware and prepared and will the situation worsen in 2016 with the rise in ecommerce?

ow aware were the retailers in the ing attacks, a growth increase in online fraud in each in data breaches, and of the US and Europe- have they a growth in account anticipated it well or are they take-overs and identity Hscrambling to address the issue now? theft attempts. Coin- The retailers, for the most part, antici- cidence? Maybe, but pated, and prepared well for an increase likely not. in online fraud attempts. In the US in particular, there has been messaging in Can you compare the press urging for them to be well pre- uptick in fraud in pared for the likely spike in ecommerce Europe compared to fraud attempts following the progression US as a result of US of EMV compliance across the country - EMV migration? so as much as this is an unwanted trend, It is most likely it should not have come as total a sur- linked only because prise to the retailers there. In addition, some of the fraudsters who have newly and expand into previously assumed too- the fast growth of ecommerce as a whole moved to conducting fraud in a card-not- risky geographies safely - to remain ahead has focused the minds of anti-fraud teams present environment could have been ones of their competitors. Retails have to stop within these retailers to concentrate on who found fraud using counterfeit (in the looking at their fraud teams as simply ‘a shoring up resilience against the online US) yesterday’s preference – until the US cost of doing business’. fraudster. began closing that door….. The migration of fraud onto the ecom- What can card issuers do? merce channel for merchants in Europe What can retailers do? Can the Card issuers should continue to be has been something that these retailers re-running of cards be implemented extremely vigilant for signs of possible have had experience of over the past even if not required, as an easy combat account take-over attempts. The removal few years, not just because of their own measure? of an ability to spend on counterfeited country-wide migration to EMV compli- If ‘re-running of cards’ relates to those cards will result in a more concerted effort ance, but also due to the ever expanding ‘buy-online, pick-up in-store’ situations, it to obtain ‘genuine cards’ – so account thirst for ecommerce by consumers. The makes absolute sense to require the per- takeover attempts is likely to rise. Simi- removal of the US as a location to suc - son picking up the goods to bring their larly, with the uptick in social engineering cessfully spend on counterfeit cards (due card with them, with a view to confirm- scams and data theft, the potential for to its migration to EMV compliance) ing it’s a genuine card. If that means run - identify theft (opening banking and credit may be the cause of a faster increase in ning the card through an EMV pin pad/ relationships in other peoples’ names) will card-not-present fraud in Europe, so extra terminal, so-be-it… This would prove a likely rise, so anti-fraud and authentica- dedication to curb this rise needs to be turn-off for the fraudster, and potentially tion strategies here need to remain strong. practiced here. a welcome measure, if communicated Finally, continued use of sophisticated properly, to the retailer’s consumer! anti-fraud solutions that have the ability Is it mainly down to US EMV migration to profile their cardholders individually, or also the overall uptake in mobile How will retailers accommodate/offset should be practiced. commerce? the cost of extra security measures? It’s definitely a combination of the US Retailers need to continuously look at Is it more of an increase than expected? EMV migration and the overall uptake in their fraud teams as ‘business enablers’…. No, the increase was anticipated in ecommerce popularity. Card-not-present If you can increase your technology and light of patterns of fraud migration due purchases either online, or via the mobile/ capability and accuracy in the anti-fraud to these two phenomenon combining in smartphone channels is growing at an activities, the uptick is that more good other geographies – i.e. the growth in unprecedented rate – and the removal of transactions are accepted in real time, ecommerce popularity, and the migration the US, being one of the last locations even those that appear risky. A strong, to EMV compliance. where fraud spend using counterfeit cards proven, accurate fraud strategy enables could be successful, has coincided with retailers to offer ever-riskier products Do you expect it to get worse in 2016, an increase in fraud in the ecommerce online, offer ever-shrinking and imagina- with the rise of e-commerce? channels, a growth in social engineer- tive fulfilment choices to their consumers, Yes. <

2 y December 2015/January 2016 www.electronicpaymentsinternational.com

EPI 342_343.indd 2 15/12/2015 11:18:28 Electronic Payments International US EMV UPDATE COMMENT

EMV liability changes the US paradigm Agreed by the US card networks, the EMV liability shift began to be enforced on October 1, 2015. The liability shift results in the least secure party in a transaction being liable for costs due to fraud in a non- EMV environment. Merchants are the ones with the least chance of losing. Patrick Brusnahan writes

hile the aim has been EMV migra- tion, mass adoption of the standard EMV Migration Timeline in the US is very unlikely to come to fruition Wbefore 2017. A report from Timet- • 2012: Audit fee waiver by MasterCard • EMV-compliant merchants receive ric stated: “Experience from other countries and Visa with regards to PCI Data indicated that it takes 2-3 years from the Security, if more than 75% of transac- 100% exemption from Account Data liability shift to attain 60-70% EMV transac- tions are EMV. tions and 4-5 years to attain over 90% EMV • 2013: Acquirers and processors Compromise from MasterCard transactions.” required to support EMV transactions • Fuel dispensers excluded from liabil- The Payments Security Task Force (PST), for all major credit card networks consisting of card issuers who represent • Liability shift for international Maes- ity shifts on all major card networks around 50% of the total payment card vol- tro ATM usage ume in the US, suggests that 30% of their • Merchants with 75% and above EMV • 2016: Liability shift to ATM hosts on customers had EMV cards in June 2015. transactions receive 50% exemp - Members of the PST predict this percentage tion on Account Data Compromise MasterCard network to grow to 60% by the end of 2015 and from MasterCard. PCI audit relief for reach 98% by the end of 2017. American Express merchants, if more • 2017: Fuel dispensers to bear liability Increased EMV circulation in the US than 75% transactions are EMV of fraudulent transactions, if they fail will increase interoperability of cards and • 2015: Liability shift for fraudulent decrease consumer inconvenience while transactions on all major credit card to comply with EMV standards for travelling abroad, where EMV standards networks to least secured party in the are already implemented. Examples of such payment value chain all major networks. markets are Canada and key regions in Asia Pacific (APAC). The majority of top-tier US merchants Evidence has suggested that the adoption will be EMV-capable in 2015. However, of EMV as a standard in the US will lead Terminals smaller merchants are likely to be slower in to cybercriminals focusing their attention By the end of August 2015, 300,000 mer- adopting the technology and will have trans- on card-not-present fraud. chants had EMV-enabled POS terminals at formed on a mass scale by the end of 2017. One problem, however, is magnetic their stores. This is approximately 5% of all Lower costs for POS terminals are stripes. Payment cards in the US will con- card accepting merchants in the United States. expected to aid merchant adoption. EMV tinue to feature magnetic stripes to oper- Shipment data from Verifone claimed that POS terminals are typically available in the ability at all merchant locations. In addi- over 80% of products shipped to the US in price range of $100-200 with players such tion, the use of PIN codes is not manda- the second quarter of 2014 were EMV or as Square offering EMV card readers for as tory. Both of these factors provide a wide NFC-capable. little as $49. berth for fraud. Estimations suggest that close to 60% of Consequently, there is a need for the the POS terminals in the US will be EMV/ Security market to invest in a few things; end-to- NFC-compliant by the end of 2015. According to Visa, chip & PIN cards have end encryption, tokenisation, data sharing EMV/NFC-capable POS terminals only played their part in reducing card fraud in and analytical tools to detect and prevent require a software upgrade to accept chip more than 113 countries, primarily in help- card fraud (both card-present and card-not- cards. ing the fight against card-present fraud. present). <

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EPI 342_343.indd 3 15/12/2015 11:18:31 Electronic Payments International NEWS NEWS DIGEST

STRATEGY QPAY sets up shop in Qatar

Electronic payment firm QPAY has now estab- comply with the latest laws on labourer WPS their hard-earned wages securely in full and lished its presence in Qatar following the suc- while streamlining banks’ corporate filing of on-time, QPAY provides all the solutions cessful offering of its wide range of solutions labour pay with the Qatar Ministry of Labor required by employers and banks. across the GCC and foreign markets. & Social Services (QMLSS). “Not only will our solutions remove all the QPAY said that it will launch a low cost and The solution will provide the labourer with worries and burden of having to comply with advanced Wages Protection System (WPS), a Qatari IBAN bank account without having QCB’s strict WPS policies and directives, but IBAN platform and WPS Salary Card platform to add extra burden on the bank’s back-office, will also spur a streamlined and cost-efficient in Qatar. front office or branch network, the company business and banking operations. Both products are fully compliant with the added. “Clearly, QPAY’s solutions are fully aligned Qatar Central Bank’s (QCB) directive on WPS QPAY solutions have been used in Qatar, with the country’s aspirations embodied in payment rules to low-wage immigrant labour- GCC and Foreign markets since 2001. They Qatar’s National Vision 2030 Plan. Such ers residing in Qatar and the QMLSS Salary have been offered to banks and financial solutions also enable financial inclusion and Information File (SIF) generation, the company institutions as white labelled products. privileges to low-wage immigrant labourers said in a statement. QPAY International CEO & founder Nebil into the Qatari financial ecosystem. These QPAY’s secure cloud-based WPS IBAN Ben Aissa said: “With Qatar’s commitment include using International standards such platform, which is successfully implemented at ensuring that its rapidly-growing expa- as MasterCard and an IBAN account,” he in Dubai, Kuwait and the US, enable banks to triate labour and workforce justly receive added.<

MOBILE Zeepay partners with Small World FS to launch mobile money wallet in Ghana

Ghanaian mobile financial services aggre- recipient’s Mobile Money number.” According to data from Small World gator Zeepay has joined forces with pay - “This new service gives Mobile Money FS, Ghana already receives over $1bn ments provider Small World FS to offer customers access to cash 24/7 as remit - annually in remittances, with over 130 mobile money wallets in Ghana. tances are sent directly to their mobile wal- million transactions processed performed The mobile money wallet service will lets. On receiving the funds, Mobile Wal - via seven million mobile wallets in the enable emigrants across the world to let holders can decide whether to retain year to date. send money directly into Ghanaian bank money on the wallet, withdraw from a Small World FS CEO Nick Day said: accounts or local mobile wallets. Small World FS agent or ATM. “Ghanaian emigrants rely on safe, simple Zeepay co-founder Andrew Takyi Appi- “Alternatively, customers can use the Zee- and secure remittance processes to send ah said: “For the first time, an African emi- pay Mobile Payment Ecosystem which cur- money home, and this is why we are pas - grant can send money directly to a Mobile rently supports Airtel Money Wallets, to pay sionate about working with Zeepay on Money Wallet, simply by inputting the for good via their mobile.” the Mobile Money Wallet.”<

DIGITAL Wirecard partners PT Finnet Indonesia to enables TCASH acceptance by retailers PT Prima Vista Solusi, an Indonesian accuracy. expand our service infrastructure, as well subsidiary of German payments company Using the TCASH wallet, Telkomsel's as bringing in innovative value-added Wirecard, has partnered with PT Finnet subscribers can pay for bills, goods and solutions for our clients in Indonesia." Indonesia and PT Telekomunikasi Selular services through their mobile phones, PT Prima Vista Solusi managing director (Telkomsel), to enable the acceptance of which are embedded with the TCASH Widhayati Darmawan said: "Partnership contactless, NFC-based electronic money NFC stickers, both online as well as point- with Telkomsel and Finnet to broaden TCASH at nationwide retailers. of-sales. TCASH acceptance in major retailers in The partnership will allow customers at TCASH is an electronic wallet product Indonesia is a showcase of Wirecard's the retail stores to pay for their purchases of Telkomsel, a subsidiary of PT Teleko - commitment in providing relevant tech- and utility bills using their NFC mobile munikasi Indonesia (Telkom) and Singa- nologies to facilitate cashless transactions. phones. pore Telecommunication (SingTel). "With approximately 250 million popula- Wirecard said that it will offer the NFC PT Finnet Indonesia director of business tion and sizeable unbanked segment, Indo- point-of-sale acceptance, which is inte- and services Syaiful Rahim Soenaria said: nesia presents a good potential in terms grated to the retailer's front-end store "Finnet is proud to engage strong partners of the addressable market for electronic system for optimal transaction speed and like Wirecard Indonesia to continuously money and micro payment solutions." <

4 y December 2015/January 2016 www.electronicpaymentsinternational.com

EPI 342_343.indd 4 15/12/2015 11:18:32 Electronic Payments International NEWS DIGEST NEWS

