Divide and Rule As Mexico and the US Face Off, Can Payments Take the Strain?

April 2017 Issue 358 www.electronicpaymentsinternational.com Divide and rule As Mexico and the US face off, can payments take the strain?

•Airwallex looks to China •First Data looks to the future •New UK pound coin- is it worth it? •Country Surveys: The Philippines, Cambodia, Estonia

EPI 358.indd 1 11/04/2017 11:45:13 Simple, secure and effortless digital solutions for ﬁ nancial services organisations

To ﬁ nd out more please visit: www.intelligentenvironments.com

@IntelEnviro

Intelligent Environments is an international provider of innovative mobile and online solutions for ﬁ nancial services providers. Our mission is to enable our clients to deliver a simple, secure and effortless digital experience to their own customers.

We do this through Interact®, our single software platform, which enables secure customer acquisition, engagement, transactions and servicing across any mobile and online channel and device. Today these are predominantly focused on smartphones, PCs and tablets. However Interact® will support other devices, if and when they become mainstream.

We provide a more viable option to internally developed technology, enabling our clients with a fast route to market whilst providing the expertise to manage the complexity of multiple channels, devices and operating systems. Interact® is a continuously evolving technology that ensures our clients keep pace with the fast moving digital landscape.

We are immensely proud of our achievements, in relation to our innovation, our thought leadership, our industrywide recognition, our demonstrable product differentiation, the diversity of our client base, and the calibre of our partners.

For many years we have been the digital heart of a diverse range of ﬁ nancial services providers including Atom Bank, Generali Wealth Management, HRG, Ikano Retail Finance, Lloyds Banking Group, MotoNovo Finance, Think Money Group and Toyota Financial Services.

IE Adverts - 2017.indd 1 21/12/2016 11:53:12 EDITOR’S LETTER NEWS

CONTENTS UK payments regulators take a NEWS grilling at annual plan launch event 2: NEWS ANALYSIS

3: NEWS DIGEST he UK’s Payment Systems Regula - in accessing banking accounts, not necessar- FEATURE tor (PSR) lined itself up for quite ily indirect access. Banks are averse to pro- the bashing as it set out its reviewed viding accounts to APIs and institutions.” 6: AIRWALLEX objectives for the year ahead. To its But that’s fair enough. Everyone loves to Melbourne-based Airwallex plans to be the T harangue a regulator, yet they all turn very credit, it took it on the chin, putting itself first e-commerce gateway into China. Anna Milne caught up with its global head of very much in the firing line with an open much to the regulator for support during partnerships to talk about cracking China, Q&A, graciously fielding the ensuing anxious times. disrupting SWIFT, and leveraging WeChat onslaught that came from the audience. It was pretty clear, given the questions 8: FIRST DATA Stoic? Not much. Most of the difficult asked by attendees, that payment industry What are the main concerns for merchants questions were deferred to the FCA (not in stakeholders want the PSR to become more and issuers these days? Security, digital attendance) or deflected using the conveni- of a spokesperson for their concerns in the strategy and e-commerce. Anna Milne speaks to Glenn Fodor from international ent buffer of collective regulatory responsi- next couple of years, around Brexit and processor and acquirer First Data bility – that is to say that to address many around incoming European regulation, Pay- 10: MEXICAN of the concerns raised, collaboration among ment Services Directive, mark 2 (PSD2). Latin America’s third-largest economy could the different regulatory bodies is required, And within that, the main concern, speak- slip into recession if US President Donald namely the FCA and international regula- ing to stakeholders, is around data protec- Trump’s toxic cocktail of threats come true. However, Mexican banks are – at least for tors. Collective responsibility, collective tion. Incoming GDPR regulation is very now – unconcerned, writes Ivan Castano blame. much at the forefront of business strategy. Dominic Thorncroft, chair of the Asso- While they are not worried about commer- SURVEY ciation of UK Payment Institutions (AUKPI) cial opportunities, or indeed being phased said a large amount of the 1,000-plus firms out, they are to a certain extent floundering 13: THE PHILIPPINES regulated by the FCA are not able to access as to how to reconfigure their operations. 14: CAMBODIA payment systems. “We heard yesterday that New regulation stipulates what they cannot Raphaels Bank, which was meant to come in do; it’s up to them to figure out what they 15: ESTONIA and provide some service, will not actually can. And how. COMMENT be doing that. The complaints, however, were put over “As things stand there are no banks allow- with the decorum befitting a parliamentary 12: THE NEW POUND COIN ing access to these many payments firms, so select committee- exasperation aside, cor-

16: GLOBALDATA FINANCIAL SERVICES your aspirations to deliver competition in diality, deferentiality and diplomacy holds the market will come to nothing unless this sway. can be addressed properly, and I’m afraid at And it must be said, the good grace with the moment we are not making any progress which the PSR endeavours to maintain the at all.” Scathing stuff. dialogue, does illustrate a certain commit- Another disgruntled punter argued: “Basic ment to the cause. Payments industry people, access to bank accounts are not being pro- hats off to you all. < vided to institutions that provide payments across the country. It is a case of inclusivity ANNA MILNE, [email protected]

Editor: Anna Milne Director of Events: Ray Giddings For more information on Verdict, visit our Tel: +44 (0)20 7406 6701 Tel: +44 (0)20 3096 2585 website at www.verdict.co.uk. Email: [email protected] Email: [email protected] As a subscriber you are automatically entitled to online access to Electronic Payments Financial News Publishing, 2012 Group Editor: Douglas Blakey Head of Subscriptions: Alex Aubrey International. For more information, please Registered in the UK No 6931627 Tel: +44 (0)20 7406 6523 Tel: +44 (0)20 3096 2602 telephone +44 (0)20 7406 6536 or email Email: [email protected] ISSN 0956-5558 Email: [email protected] [email protected]. Unauthorised photocopying is illegal. The Reporter: Patrick Brusnahan London Office contents of this publication, either in whole or Sales Executive: Harry Hooker Tel: +44 (0)20 7406 6526 71-73 Carter Lane part, may not be reproduced, stored in a data Tel: +44 (0)20 3096 2622 Email: [email protected] London Email: [email protected] retrieval system or transmitted by any form or EC4V 5EQ means, electronic, mechanical, photocopying, Group Publisher: Ameet Phadnis recording or otherwise, without the prior Tel: +44 (0)20 7406 6561 Customer Services: Asia Office permission of the publishers Email: [email protected] Tel: +44 (0)20 3096 2636 1 Finlayson Green, #09-01 or +44 (0)20 3096 2622 Singapore 049246 Sub-editor: Nick Midgley Email: [email protected] Tel: +65 6383 4688 Fax: +65 6383 5433 Email: [email protected]

www.electronicpaymentsinternational.com April 2017 y 1

EPI 358.indd 1 11/04/2017 11:45:16 Electronic Payments International NEWS ANALYSIS

Paypal targets bill payments and the underserved through the acquisition of TIO Payments giant PayPal is to acquire Canada-based bill-payment company TIO, aiming to develop its customer value proposition and extend its market reach through accessing the global underserved segment. GlobalData Financial Services analyses the deal ccessing the underserved segment both TIO’s presence and partnerships in the could significantly extend Pay - North American market. It will also attract Pal’s customer reach while also a new segment of customers by offering bill providing an efficient tool to com- payments to current PayPal customers. A While bill payments increasingly become pete with banks for serving this increas - ing global population. digitalised, the acquisition can also help PayPal has announced it will acquire TIO PayPal extend its value proposition by pro- Networks for C$304m ($233mn) and on viding TIO’s service to PayPal’s customers closure of the acquisition, TIO will operate within its online and mobile product port- as an integrated service within PayPal. folio. Speaking about the expected strategic over $7bn in customer bill payments in fis- Since many of TIO’s services target the benefits of the acquisition, Hamed Shahbazi, cal year 2016 and serves 14m customer bill underserved segment, the acquisition can be Chairman and CEO of TIO said the compa- pay accounts. The company has more than an even larger market opportunity for PayPal ny’s mission harmonises with PayPal’s vision 10,000 biller partners, including some of the to serve more than 33 million US households, to democratise money by giving consumers largest telecoms, wireless, cable and utility and two billion people globally. more convenient and affordable ways to pay companies, enabling it to efficiently process This is a segment that has been tradi - their bills. bill payments for its customers. tionally difficult for PayPal to access, since As a leading multi-channel North Ameri- The acquisition will help PayPal enter the its accounts are largely funded by bank can bill payment processor, TIO processed bill payments market and gain scale due to accounts or payment cards. < High interest rates on credit cards continue to drive revenues for issuers in Brazil According to GlobalData’s Payment Cards Analytics, Brazil reported the second-largest level of balances outstanding on credit cards in the Americas in 2015, largely due to the size of the market and the trend among local retailers and issuers to offer repayments in instalments to spend beyond their means and, therefore, Given the substantial revenue that can be accumulate more debt. earned from outstanding balances, it comes However, GlobalData’s Credit Card Cus- as very little surprise that the majority of tomer Analytics revealed that Brazil reported issuer revenue in Brazil is derived from inter- the lowest average balance outstanding per est rates, in addition to interchange on pur- credit card from these countries at $545 in chase volumes.< 2015, behind Mexico with $799, Canada n IN 2015, THE SHARE OF CREDIT CARD with $1,127, and the US with $1,191. HOLDERS WHO REPAID THE BALANCE IN FULL At the same time, at 24.5% Brazil had GAINED 10 POINTS TO REACH OVER 75% the lowest share of credit card holders who revolve at least some part of their monthly Minimum payment 2.7% balance from the above-mentioned countries. No payment Less than half 1.7% This suggests that despite the higher 5.3% t $89.6bn, Brazil’s total balance amounts outstanding, Brazilian consumers outstanding on credit cards was are highly concerned about the debt they Around half 4.7% surpassed only by the US in 2015, hold, and are keen to repay their debts. with $733bn. It was followed by In 2015, the share of credit card holders Over half 10.1% A who repaid the balance in full gained 10 per- Canada ($74.7bn) and Mexico ($22.2bn). A significant factor contributing to this centage points to reach over 75%. Balance paid in full reality is the popularity of instalment cred- This increasing level is largely explained by 75.5% it at point of sale, in which retailers allow credit card issuers in Brazil normally charg- customers to repay credit in up to 60 instal- ing very high interest rates; for example, the ments, with many retailers advertising items Central Bank of Brazil reported that interest by the monthly payment rather than the rates on credit card debt had reached 482% total cost. This has encouraged consumers in December 2016. Source: GlobalData