MOBILE ING launches mobile payments service for Dutch customers Dutch banking major ING has added 100,000 stores throughout the country. mobile payments at ING Netherlands, said: contactless payments to its Android mobile Those customers who have an Android "We continuously try to make payments eas- banking app following a three-month trial in smartphone running Android 4.4 or higher ier for customers, and this is the next step." the Netherlands. with NFC can download the app within a The bank added that it will offer the ser- The mobile payments application, which is minute and activate it with their mobile pin- vice free for six months, after which it will based on host card emulation (HCE) proto- code, the bank said in a statement. charge 50 cents per month for an unlimited col, can be used to tap-and-pay at more than Laurens Schretlen, manager cards & number of transactions. <

DIGITAL STRATEGY Xoom, Social Islami Bank Sage Payment teams up with launch money transfer service Trustwave to enhance security for in Bangladesh businesses

Xoom, a US-based digital paying with a bank account, Sage Payment Solutions has program. money transfer provider, has while transfers over $1,000 partnered with cybersecurity firm Sage Payment Solutions CEO teamed up with Social Islami are fee-free. Trustwave to expand its merchant Paul Bridgewater said: "Millions Bank (SIBL) to launch its This latest launch will compliance programme, offer- of the world's small and medi - money transfer service in expand Xoom's global pres- ing SMBs additional information um businesses trust Sage as they Bangladesh. ence to 40 countries. security protections beyond PCI power the global economy. An The service will allow Xoom Xoom vice president of DSS compliance. important part of earning and customers to instantly marketing and busi- Commenting on the partnership, keeping that trust is protecting deposit money into ness development Trustwave vice president of prod- SIBL accounts Julian King uct management Ted McKendall 24/7/365. said: "Bang- said: "Sage understands that PCI Xoom will ladeshis in compliance is the ground floor offer depos- the US can for security, and businesses need its to other now skip additional layers of security pro- banks, lines at tection to help them go beyond including agent loca- PCI compliance and protect data Islami Bank tions, save from compromises. Bangladesh, on fees, and "Top payment providers like Sonali Bank, send money Sage are increasingly offering BRAC bank, in seconds, additional security measures that and more, usu- from home or on go beyond basic compliance secu- ally in two days when the go. Our intuitive rity standards." their precious payments data. sent during Bangladesh bank- online and mobile platforms Sage Payment Solutions, the "Using Trustwave, Sage is ing hours. make it so easy." North American payments divi- emphasizing security first while The service enables consum- SIBL managing direc- sion of UK-based payroll payment simplifying the complex com- ers to send money securely tor Shafiqur Rahman said: processing solutions provider pliance process for SMBs. This from their computer, tablet or "Through our collaboration Sage, has rolled out new endpoint extension of our multiyear rela- mobile phone directly to any with Xoom, we fulfil our protection services from Trust- tionship with Trustwave brings a current account in the country. commitment to immigrants wave, including antivirus protec- new level of security for business- The service will charge a in the US while better serving tion and file integrity monitoring, es - helping them not only become processing fee of $4.99 for our customers here in Bang- which are now available as part compliant with PCI DSS but also sending up to $1,000 when ladesh."< of the Sage merchant compliance be safer and more protected." <

DIGITAL ANZ Bank NZ unveils digital wallet for Android users

ANZ Bank NZ is rolling out its own digi - be made in a similar way as the bank's exist- as well as personal Visa credit cards. tal wallet that will allow customers to make ing contactless payment cards. In addition, the new wallet will incorpo- contactless payments through their Android For purchases below NZD80, goMoney rate the cloud-based Host Card Emulation smartphones. Wallet customers can tap and go for making (HCE) technology to protect the financial The new goMoney Wallet is integrated payments, while purchases above NZD80 information of customers. Also, on losing within the bank's existing mobile banking require customers to enter a PIN. the phone, ANZ can remotely switch off the app, ANZ goMoney, allowing payments to The wallet would support ANZ Visa debit goMoney Wallet service. <

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EPI 342_343.indd 5 15/12/2015 11:18:33 Electronic Payments International NEWS NEWS DIGEST

MOBILE Mozido launches NFC mobile payment services in Indonesia

Mozido, a US-based digital payment Additionally, Mozido will enable Tel- money service, which allowed consum- and commerce solutions provider, has komsel's merchants with a mobile cou- ers to only check account balances, pay launched its NFC mobile payment and pon management system that delivers bills, airtime top-up, P2P transfers, and loyalty services for Telkomsel Indonesia, them the ability to sync their own brand- view transaction history, was previously in collaboration with Verifone Mobile ed coupons with TWallet consumers. a USSD (unstructured supplementary ser- Money. Mozido's NFC wallet app will be avail- vice data) service, disconnected from the Also, Mozido partnered with Finnet able at participating merchants includ - wallet. Indonesia to connect users with Indone- ing McDonald's, Wendy's, Coffee Bean Mozido founder Michael Liberty said: sia's banks nationwide. and Tea Leaf, Baskin Robbins, 7 Eleven, "Indonesia's 255 million people are ready Under the deal, Mozido will power Cinema XXI, GraPARI, Alfamart and for mobile solutions that enable payments, Telkomsel's NFC-based TWallet appli- Indomaret. financial inclusion, and consumer engage- cation for its 140 million subscribers, Using this mobile payments wallet, ment. Mozido is privileged to quickly allowing them to tap and pay with their account holders are able to use the ser- expand our presence in this important mobile device at participating merchant vices from their mobile wallet application. region by powering TWallet for Telkom- locations. Mozido said that TWallet's mobile sel's 140 million subscribers." <

RESEARCH DISTRIBUTION MasterCard, Visa continue to maintain upper Visa launches online hand in European payment card market checkout service in In Europe, 90% of payments are made using Furthermore, Visa is the largest scheme in 19 Hong Kong a Visa or MasterCard-branded card, the European countries, while MasterCard is the highest share of any region, according to a largest scheme in the remaining 14 countries. Visa has launched its online payment report by Retail Banking Research (RBR). The study further revealed that rival inter- service Visa Checkout in Hong Kong fol- The study, Global Payment Cards Data national schemes such as American Express, lowing its launch in the US, Canada and and Forecasts to 2020, said that 86% of Discover, JCB and UnionPay account for less Australia in July 2014. all circulating payment cards in Europe are than 2% of the regional card base. The service allows users to pay for either issued by Visa or Master Card. American Express and Discover account online purchases via their mobile devices The data revealed that 1.5 billion payment for a higher share of value than of cards as in just a few clicks by storing billing and cards were in circulation in Europe at the they are used for relatively high-value pay- shipping data. end of 2014 which were used for €2.9trn of ments. Visa Checkout stores a customer's bill- payments during the same year. However, domestic and private label cards ing and shipping data, and also uses a Visa, the larger scheme in terms of payment account for a lower share, and their share of username and password rather than a value, accounts for 54% of card expenditure. value decreased in 2014. < credit card number as authentication, streamlining the ordering process signifi- cantly. DIGITAL The service enables shoppers to make Enjaz inks remittance deal with Bank Albilad purchases by using a smartphone, tablet, laptop or PC, without ever having to leave Enjaz, the remittance arm of Saudi Ara - lad Enjaz's easy-to-access network for the merchant's website to complete a pur- bia's Bank Albilad, has formed a strategic the Indian community, offering a way to chase. partnership with multi-channel remittance send money in local currency directly to Users can avail the service by simply service provider Transfast to facilitate the beneficiary's account 24/7, with more entering a username and password to pay, remittance services to India. than 45,000 approved pay-out agents." rather than a 16-digit credit card number The companies said that together they Enjaz general manager Ahmed Al and expiry date at every transaction. The will serve the remittance requirements of Enazi said: "Sending money through service aims to be intuitive to use and save their clients and assist them to send their Enjaz will give our customers a sense of shoppers time. money through Enjaz's branch network. security that their hard-earned money A number of online retailers who have Bank Albilad CEO Khalid AlJasser said: will securely reach to their loved ones signed up to work with Visa Checkout "This partnership will provide different through Transfast's wide network of pay - include Broadway Circuit, DimBuy, Hong remittance services to the Indian com - out locations throughout India. Kong Airlines, PARKnSHOP and Zuji. munity in the Kingdom. Now, our clients "This reaffirms our promise to our cli - Visa country manager for Hong Kong have the option to send money directly to a ents that sending money with us is as and Macau Caroline Ada said: "With Visa bank account, in addition, their loved one good as giving the money to your loved Checkout, consumers not only can pay in can receive their money instantly through ones yourself. This partnership with just a few clicks, they can also enjoy a any of Transfast pay-out agents network." Transfast will offer our customers the peace of mind of using one of the most Transfast CEO Samish Kumar said: "We best and convenient way for remittance secure online payment services in the are very pleased to partner with Bank AlBi- service to India." < world." <

6 y December 2015/January 2016 www.electronicpaymentsinternational.com

EPI 342_343.indd 6 15/12/2015 11:18:34 Electronic Payments International SINGAPORE START-UPS FEATURE

Singapore banks’ start-up programmes The motivation for banks to jump on the fintech bandwagon is clear – they need to keep up or they’ll lose out – but it’s a little less obvious why they’re taking on the laborious task of organising their own start-up accelerator programmes. Xiou Ann Lim finds out what’s underpinning this trend

ingapore may not be Silicon Valley start their own companies,” he said. He Start-up snapshot or New York in terms of fintech, added that DBS employees who were but its advanced position in this selected as mentors to the start-ups are The Citi Mobile Challenge saw 15 start-ups space means it is frequently chosen afforded the opportunity to experiment, presenting their propositions while the DBS S think creatively and obtain first-hand HotSpot Demo Day witnessed 11. Here are five that as the Asian location for start-up accel - erator programmes. experience in deliberating on customer- piqued our interest: Recent such events include SWIFT’s centricity. Innotribe, Startupbootcamp FinTech and Cross explained that another perk Liquid Pay Next Bank. in organising such a programme is the Where it’s from: Singapore What it does: Much like the Uber driver-passenger These programmes provide banks with a opportunity to discover talent early on: pairing, this app creates a fast way for merchants to multitude of opportunities to identify ideas “We may want to hire them … and we accept payments and also selects the payment method and talent as well as collaborate with start- get to see great products as well, which that ensures the best returns. The app is linked to ups. Yet some banks, such as Citibank and we may want to license or acquire.” He bank accounts to bypass card networks for lower fees. DBS have organised their own start-up accel- spoke also about the history of DBS: erator schemes. “We’re the Development Bank of Sin- Citipays One reason is that banks want to drive gapore – we’ve been developing Singa- Where it’s from: Singapore the innovation rather than ride it. Speak- pore for many years now and this is one What it does: This app allows customers to make ing at the Citi Mobile Challenge, Citi way that we can continue to do that. We instantaneous purchases once they walk into a store. global digital acceleration head Jorge have hundreds of DBS employees attend- Using QR code technology, customers can scan the Ruiz said: “Different programmes have ing this event and they must be proud code on a product to make a purchase. Once the different purposes. We want to be the of what we’re doing today.” purchase is confirmed, money from the customer’s enablers to bring fintech into an ecosys- Imbuing a change in culture to inspire bank account is transferred to the merchant. tem that works with us and our partners. innovation among employees is a less That is something that’s difficult for us obvious benefit of such programmes, but motionQR to outsource.” one that is no less important than dis- Where it’s from: Palo Alto Emphasising that no one programme is covering talent and new ideas. What it does: This solution mobilises personal identification, biometrics and other highly sensitive better than another, he says Citi is just Startupbootcamp FinTech co-founder information. Designed as an enabling technology and trying to achieve different outcomes from Markus Gnirck – who attended the leveraging standard (OS-agnostic) mobile devices, Citi Mobile Challenge – made a similar other accelerator programmes: “This is this platform provides quick, convenient and secure something that we wanted to do and comment: “I think the biggest benefit of customer authorisation. It eliminates risk of data lead.” this challenge was having the local Citi manipulation or duplication through optical scanning Another reason is that banks are hoping employees in attendance to learn about and localised decryption, requiring zero connectivity. to foster internal change. Citibank Singa- fintech.” pore’s CEO, Han Kwee Juan, said the Citi As demonstrated by Citibank and InvoiceInterchange Mobile Challenge was organised as part DBS, the industry is beginning to display Where it’s from: Singapore of a larger initiative to improve customer- more initiative in the innovation space. What it does: This helps businesses raise funds in 24 centricity. “We want to be able to engage No longer content with relying on hours through a P2P invoice trading platform without the industry and have ideas come through independent accelerator programmes to hidden fees, minimum charges or lock-ins. SMEs the door to help us work on this area,” identify opportunities, they are initiating auction their unpaid invoices to a network of investors he said. change, despite having to mobilise pre- who compete to buy and advance money against the Citibank is not alone in this. Speak - cious resources and incur extra expense invoices in exchange for a discount. Businesses can ing at the DBS HotSpot Demo Day, DBS when budgets are already squeezed. sell single invoices online as and when they need to. chief innovation officer Neal Cross said As per the keen observation of Andrew that one of the advantages of organising Taggart, partner and financial services Nickel Where it’s from: Singapore their own accelerator programme is the leader at PwC: What it does: This is a simple cash-to-cash remittance culture change they hope to foster within “It’s really a pivot that banks need to service for migrant workers. Rates can be viewed the bank. go through quickly to transform the quickly and send money home in a few clicks, within “Many of our own employees have experiences. It requires internal disrup- in a few hours. Users can save up to 50% in remittance been part of this programme. Two of tion as much as external disruption. We fees compared to traditional services. Payments can the teams have DBS employees– they’ve are seeing organisations finding ways to be made anytime at nationwide convenience stores. taken a three month leave of absence to increase agility.” <