2 y April 2017 www.electronicpaymentsinternational.com

EPI 358.indd 2 11/04/2017 11:45:21 Electronic Payments International DIGEST NEWS

STRATEGY JPMorgan Chase to take on Apple and Android Pay with MCX m-payment system JPMorgan Chase has reached an agreement On completion of the deal, major mer- to acquire Merchant Customer Exchange chants that are part of the MCX consortium, (MCX)’s payments technology to help as well as non-MCX merchants, will be able expand Chase Pay, the smartphone-based to easily integrate Chase Pay as a digital pay- payment system that enables Chase custom- ment option. ers to pay retailers using mobile devices. Chase Pay head Jennifer Roberts said: The transaction, which is likely to con - “When we think about fintech, we go through clude in the coming weeks, will enable Chase a build-buy-partner evaluation to decide how Pay to better compete with Apple Pay and we can get to market most efficiently. Android Pay in the US’s growing mobile- “MCX has been an important partner, and payments market. their technology complements ours, so we’re MCX, a network of America’s largest mer- thrilled to deepen our relationships with the In December 2016, Chase announced an chants such as Walmart, Target, Best Buy merchant community through the purchase investment in LevelUp to offer an “order and Shell, acted as premier launch partner of this technology. This will help us get to ahead, pay ahead” facility for customers at for Chase Pay in October 2015. market faster.” quick-service restaurants. <

STRATEGY REGULATION PayPal invests in South Korean Singapore and Abu Dhabi regulators money transfer app Toss team up on fintech PayPal has made an undisclosed minor - Launched in February 2015, the peer-to- The Monetary Authority of Singapore ity investment in South Korean fintech peer payments app now supports cards (MAS) and Abu Dhabi Global Market startup Viva Republica, the devel- issued by nearly all major South (ADGM) have signed a co-operation agree- oper of money transfer app Toss, Korean banks. ment to support growth of fintechs in the in a $48m series C funding led by Modeled after mobile pay - two jurisdictions. venture capital firm Goodwater ment services such as Venmo and The two regulators will help startups to Capital. Square Cash, the app has, to date, gain insights into the regulatory regimes in Bessemer Venture Partners, been downloaded more than six their jurisdictions, and offer support during Altos Ventures and Partech Ventures million times. the application and authorisation process. also participated in the funding round. By the end of 2016, the app had facili- The watchdogs will also explore joint Viva Republica intends to use the fund to tated the transfer of around $3bn, and cur- innovation projects covering technology expand its fintech product range and become rently processes over $400m in payments such as digital and mobile payments, block- a full financial services platform. each month. < chain and distributed ledgers, and big data. MAS chief fintech officer Sopnendu REGULATION Mohanty commented: “The agreement will open up new avenues and create opportuni- Japanese and UK regulators sign ties for fintech firms in Singapore and Abu Dhabi looking to expand into each other’s fintech co-operation agreement markets. “We look forward to greater knowledge The Financial Services Agency of Japan JFSA vice-commissioner for international exchange and deeper financial cooperation (JFSA) and the UK’s Financial Conduct affairs Shunsuke Shirakawa commented: with the FSRA that will nurture a vibrant Authority (FCA) have signed an agreement “This is our first case in creating a pro-fin- fintech global ecosystem.” to expand co-operation on fintech. tech co-operation framework with any other ADGM Financial Services Regulatory The regulators will refer to each other country. Authority CEO Richard Teng said: “Asia innovator businesses that would like to oper- “We believe that this exchange of letters and the MENA regions have immense ate in the other authority’s jurisdiction. strengthens the relationship between the growth potential and a large underserved Once a referral is received, the regulators JFSA and the FCA and promotes innovation financial sector. will help fintech firms to understand regula- in our respective markets.” “We hope that through closer collaboration tory requirements, and minimise regulatory FCA executive director of strategy and with like-minded fintech hubs, we are able uncertainty and the time to market. competition Christopher Woolard said: to leverage the strengths and expertise of The two regulators also committed to “Today’s exchange of letters with the JFSA our markets to more efficiently address the share information about emerging fintech will help break down barriers to entry both immediate needs of the industry in respective trends and regulatory issues pertaining to in Japan and in the UK for firms with inter- regions, and anticipate the demands of the innovation. esting new services and products.” < future.” <

www.electronicpaymentsinternational.com April 2017 y 3

EPI 358.indd 3 11/04/2017 11:45:23 Electronic Payments International NEWS DIGEST

LAUNCH Beta version of Samsung Pay launches in Sweden

South Korean electronics giant Samsung has Nordea Bank has announced that its cus- A5, Galaxy S7 and Galaxy S7 Edge devices in launched a beta version of its mobile tomers can use Samsung Pay to make Sweden. Samsung Pay beta will also work on payment solution, Samsung Pay, in-store payments with mobile the recently launched Galaxy A5. in Sweden. The move makes phones. Nordea Bank head of personal bank - Sweden the first Nordic coun- The service can be accessed ing Topi Manner said: “Sweden is the first try to support Samsung Pay. by all Nordea customers in Nordic country where Samsung Pay is made Initially, debit and credit Sweden who own an active available, and Sweden is also a leading coun- card providers including credit or debit card and a try when it comes to using mobile payment MasterCard, MasterCard compatible Samsung phone. services. SAS, Visa and Eurocard, and The Nordea Wallet app “Smartphone penetration is very high and banks Nordea and SEB have automatically registers custom- many of our customers are using a Samsung extended support for Samsung ers’ Visa and MasterCard debit or mobile device.” Pay. Entercard, Handelsbanken, ICA credit cards in the Samsung Pay app. Samsung Pay is currently available in 11 Banken, Rikskuponger, and Swedbank will Users can then use Samsung Pay to pay by markets: South Korea, the US, China, Spain, support the Samsung contactless mobile pay- phone in most stores in Sweden. Samsung Singapore, Australia, Brazil, Puerto Rico, ment service in the near future. Pay is currently compatible with the Galaxy Russia, Thailand and Malaysia. <

STRATEGY Misys to merge with D+H in $2.2bn collaboration

Private equity firm Vista Equity Partners has “D+H brings depth in North America and and expand our footprint in North America.” agreed to acquire D+H, a Canada-based pro- leadership in payments and lending, while Vista Equity Partners co-founder and pres- vider of financial software solutions. Misys has a strong market position in Europe, ident Brian Sheth said: “D+H is an outstand- Vista intends to merge D+H with UK soft- the Middle East, Africa and Asia, and leader- ing company with impressive talent and deep ware company Misys, which it acquired for ship capabilities in banking, capital markets, experience, providing technology solutions £1.27bn ($2bn) in 2012. investment management and risk solutions. to financial institutions worldwide. The merger of D+H and Misys would cre- “I believe this transaction is beneficial to “Over the last five years we have worked ate a fintech firm with $2.2bn in revenue, our customers, shareholders and employees. closely with the Misys management team to around 10,000 employees, and more than We look forward to working closely with transform and grow its global business; this 9,000 customers in 130 countries, including Vista and the leadership team at Misys to is a great next step in that process. 48 of the top 50 banks, Vista said. complete this transaction.” “Together, Misys and D+H have the prom- Commenting on the deal, D+H CEO Ger- Misys CEO Nadeem Syed said: “By com- ise to shape and lead the future of financial rard Schmid said: “By combining D+H with ing together, we have the opportunity to cre- software.” Misys, Vista will be creating a global leader ate a global fintech powerhouse, positioning The combined entity will be privately held in financial technology with a broad array of us to lead the corporate banking software on completion of the transaction at the end products to serve customers. space, accelerate our cloud-based offerings, of the third calendar quarter 2017. <