www.electronicpaymentsinternational.com December 2015/January 2016 y 7

EPI 342_343.indd 7 15/12/2015 11:18:34 Disillusionment threatens to sour blockchain hype for corporates Claims that blockchain will revolutionise financial services have seen a rush by banks and venture capitalists to invest in the technology. The excitement, however, is expected to wane as the industry realises that “opportunity up close looks like hard work”. Jane Cooper writes

itcoin, blockchain, distributed in his Sibos plenary speech that DLT could be works through the cryptography in the mes- ledger technology (DLT) and dis - used by banks in private networks to transfer sage to validate the transaction. When a con- tributed consensus ledgers (DCLs) assets. “I would like to think that SWIFT is sensus is reached by the network, the transac- are the buzzwords of the payments well placed to host such blockchain commu- tion is added to the latest block in the chain. B nities,” he said. He was also cautious: while industry, with many taking an interest in This forms part of the shared ledger, which, the financial revolution that they could showing photos of the Concorde, and a man in the case of bitcoin, is public and avail - bring. The bitcoin-inspired technologies wearing a jet backpack, he said that block- able for anyone to see. People can transact have the potential to remove intermediar- chain - like the supersonic plane - could end between themselves and rely on the shared ies of all kinds from the financial ecosys - up being a technology that showed promise public ledger for reference, rather than the tem. And in the world of corporate pay - but never achieved mass adoption. bookkeeping that banks do between them- ments, the technology could potentially Despite this, many are keen to experiment. selves in the traditional payment process. change how reconciliation is done, as Tim Swanson, director of market research at Cliff Evans, global CTO digital for consul- well as enabling contracts to be embed - innovation firm R3CEV, says, “Most of the tancy firm Capgemini, says: “Blockchain has ded into transactions. In short, the inef - large global financial institutions have been fantastic potential in changing the way that ficiencies of correspondent banking could kicking the tyres on blockchain technology.” processing is done. The world as we know be removed, and blockchain could trans - These include Citi and BNY Mellon, which it - in transaction processing - has had to rely form the way that corporates go about have both developed their own cryptocurren- on a centralised database that is protected by their business. cies. And UBS’s blockchain lab in London, large data centres. Blockchain distributes the Investment in blockchain companies has Barclays’ accelerator programme and DBS’s processing so you do not need a data centre,” been accelerating, and, according to Need- hackathon for developers are just some of says Mr Evans. ham & Company, $600m of venture capital the initiatives in the industry. Applying distributed ledgers to corporate investment is forecast for 2015. The large fig- payments would reduce processing time and ure is symptomatic of the blockchain buzz, Peer-to-peer payments costs, and potentially make sending an inter- which was also reflected in the mood at this Blockchain is revolutionary in the sense that national payment as cheap and easy as send- year’s Sibos in October. Many of the panel it removes the need for intermediaries. With ing an email. Ripple is already applying dis- sessions at the SWIFT annual conference in peer-to-peer payments there is always a dan- tributed ledgers to payments and is address- Singapore lapsed into discussing blockchain, ger of ‘double spending’ - where a payment ing the inefficiencies of the correspondent even when it wasn’t on the agenda. could be made twice - which is why there banking system. With Ripple, which can be “Banks are navigating through the hype,” needs to be an intermediary to keep a record integrated into bank systems, corporates and says Accenture in an October 2015 report of the transaction. Bitcoin created a way to banks can bypass the chain of agents in cor- entitled Distributed consensus ledgers for do this without relying on financial institu- respondent banking, and transact directly payments. It also carries a warning: “The tions. With bitcoin blockchain technology, if with each other. post-hype ‘trough of disillusionment’ for Peter wants to pay Paul, he can send him a A payment can take days to reach its desti- DCL looks imminent,” it adds. transaction message that is signed with his nation and while it is in transit, the bank or Gottfried Leibbrandt, CEO of SWIFT, said key. A distributed network of computers corporate has to keep the funds in its account

8 y December 2015/January 2016 www.electronicpaymentsinternational.com

EPI 342_343.indd 8 15/12/2015 16:16:20 Electronic Payments International CORPORATE PAYMENTS FEATURE

- sitting idle, unable to be put to better use - transactions can enable all the payments are including the immutability of payment. Veri- until the transaction is complete. This hap- made when certain conditions are fulfilled. fication and validation of a payment cannot pens with banks and corporates in accounts This does not just have the potential to be changed with blockchain, which many see all over the world, in numerous currencies. change how things are paid for, but also as one of its advantages. However, if there This collective float for international pay- how corporates do business. For example, in is an error that needs to be changed, there ments of millions, if not billions, of dollars, January 2015, IBM released a draft paper on is not currently a method of fixing it, says makes the financial system as a whole inef- ADEPT, a system that is a ledger for devices Ms Glyptis. ficient. There is also a foreign exchange risk that connects an internet of things environ- Mr Swanson says that the biggest issue for for corporates as the value of the currency ment - where machines talk to each other - the industry at the moment is “expectations could drop during the time it takes for the with smart contracts. In practice this could management”. He notes that nobody has transaction to be completed. mean that when a washing machine is out of built anything to scale and he compares some In October, when Ripple announced its detergent, it triggers a condition in the smart of the claims about bitcoin-inspired tech- latest solutions to the market, Chris Larsen, contract so that more detergent is ordered nology to the Linux movement. When that CEO and co-founder of Ripple said: “It is from a retailer, and paid for. operating system was being developed, there hard to believe, but outmoded payment Needham & Company’s report gives were claims that IBM, Microsoft and Apple infrastructure forces banks and their corpo- another example: a self-driving car could would be destroyed by the open-source soft- rate customers to prefund foreign accounts pay for a parking spot when its passenger ware. “Why did Linux on the desktop not for international payments, but then pro- gets out of the vehicle. Or an AirBnB host take off? Because people want an OS [oper- vides few assurances that cross-border trans- could have a smart contract that links the ating system], they did not want a hobby,” actions will actually settle. With Ripple’s new guest’s payment with a digital access pass says Mr Swanson. He draws a comparison solutions, banks can now achieve real-time, to the room, which wouldn’t work once the with the bitcoin movement and some of the certain settlement at the lowest total cost stay has ended. grand claims that have been made. “Bitcoin possible.” is very consumer unfriendly - you have to be Devil in the detail a genius to understand how this works.” Smart contracts These examples, however, are merely indica- Mr Swanson believes there has been a Mr Evans explains that another feature of tions of the potential of the technology and lot of noise created by companies working blockchain technology that applies to cor- the industry is still in an immature, experi- in this space and there is a danger of them porate payments is smart contracts. Bitcoin mental stage of development. “When you “over-promising and under-delivering”. is permissionless and public, but it is also talk about the capabilities, it is ok to talk Given all the venture capital investment, possible to create permissioned ledgers for generally about DLT or the blockchain. But Mr Swanson says, “If this industry does closed communities with a specific purpose. when you do use cases, which set of proto- not deliver an industry-ready ledger in 18 This is what Ethereum allows groups to do. cols to use then becomes important. That is to 24 months, it will have burned a lot of For example, a ledger could create an audit the first stumbling block,” says Ms Glyptis. goodwill.” He compares the situation to the trail of ownership, such as a land registry, or “For the value to be delivered on DLT capa- 1970s and 1980s when investment in artifi- a solution like Everledger, which has a trans- bility, you need a network effect, economies cial intelligence research dried up after initial action and ownership history of diamonds. of scale,” adds Ms Glyptis. While banks and claims were not delivered upon, creating an “Corporate payments are usually linked to technology companies are working on their “AI winter”. It’s possible, says Mr Swanson, some form of contract, such as a purchase solutions, various ledgers are being devel- the same thing could happen to blockchain order. With a smart contract you embed oped. “If you talk to start-ups they are very research. terms and conditions into the blockchain comfortable with the parallel blockchains Mr Evans at Capgemini notes that the ledger,” says Mr Evans. For example, the existing. When you talk to financial insti- potential of blockchain and distributed smart contract would have terms such as, if tutions, unless you have the network effect ledger technology will bring a significant x then y; if the goods have been delivered, or economies of scale you are just running paradigm shift and a different approach to then the payment can automatically be expensive infrastructures in parallel,” she the way business has been done before. “The released. The smart contract is self-execut- says. question is, ‘Where will you see people mak- ing and removes the need for an intermedi- This issue with distributed ledgers is being ing actual use of it?’,” asks Mr Evans. He ary. When buying a house and exchanging addressed by R3’s initiative with banks. As expects that it will be closed communities contracts, usually the funds are kept in a of 2 November 2015, the consortium com- that will find value in the technology and holding account by a third party - a solici- prised 25 banks, which have joined the develop specific use cases, and they will be tor - to make sure that one party isn’t left group to work toward creating industry- the link to it becoming more widely adopted. without the house, or the other without the wide standards, as well as designing and “You have to have the business model as well money. With a self-executing smart contract, applying the technology. as the IT model,” he notes. in theory, the contracts could be signed, the Some of the issues the industry is currently Ms Glyptis makes the comparison with ownership transferred, and the funds sent, grappling with, says Ms Glyptis, are what an other revolutionary technologies, and argues without the need for a solicitor to sit in the industrial implementation would look like, that the process of creating the steam engine middle of the transaction. how it would plug into the existing infra - from the lab to something that powered Also, notes Mr Evans, the smart contract structure, and if two systems - the old and the industrial era took a number of years. would work well where there are many par- the new - have to run in parallel, what the “Opportunity up close looks like hard work,” ties involved. When goods are shipped, there benefits would be. she adds. could be a number of transactions linked to “We all agree that distributed ledger at “What I suspect will happen is that it will their arrival, such as customs duty, shipping scale would completely replace reconcili- go quiet and people who are genuinely work- costs, or storage fees. Once the goods have ation as we know it,” says Glyptis. There ing on this will continue to do so - that is not arrived a smart contract that links all these are many issues that need to be worked out, necessarily a bad thing,” she says. <

www.electronicpaymentsinternational.com December 2015/January 2016 y 9

EPI 342_343.indd 9 15/12/2015 11:18:39 Electronic Payments International FEATURE CARDS INTERNATIONAL PREPAID SUMMIT EUROPE

“Exploit plastic while you can- you’ve ten years left” Dine out on prepaid via luncheon vouchers and transport ticketing and move towards digital or be out of the game. This is what delegates were told at the annual Cards International Prepaid Summit Europe conference and awards in Milan, title sponsored by Visa Europe. Anna Milne reports

e have ten years to enjoy, explore and exploit plastic, we are already in a digital “Wworld. No-one will escape digital transformation- whoever ignores it will be out of business,” said Joao Matos, commercial director, CaixaBank Electric Money EDE. And indeed, the digital pre- paid solution was to the fore throughout the conference.