STRATEGY MasterCard and Unilever to promote digital payments among SMES in emerging markets

The agreement will enable technology MasterCard president and CEO Ajay resources to be utilised to drive inclusive Banga said: “Too many small merchants and growth at greater scale. micro entrepreneurs are stuck, like their cus- To achieve this objective, Unilever’s net- tomers, in a cash economy that doesn’t work work of distributors in developing countries for them. will be integrated with digital payment and “With Unilever, we can bring a unique com- acceptance solutions from MasterCard. bination of technology and know-how to MasterCard and Unilever will look at help these shop owners build a better future, ways to enable better access to formal finan- and serve their customers who are them - cial tools for smaller retail outlets, while also selves on a path towards financial inclusion,” developing entrepreneurship capacity, par- Banga added. MasterCard and Unilever have reached a ticularly for women and girls. Initially, MasterCard and Unilever have strategic partnership to launch joint ini - Both companies will also concentrate to launched their first pilot project in Kenya, tiatives targeted at empowering small and strengthen the use of electronic payments at with an aim to enable sustainable growth for micro businesses in emerging markets. both wholesale and retail locations. small retail entrepreneurs. <

4 y April 2017 www.electronicpaymentsinternational.com

EPI 358.indd 4 11/04/2017 11:45:26 Electronic Payments International DIGEST NEWS

RESEARCH LAUNCH MasterCard: Consumers keen on Android Pay lands in biometric m-payment security Belgium Tech giant Google has launched mobile Nearly half of consumers worldwide (43%) The study found that digital wallets domi- payment service Android Pay in Belgium, have expressed an interest in biometrics and nated 75% of online discussions around pay- allowing users to pay for purchases using an other forms of authentication to improve ments, and that use of in-store digital pay- Android-based smartphone. digital payment security, and 51% of those ments received two million mentions. Belgium is the 10th country in which discussions were driven by advances in facial The activation of newer technology such Google has launched its contactless mobile and fingerprint recognition, reveals a new as home assistants and artificial intelligence payment solution. Android smartphone study by MasterCard. was the second-most-popular payment- owners in Belgium can now make in-store The MasterCard Digital Payments Study related topic of last year, while Internet of payments using their devices at over than was conducted by the company in partner- Things-enabled payments grew significantly 85,000 retail locations, including McDon- ship with Prime Research and social listening in North America and Europe. ald’s, Carrefour, Media Markt, Medi-Mar- platform Synthesio. It analysed 3.5 million Commenting on the study, MasterCard ket, H&M and Quick. conversations from the past year on several vice-president of digital communications Android Pay in Belgium will initially be social media channels, including Facebook, Marcy Cohen said: “Technology is making supported by MasterCard and Visa credit Twitter, Instagram and Weibo. the promise and the potential of a less-cash cards issued by BNP Paribas Fortis, Fintro Consumer enthusiasm towards new biom- life a reality for more people every day. and Hello bank. Support for debit cards etric and authentication technologies in Asia- “This year’s study notes a change in the from the three banks, as well as CBC/KBC Pacific, particularly in India, led to a 66% level of interest for new ways to shop and will follow soon. positive sentiment for safety and security pay that only a few years ago would have Android Pay can be used to shop online discussions. seemed far-fetched.” < through its own app, as well as supporting apps including Deliveroo, TransferWise, LAUNCH Fancy, Vueling, Hotel Tonight, Sit, Uber, Samsung Pay early access begins Touchnote and Showroomprive.com. < LAUNCH in India ahead of full launch Apple Pay arrives in Samsung has announced an early access pro- Edge+, and the Galaxy A7 and A5 smart - Ireland gramme for its Samsung Pay digital payment phone devices will initially be offered access service in India, ahead of its full launch. to Samsung Pay. Apple has launched its Apple Pay mobile Samsung Pay enables owners of specific The company has announced that interest- payment service in Ireland, allowing users Samsung Galaxy devices to use the phones ed users can now “register for early access” to pay for goods by tapping their phone on to make payments virtually at any location on its India website; however, it has not yet a contactless reader. that accepts swipe card payments. revealed the launch date of the digital wallet Visa and MasterCard-branded credit and Additionally, the mobile payment system in India. debit cards issued by the KBC and Ulster supports both contactless payment systems At present, Samsung provides support for Bank can be used with Apple Pay in the and magnetic secure transmission (MST) MasterCard and Visa credit and debit cards country; the system will also work with technology. from Axis, HDFC, ICICI, SBI and Standard Wirecard’s Boon prepay system. Samsung said owners of the Galaxy Note5, Chartered banks, with support for Citibank Participating retailers in Ireland include the Galaxy S7 and S7 Edge, the Galaxy S6 expected in the near future. < Aldi, Amber Oil, Applegreen, Boots, Burger King, Centra, Dunnes Stores, Harvey Nor- DATA man, Lidl, Marks and Spencer, PostPoint and SuperValu. UK card spending rises in 2016 Apple Pay is already available in the US, the UK, China, Australia, Canada, Switzer- UK consumers spent £647bn ($808bn) Retail spending on cards stood at £298bn land, France, Hong Kong, Russia, Singapore, through the use of payment cards in 2016, in 2016, compared to £290bn in 2015. Pay- Japan, New Zealand and Spain. an increase of 4% compared to the total card ment cards accounted for 76.4% of overall Wirecard executive vice-president for con- spend of £620bn a year ago, according to retail spending in 2016. sumer solutions Georg von Waldenfels said: the latest figures released by the UK Cards The UK Cards Association’s CEO, Gra- “By launching boon with Apple Pay in Ire- Association. ham Peacop, said: “Cards are the preferred land, even more users in Europe can experi- Overall, 2016 recorded 14.8bn card trans- way to pay for millions of consumers, and ence a new level of mobile payments without actions, with debit cards accounting for the underpin the retail economy. being a customer of a specific bank.” majority, £461bn, of the card spending. “Contactless cards are increasingly becom- Apple Pay is now gearing up to launch in Contactless payments contributed £25bn ing the payment method of choice for eve- Taiwan, where seven banks have recently of spending, a surge from £7.75bn in 2015. ryday, low-value purchases, with a quarter secured regulatory permission from the In total, 2.9 billion contactless transactions of card payments now contactless,” Peacop Financial Supervisory Commission to pro- were conducted in 2016. added. < vide the payment service. <

www.electronicpaymentsinternational.com April 2017 y 5

EPI 358.indd 5 11/04/2017 11:45:26 Electronic Payments International FEATURE AIRWALLEX

Cracking China from Down Under

Melbourne-based Airwallex has ambitious plans to be the first e-commerce gateway into China, and by all accounts is on course to do so. Anna Milne caught up with its global head of partnerships to find out how hard it was to crack China, disrupting SWIFT, and why he thinks the future of many things is WeChat

e would like to be the first “For businesses outside China, to sell direct APIs [Application Programming Interfaces].” cross border e-commerce into China is of massive appeal.” “Being a fintech business is really expen- gateway into mainland China, Enter Airwallex, a company which was sive. A lot of that money was used for legal and we think we might well founded between late 2015 and early 2016 purposes, and we hired the head of compli- “W by Jack Zhang and Lucy Liu. ance from AIG Singapore, which didn’t come be that,” says Joe McGuire, head of sales and partnerships at Airwallex. cheap,” says McGuire. China has had a lot of problems with peo- “We have an Australian financial services ple taking money out of the country – take licence, the equivalent in New Zealand and the Sydney and Melbourne property mar- Hong Kong, and most importantly we were ket for starters. And McGuire should know. able to get access to the cross-border third- Based in Melbourne, he can see first-hand “We’re building it to party and foreign-currency licence in China.” the evidence of huge outflows of money from effectively disrupt SWIFT” It took Zhang and Liu a lot of groundwork China. to crack this, and being Chinese came at a The People’s Bank of China (PBOC) is Joe McGuire, Airwallex massive advantage – in fact it was “abso - particularly careful around how people are lutely crucial”. spending their money and where their money They spent a great deal of time working is going. Not only does it have reason to be, with contacts and partners in China to build due to past experiences, it also has good rea- that trust. son to take control of what it has now – and This licence is a huge barrier to entry for to be wise to the growing affluence in the It all started because Zhang owned and other people trying to do the same. There are country and the ever-burgeoning economy. ran a cafe alongside his role at a bank build- 28 licences across the globe to take money in A recent McKinsey report stated that dis- ing foreign exchange (FX) payment systems. and out of China, issued by the PBOC, and posable income in urban parts of China will He struggled to purchase stock such as coffee Airwallex is not in the least bit complacent equal that of South Korea by 2020. Things cups from China with a fair FX rate, so he about having access to one of these have very much shifted in China over the last created this business to give the opportunity A lot of those are actually dormant, say ten, ten years from an export-driven economy to to SMEs with a lot of international trade because they are held by institutions such as a consumer-driven economy. but which were not getting a fair price from tax offices, etc. All this, coupled with significant chal - the Australian banks – fair being better than “Of the 15-18 that are left, we have access lenges around historical corruption in China, 3.3%, the average transaction rate, accord- to one,” McGuire explains. the current government is highly focused on ing to McGuire. “Effectively, we have a licence to use stamping out corruption and making sure Zhang and Liu pitched Gobi Partners, that licence and we are very careful with it that people are not unduly taking money out the venture capital fund for Alibaba, on the because it is so hard to come across. of the country. concept with a prototype and raised €3m We are very careful around who we are “They are very risk-averse about it, and ($3.2m). After the seed-round funding, the working with and the reasons why they are yet small businesses in China would be business grew to over 30 people. sending it, and making sure they are within very interested in having a gateway to be “We have built an FX product for importers the cap the PBOC has set on money being able to export out of the country,” explains and exporters but really the focus is on two taken out of the country and it not being McGuire. products, which are based on a number of used for gambling or investments, etc.”

6 y April 2017 www.electronicpaymentsinternational.com

EPI 358.indd 6 11/04/2017 11:45:30 Electronic Payments International AIRWALLEX FEATURE

Two products: acquiring and distribution The acquiring product is around accepting all the new forms of payment coming out of China, such as WeChat; the other product is enabling businesses globally to distribute things cheaply. The acquiring product is to get WeChat acceptance mainly, but also all the Chinese forms of payment, accepted in Europe for the Chinese tourists coming over. “The acquiring product is pretty simple. Think Stripe – Stripe is an acquiring API. Its focus is on developers, winning over developers with really beautiful API documentation: ten lines of code to plug into a website to “Users spend on average change from .com to .ch so that you can sell about an hour a day on directly to the Chinese consumer. WeChat – once it starts “We want to do Stripe directly into China – cross-border, into China. The reason why to roll that out globally, Stripe hasn’t done that is lack of a licence.” it will take over as the Currently, if you want to sell direct to the biggest form of payment” Chinese customer there are only really two Joe McGuire, Airwallex options: Alibaba, which has a number of sites, or a local distributor. In both instances if you’re a brand that cares about price point, about who is buy- connections, Zhang and team have built a border e-commerce gateways into China. ing your product, how it’s being sold, neither piece of machine learning, which sits atop Other people have been trying to do it for of those are good propositions as an online several different payment rails that they’re a long period of time; they just don’t have merchant. connecting into the system. a licence.” “I can’t tell you just yet who they are, but Airwallex is already looking to expand its there are six or seven companies also trying reach, hopeful of garnering some space in to disrupt SWIFT and beat them at their own one of Barclays’ innovation labs in London. “If Uber is the biggest game, and they’re building payment rails off SWIFT for transactions. Where to from here? cab company in the world “What we’re doing is really simple: We are “We’ll hire a couple of staff, and then when without owning taxis, we going to connect them all together. Our piece summer hits we’ll be ready to go,” says want to be the biggest of machine learning will, per transaction, McGuire. funnel transactions through the cheapest and “Alipay is doing a really good job in terms payments company in the fastest rail, depending on the jurisdiction it’s of getting memoranda of understanding with world that doesn’t own rails” going into,” McGuire continues. the right businesses here, but really the future Joe McGuire, Airwallex “There are a few people trying to disrupt is not Alipay, it’s WeChat Pay. SWIFT by building payment rails and all of “A huge proportion of Chinese people them are doing a really good job in certain – 85%, don’t quote me– have WeChat Pay. jurisdictions, but none of them have the glob- Users spend on average about an hour a day al reach of SWIFT. on it. Once they start to roll that out glob- “It’s interesting because in China no one “We think we will be able to send money ally, it will take over as the biggest form of has Visa or MasterCard, so the majority of anywhere in the world within a day within payment. payments there are through WeChat Pay, Ali- the next six to 12 months. And that’s a direct “People who buy stuff on Alibaba have Ali- pay, and some other mobile payment solu- transaction. Currently SWIFT goes through pay, but most people would use WeChat for tions, such as UnionPay, which is actually a correspondent bank networks, with a fee of P2P payments,” McGuire adds. very small percentage of the transactions in around 3-5%, and takes three to four days.” “It’s such a rich app in terms of function- the country, 10-12%.” McGuire says that for the majority of busi- ality, it’s going to really take over the West The second product is a distribution prod- nesses, Airwallex’ service would mean a 90% as well I think; it’s going to be huge. People uct, involving a number of APIs. reduction in transaction fees. The team cur- do everything on it; it’s Facebook, it’s Tinder, “SWIFT has 11,000 financial institutions rently stands at 20 developers, and is relying it’s booking flights, hotels, doctor appoint- plugged in, in every jurisdiction. They have on a series A funding round in the pipeline. ments, Didi Chuxing, the Chinese equivalent been very important for global trade – but If Airwallex is going to be the first cross- of Uber. a commonly held view is that they haven’t border e-commerce gateway into China, “Alibaba will still be really important and kept up with changes in technology,” says does it expect more will follow? Alipay will always have a place, but I think McGuire. “Stripe is doing some things with UnionPay WeChat will dominate – it’s what everyone To compete – because Airwallex doesn’t and Alibaba, leveraging its licence to get in uses,” says McGuire. have the funds to build its own payments there. I’m not 100% sure of this but we are “I think the next generation of kids will be network or payment rails, nor the financial certainly going to be one of the first cross- on WeChat as opposed to Facebook.” <

www.electronicpaymentsinternational.com April 2017 y 7

EPI 358.indd 7 11/04/2017 11:45:35 Electronic Payments International FEATURE FIRST DATA

Digital projections

What are the main concerns for merchants and issuers these days? Security, digital strategy and e-commerce. Anna Milne speaks to Glenn Fodor, SVP and head of strategic intelligence at international processor and acquirer First Data

here is no doubt the payments gence at First Data. all look to the processors to understand what world is fast-changing, which has “Disruption is good for the industry to expect from PSD2 and the landscape in led to not a small amount of con - because then providers which can’t figure general. They want to check they have the cern among payment outfits large this out on their own are going to come to right approach, the right online banking and T their processor or technology provider for mobile setup, and the right products and ser- and small about carving out a new niche. Without meaning to imply the business answers and technology solutions to figure vices. They look to the processors for these world is all about exploitation and profiteer- all this out,” Fodor explains. answers. ing on others’ weaknesses, it would be wrong “Confusion is good for us at the end of the “If you listen to the conference calls of First not to highlight the fact that the changing day. It causes merchants and banks to come Data’s peers and competitors, everybody is of payments landscape, and the fear and trepi- to us and ask, ‘What are you seeing? How the view we’re going to figure this out. dation it can inspire among its stakeholders can you help us?’ “Security is the underpinning of every con- vis-à-vis their future relevance in it, is a rich “That’s a conversation we’d like to have versation: How do we keep this secure? How source of revenue for the likes of massive all day long. If you’re a bank, you are think- do we keep it locked down? Protecting the global processors. ing, ‘How do I manage the fintech landscape customer data – again, that’s another conver- All this talk about the opportunity for on one hand against the regulatory oversight sation we love to have, because we think we banks and new payment and account service landscape that I have on the other?’ That’s have the best security solutions, be they for providers is secondary to the palpable oppor- fair game whether you’re a US bank, or a merchant or issuer.” tunity for those with the nous, wherewithal European or beyond bank.” and mettle to be the first to offer guidance on Most of First Data’s, and indeed Fodor’s Security and e-commerce navigating the new waters, and to offer new time is spent with merchants or issuers. They Merchants are worried about the shift from digital services that keep the regulators, if not at bay, at least adequately placated. First Data’s projections for payments in 2017 With the advent of digital, and therein • Investments in digital payments will accelerate as the lightning pace at which this new scene both merchants and banks fight for their share of is being set, ripe pickings are there for the the consumer wallet. taking in the form of consultancy and com- • Banks are seeing a strong macro environment and pliance advisory services. And seeing as the favourable industry tailwinds new scene is being driven in part by Euro- • Collaboration will continue for banks and fintechs pean regulators and the second Payment • Faster payments will take hold in 2017; blockchain Services Directive (PSD2), and will resonate will be a longer journey across the Atlantic, who are we to decry such • E-commerce continues its path to ubiquity, but so opportunistic enterprise? But do not take does fraud it from us; take it from the horse’s mouth: • Amazon’s ambitions will continue to challenge Glenn Fodor, SVP, head of strategic intelli-