Dine out on prepaid while transport is a vehicle for education Luncheon vouchers benefit 2.2 million people in Italy; 3.3 million in France. The average ticket is small but the fre - L to R Scott Frisby, Andrea Fiorentino, Monica Carlesso, Flavio Mastrangelo, Antonella Verzini quency high and therefore the potential great. The value is €5.5bn in France for life easier for them and especially, if it is enhancing the digital space. instance; €2.8bn in Italy, Bertrand Sava, means going from unbanked to banked it “Prepaid is completely fitting to that regional managing director, Southern is oftentimes even more welcome. Many space and is giving, to the bankers, to Europe, Visa Europe told the conference loyalty programmes are still run with the banks, the ability to deal with these in his keynote address. paper and at this point, people are pre- trends and to capture some opportunities The second is transportation. Trans - pared to make the switch from paper. that are still there.” portation represents one of the industries Cash still represents 70% of transac- With all the different products: third with the highest number of small ticket tions in Europe in terms of amount, Sava party, closed loop, open loop, home transactions. It’s a market of €175bn in stated, adding that cards are “stead - brand, skin brand, prepaid debit cards, a Europe. We have some big markets like ily growing around 7-8% year on year lot is happening. Merchants have begun the UK, Germany, France, Italy, Spain to aggressively issue prepaid cards and and Poland. And in this sector, we are Visa Europe prepaid stats have tried to combine the prepaid prod- really looking at using prepaid cards in uct with the analytic programme. Star- general, using the NFC technology which In the US prepaid has grown around 8% pa in the bucks, as an example, is a closed group last five years fits completely in that space. that’s completely mobile that combines Europe 40% growth in prepaid in the last five “I think that Transport for London years the payment solution with its analytic (TfL) is the main example. In one year Prepaid market share in Italy is 10% with expected programme so you can pay with your TFL reached 180 million transactions, growth of around 20% in the next five years Starbucks card, get your points, you have and now 600,000 transactions per day, discounts, you have your free coffee and one million taps per day. I would say it’s since the last ten years. In particular, this is a product that has had great suc- a way to educate the customer how to online transaction growth has doubled, cess, especially in the US. use contactless on a mobile app, in order at around 40%. This obviously is a chal- to pay,” Sava said. lenge and is growing the most, and some How are customers using prepaid today? However, there is still a fair way to go. consultants think that the projection by Travel, including airlines, general retailer Prepaid is an easy platform onto which 2017 is around 500 billion.” and high street, leisure, gambling and to switch millions of loyalty programme Regulation and multi-channel conver- betting. customers, panellists discussed. It is easy sion present major challenges to retailers “If I were to give one sector, it would because with prepaid accounts there is but their willingness to go omni-channel, be airlines, and one channel would be no credit score, there is often not even and to give an experience covering all online, and as a consequence interna - a traditional banking relationship in the the channels to the customer is crucial in tional transactions,” said Sava. background, from which to coax custom- staying ahead and maintaining and grow- Giving more detail, Sava explained ‘air- ers away, so those customers are easy to ing a healthy business. line’ represents 19% of total transactions serve in this way- open to innovation In terms of regulation, newcomers in followed by travel, general retailer/high because they welcome whatever makes the market are being encouraged and this street, leisure, especially in gambling and

10 y December 2015/January 2016 www.electronicpaymentsinternational.com

EPI 342_343.indd 10 15/12/2015 11:18:40 Electronic Payments International CARDS INTERNATIONAL PREPAID SUMMIT EUROPE FEATURE

Ugo Bechis, UBI Banca Antonella Verzini, Banco Popolare

betting. Given the fact that the cus - tomers use their card online, 50% of the Prepaid Europe Award Winners transactions are international which is huge given credit card transactions are Best Mobile Wallet/Alternative/Emerging set and manage card limits and usage via flexible around 14% and debit around 7%. Prepaid solution – Barclaycard admin controls. Barclaycard’s bPay offering, combining a “So do we see the same long term Prepaid Marketing Campaign of the Year - Banco mobile app, and prepaid account, and wearable growth path beyond these use cases? The Popolare technology, launched to take advantage of the answer is definitely yes, the customer has Chat & Cash- based on years of research into booming urban shopper market. With a key fob, found how and where they want to use consumer behaviour analysing the convergence sticker and wristband (as well as gloves and a the prepaid card,” Sava added. of different needs and requirements and online jacket) utilising NFC technology, this is truly an Panel members discussed how remit- interaction, this solution succeeded in breaking innovative offering. tances represent more than €150bn in the barrier to access for mobile solutions around Europe and 90% of this volume is sent Remittances/Government/Financial Inclusion payments. Producing a highly original bank in cash through MoneyGram or Western - Post Italiane agnostic product, it combines the community Union so this is a huge space where pre- Since May 2014, 1.2 million students aged 14 aspect of a social media platform with a paid can find its place. Also to the fore received IoStudio Postepay. The company says by convenient payment solution. 2016, 3 million students aged in between 14 and was the potential of loyalty programmes, Industry Partner/Vendor of the Year - Centre of 19 will have access to the card and its benefits. the majority being still run with paper, Financial Technologies Poste Italiane is forecasting to deliver six hundred and Starbucks’ programme being the The prepaid cards developed by the Center of thousand cards per year to new students; an example, repeated a few times through- Financial Technologies are unique on the Russian incredible scale of success. out the sessions, as proof that successful and CIS markets and the project provides clear loyalty programmes fit completely with Corporate/Travel Card Programme - Smart benefits for all participants. Consumers receive the product. Concepts an opportunity to get multiple financial services The future is in fitting the customer Booking.com wanted to give their employees via a single prepaid card distributed at any of the experience and being as much as possi - a VISA prepaid card for their individual and retailer’s POS. ble customer centric. Customers are much collective achievements made in the year 2014. The project was successfully launched and more prepared than before, much more A VISA prepaid card that could not be used for has been well received. The project has been informed than before, they know every- usual expenditure like household, clothes, etc., successfully implemented in Euroset-Retail but a card that could only be used for a lifetime OJSC, the largest Russian retail network. Over thing, they know what they want, they experience. Smart Concepts helped deliver this. 1.0 million loans and 0.2 million deposits have know they are right, and this is some - been distributed via the platform in the past 12 Gift/Incentive Open & Closed Loop Programme thing we must take into account. months. – Epipoli Key trends Combining physical, virtual and mobile and Technology Initiative of the Year – Amilon The first one is the new retail model leveraging the profit margin on gift cards given What gave them the edge in this category was where there is a subtle convergence they don’t take up expensive retail space- Epipoli a skilful combination of gifting and employee between the in-store physical interac - worked with retailers to maximise their spaces and reward options as part of a secure and simple tion and the in app interaction. And the displays. Credit due for originality and pushing solution, with impressive personalisation barriers to create new prepaid products such as options. A result of tenacious research into mobile phone is a fundamental part of insurance gift cards. consumer behaviour, they delivered a seamless this new model, to attract, to retain, and and economic solution that works for merchants, to sell. Prepaid Innovation of the Year – Ixaris employers and consumers alike. “The real goal of the retailer is to close Ixaris Payments Server technology (IPS) offers and sell, And this is no trivial point. customers a virtual card platform solution that is Prepaid Personality of the Year - Kevin Kelson Abandonment of e-commerce purchases is up and running swiftly and with zero effort from Kevin is responsible for FIS prepaid and debit no joke at 30-40%. Adhering to the one- IT departments. With IPS, businesses can issue processing business in the EMEA Region. click ideal, three maximum, is the golden virtual cards via API or via console, on demand,

www.electronicpaymentsinternational.com December 2015/January 2016 y 11

EPI 342_343.indd 11 15/12/2015 11:18:43 Electronic Payments International FEATURE CARDS INTERNATIONAL PREPAID SUMMIT EUROPE

Q&A: Cards International Prepaid Summit Europe Bertrand Sava, regional managing director, which we cannot confirm. It is clearly a very, of banked people, they will just need a NFC- Southern Europe, Visa Europe and Andrea very interesting product. capable smartphone. Fiorentino, head of European go to market BS: I would also mention contactless adoption CI: You spoke about huge success in Sweden mobile propositions, Visa Europe discuss across Europe is making great progress and in displacing cash, and you said your main with Douglas Blakey and Anna Milne what in Italy, the footprint we are achieving in target is to displace cash. Do you think lies ahead for Visa Europe in light of the the native space is progressing well and we this can be done by rewarding customer Visa Inc acquisition will give more numbers at the beginning of behaviour? 2016. To give you an idea, there were 250,000 BS: It’s about customer centricity and CI: What does the Visa Inc. acquisition terminals contactless-enabled in the US in providing the right product. As an example, mean? From your perspective in Southern 2014. There were 2.6 million in Europe. Spain when the Greek government put controls on Europe, what will it mean? was 500,000. So the infrastructure exists in cash withdrawals, consumers turned quickly BS: It is perfect timing to become one global Europe. It’s now about educating both sides- to cards. The number of active Visa debit business. It will give us a fresh new scale, merchant and consumer. cards in Greece more than doubled in July, speed to markets- especially in innovation, AF: 2016 will simply confirm the trend that compared with the previous three months’ and financial strength. Mobile, regulation, mobile is here to stay. It will permeate many average. In the two weeks immediately increased competition, new players and countries in Europe in 2016. We will also following the introduction of controls, we customer needs, all these things are going see a culture shift. The POS is now a piece of saw a 135% increase in card transactions quicker and therefore it makes a lot of sense consumer electronics exactly like a tablet compared to the fortnight before. Four to be global. We will still have a special focus therefore it must evolve faster. It is this trend months on, the shift to card payments has on countries as we are doing presently in and evolution which has enabled us to create remained. Card transactions in the last Europe. the foundation for moving everything into quarter were up 128% (year-on-year), AF: I work in innovation and the people on mobile. compared to just 9% in the quarter before my team consider themselves lucky at the controls were introduced. The lesson is that moment to be working in such an amazing shifting from a cash economy to e-payments market. is not a difficult or painful change. In fact, CI: Do you think we’ll see the US bringing Greece highlights the benefit of getting there some of their branding, the Visa checkout fast, rather than a slow transition. replacing V.me, is that a prime example that CI: Are you seeing some strategy that we might see? providers are using that is really paying off BS: We are already working with Visa checkout in terms of boosting mobile wallet adoption but not because of the acquisition, we rates? started working on it months ago. As e- and AF: I think the mobile wallet at the moment m-commerce volumes continue to grow, is too segregated, there are too many there are huge opportunities for retailers options and too much choice is not good for and issuers to provide their customers with a the consumer. Apple Pay is a consolidated choice of fast, convenient and secure ways to experience in which you can make in-app make a purchase, be it by card, digital wallet or in-store purchases. The risk of course is or other service. Visa continues to examine that digital giants will play a very big role in a wide range of options to deliver the best mobile wallets, simply because users don’t solutions to consumers and stakeholders in Andrea Fiorentino, Visa Europe want to bother downloading four different this space. applications. The trend shows that consumers CI: Can you give us two or three examples of CI: There are areas in consumer finance don’t want retailer-centric mobile wallets- at what you think has gone very well this year, where Spain is world class leading, for Visa we think that the one who wins is going and some of your highlights? example some of the innovation from La to be the easiest to use at checkout. AF: From my side, the launch of Apple Pay Caixa. It’s not just the best of Europe; they CI: How does a major multinational has been the most amazing launch I’ve ever are leading in global mobile. organisation engender a culture of experienced in my almost twenty years of AF: It is very interesting because Spain has innovation when there are so many layers of career in payments. I’ve never seen anything been always considered a market where we management and bureaucracy? like that. dedicated less to innovation. During the BS: Earlier in the year we launched the It was exciting because for us it was a economic crisis certain banks realised it was Visa Europe Collab, so now we have three challenge. Enabling tokenisation is making a about time to refresh all their systems. BBVA, different innovation hubs, in London, Tel change in our systems similar to open heart thanks to its management, with a very top Aviv and Berlin. Visa Europe Collab works surgery. Working with Apple showed us how down approach, took the opportunity to start independently and its objective is to create important was the ease of enrolment for the investing in new technologies. Now thanks a pipeline of innovative propositions for Visa consumer, something we didn’t focus on to players like BBVA Spain is at the top of the Europe and its members. Visa Europe Collab is enough in the past. mobilisation innovation worldwide. currently working on 100+ proofs of concepts. In the past we had several mobile programmes Usually, people look to the banks in northern AF: I can tell you that my experience on the launched by leading UK issuers with modest Europe but in Spain there is a higher Bank’s side has been surprisingly good, as interest from consumers. For Apple, we percentage of mobile phone users and I’ve been working very closely in the Apple experienced people’s excitement and interest smartphones, even higher than Italy. For Pay implementations. It was launched by the simply in trying to make sure they could do it a example on my mobile I have two cloud-based largest banks in the UK, which are not known few hours before the official launch. payment applications from Spain, one from for their promptness to market, due to their CI: Are you pleased at the adoption rates La Caixa and one from BBVA. In particular size. In just seven months, they were able then? The uptake? the one from La Caixa is going to be offered to turn their systems upside down. If they AF: We are very pleased with the adoption to Spanish consumers by four more banks put their minds to it, they can achieve such rate; of course these are confidential data in the next coming weeks, reaching 30-40% transformation.