8 y April 2017 www.electronicpaymentsinternational.com

EPI 358.indd 8 11/04/2017 11:45:39 Electronic Payments International FIRST DATA FEATURE

offline to online. Is their online strategy to differentiate themselves.” the money and the trust. coherent? Do they have the right solutions The new differentiator these days, it seems, “At the height of the financial crisis sur- in place? is digital prowess. It is true, most consumer veys were taken of banks, and still when Security presents possibly the largest chal- banking surveys show that 60% plus of them asked who they trust with their money, con- lenge to businesses, and with that, the great- prefer to work with a bank in an online or sumers answered, ‘I trust my bank’,” Fodor est opportunity for the likes of First Data. global channel. explains. And there has been an exponential growth Having that robust online banking system, “There was the headline stuff concerning in e-commerce. global banking system, integrated mobile hatred towards banks, but the consumer Put simply, given the rate at which fraud- payments offering, loyalty and rewards offer- mindset was, ‘At the end of the day, if I have sters are developing and getting better, ing, is keys to setting themselves apart from to put my money somewhere, when every- stronger and more powerful, can First Data the other banks. thing goes to hell, I know it’s going to be safe and its competitors keep up? “We are seeing that in the merchant world. with the bank.’ So, we love [banks’] chances, “We think we can and we think we do. For example, in the US there’s a merchant and love working with them. About half our We’ve spent a lot of money investing; we called Panera, a boutique sandwich shop, business comes from the banking side.” have a crack team. We’ve hired people from probably one of the first merchants of its In terms of social commerce and how the National Security Agency, the CIA, the kind which came out on its earnings call to important it is to focus on the upcoming Department of the Treasury, and the Depart- Wall Street. When they come out on a Wall generation, Fodor explains that, in the main, ment of Defense. We think we’re ahead of Street earnings call, you know they’re for doing everything on digital is a “leap of the curve here, and it’s one of our fastest- real, because they’re on the stage for all their faith” for consumers, likely to be adopted by growing product segments,” Fodor confirms. investors to see. the 18-30 age group and “not a chance” by “As I like to say, ‘No good deed goes “Our digital strategy and our digital prow- the 30-plus age group. unpunished,’ because with this fast growth in ess are allowing us to take share from our He argues that all the wealth and spend- commerce comes super-fast growth in fraud competitors,” Fodor notes. ing is in the 30-plus category, so while keep- and mishaps like that,” counters Fodor. “In the early 1990s Bill Gates said, ‘Banks ing an eye on the upcoming demographic is He goes on to explain fraud and bad are dinosaurs, they can be displaced.’ Fast- important, the priority is to keep the main behaviour are growing, and that the dol - forward about 20 years and, having invested revenue group sweet. lar amount of fraud is growing faster than in a fintech startup, came his quip of, ‘I vastly “Do we need to make a big bet this e-commerce overall. underestimated how complex banking was.’ moment? No. The beauty of what we do and “So, again, a good place for us to be, He came around to the realisation that it’s how we build our systems is that the core because that’s where we come in and provide really tough to unseat these folk. infrastructure can be transported to new them the security solutions. That’s, first and “Banks have plenty of things to worry emerging technologies. So you build once foremost, what merchants are asking about,” about, but they’ve shown time and time and scale it across other interfaces. says Fodor. again that they can fend off the competition. “I’m not saying there won’t be another As long as they have a coherent strategy, and dollar investment if social commerce takes Connected commerce are in touch with the market and the trends, off, but nothing changes the essence of our One of the major themes in First Data’s 2017 they can eke out a very good, if not fantastic, scaled bedrock foundation of platforms; we rhetoric is connected commerce. How soon existence. go about our business doing the processing are things going to get ever more connected? “There is something to be said for having as we always do.” < “Now. People ask me what’s the next big thing in payments. I say connected com - n THE STATE OF THE MARKET ACCORDING TO FIRST DATA merce, that’s the next big thing. That’s the Merchants Banks e-commerce of tomorrow.” The burning question therefore is can the • Putting EMV transition in the rear view banks compete? It is a tired question accord- • Improving environment for revenue • Rising online fraud growth ing to Fodor, and he does, of course, have a Trends • Continued demand for consumer credit vested interest. Banks are going to be phased • Amazon’s prowess in e-commerce can facilitate a variety of strategic paths out “not at all”. • Contained risk environment Fodor adds: “People like to talk about that • Mobile is all the rage time and time again. If, by chance, the regula- • Accelerated investment in mobile as • Revenue growth gives increased capacity tory environment eases and interest rates go retailers look to differentiate for technology investment up, that’s going to help banks. Outlook • Testing-and-learning around new, • Stiff competition for consumer wallets “It’s going to drive more operating profit connected commerce experiences • Digital strategy remains a priority (P2P, at the end of the day, thanks to interest rates • Security needs growing digital channels, mobile wallets, APIs) – again, perhaps free up some compliance • Large merchants need a mobile spending. All this leaves more money for strategy focused on the consumer investments. Digital is going to be one of the experience • Faster Payments strategy required to key differentiating factors for banks in the • More merchants may consider meet both consumer and business needs new age. Implications partnering with Amazon (if you can’t beat ‘em…) • Digital assets and utility will increasingly “That applies to all things digital. In the dictate franchise success past when you look at how banks competed, • Investments in security and fraud they competed on services, interest rates, solutions will increase for all merchants price, high-touch interactions with their customers. All of this defined and allowed them Source: First Data

www.electronicpaymentsinternational.com April 2017 y 9

EPI 358.indd 9 11/04/2017 11:45:40 Electronic Payments International FEATURE MEXICO

High altitude, higher stakes?

Latin America’s third-largest economy could slip into recession if US President Donald Trump’s toxic cocktail of threats to upend the North American Free Trade Agreement or impose heavy tariffs on Mexican exports come true. However, Mexican banks are – at least for now – unconcerned. Ivan Castano writes

exico’s payments sector is shrug- since Trump swept into the White House, in families south of the border, a huge economic ging off concerns that US Presi - a move aimed at shoring up the plummet- driver – to build his $15bn border wall, and dent Donald Trump’s protection- ing peso and combatting soaring inflation, has expanded immigration laws to expel as ist threats could hit its fortunes, which is currently hovering at 5% – well over many as 3m Mexicans. M its 2% target. The deepening uncertainties are putting forecasting strong revenues despite monitoring portfolios more closely. The actions have boosted variable credit investors and businesses on tenterhooks, trig- “So far, we haven’t taken any provisions,” card rates, lifting margins for the top three gering a sharp fallout in foreign direct invest- says Miguel Angel Laurencio de La Vega, bank issuers: Spain’s BBVA Bancomer, Citi- ment that is unlikely to recover until the two investor relations director at Banorte, which group’s Banamex, and Santander. governments tentatively wrap up negotia- with roughly 2m customers is Mexico’s The increases will add 200 basis points to tions to modify NAFTA by the summer. third-largest bank. the 28% average rate that Banorte charges Amid such risks, Banorte will focus on “Overall, consumption remains strong and for its silver, platinum and gold products, growing business with existing clients, and there are no [portfolio] deterioration signs, offsetting a slight decrease in its portfolio largely shunning new ones or entering new despite future uncertainty.” growth. market segments until Mexico’s future pros- Employment continues to grow, with the “This year, we will probably grow less in pects become clearer. nation adding 500,000 jobs in the past year, our portfolio but more in revenues,” says De “We will be more cautious and seek to grow De La Vega says. Unemployment stood at La Vega, adding that last year its outstanding similarly to last year. We will not be launch- 3.6% in January, down 4.2% year-on-year balance grew by 10% to roughly MXN26bn. ing any new products or targeting new mar- according to the latest data from statistics Despite rising margins, Mexico’s economy ket segments aggressively,” De La Vega notes. institute Inegi. is set to cool this year, with the government “Many of our customers use our cards very “If unemployment rises that would give recently cutting GDP growth projections to little, so the plan is to increase this through us a reason to act, but so far our past due 1.3-1.5%, down from a previous estimate of reward programmes and promotions.” portfolio remains at 5%, which matches the 2.5%. Others are also being cautious. BBVA industry’s, with an improving outlook,” De Latin America’s third-largest economy Bancomer, which leads Mexico’s banking La Vega adds. could slip into recession, however, if Trump’s sector, has begun lowering card limits and Banorte, which intends to double its pay- toxic cocktail of threats to upend the North more closely monitoring its accounts, ana- ments market share to over 16% by 2022, American Free Trade Agreement (NAFTA) lysts say; much smaller Inbursa, which matching arch-rival Citigroup’s Citiban- – a 23-year-old free-trade agreement that belongs to telecoms tycoon Carlos Slim, is amex, expects card revenues to climb 14% has largely modernised Mexico – or impose also becoming more selective, they add. to MXN8.2bn ($435m) this year, helped by heavy tariffs on Mexican exports come Jorge Benitez, an analyst with broker soaring interest rates in Mexico. true, triggering a trade war between the GBM, has a sanguine outlook for 2017. He The central Bank of Mexico has stepped two nations. The US president also wants to says issuers continue to enjoy high margins up benchmark rates six times to 5.25% tax remittances – money Mexicans send to and improving credit quality, with interest