12 y December 2015/January 2016 www.electronicpaymentsinternational.com

EPI 342_343.indd 12 15/12/2015 11:18:44 Electronic Payments International CARDS INTERNATIONAL PREPAID SUMMIT EUROPE FEATURE

Monica Carlesso, Barclaycard

rule,” said Ugo Bechis, SEPA Delegate, and this is growing. But also UBI Banca. they can sell their gift cards Which trend do you think is shaping our industry Mobile powered conversion interaction from their website, digi - the most? Pick just one! is where the customer is attracted by tally. Or they can sell their 11% 11% 1. Mobile wallets revisited (tokenization) 0% accreditation, via beacons. And to emu- gift cards as a gift through 11% 2. New form factors 0% 22% late in the in-app, the physical app. channels, like for instance 3. WhichMobile Commerce trend do growth you think is shaping our industry the Giftiamo.” 4. Ecommerce explosion most? Pick just one!44% Innovative payment models 5. Reduced banking profits “I think a very interesting one is PayPal. Why digital? 6. Payment Services Directive in force 1 2 3 4 5 6 7 Completely changed since February this “Digital is real time and 8 9 year, Dan Schonan, the CEO, was very real time is engagement clear and said ‘PayPal is going to evolve and engagement is very 0:10 from a payment instrument to an open important and let me say platform even like a label.’ Via some digital is easy to man - acquisitions, eg Braintree, PayPal can age. It’s easy to manage host functions such as tablet payments. for merchants because Venmo, another company in PayPal’s gift card activation is In the last months we are seeing a continuous flow of new technologies entering the payment arena (for ex. HCE, options, hosts mobile P2P payment ini- simple, delivery is sim - Apple Pay, tokenization, etc.). Do you consider this: tiation for youngsters, similar to texting ple and it’s also safer,” a message. It enables them to share what said Verri. they do, what they buy and to bill-split. Other, perhaps obvious 1. An opportunity to grow 40% Panellists also agreed there was a per- benefits discussed were 2. Challenge to your business 60% tinent lesson to be learned from Amazon, that digital is econom - which discontinued its mobile wallet, not ic because it removes because it didn’t work but because people printing expenses, both 1 2 don’t want to be too tied to any retailer in terms of paper and and want choice instead. Retailer’s loy- plastic and the product 0:30 alty programmes can be easily matched can be easily custom - with different wallets so they may no ised. Cards, materials, market well due to its lack of risk longer need to worry about promoting messages can all be changed in two and its speed. “As long as you pro - one payment instrument over another. seconds. vide digital issuing, there is flex - ibility in tailoring the wallet to the Gift cards Prepaid growth in Italy- what is the needs of the retailer and the payer. Speaking about gift cards, Andrea Verri, potential? Flexibility and capacity to adapt are co-founder and CEO of Amilon, said “Cash is still our only competitor in key because a retailer may want to Italian mobile phone penetration was Southern Europe. But there is also incentivise a key product or to pro - encouraging, at around 85%, the smart a lot of innovation in these coun - pose a certain loyalty programme, phone penetration is growing and is tries and interest from other mar - associated with one payment card about 50% and tablet ownership in kets such as America, China, Russia because the costs are lower, etc. households is around 26%. and other countries in Europe,” said Digital prepaid is the ideal instru- “After 8 years merchants now under- Sava. ment to match all our needs. stand the potential of gift cards. Obvi - Prepaid, according to Ugo Bechis, Gaetano Giannetto, CEO, Epipoli, ously they can sell their gift cards in store will serve the growing e-commerce “totally agreed”. <

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What’s in store for payments, 2016? The past year has seen as much innovation, disruption and fragmentation in the payments market as in any other financial sector put together. But don’t just take our word for it. Industry experts, including some of our very own editorial advisory board members, put forward reflections on 2015 and predictions for 2016

FRANCESCO BURELLI, PARTNER, INNOVALUE converge, this high intensity competition will increase further in the incoming years driving the industry to a turning point in which parts The financial services industry has continued to be swept along by a of the business that have for a long time been taken for granted by the wave of innovation during 2015 and this will continue in the New industry at large, such as government payments and ATM clearing Year. Overall the industry is subject to change on a number of trends, and settlement set-up, are going to be some of the large-scale driving not exhaustively: the entrance of new players and the opening of factors that will determine winners and losers. new segments, the ongoing convergence of physical and online driven by technology and omni-channel consumers, industry consolidation and, in Europe, a radical shift in card payment economics driven by RICH BIALEK, CEO GLOBAL TECHNOLOGY Interchange reduction and the incoming PSD2. A number of banks have exited the acquiring business in favour of PARTNERS monoline acquirers during 2015, more are likely to follow through Here are five payment trends I will be tracking in 2016 selected on in 2016 as the business requires ever growing scale, hard-to-come- the basis of the stakeholders involved and the immediate and long- by skills and increasing specialisation. With the drastic fall of card term impacts they are likely to have: revenue due to regulatory intervention in Europe, we are likely to see the polarisation between consumer credit focused providers and the China re-emergence of European payment issuing/processing consortiums. In 2015 Visa and MasterCard gained the ability to seek licenses to 2016 will likely see an unprecedented reintroduction/increase of clear domestic Chinese payments. This is the result of a long-running card fees to European consumers as the unintended consequences effort to penetrate a market dominated by China Union Pay (CUP) of populistic regulatory intervention. This has been developed under a state-backed incumbent. It is the end of the beginning for Visa and the push of merchant lobbies using regulators as way to reduce their MasterCard in their efforts to develop China. Now we need to see costs and that ultimately will see the consumer worse off and poten- how both companies execute their market strategy over the next 3 tially rebalancing their payment behaviour in a mix of higher trans- to 5 years. CUP holds a dominant domestic market share. It will action value but less numerous ATM cash withdrawals, card at POS take time and investment to take share from CUP. Given the size and and adoption of new payment methods. importance of the China economy Visa and MasterCard must make that investment now and look for a payback in the long term. Mobile Mobile is and will continue its development in a range of fragmented Visa Europe solutions and interfaces from which critical mass is likely to be driven The long anticipated deal is done. Now the hard work of execution by Apple Pay and Android-based payment value propositions. As must be achieved. Let’s see if the pain of integration pays off in terms 2015 has continued to see ongoing developments in the context of of revenue growth. Business development, product, IT, operations, digital convergence, there is a radical emerging convergence trend finance, marketing and other functional teams will need to work between retail and interbanking payments infrastructure that had the together effectively. It will be interesting to learn who leads those potential to change the industry as we know it through the develop- various functions and what global strategies emerge. And how will ment of Retail Real-time Payment Solutions (RRPS). MasterCard respond? Will MasterCard be able to take advantage Amid RRPS developments, competition for consumers, merchants of the organisation disruption in Visa Inc. and Visa Europe to make and corporate choice will intensify with payers like Swift and pay- gains in Europe and other markets? ment processors attacking the card schemes domain. The battle for the consumer and merchant interface will remain intense as it has EMV (US) been during 2015, with incumbent players like card schemes, banks, Implementation has begun albeit at a slow pace. Merchant adoption issuers, acquirers all battling for relevance and trying to avoid being has been lagging despite the liability shift. That said EMV is a reality pushed into a “dumb-pipe” category by PSP and fintech new entrants. in the US. The question is what comes next as we learn that EMV is 2015 has been a year of intense and growing M&A activity from no panacea for fraud management. Other risk mitigation measures an industry as well as institutional investor’s perspective. I would must be developed. These measures will need to be comprehensive expect the number of large scale deals, of the kind that may put two addressing more than the point of scale, to encompass payment data- industry giants like VocaLink and SIA together, to increase as a conse- bases and networks. quence of scale requirement but, more importantly, as a consequence of retail and interbanking payments convergence. The card payment Mobile value chain has been evolving in the last few years with the client/ Apple Pay is important for the US market. Believe it is an important supplier relationship changing into an “everybody competing with milestone, not the final determinant of how mobile payments develop everybody else” environment. As retail and interbanking payments in the US. For a view on how mobile payments will evolve globally,

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suggest looking to Africa rather than Apple Pay for the most material without significant funding: this is the payments and banking indus- developments in mobile payments in 2016. Bank issuers, developers try, so any significant project requires plenty of capital and serious and marketers in Johannesburg, Lagos, Abidjan, Nairobi and Dakar infrastructure. Following the trend highlighted earlier, I expect 2016 are bringing innovative mobile payment applications to market open- to be as busy, if not more so, than 2015 but with some fundamen- ing up payment services to millions of unbanked. To what degree will tal changes. I expect 2016 to see these projects receiving proper VC these applications be adopted and what new transactions, revenue attention. So far VCs have been pouring money into narrow service and business models will result? ideas, sometimes endorsed by a ´tycoon´. Media attention and tycoon endorsement has so far been used as a means to predict success rather Bitcoin No, Blockchain Yes than to gain a true understanding of the guts of the industry where I have seen prior versions of crypto currency dating back to the start value is hidden. So my letter to Father Christmas asks that 2016 be of eCommerce, companies such as Cybercash and Digicash in the mid the year that this approach will change and more serious investors 1990s. Just like those earlier crypto currencies Bitcoin faces serious will support groundbreaking projects that fundamentally rewrite the AML issues that prevent it from becoming a mainstream payment infrastructure model of banking, which is the first step in bringing product accepted by central banks. It has also proven to be subject to change and a The payments industry is currently going through a wild fluctuations in value due to its relatively small size and exposure period of rapid transition, driven by the pace of innovation, new to speculation. The real opportunity is with the blockchain security forms of competition and weightier regulation. technology underlying Bitcoin. Look for more investment in block- chain technology and keep a close eye on who is investing, with more interest from traditional payment stakeholders. ALEX MIFSUD, CEO, IXARIS Interchange fees will shake up the European card market CARLOS SANCHEZ, CEO, IPAGOO One of the most immediate changes is the European Union regu- lation on interchange fees. Interchange is paid by merchants to In payments, every year we see more news, events and disrup - card issuers for the acceptance of card-based transactions, and tion attempts, hopefully a sign of growth and maturity. The pay - under new regulation, this fee will drop from near 2% to 0.3% ment industry is a crowded marketplace, with everybody jostling for credit and 0.2% for debit cards. for position. In this sense we see cross industry alliances, such Most notably for card issuers, the reduction will directly as smart phone manufacturers and mobile telephony companies impact their bottom line. With less money to be made, issuers with payment providers and many others, since every action in will begin to cut card offerings and benefits for consumers, and our lives seems to involve a payment for a related service. The instead, look at new ways to generate revenue. future will be very diverse in comparison to today’s ubiquitous One likely route will be to look outside of the transaction, to card payments. That users will have a variety of ways to pay, generate more revenue. Card issuers may try to form direct rela - depending on the context, seems a sure thing. tionships with merchants, and through intelligent use of data, for example transaction history, deliver highly targeted promotions Interoperability to relevant customers. However, the card schemes, who have The question remains whether the underlying rails on which pay - access to richer data, may just get there first. ments are operated will be allowed to evolve. This would not only simplify access to all new payment providers but would hopefully Regulators will get serious about ‘open’ payments provide a joined up payments rail on which players could operate. New players have been encouraged into the payments ecosys - We should not forget that interoperability is the holy grail of pay - tem and this has been the catalyst for a ground-shifting change. ments, so far only really achieved by card schemes and only then As it stands the banks, more nimble regulated non-banks and after 50 years of advance without competition. the unregulated cryptocurrency players are all battling it out for Strong forces need to be at play to enable interoperability in supremacy. order to make a strong business case to review existing inter - However, this competition is not equal or efficient. Banks still banking schemes. In this sense, the adoption by EU regulators of retain, and want to protect the broad distribution networks, capped interchange fees in card payments will certainly trigger a regulated payment service providers are looking for scale while review of their model. Card schemes are fairly monopolistic and staying on the right side of compliance, and the cryptocurrency therefore can enforce their terms. players are seeking legitimacy. For the time being issuers may end up picking up the bill for the Better outcomes can be achieved through regulators encour - drop in profits expected by the schemes. This would be bad news aging more collaboration. This ‘open’ approach to payments for the issuers but not for the industry. Too often we hear of banks would be more effective in addressing the residual inefficiencies rejecting any idea that could potentially jeopardise their share of in payments, and lead to an explosion in more creative payments revenues in the card acquiring market and their healthy profits. solutions that are better suited to everyone’s needs. That status quo will now change thanks to regulation. I hope this change will have a ripple effect that will begin to Near real-time payments will start to go global change the underlying infrastructure so that third party payments The success of the UK’s Faster Payments solution will be repli - providers flourish for the benefit of us all, bringing simpler and cated and in some case exported to other countries. For example cheaper ways to pay without having to feed a myriad of compa - FedPayments and Ripple in the US, along with Blockchain-based nies along the value chain as is the case with card payments. e-Peso in the Philippines. Also the UK’s Faster Payments is being In this context 2016 will see the market entrance of various radi- exported to Thailand. cal projects that have been developing in the background for the The benefits of faster payment systems will force many more last few years. Radical disruption in this industry cannot be built countries to make plans for adoption and will initially lead to in a few months by a small group of friends with bright ideas but faster payments being the global norm and eventually to faster

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cross-border payments becoming practical. increasingly used to improve security. User-friendly methods—includ- ing, for example, new biometric processes like voice recognition, key- Convergence of cards and bank payments stroke detection, finger vein scanners and pulse recognition — are set Traditionally most non-cash retail payments happen on cards but to become increasingly significant and set to increase both security bank-based models are emerging. Regulators are now mandating and convenience. that banks accept these developments which will inevitably can- nibalise card-based payments. International E-Commerce Bank-based payments have the potential to save costs for Merchants looking for e-commerce success will need to create an interna- retailers by avoiding the interchange fees. However, the reduc - tional strategy. Expanding e-commerce activity across borders involves tion in interchange fees means this cost saving is becoming less more than translating websites and establishing efficient logistics. It’s of a driver. Despite this, the arrival of Apple Pay and a general also vital that merchants offer shoppers their preferred local payment acceptance amongst consumers for mobile payments is likely to method. Asia, Eastern Europe and Latin America are currently the most maintain the pressure and build momentum for bank-based pay - interesting markets for European online retailers, and as card penetra- ments. tion tends to be lower there, it’s important that providers know their way As such, expect the convergence of cards and bank payments around alternative payment methods in these regions. Merchants should to accelerate in 2016. consider which markets are particularly suited to international strategies and simulate potential market launch models with partners such as pay- Banks and fintech companies will finally start collaborating ment service providers. Banks no longer dictate the terms of the industry. With an evolv- ing global economy, traditional banks are under increasing pres - Cash on the Retreat sure, with more regulation and new competition. 2016 will see Is the end of cash approaching? Some countries in Europe are banks realise they need to collaborate to survive. Banks and certainly cutting down on the usage of cash. In Sweden for exam - fintech companies will have to work together ad start to forge ple, it is now almost impossible to use cash to pay for bus tickets. tangible and meaningful partnerships. Acceptable payment methods include customer cards, credit cards, Importantly, banks will realise that they can play a profita - and payments via smartphone apps. Even traditional cash-based ble role in deciding, and funding, the winners in fintech. Part - bakeries no longer exist in Sweden and instead, now display signs nerships, rather than acquisitions, will become the norm, with requesting that customers use cashless payment methods for even banks establishing funds and accelerators to support innovation. the smallest amounts. The situation in Denmark is similar; there, llowing the industry to deliver the promised benefits for every - the government is currently debating whether or not to release one. smaller retailers from the obligation of having to accept cash as a payment method. The decline in cashless payments, however, is currently more of RALF OHLHAUSEN, BUSINESS DEVELOPMENT a theory among economists. In Germany, for example, around 80 per cent of retail sales are still transacted in cash. If, however, we DIRECTOR, PPRO GROUP look at sales revenue, cash makes up just 53.3%, a figure set to drop further in 2016. Cash is on the retreat, and alternative payment Mobile Payments methods are advancing. Among the multitude of technologies (like 2016 is set to be a defining year for mobile payment providers. It cards, apps, wearables) available today, cash is, however, still very looks as though Apple Pay is planning a major European launch in high on the list. It’s an essential element in the mix and fears that 2016, an event which could turn the fragmented mobile payment cash is dying out any time soon are therefore (as yet) unfounded. world upside down. While setting up a unified payment system over- night would be virtually impossible, Apple Pay will endeavour to push this forward, especially as its competitor, Google is also pushing CHRISTOPH TUTSH, FOUNDER AND CEO, ONPEX for first place in the mobile payment space. In 2016, we will also see mobile payments become less smartphone-dependent. Instead, new (ONLINE PAYMENT EXCHANGE) technologies including smartwatches, bracelets and even rings will give us the ability to provide payment options. What we saw in 2015

Security Bitcoin/cryptocurrency In 2016, tokenisation and biometric authentication will have a strong At the beginning of 2015 cryptocurrencies started moving into the influence on the payment industry. Tokenisation is an extremely inter- mainstream. It was in the latter half of the year that the legal status esting method of securing credit card data, as the credit card numbers of bitcoin and other cryptocurrencies was confirmed and more and are substituted by tokens. While the original number is stored secure- more payments providers are accepting cryptocurrency payments. ly on a tokenisation server, only the tokens are used throughout the payment process. This means that no harm can be done if the tokens Mobile payments are stolen, and therefore makes it a secure process. Mobile commerce is booming. Figures from earlier this year suggest- Due to the lack of widespread tokenisation standards, this technol- ed a 77.8% growth on mobile commerce on 2014. To put this into ogy is still in its infancy, but despite this, we anticipate a shift in the perspective, retail from desktop computers grew only 2% . Mobile is market throughout 2016. now the consumer plaform of choice. When it comes to authenticating payment processes, there are sev- eral new inventions in the pipeline for 2016. The most recently used EMV liability shift methods include password, PIN, and fingerprint, and these all have The 1st of October saw the EMV liability shift in the US and this, one thing in common; they are weak so two-factor authentication is ironically, was one of the predictions that many might not have, if

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not wrong, certainly mistimed. The predicted wave of CNP fraud has tile grounds for commerce. We predict great things for these regions. yet to materialise and this, is largely, because despite the fanfare of publicity, the US wasn’t ready for the liability shift. It could be years before the US is fully EMV compliant. MIKE PIERIDES, MARCO SANTORI AND SARAH Fraud prevention 2015 saw data breaches like never before. High profile data breaches, ATKINSON- PARTNER, COUNSEL AND ASSOCIATE some by hackers others, it would seem, by governments, focused the AT PILLSBURY LAW minds of the industry, and consumers in general on security and fraud prevention. What went from being a something we took for granted 2016 outlook in our financial technology became something that new technology is being built around. The direction of travel will continue to be towards more entrants and overlay services within payments. This should be influenced by Markets of interest: China and Brazil the Payment Services Regulator (PSR) which has amongst its central For ONPEX, we put focus on China and Brazil this year. China is, of statutory objectives the promotion of competition in the sector. course, a booming market, indeed, it is the booming market for pay- The terms of sponsor banks for indirect access and the indirect ments. Yet, at the other side of the world, so is Brazil and the wider access service provided are coming under increasing scrutiny, by the Latin America. sector’s trade body as well as the PSR. The global growth of mobile has democratised e-commerce as We can expect a greater emphasis on better and clearer terms of never before. So, in markets such as China and Brazil, consumers service, and an improvement in the way in which sponsor backs and who might not have the resources to access a laptop or wi-fi certainly the non-bank indirect payment service providers engage, as a result have the resources to access 3G and a smartphone – putting com- of directions issued by the PSR as well as by trade guidance issued merce in the palm of their hands. by Payments UK. The move towards greater direct access, in particular to Faster Payments, through accreditation of technology providers will also continue. The ‘New Access Model’ White Paper was published by What we can expect in 2016 the Faster Payments Scheme Limited in December 2014, however, the accreditation programme has been progressing through 2015, on Blockchain completion of which four technology providers will be accredited: As cryptocurrencies were hyped in 2015, 2016 will see the growth of AccessPay, Aevi, Compass Plus and Dovetail. blockchain technology to regulate and assure cryptocurrencies. More than this, though, the potential of blockchain to work with other Competition payment methods and currencies is significant. Increased competition is likely to be seen in the tap-to-pay mobile payments market; in the ‘Next Generation of Payments Attitudes Omni-channel conversion to Payments Research Report 2015’ report issued in September, Ecommerce and, latterly, mobile commerce has made consumers Vocalink commented on the potential opportunity for banks to enter more demanding. And rightly so. Part of this means that customers this market, benefitting from the trust customers have in their banks. are increasingly demanding to pay on the platform they want, with In October, US bank Capital One became the first US bank to the payment method they want and in the currency they want. In release a tap-to-pay functionality in its Android application and fur- 2016, more and more merchants will start to offer omni-channel ther banks are expected to follow. payments as they keep up with demand. Distributed ledger and crypto currencies Data Security: Identity and Authentication As banks and financial institutions invest money in blockchain tech- The fear of data breaches means that there is more demand for secure, nology, there may well be a re-emphasis on crypto currency technol- identity based authentication. From ID scanning to biometrics, we ogy. Blockchain, as a database behind crypto currencies, can itself will see more development and more products coming to market. be implemented to create a so-called “private” or “permissioned” But, will they be able to offer the unobtrusive authentication that blockchain that may be used by trusted or semi-trusted members of consumers want? the general public who are granted access to the network. There are cases for uses of blockchain without crypto currency, in Banks vs. Fintech or Banks and Fintech particular in B2B and bank to bank transactions, including in the Just like 2015, 2016 will see a vast increase in Fintech companies payments arena by replacing settling transactions between a network that are popping out of the group. However, the majority of fintech of semi-trusted financial institutions. companies see Banks as old dinosaurs and their aim is to replace However a crypto currency itself does away with the need for cen- them. However, fintechs fail to realise that they cannot survive with- trally controlled and regulated money supply, and its application in out banks. the world of banking and payments could be truly disruptive to exist- ing systems and institutions. Fintech faces regulation As just stated above, Fintech startups are increasing rapidly. The Security majority are not recognising the massive regulations that they have Finally, it’s a fair guess that the cyber resilience of technology solu- to face. Regulation is simply a must. tions and overall corporate organisations to attacks will no doubt come into further focus in 2016. Go east! This is, unfortunately, a topical issue, as global geopolitical issues, Asia, Australia and New Zealand- fertile grounds for fintech and fer- in addition to “regular” financial crime, may no doubt lead to greater

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Egypt fostering opportunities for cards The Egyptian economy is the second largest in the Middle East after Saudi Arabia. The economy depends largely on agriculture, tourism and cash remittances from Egyptians working abroad, mainly in Saudi Arabia and Gulf countries, but how is the card market faring in this climate?

ith the government and banks ported industry growth. to reach 1,535 ATMs as of September, 2014. striving to offer basic financial In 2010, the Central Bank of Egypt (CBE) services to the unbanked popu - Fostering the cards and payments selected GiroNil to co-develop the national W lation and banks expanding industries Automated Clearing House (ACH) system their presence in rural areas, the Egyptian The number of ATMs increased at a CAGR in Egypt. cards and payments industry registered of 10.89%, from 4,821 in 2010 to 7,290 in The electronic network, built by the EBC positive growth between 2010 and 2014. 2014, and is anticipated to increase further and GiroNil Egypt, was launched in June The government’s financial inclusion from 8,107 in 2015 to 10,878 in 2019, at a 2010 when the CBE and all 38 banks oper- programme, supported by improved bank- CAGR of 7.63%. ating in the market were successfully inter- ing infrastructure, new product develop- Banks are expanding their ATM networks linked. ments, and a growing awareness surround- to provide banking convenience to their cus- The ACH system is designed to handle ing e-payments were the main drivers of tomer base as well as tapping existing ones small-value retail payments and increase growth. in the market. the use of cash substitutes, particularly The adoption of EMV standards, growth The NBE increased the number of ATMs payment cards. in the e-commerce, and retail sectors sup- installed, at an annual growth rate of 23%,

n VALUE OF CREDIT TRANSFERS ($BN) IN n VALUE OF CHEQUE PAYMENTS ($BN) IN n VALUE OF PAYMENT CARDS ($BN) IN EGYPT, EGYPT, 2010–2014 EGYPT, 2010–2014 2010–2014