10 y April 2017 www.electronicpaymentsinternational.com

EPI 358.indd 10 11/04/2017 11:45:41 Electronic Payments International MEXICO FEATURE

rates hovering at 26.4%. This, coupled with Cortes agrees that the payments market That could chime well with impoverished an expected 9% rise in plastic issuance this remains healthy. However, like Banorte, Mexicans who have boycotted US brands year, will drive revenues up 11% to MXN- most issuers are concentrating on their exist- Starbucks, McDonalds and Walmart to decry 94bn. ing pool of good-credit customers and cast- Trump’s calls that Mexico pay for his bor- “We are not that negative,” Benitez says. ing “a strong eye” on portfolios. der wall, on top of his well-publicised insults “We don’t see signals of deterioration because They have also cut purchasing rewards against its population. consumer demand remains strong.” sharply. “No one is talking about this, but However, Cortes says the actions have not That said, if the economy were to decline rewards have fallen around 40% since 2012 hurt the likes of Visa, Mastercard or Ameri- by more than expected in the second half – [when the economy was growing at more can Express, which has a $2.2bn exposure something economists expect if a trade war robust rates] so now you have to spend 70% that analysts believe it is looking to trim. erupts – lenders could suffer amid rising more to accumulate the same number of “Each bank has customer complaints or unemployment and defaults. points,” Cortes reveals. issues, but nothing has changed because of “We could see a small decrease in employ- Cortes adds that 2017 “will be very bor- Trump itself,” Cortes adds. ment which would affect banks’ portfolios ing” for new plastic launches or product Meanwhile, De La Vega says Banorte is and they would stop issuing credit,” Benitez innovation, except perhaps in the digital keen to grow its digital business as Mexico’s explains. arena where online and mobile purchasing e-commerce market is growing rapidly amid To protect themselves, institutions could is growing strongly. falling mobile data rates, catching up with cut risky personal loans and raise their expo- He highlights Banregio, a tiny lender in leading markets in Brazil and Chile. sure to safer direct deposit credits, he adds. Northern Mexico, as this year’s top innova- It recently incorporated a selfie identifica- However, even if that happens, the pay- tor after it launched a platinum card offering tion feature to its mobile banking app, which ment sector’s long-term prospects look 1% cashback, 5% interest and no annual fee. it says is unique in the market, for example. bright, largely as a result of Mexico’s low “You hardly see cards with such high Banorte hopes to bring similar innovations banking penetration. rewards and low interest rates,” he notes, to the fore to grow its card segment, which “Credit cards represent 33% of the adding that the bank has an innovative accounts for MXN55bn of its MXN559bn MXN4.3trn banking sector, where penetra- online application feature. consumer loan portfolio. tion is about 4% of GDP,” Benitez says. “Banregio has an interesting philosophy, “We want to develop our cards business to Enrique Mendoza, an analyst at broker which is sort of populist because it wants to mirror the 14% market share we have for Actinver, is more pessimistic, adding that a be seen to be offering a product that won’t our other loan products,” De La Vega con- sharp economic downturn could severely hit break your finances,” Cortes says. cludes. < issuers. “Banks would have to provision very rapidly, even if there is a small default change from one institution or if credit bureau reports worsen,” Mendoza notes. Joel Cortes, co-founder of consumer card-comparison site Kardmatch, says issuers would struggle to pass on higher interest rates to customers who would likely fall behind on payments. Leading retailers Coppel, Liverpool and Walmart, which cater to the nation’s vast majority of low- and middle-income consumers, would be worst hit in this scenario. By targeting the less-wealthy shoppers whom banks typically shun, the firms have made a fortune, offering customers a cornu- copia of store cards with ‘months-without- interest’ instalments. And in the last five years, other depart - ment stores such as luxury chain El Palacio de Hierro, Saks Fifth Avenue Mexico and Sears de Mexico have followed suit, issuing ludicrously long, 12-18-month zero-interest credits, fuelling fears that they have over- hedged themselves. “There is a bubble risk for these retailers,” warns Cortes. “Of course, they are betting this won’t happen, but falling incomes will increase the probability of defaults.” Liverpool and Coppel have buffered against these risks by charging higher prices for merchandise sold on credit or charging above-market interest rates, however. Separate ways? The Trump presidency could redefine US-Mexican relationships

www.electronicpaymentsinternational.com April 2017 y 11

EPI 358.indd 11 11/04/2017 11:45:45 Electronic Payments International COMMENT THE NEW POUND COIN

New quid on the block- a sterling effort?

The Bank of England has issued a new one pound coin which it claims is the most secure coin in the world. Its 12-sided, bimetallic, latent-imaged, micro-lettered, milled-edged, hidden high security-featured self is now legal tender and coming to a shop near you. EPI asked some payments bods for their thoughts

Simon Black, CEO PPRO Group for this new coin which I anticipate will convenience for the likes of the rurally be nothing more than a collector’s item in isolated, unemployed, un/under-banked, less than ten years. < digitally excluded, elderly or vulnerable. THE NEW POUND COIN RELEASE- IS IT A If customers were unable to use cash, WASTE OF MONEY? Ross Macmillan, market intelligence they’d incur arrears on their bills and his month the Royal Mint is under - consultant, allpay fall into debt. Even by 2025, Payments taking its potential last flip of the UK predicts that cash will still be used coin by introducing an updated £1 NEW POUND COIN SHOWS CASH IS FAR FROM to make nearly 30% of all payments. < T coin into circulation. DEAD With the same shape as the old 12-sided he new 12 sided £1 coin is another three pence piece or ‘threepenny bit’, its clear sign that cash still plays an Lu Zurawski, consumer payments solutions makers claim it will be the most secure incredibly prominent role in soci - practice lead, ACI coin in the world. T ety. The current £1 coin it replaces has been For all the talk about cryptocurrencies, THE NEW 12-SIDED ONE POUND COIN in circulation for over thirty years and is contactless and virtual accounts – the value deemed to be vulnerable to ever more of banknotes and coins in circulation in the he government estimates that cur - sophisticated counterfeiters. UK has actually increased. rently one in thirty £1 coins in cir - But how long will we be using this And with cash still being the most popular culation is a counterfeit. coin? The UK is swiftly moving towards payment method in 2015, you could argue T The new coin will have a number of a new cultural phenomenon – the features that make it much more cashless society. difficult to counterfeit, the most In the UK, payments are gen - distinctive of which is its shape erally made using the plastic in which makes it instantly recognis- our wallet and increasingly, our able, even by touch. mobile phones. £288m was spent Whilst many in the payment through mobile contactless pay- industry have predicted a cashless ments in the UK in 2016 with 38 society over the next 20 years or million transactions carried out so, the fanfare over the format of a across the year. one pound coin offers a reminder This was a 247% increase on of the challenges when it comes to the year before, with the most changing the way people pay. notable lift being from payments Although parking meters and made via Android Pay. vending machines have started to Pubs, bars and restaurants, convert to app-based, mobile pay- the places perhaps most likely ments, it seems that metal coins to be an outlet to spend the cash will continue to offer convenient burning a hole in our pockets, access to supermarket trolleys and actually made up 20% of all gym lockers for generations to mobile contactless payments it come. processed. The resilience of cash shows ‘Meal deal’ hotspots for work- that even the ‘millennial genera- ers buying lunch – such as super - tion’ may not be ready to accept a markets and grocery stores – fully cashless state. accounted for 54%. cash is still very much alive and far from To test this, try explaining to a pre-teen kid The popularity of mobile and dead. they’re not allowed to use the “coin pusher” contactless payments clearly demon - Consider some of the major household machine at an amusement park. strates the acceptance of change when it bills like rent, council tax, water, TV Society has many ways of teaching impres- comes to payments in the UK. Licence, gas and electricity. sionable citizens of all types and ages about The current, or old pound coin, has Every year hundreds of millions of pay- the complicated social technology of value been in our pockets for more than thirty ments for household bills are made with exchange. It should not come as a surprise years. I predict a much shorter lifespan coins or paper providing flexibility and that coin technology continues to survive. <

12 y April 2017 www.electronicpaymentsinternational.com

EPI 358.indd 12 11/04/2017 11:45:48 Electronic Payments International SURVEY THE PHILIPPINES COUNTRY

The Philippines

Cash’s dominance of the payments landscape in the Philippines is verging on total, with much of the population unbanked and consumer awareness of electronic payments limited. Initiatives by the central bank, and migrants’ increasing use of electronic payments to send money home could be catalysts for change, however