4.0 3500 150 3.5 3000 120 3.0 2500 2.5 2000 90 2.0 1500 60 1.5 1000 1.0 30 500 0.5

0 0 0.0 2014 2010 2011 2012 2013 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014

Source: Central Bank of Egypt and Timetric Source: Central Bank of Egypt and Timetric Source: Central Bank of Egyptand Timetric

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n EGYPT’S DEBIT CARDS MARKET SHARE BY n EGYPT’S DEBIT CARDS MARKET SHARE BY ISSUERS (%), 2014 SCHEMES (%), 2014 E-commerce offers growth prospects for card payments In general, e-commerce has been a tough market in Egypt due to poor levels of online literacy, inadequate telecom infrastructure and a large rural population. Despite this, Egypt Others NBE Visa has emerged as a key market for 27.1% 36.4% 25.8% 123 Network e-commerce in the Middle East. Rising CIB 41% internet and smartphone penetration Egypt coupled with an increasing number 5.1% Banque of operators providing online sales Misr MasterCard 18.4% of books, electronics, fashion prod - AAIB 33.2% 5.8% ucts, games and other retail products fuelled the growth of e-commerce. QNB E-commerce grew from $745.2m Egypt 7.2% (EGP4.2bn) in 2010 to $1.3bn in 2014, at a CAGR of 14.21%, due to rising online and mobile penetration, Source: Timetric Source: Timetric increasing consumer confidence for online transactions and the presence n EGYPT’S CREDIT CARDS MARKET SHARE BY n EGYPT’S CREDIT CARDS MARKET SHARE BY of online gateways. The growth in ISSUERS (%), 2014 SCHEMES (%), 2014 online shopping is expected to create Visa opportunities for growth in the cards Others25.8% and payments industry for the foresee - 2.5% able future. The value of e-commerce NBE is expected to record a CAGR of 6.56%, to reach $1.8bn in 2019. Others 22.5% 34.9% The steady growth of online shop - ping indicates the priorities of tech - Banque nology aware consumers who enjoy Misr the convenience, speed, value and MasterCard Visa 15.2% safety of online shopping transac- CIB 41.6% 55.9% Egypt tions. In 2012, Visa and NBE began 10.8% to offer the Verified by Visa service, HSBC aimed at providing customers with a Egypt secure, convenient and reliable online Barclays 6% Bank payment tool. 10.6% Growth prospects in the prepaid card Source: Timetric Source: Timetric market According to the World Bank, Egypt is the highest recipient of remittances The number of POS terminals in Egypt Debit cards continue to dominate in the Middle East and sixth-highest recorded a CAGR of 10.66%, rising from To decrease cash transactions, the Egyptian in the world. However, only 1% of 33,884 in 2010 to 50,808 in 2014. With government launched ‘Salary Project’ in recipients have bank accounts. Target - the increased number of POS terminals 2011, under which the salaries of five million ing the unbanked population, banks installations at retail outlets, the potential government employees were paid directly such as Banque Misr are offering the of card-based payments in Egypt is also into bank accounts; employees could with- Hewalty MasterCard Prepaid Card, expected to grow. draw their salaries using debit cards. which enables unbanked consumers in Similarly, banks are also installing POS Following the project’s successful implemen- Egypt to receive funds instantly from terminals, as merchants are gradually tation, new government divisions are being family and friends living abroad. accepting payment cards. As of September, added to the project. Other banks such as the NBE are 2014, NBE had installed 9,169 POS termi- Such initiatives are anticipated to increase targeting young consumers with the nals across Egypt. further the volume of debit cards in circula- NBE Youth MasterCard and cashU Similarly, in October 2013, CIB became tion over the next five years. prepaid cards. Organised retailers and an exclusive provider of POS terminals for Similarly, global scheme providers such vendors also began to accept prepaid Ikea stores in Cairo. as MasterCard are striving to increase debit cards with no processing fee. These The growing payment infrastructure, card use. In 2014, MasterCard launched a retailers have approached banks to with the CBE’s initiation led to the growth Cashless Campaign in association with NBE, provide them with in-store POS termi - in industry share of payment cards over the the United Bank, Emirates NBD, Housing nals to attract consumers and increase ;ast five years. and Development Bank and CIB. sale volumes. <

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EPI 342_343.indd 19 15/12/2015 11:18:55 Electronic Payments International FEATURE DIGITAL BANKING CLUB: PROFITABILITY

Inconsistent card usage in China China was Asia’s largest payment cards market in 2014, in terms of card transaction value and volumes, accounting for 73.2% and 38.6% respectively. Cash was the predominant payment instrument between 2010 and 2014, especially among the rural population which is yet to embrace other forms of payment

his was primarily due to a lack of increased acceptance of cards at retail outlets before they can make a dent in CUP’s market knowledge of other payment instru- and the adoption of contactless technology share, as they need to build up infrastructure ments, such as payment cards, or little supported the growth of payment cards over from scratch. or no access to banking infrastructure. the last five years. This trend is also antici- T pated to continue over the next five years. As the government and banks began to New regulations to impact the thriving provide basic financial and banking services e-commerce market to the unbanked population, by expand - CUP maintains its stranglehold in the China is one of the largest e-commerce mar- ing banking infrastructure, launching new Chinese payment cards market kets in the world, and it is becoming mature. branches and making efforts to change In China, CUP is the sole scheme provider The market increased at a CAGR of 56.99%, consumer payment habits, payment cards of payment cards. According to central bank from $68.7bn (CNY465.1bn) in 2010 to gradually became more accepted, with their regulations, all banks and card issuers oper- $417.3bn in 2014. use consequently growing over the past five ating in the country are required to route The rapid adoption of smartphones, grow- years. their Yuan-based transactions through CUP’s ing internet penetration, availability of secure Furthermore, concentrated efforts by the electronic payment network. online payment mechanisms, reduction in government coupled with emerging invest- However, following a complaint filed by delivery time and growing preference for ments in e-payment infrastructure led to a the US against China via the WTO with online shopping – especially among the rural constant increase in the country’s banked regards to discriminating against foreign population, on account of underdeveloped population. companies in 2012, the WTO directed the brick and mortar shops – led to this growth. According to the World Bank, the percent- Chinese government to open up its payment E-commerce operators such as Alibaba age of the Chinese population aged 15 or cards market to foreign operators. and JD.com are targeting consumers in rural above with a bank account increased from Consequently in October 2014, the Chi- areas. In order to capture the rural market 63.8% in 2011 to 78.9% in 2014. nese government announced its decision to and enhance customer convenience, online To speed up the provision of financial and allow foreign companies to set up their own retailers are investing heavily in improving banking services to the unbanked popula- payment card clearing businesses, effective logistics infrastructure. tion, the CBRC granted a license to the two from June 1, 2015. In June 2015, the Chinese government private banks, WeBank and MYBank, in This move by the Chinese government is permitted foreign 100% ownership of 2014. anticipated to intensify competition in the e-commerce companies, which were previ- These initiatives, along with changing life- Chinese payment cards market, and end CUP ously accessible only to companies within styles, a rise in the economically active popu- dominance as the country’s only authorised free trade zones. lation and per capita disposable income, the card clearing organisation. However, Visa With the change in government policy, the growing popularity of online shopping, the and MasterCard have a long way to go

n VALUE OF CREDIT TRANSFERS ($TRN) IN n VALUE OF CHEQUE PAYMENTS ($TRN) IN n VALUE OF PAYMENT CARDS ($TRN) IN CHINA, CHINA, 2010–2014 CHINA, 2010–2014 2010–2014

8 200 50 7 40 150 6

5 30 100 4

20 3

50 2 10 1

0 0 0 2010 2011 2013 2014 2010 2011 2013 2014 2012 2012 2010 2011 2012 2013 2014

Source: Bank for International Settlements and Timetric Source: Bank for International Settlements and Timetric Source: Bank for International Settlements and Timetric

20 y December 2015/January 2016 www.electronicpaymentsinternational.com

EPI 342_343.indd 20 15/12/2015 11:18:58 Electronic Payments International SURVEY COUNTRY REPORT: CHINA COUNTY

n CHINA’S DEBIT CARDS MARKET SHARE BY n CHINA’S DEBIT CARDS MARKET SHARE BY ISSUERS (%), 2014 SCHEMES (%), 2014 Prepaid card market offers growth prospects The prepaid card market has been estab- lished in China for 10 years. It is already mature, and there is high con- ABC 14.5% sumer awareness about prepaid cards and their benefits. CCB However, there are a limited number of Others 14.4% prepaid cards that target frequent travellers, 49.5% China UnionPay and the majority of prepaid cards are in the ICBC 100% form of transport cards. 11.1% Prepaid cards are also extensively used by BOC employers to reward their employees, espe- 8.3% cially during the festive seasons. These cards are also preferred by the cor- porate market, as companies can claim them BoCom as a business expense and not need to report 2.2% them on their taxes as an additional source of income. Source: Timetric Source: Timetric Retail-specific gift cards are the main types of benefit card available in China. n CHINA’S CREDIT CARDS MARKET SHARE BY n CHINA’S CREDIT CARDS MARKET SHARE BY However, in view of the increasing level of ISSUERS (%), 2014 SCHEMES (%), 2014 corruption using prepaid cards, this forced the government to implement stringent regu- lations and enforce more conditions on pre- paid card use. The central bank issued guidelines to regu- ICBC late the prepaid card market in 2011. Others 23.9% The central bank issued e-payment licenses 31.5% to select third-party payment service provid- China UnionPay ers for the first time in May 2011. 100% Without the approval of the central bank, CCB a non-financial institution cannot issue mul- 11.9% tifunctional prepaid cards. ABC To ensure strict implementation of these CMB 10% BOC regulations, the central bank and the Minis- 11.8% 10.9% try of Commerce launched an inspection of all prepaid cards circulating in the country at the end of 2011. Additionally, the regulations stipulate that Source: Timetric Source: Timetric the face-value of prepaid cards with names of their owners inscribed on the cards must not exceed $813.90, while that of prepaid cards e-commerce market presents itself as a Contactless m-payments are starting to get that do not have the owner’s name must be profitable market for foreign companies. a foothold in China below $162.80. In an attempt to protect consumer interest, NFC-based m-payments are gaining promi- The regulation also stipulated that all non- privacy and limit online transactions with nence in China, as retailers and mobile oper- bank payment service providers are to obtain private third-party payment agents such as ators actively promote NFC technology to a license from the central bank in order to Alipay and Tenpay, the Chinese government improve their business. continue operations beyond September 2011. proposed a new law: ‘Method of Network Consumer preferences for secure payment Retailers in China were also instructed by Payment Service Management for Third services that allow them to purchase prod- the government to register the identities of Party Payment Agents’ in August 2015. ucts are also gaining ground. Companies are the customers that they issue a prepaid card While the new regulations attempt to put also embracing this technology to benefit over the value of $1,627.80. restrictions on private third-party payment from the expansion of the m-payment mar- Furthermore, the validity period of prepaid agents, the government-owned payment ket. cards must be at least three years. agent, CUP will not be subject to the regula- In June 2013, for instance, China Mobile Among other regulations for the Chinese tions. and CUP launched NFC-based mobile wal- prepaid card market, one major qualification Under the proposed draft law, daily and let called CUP Wallet in 14 cities. Similarly, is that prepaid card issuers must have at least annual purchasing amounts through third- in partnership with CUP, Samsung launched $4.9m registered capital, and this registered party payment agents will be dependent on a contactless m-payment service in October capital requirement increases to $16.3m in the online system's own security checking 2014 for Galaxy Note 4, Note 3 and Galaxy case the card issuer operates in more than measures. S4 phone users. one locality. <

www.electronicpaymentsinternational.com December 2015/January 2016 y 21

EPI 342_343.indd 21 15/12/2015 11:19:01 Electronic Payments International SURVEY COUNTY COUNTRY REPORT: ARGENTINA

Malaysia starting to make its mark Improved infrastructure, potential global expansion and a fast-growing e-commerce sector are making Malaysia an increasingly attractive market in the region. Despite the growth and increasing potential, however, Malaysia is still dominated by cash with cards only slowly garnering some market share

s the government and banks began to April 2014, it announced a reduction in fees cards with EMV-compliant cards with provide basic financial and banking for IBG transactions and increased cheque contactless functionality. According to BNM, services to the unbanked population, processing fees. complete migration to EMV standards is Aby expanding banking infrastructure, Other initiatives include the launch of the expected to complete by January 1, 2018. launching new branches, promoting agent JomPAY service and the ePIF fund in 2015. banking network and making efforts to With initiatives such as these, and a shift Rising low-cost POS terminal installations change consumer payment habits, payment towards electronic payments by banks and to increase scope for card payments cards gradually became more accepted, with participating merchants, card-based pay- Several initiatives are being taken by banks their use consequently growing from 2010 to ments grew both in value and volume terms. and telecom companies to increase POS ter- 2014. minal penetration. In January 2015, May- Concentrated efforts by the government Debit cards continue to dominate the bank and Maxis Bhd launched the Maybank and emerging investments in e-payment payment cards market mPOS service for SMEs. infrastructure led to a steady increase in the In terms of transaction value, debit cards In December 2014, Telekom Malaysia banked population. According to the 2014 remained the largest with 74.2% of the pay- Bhd announced a cash rebate incentive of World Bank Global Findex survey, the per- ment cards market in 2014, and are antici- $229.20 (MYR750) for SMEs which install centage of the Malaysian population aged pated to dominate over the next five years. SurePay POS terminals. By the end of 2020, 15 or above with an account at a financial The rising awareness of the benefits of debit the company plans to target at least 100,000 institution increased from 66.2% in 2011 to cards, the adoption of security measures by SMEs. In October 2013, CIMB introduced 80.7% in 2014. card issuers and sustained government efforts an EMV-compliant mPOS, Plug n Pay, for to encourage debt-free payments promoted a one-time fee $76.40. These initiatives are Looking towards the electronic payments the use of debit cards. anticipated to drive card-based payments. market Growths in debit card transaction value Malaysia’s central bank is taking initiatives and volumes were also supported by advanc- E-commerce to provide scope for card to encourage cashless and electronic pay- es such as contactless technology. In 2014, payments ments, and has been striving to reduce the use the Malaysian Chip Card Specification initia- The value of e-commerce in Malaysia grew of cheques, expand merchant acceptance of tive was launched to migrate to EMV stand- significantly from $519.9m in 2010 to electronic payments, and increase the adop- ards. $1.5bn in 2014, at a CAGR of 30.78%; it is tion of cashless payments by the government, As a result, from 2015 onwards, banks expected to grow further to reach $3.9bn in consumers and businesses. Consequently, in started to gradually replace domestic debit 2019. The level of growth was driven by a

n VALUE OF CREDIT TRANSFERS ($BN) IN n VALUE OF CHEQUE PAYMENTS ($BN) IN n VALUE OF PAYMENT CARDS ($BN) IN MALAYSIA, 2010–2014 MALAYSIA, 2010–2014 MALAYSIA, 2010–2014

40 1500 800

700 35 1200 600 30

900 500 25

400 20 600 300 15

200 10 300 100 5

0 0 0 2010 2011 2013 2014 2010 2011 2013 2014 2012 2012 2010 2011 2012 2013 2014

Source: Central Bank of Malaysia and Timetric Source: Central Bank of Malaysia and Timetric Source: Central Bank of Malaysia and Timetric

22 y December 2015/January 2016 www.electronicpaymentsinternational.com

EPI 342_343.indd 22 15/12/2015 11:19:09 Electronic Payments International SURVEY COUNTRY REPORT: MALAYSIA COUNTY

Touch 'n Go Sdn Bhd was established in n MALAYSIA’S DEBIT CARDS MARKET SHARE BY n MALAYSIA’S DEBIT CARDS MARKET SHARE BY ISSUERS (%), 2014 SCHEMES (%), 2014 October 1996 and introduced its services in 1997. It was one of the first companies to offer contactless card transactions in the country. The first Touch 'n Go card, intro- duced in 1997, was designed to pay toll charges. Mastercard Maybank However, it has been expanded to public 21.4% 25.6% transport, parking, theme parks and retail. Others Bankcard 40.7% The card can be reloaded at locations such as (eDebit) customer service centres on highways, petrol Bank 40.7% stations, TNG outlets and ATMs. Simpanan Visa To increase the transaction value of pre- Nasional 37.9% 13% paid cards, banks offer facilities to earn reward or bonus points based on the spend- Hong Leong Public Bank Bank BHD ing amount. Maybank Man of Steel Prepaid 6.1% CIMB 15.5% cardholders can earn one Treatpoint for 7.3% every $0.90 spent. A common strategy adopted by banks to market prepaid cards is to offer complimen- Source: Timetric Source: Timetric tary insurance to card holders. A range of free insurance schemes are a n MALAYSIA’S CREDIT CARDS MARKET SHARE BY n MALAYSIA’S CREDIT CARDS MARKET SHARE BY part of this strategy, and include protection ISSUERS (%), 2014 SCHEMES (%), 2014 against fraudulent use of lost cards to the protection of goods purchased. Others American 0.7% For example, the prepaid card range Express offered by AmBank (Malaysia) Bhd (AmBank 0.8% NexG PrePaid MasterCard, AmBank NexG- Cathay Cineplexes PrePaid MasterCard, Others Maybank Cosway PrePaid MasterCard and Tropicana 25.5% 25.3% PrePaid MasterCard) provides free personal accident insurance to the value of $3,237.50. In July 2012, Maybank, in partnership AMBank Mastercard Citibank with Manchester United, launched its first 10.1% 17.8% 50.1% Visa prepaid cashcard aimed at young individuals CIMB 45.3% 13.2% who do not qualify for credit cards. The card Hong Leong does not require any bank account, and is Bank accepted worldwide on Visa terminals. 10.1% Its reload value ranges from $3.20 to $3,237.50 and is available for customers aged above 18 years. The bank has launched Source: Timetric Source: Timetric it in three limited-edition designs, with the images and signatures of Manchester United players Wayne Rooney, Javier Hernandez number of factors, such as rising mobile and e-commerce in Malaysia is a primary factor and Chris Smalling. internet penetration. responsible for the expansion of the country’s Banks in Malaysia offer co-branded cards The increasing young and urban cards and payments industry. to allow customers to make optimum use of populations have a strong inclination for Payment cards remained the preferred the currency loaded onto their prepaid cards. mobile phones and media use, giving a plat- mode of payments for e-commerce transac- In 2010, PayPal and MOL AccessPortal form for e-commerce companies to reach tions among consumers. Issuers offer pro- Bhd announced a collaboration to provide more potential customers. motions such as discounts, cashback offers, Malaysian consumers with a new prepaid Growth in online shopping is expected to instalment facilities and reward points to card, the MOL PayPal, a digital card for create opportunities for growth in the cards attract consumers. online shopping and gaming. and payments industry over the next five This card is issued by EON Bank and ena- years. The growing prepaid card market bles cardholders to fund a PayPal account The emergence of payment gateways also Malaysia has a high volume of unbanked that can be used for online shopping. supported the growth of e-commerce in citizens, and prepaid platforms have pro- Another example of a co-branded pre- Malaysia. vided a growth opportunity for the industry. paid card in Malaysia is the Tropicana Card Key online payment gateways in Malay- According to World Bank estimates, 19.3% offered by AMBank. sia include iPay88, MOLPay, MasterCard of Malaysians aged 15 years and above did The prepaid card serves as a membership Internet Gateway Service (MiGS), Payment not have accounts at formal financial institu- and loyalty card for patrons of the Tropicana Express and WorldPay. tions in 2014. City Mall and allows the cardholder to earn The growing market for online trade and Touch ‘n Go is a popular prepaid card. reward points. <

www.electronicpaymentsinternational.com December 2015/January 2016 y 23

EPI 342_343.indd 23 15/12/2015 11:19:12 Electronic Payments International COMMENT EU INTERCHANGE

New year, n-EU card interchange rates The EU interchange fee cap has come into effect and is set to make waves across the industry. The re- distribution of card issuing revenue is intended to benefit the consumer but to what extent is yet to be seen. EPI has collated a number of industry comments for a snapshot of expected repercussions

Chris Davies, president Europe and man- ter can generate additional revenue through This would be bad news for the issu - aging director UK, Global Payments: APR from revolving credit. ers but not for the industry. Too often There are likely to be two unintended conse- The ultimate aim is to create a consum- we hear of banks rejecting any idea that quences of the interchange fee cap. er surplus, but for this to happen PSPs could potentially jeopardise their share of We will see consolidation amongst Euro- and merchants will have to reduce their revenues in the card acquiring market and pean acquirers and processors as economies prices accordingly. their healthy profits. of scale become even more important. This will certainly not happen over- That status quo will now change thanks Card issuers’ revenue from interchange night, especially since merchant fees are to regulation. I hope this change will have on credit cards will be significantly not capped within the same framework. a ripple effect that will begin to change reduced, so cardholder perks will likely Cheaper merchant fees will not necessarily the underlying infrastructure so that peter out, or they may introduce annual translate into lower prices for consumer third party payments providers flourish fees for accounts. Some card issuers have goods and services, but they will certainly for the benefit of us all, bringing simpler already announced the termination of loy- make card acceptance more attractive for and cheaper ways to pay without hav - alty schemes.” smaller merchants who usually pay higher ing to feed a myriad of companies along rates on card transactions. This too may the value chain as is the case with card compensate for some of the lost revenue.” payments.” Rich Wagner, CEO, Advanced Payment Solutions (APS): Jonathan Williams, product strategist for Interchange fees will ultimately benefit con- Alex Mifsud, CEO, Ixaris Systems: enterprise software, Experian: sumers, but not in the way that the EU Direc- Under new regulation, the fee will drop from The regulation of interchange fees by the EU tive anticipates. I am confident that the cap near 2% to 0.3% for credit and 0.2% for has led to unintended consequences: whilst will see high street banks putting an end to debit cards. some transactions are cheaper for the mer- free current accounts, as a means to compen- Most notably for card issuers, the chant and some are more expensive, it has sate for their loss of income from acquirers. reduction will directly impact their bot- meant that some parties in processing trans- While this may seem like a disadvantage tom line. With less money to be made, actions are seeing less revenue, leading to for consumers, figures from the Office of Fair issuers will begin to cut card offerings cutbacks on consumer, loyalty programmes Trading (OFT) indicate that the average 'free' and benefits for consumers, and instead, from card issuers. bank account costs on average £125 a year, look at new ways to generate revenue. Furthermore, the changes scheduled by as banks sneak in fines and fees to make up One likely route will be to look out - next June will potentially cause confusion for the lack of regular income from account side of the transaction, to generate more at the point of sale and the possibility holders. revenue. Card issuers may try to form that consumers’ credit cards may not be Interchange caps will be the tipping direct relationships with merchants, and accepted where debit cards are, or vice point needed to finally spark a new era through intelligent use of data, for exam- versa.” of banking– driven by open pricing mod- ple transaction history, deliver highly tar- els and transparency rather than stealth geted promotions to relevant customers. Seamus Smith, CEO of Sage Pay charges and unexpected penalty fees. However, the card schemes, which have At the moment, many small businesses shy Fintech players already accustomed to access to richer data, may just get there away from adopting new forms of payments this pricing model will flourish once the first. technology because of the cost involved – regular charges become commonplace – usually the transaction or handling fees. and for the first time will have the upper Carlos Sanchez, CEO, ipagoo: We know that cash is bad for business – hand on banks who will have to adapt to For interoperability to take place, strong it’s inconvenient, insecure and costly to store, this open way of doing business.” forces need to be at play when making a handle and process. business case to review existing interbanking We also know that one in four consumers Miguel Stein, senior cards and payments schemes. In this sense, the adoption by EU say they are more likely to shop somewhere analyst, Timetric: regulators of capped interchange fees in card which offers more innovative payment meth- The caps on interchange fees will reduce issu- payments will certainly trigger a review of ods. Yet only bigger businesses are willing to ers’ revenue from consumer cards but not their model. Card schemes are fairly monop- invest in new payments options. commercial cards. olistic and therefore can enforce their terms. By capping these costs, we should see a Therefore, issuers will try to compensate For the time being issuers may end up levelling of the playing field. Finally, small for some of the lost revenue by issuing more picking up the bill for the drop in profits businesses can reap the benefits that pay- commercial cards and credit cards. The lat- expected by the schemes. ments innovations can bring.” <

24 y December 2015/January 2016 www.electronicpaymentsinternational.com

EPI 342_343.indd 24 15/12/2015 11:19:12

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