ash continues to be the most popu- As part of the government’s financial inclu- a partnership with Trans-Fast Remittance, a lar consumer payment instrument sion plan, a number of micro-banking offic- provider of multicurrency cross-border pay- in the Philippines, particularly in es, electronic money, microfinance providers, ments solutions, to enable remittance trans- C rural areas. pawnshops, and remittance agents are being fers for Trans-Fast customers. Cash accounts for 99.5% of the country’s employed to provide access to financial ser- The partnership enables Filipinos in the total payment transaction volume, due pri- vices in un- or underserved areas. US and Canada to use Trans-Fast to make marily to a lack of banking infrastructure, real-time instant transfers into Land Bank of limited public awareness of electronic pay- Rising remittances drive debit card use the Philippines accounts, which can be with- ments and low acceptance at retailers. Remittances form a key part of the Philip- drawn using a debit card. However, cash’s share is anticipated to pines’ economy, accounting for 10% of the decline gradually over the forecast period country’s GDP. Robust credit card market growth (2017–2021), as a result of the central bank’s Remittances also play an important role Debit cards remained the largest card type financial inclusion program. in driving growth in the debit cards mar- in terms of transaction value with an 81.7% The emergence of contactless technology is ket, with many Filipinos emigrating. Inward share, which is expected to grow over the also expected to support payment card mar- remittances rose from $24.6bn (PHP1.0trn) forecast period as more of the unbanked ket growth. in 2012 to $27.9bn in 2016, and are expected population are brought into the formal bank- to grow as more Filipinos seek work abroad. ing system. The unbanked – a large untapped market As migration rises, banks are increasingly Though small in size, the credit cards The percentage of the Philippine population offering bank accounts and debit cards that market registered robust review-period aged 15 or above with a bank account was facilitate the transfer of money to beneficiar- (2012–2016) growth both in terms of trans- 34.3% in 2016. The government has taken ies back home. For instance, in September action value and volume. The growth can be a number of initiatives, in the form of pro- 2015 Land Bank of the Philippines formed attributed to economic growth and a steady grams and policies, to bring a greater pro- rise in the middle-class and young working portion of the population into the formal n PHILIPPINE PAYMENT CARDS BY TYPE populations. banking system. (MILLION), 2012–2021 Also driving credit card transactions are The government also introduced the Phil- Debit Cards Pay Later Cards monthly instalment facilities and pricing ippine Development Plan 2011–2016; this benefits such as annual fee waivers, reward includes the promotion and delivery of finan- 2012 36.8 7.2 programs and cashback. cial services in rural areas, the promotion of 2016 (estimate) 50.8 9.2 The enactment of the central bank’s Inter- financial literacy and consumer education, 2017 54.4 9.8 bank Debt Relief Program to control credit and the development of loan and banking card debt, and the arrival of global credit products to meet the needs of women, and 2021 68.6 12.1 bureaux are expected to further strengthen low-income and disabled individuals. Source: EPI the country’s credit card market. <

n PHILIPPINE CARD TRANSACTION VALUES BY n PHILIPPINE CARD TRANSACTION VOLUMES BY n NUMBER OF ATMS AND POS TERMINALS IN CHANNEL ($ BILLION), 2012–2021 CHANNEL (MILLION), 2012–2021 THE PHILIPPINES (THOUSAND), 2012–2021 ATM POS ATM POS ATM POS 2012 47.3 16.0 2012 747.5 227.7 2012 12.2 134.7 2013 53.9 18.2 2013 837.5 254.1 2013 14.5 150.1 2014 57.9 19.3 2014 925.0 277.1 2014 15.7 165.7 2015 61.9 20.9 2015 1,005.2 301.6 2015 17.3 187.0 2016 (estimate) 64.9 22.2 2016 (estimate) 1,086.5 327.6 2016 (estimate) 18.8 204.7 2017 71.3 24.7 2017 1,171.0 355.0 2017 20.2 223.0 2018 77.8 27.4 2018 1,258.2 384.1 2018 21.5 242.2 2019 84.6 30.3 2019 1,347.6 414.3 2019 22.5 262.1 2020 91.5 33.3 2020 1,438.0 445.6 2020 23.3 281.6 2021 97.7 36.3 2021 1,525.1 477.5 2021 23.9 298.8 Source: EPI Source: EPI Source: Central Bank of the Philippines, EPI

www.electronicpaymentsinternational.com April 2017 y 13

EPI 358.indd 13 11/04/2017 11:45:50 Electronic Payments International SURVEY COUNTRY CAMBODIA

Cambodia

Cambodia is a largely cash-based society, as a result of low banking penetration, a lack of consumer knowledge of other payment instruments such as payment cards, and limited access to payment infrastructure. However, the small credit card market is receiving support and growing strongly

ambodia’s government and banks Low banking penetration and limited and resulted in the proportion of the banked are focusing on providing financial consumer awareness of the benefits of cards population rising from 10% in 2012 to 33% access to the unbanked population, remain the primary reasons for low debit in 2016. C expanding banking infrastructure card penetration. As the majority of the such as ATMs, and introducing agent population resides in rural areas, exposure Scope for growth in credit cards banking, in a move to reduce the coun - to electronic payments is relatively low. As most of Cambodia’s population is lower try’s high dependence on cash. The government and banks are taking vari- middle class, and with 90% of the popula- Payment cards are gradually becoming ous measures to bring more of the population residing in rural areas, exposure to credit more accepted, with their use expected to tion into the formal banking system. Local cards and need of use are very low. Banks grow over the forecast period (2017–2021) bank Wing is focusing on providing access therefore focus more on corporate, upper- with a CAGR of 12.52% in terms of transac- to financial services to rural and remote middle-class, high-income customers, as well tion value. However, use of cards is mostly locations; the bank has expanded into 25 as travellers. limited to ATM cash withdrawals, with lit- provinces and operates a network of 5,000 The absence of bankruptcy laws also has tle use at merchant outlets; POS transactions branches. Wing also offers agent banking, hindered credit card adoption in the coun- accounted for only 4% of total card transac- with its 3m customers carrying out around try, as issuers are reluctant to supply cards tions in 2016. 60m transactions annually through agents. to consumers without any legal assurance of A major challenge to the growth of card- Acleda Bank increased its ATM network receiving repayment. based payments in Cambodia is the charging from 219 in 2014 to 280 in 2015, and the Despite its small size, the credit card mar- of additional fees by merchants. However, number of POS terminals from 2,116 to ket has grown significantly in terms of both international scheme providers such as Visa 2,595 over the same period. These initia- cards in circulation and transaction value. and MasterCard, along with commercial tives provided a much-needed push to the The Credit Bureau of Cambodia (CBC) banks, are educating customers and mer- government’s financial inclusion program, was established in 2011 to help develop the chants on the benefits of card payments, and country’s credit cards market. The CBC is a are working to remove surcharging. n CAMBODIAN PAYMENT CARDS BY TYPE private company, regulated and licensed by (MILLION), 2012–2021 the NBC, and is responsible for managing Low banking penetration hinders growth credit information and functionality. Debit card penetration stood at 10.1 per 100 Debit Cards Pay Later Cards Its establishment has provided a frame- individuals in 2016. The figure is compara- 2012 23.5 0.3 work and regulations for the operation of tively low when compared to peer countries 2016 (estimate) 45.1 0.6 credit cards, building confidence among issu- such as China (369.8), Malaysia (140.7), ers and consumers. Since the CBC’s establish- 2017 50.6 0.7 Thailand (116.5), Vietnam (114.4), India ment, the credit cards market has registered (60.7), the Philippines (49), Indonesia (48.2) 2021 74.6 1.2 an average annual growth rate of 17.3%, in and Pakistan (15.7). Source: EPI terms of transaction value. <

n CAMBODIAN CARD TRANSACTION VALUES BY n CAMBODIAN CARD TRANSACTION VOLUMES BY n NUMBER OF ATMS AND POS TERMINALS IN CHANNEL ($ BILLION), 2012–2021 CHANNEL (MILLION), 2012–2021 CAMBODIA (THOUSAND), 2012–2021 ATM POS ATM POS ATM POS 2012 1.7 0.1 2012 23.0 0.9 2012 0.7 4.2 2013 2.0 0.1 2013 26.3 1.0 2013 0.8 4.8 2014 2.7 0.1 2014 34.3 1.3 2014 0.9 5.8 2015 3.1 0.1 2015 38.9 1.6 2015 1.1 9.6 2016 (estimate) 3.6 0.2 2016 (estimate) 43.9 1.8 2016 (estimate) 1.3 12.5 2017 4.2 0.2 2017 49.2 2.1 2017 1.5 14.6 2018 4.8 0.2 2018 54.7 2.4 2018 1.7 16.8 2019 5.4 0.3 2019 60.5 2.8 2019 1.9 18.8 2020 6.0 0.3 2020 66.4 3.1 2020 2.1 20.8 2021 6.6 0.4 2021 72.3 3.5 2021 2.3 22.6 Source: EPI Source: EPI Source: Central Bank of Cambodia, EPI

14 y April 2017 www.electronicpaymentsinternational.com

EPI 358.indd 14 11/04/2017 11:45:54 Electronic Payments International SURVEY ESTONIA COUNTRY

Estonia

As is common in the region, rates of card adoption and use by Estonian consumers are significantly above the global average. Younger buyers tend to be the most prolific users of card payments, and debit cards account for over 90% of both the total transaction volume and value, with contactless set for growth

ard transactions in Estonia record- Latvia and Lithuania, which had rates of According to the World Bank’s Global Fin- ed robust growth during the review 10.5 and 11.7 respectively. POS terminal dex survey, banking penetration in Estonia period (2012–2016), surpassing penetration stood at 346.9, compared again reached 98.1% in 2016; as debit cards are cash to become the dominant pay - to Latvia and Lithuania which had respective generally supplied as complementary with C rates of 335.8 and 536.7. ment instrument. current accounts, the explanation for their In terms of transaction volume, payment To increase financial access among the high penetration rate is clear. cards accounted for 44.3% of the total cards rural population, state postal service Eesti In addition to banks, mobile banking ser- and payments industry in 2016, while cash Post launched a cash withdrawal service in vice provider Pocopay launched in Febru- accounted for 33.6%. Nearly 90% of indi- May 2015, allowing consumers to withdraw ary 2016, allowing customers to open and viduals used payment cards for daily pur- up to €400 ($448) at mobile POS terminals operate bank accounts using mobile phones. chases in 2015, as compared to only 33% carried by mail delivery personnel. There are three account types: Poco Power, in 2001. Poco Basic, and Poco Power Youth. Payment card penetration stood at 1.40 in Highest Baltic debit card penetration Poco Basic has no monthly fee, but has 2016, higher than in Latvia (1.25) and Lithu- Debit cards remained the most widely used limited transaction functionality. The Poco ania (1.24). Estonia’s young population are payment card during the review period, and Power account is available for a monthly fee among the most prolific users of payment accounted for 91.8% of the total transaction of €2.9 ($3.2), and has no transaction fees. cards in the Baltic region. According to a volume and 90.5% of the total value of pay- The Poco Power Youth account is designed survey conducted by SEB Estonia in 2015, ment card transactions in 2016. for individuals aged 18-26, carries a monthly 76% of the Estonian population aged 18-25 Debit card penetration in Estonia is the fee of $1, and has the same features as the years use payment cards for all purchases, in highest in the Baltic region, at 116.3 cards Poco Power account. All account holders are comparison to 59% in Latvia and 40% in per 100 inhabitants, compared to Latvia offered a MasterCard contactless debit card. Lithuania. with 85.2 and Lithuania with 108.9. Low levels of card fraud make Estonia a Contactless to gain prominence prominent country in the European cards n ESTONIAN PAYMENT CARDS BY TYPE Europe has the world’s highest adoption of and payments industry. A 2015 report by the (MILLION), 2012–2021 contactless payments. Estonian banks plan European Central Bank indicated that at five Debit Cards Pay Later Cards to embrace the technology, and all ATMs instances of fraud per 1,000 people, Estonia are expected to be equipped with contactless was the lowest-ranking nation in the SEPA 2012 1.4 0.4 functionality by 2020, while new POS termi- region, where the average is 20. 2016 (estimate) 1.5 0.3 nals are expected to be contactless by 2017. Estonia has a robust banking infrastruc- 2017 1.6 0.3 To expedite the process, Swedbank, ture. ATM penetration – the number of Nordea Bank and LHV Pank have already 2021 1.6 0.4 ATMs per 100 inhabitants – in the country launched contactless cards; SEB plans to stood at 7.8, lower than its Baltic peers of Source: EPI introduce them by the end of 2017. <

n ESTONIAN CARD TRANSACTION VALUES BY n ESTONIAN CARD TRANSACTION VOLUMES BY n NUMBER OF ATMS AND POS TERMINALS IN CHANNEL ($ BILLION), 2012–2021 CHANNEL (MILLION), 2012–2021 ESTONIA (THOUSAND), 2012–2021 ATM POS ATM POS ATM POS 2012 4.4 4.6 2012 41.1 214.1 2012 0.9 27.2 2013 4.8 5.3 2013 40.1 230.2 2013 0.9 27.5 2014 4.9 5.7 2014 38.8 246.3 2014 0.8 28.8 2015 4.2 5.2 2015 38.4 264.1 2015 0.8 31.7 2016 (estimate) 4.4 5.7 2016 (estimate) 37.8 282.8 2016 (estimate) 0.8 34.7 2017 4.5 6.2 2017 37.4 302.2 2017 0.8 37.6 2018 4.6 6.7 2018 36.9 322.1 2018 0.7 40.2 2019 4.8 7.3 2019 36.6 342.2 2019 0.7 42.5 2020 4.9 7.9 2020 36.3 362.5 2020 0.7 44.5 2021 5.0 8.4 2021 36.0 383.0 2021 0.7 46.3 Source: Central Bank of Estonia, EPI Source: Central Bank of Estonia, EPI Source: Central Bank of Estonia, EPI

www.electronicpaymentsinternational.com April 2017 y 15

EPI 358.indd 15 11/04/2017 11:45:59 Electronic Payments International COMMENT GLOBALDATA

Trump’s Durbin repeal won’t help US consumers President Trump’s plan to repeal the Dodd-Frank Act will rid the US of the Durbin Amendment, but it will not result in a better deal for consumers, according to GlobalData Financial Services he new US president has his sights eral trend towards higher fees on consumer it will be consumers who ultimately pay for set on deregulating the financial accounts as banks attempted to make up the this, as merchants will raise their prices to services market, setting in motion revenue shortfall, ironically making it more compensate for their reduced profits. his plan to repeal the Dodd-Frank difficult for consumers to use electronic pay- Consumers will not necessarily see T ments. reduced account fees from their bank either Act of 2010 with an executive order, signed on 3 February, 2017, requiring And while merchants argued for fee caps – even though banks will regain the profit that the act be reviewed. on the basis that the cost of those fees was margins that would allow them to do so – These plans will have far-reaching con - borne by the consumer in the form of price when they have already become used to sequences on the economy, access to credit, increases, the savings from those caps have paying the new, higher fees. After all, when and on the price of consumer goods and not actually been passed on to consumers. it was merchants that gained from govern- financial services through the loss of rules The loss of the Durbin Amendment would ment intervention, consumers did not reap in the act known as the Durbin Amendment. return control of card transaction fee prices the benefits. The rules, which were enacted to ensure to the payments industry. However, it will Market forces may eventually drive prices a better deal for merchants in the debit card not return the market to the state it was down, but with the Trump administration’s market, have had severe unintended conse- in before the amendment was passed, or attitude towards restricting businesses with quences that have ultimately harmed con- reverse its consequences. regulation, there will be no other pressure to sumers. The immediate effects of President reinstate free debit card accounts. The Durbin Amendment set a cap on the Trump’s executive order will be minimal – In repealing the Dodd-Frank Act, Presi- fees banks charge merchants to accept debit the machinery of the state moves slowly, and dent Trump will bring control of the pay- card transactions, but the savings merchants the president cannot unilaterally repeal US ments industry back to the industry itself, have made since its enactment have not been statute law, but if he succeeds the effects on but the genie is already out of the bottle. passed on to consumers. the payments market will be far-reaching. The Durbin Amendment has altered the US By restricting banks’ income from debit Banks will, of course, benefit from poten- payments market, and the changes will not card fees, the regulation also led to a gen - tially higher income from card fees, although reverse at the stroke of a pen.<

Don’t have online account details?

You and your associates may be entitled to online login credentials. The benefits of full online access are as follows:

• Timely daily news updates • Access the latest analysis • Monthly editions sent directly to your inbox • News alerts direct to your inbox • Comments from key industry influencers and leaders • Search for specific, relevant content • Access the archive

To create or activate your account please contact: [email protected]@verdict.co.uk www.16 y April 2017 www.privatebankerinternational.com www.electronicpaymentsinternational.com

DigitalEPI 358.indd touch briefings 16 ad copy - CI 18042016.indd 1 18/04/201611/04/2017 11:17:37 11:46:03 Retail Banking Conference & Awards: London 2017 11th May 2017 • Waldorf Hilton, London

Retail Banking: London 2017 brings together high-street banks, Why Attend? retailers, new market entrants, financial professionals and industry • Hear from key senior industry thought leaders via informative and disruptors in an active discussion of the key issues facing the industry: inspiring keynote sessions • How is the Internet of Things (IOT) driving industry change? • Network with speakers, participants, partners and share best practise • Artificial Intelligence - friend or foe? with your peers • Generation Y Banking Solutions • Discover the latest key industry trends and discuss practical solutions to the most pressing industry questions • Challenger Banks disrupting the landscape • Celebrate at our black tie awards dinner recognising those at the top • Cybercrime, Identity Theft and the DarkWeb of their game • The Future of Payments

Top industry movers and shakers will meet to debate the importance of new strategies, business practices and partnerships in the industry. We invite you to become an active voice in this discussion to shape the future of retail banking. For more details please contact Victoria Pennell on [email protected] or call +44 (0) 20 3096 2634.

Event supported by

Headline Sponsor Exclusive Award Sponsor Silver Sponsor Brand Sponsors Panel Sponsor Exhibitors

Untitled-2 1 11/04/2017 11:35 Intelligent Environments, the international provider of digital ﬁ nancial services solutions in association with Retail Banker International, Cards International, Electronic Payments International, Private Banker International, and Motor Finance publications

Join thousands of ﬁ nancial services professionals who have joined The Digital Banking Club to understand the future of mobile and online ﬁ nancial services

Join The Club! Membership beneﬁ ts

www.thedigitalbankingclub.com 10% discount for new subscribers/purchasers on: Annual subscriptions to Retail Banker International, Cards @TheDBclub International, Electronic Payments International

Delegate places for the Retail Banker International event Membership is free being held on the 11th May in London Or World Market Intelligence’s archive of over 250 Retail Banking and Cards & Payments research reports For more information please email: Subscription to the Retail Banking and Cards International [email protected] Intelligence Centres

TDBC Adverts - 2017.indd 1 03/01/2017 08:17:53