Paytech: Reinventing Transactions Navigating the disrupted payments ecosystems Introduction Contents Executive Summary
Section 1: Introduction: Disrupting Payments Introduction 3 with Tech-Enabled Solutions Executive Summary 4 Section 2: Digital Infrastructure Enables Section 1 Introduction: Disrupting Payments with Tech-Enabled Solutions 6 Payment Diversification Section 2 Digital Infrastructure Enables Payment Diversification 13 Section 3: Collaboration for Paytech Section 3 Collaboration for Paytech Innovation 19 Innovation Section 4 Balancing Fast Pace of Change and Value Addition 26 Section 4: Balancing Fast Pace of Change Section 5 Adopting Diverse Business Models to Stimulate Growth 32 and Value Addition Section 6 Conclusion 37 Section 5: Adopting Diverse Business Models Glossary 39 to Stimulate Growth
Section 6: Conclusion
Glossary
2 Introduction Introduction Executive Summary
Section 1: Introduction: Disrupting Payments This eBook has been commissioned with Tech-Enabled Solutions by Enterprise Ireland to identify and Section 2: Digital Infrastructure Enables analyse key trends in the paytech market. Payment Diversification
Section 3: Collaboration for Paytech The information and analysis presented in Innovation this report is based on a variety of sources Section 4: Balancing Fast Pace of Change including publications, journals and analysis and Value Addition of data that is part of proprietary research Section 5: Adopting Diverse Business Models from Frost & Sullivan. The publicly available to Stimulate Growth sources of information include government Section 6: Conclusion websites, academic and trade journals, and
Glossary online media.
3 Introduction Paytech: Reinventing Transactions Executive Summary
Section 1: Technology adoption drives transformation in the payments industry Delivering digital products and services comes with its own set Introduction: Disrupting Payments of challenges with Tech-Enabled Solutions Consumer behaviour and expectations have evolved in the shared economy, prompting industry participants to harness technology to It is important to try and isolate the intended outcomes upfront for Section 2: launch innovative products, services and business models. The delivery any innovation implementation. Customers are demanding seamless Digital Infrastructure Enables and consumption of payment services has undergone significant and secure services, with an ability to make payments across multiple Payment Diversification change, making paytech one of the most disruptive segments within channels and access financial services on the go. Acceptance of fintech. Technology has lowered entry barriers, and the new paytech different payment channels such as e-wallets and social media platforms Section 3: ecosystem comprises a multitude of industry participants. is on the rise. Collaboration for Paytech Innovation Payment providers can transform capabilities with digital Success of the paytech market rests on diverse business models infrastructure Section 4: A wide range of paytech products and services are available, as Balancing Fast Pace of Change The transformation of back-end technology can contribute to an providers have adopted dynamic, scalable, and tech-agnostic business and Value Addition enhanced customer experience, which goes beyond changing the models. To retain competitiveness, companies are actively responding user experience (UX) or interface. Some of the advanced technologies to the needs of customers, which require them to be flexible and agile. Section 5: expected to impact the industry are cloud computing, the Internet of Subscription, pay-as-you-go and usage-based models are gaining Adopting Diverse Business Models Things (IoT), Big Data and Analytics (BDA), Artificial Intelligence (AI), popularity and incumbents are exploring different ways to incorporate to Stimulate Growth Machine Learning (ML) and blockchain, all of which are at different new models. levels of implementation and maturity in the payments industry. Section 6: Objective and Summary Conclusion Collaboration among industry participants blurs the lines of competition The payments industry has seen significant disruption over the last few Glossary years. This highly regulated segment is benefiting from the emergence Paytech has moved beyond IT providers to encompass a range of new of tech-enabled products and services. Industry initiatives aimed at market participants. Given the specific competencies possessed by transforming the customer experience and promotion by regulators in different industry participants, careful consideration of selection criteria some jurisdictions are driving multiple opportunities. However, the fast is important before deciding on different partners. pace of change makes it difficult for stakeholders — traditional banks, neobanks and alternate payment providers — to make the most of these business prospects.
4 Introduction To benefit from emerging opportunities, payment providers Executive Summary need to adapt rapidly and reduce time to market. Fragmentation across the industry is a challenge, and stakeholders will likely Section 1: benefit from collaboration within the ecosystem. Technology Introduction: Disrupting Payments disruption is rife, with a strong focus on integrating advanced with Tech-Enabled Solutions technologies into solutions. Platforms, Machine Learning (ML), Artificial Intelligence (AI), analytics and blockchain will define Section 2: the future of the industry and several new solutions based on Digital Infrastructure Enables these technologies are being explored. Furthermore, start-ups Payment Diversification are introducing new business models and channels, developing innovative services that are redefining the competitive landscape. Section 3: Collaboration for Paytech Technology has the potential to disrupt significant elements of the Innovation payments sector and the paytech industry is poised for substantial growth. This eBook observes the evolution of the segment and takes Section 4: a thematic approach to underline noteworthy developments. These Balancing Fast Pace of Change themes span technology-based transformation, disruption, innovation, and Value Addition collaboration, and diversity.
Section 5: This eBook considers: Adopting Diverse Business Models to Stimulate Growth —— Disruption in the payments industry brought about by digital and mobile-first products and services Section 6: —— The impact of technology-enabled solutions Conclusion —— Evolution of the paytech ecosystem and collaboration among Glossary stakeholders to enhance value for customers
—— The game-changing potential of new business models and channels in the payments industry
5 Introduction Section 1 Executive Summary
Section 1: Introduction: Disrupting Payments Introduction: Disrupting Payments with Tech-Enabled Solutions with Tech-Enabled Solutions Section 2: Digital Infrastructure Enables Payment Diversification Payments industry processes and Section 3: Collaboration for Paytech functions are being transformed through Innovation the application of digital solutions. Section 4: Balancing Fast Pace of Change and Value Addition
Section 5: Adopting Diverse Business Models to Stimulate Growth
Section 6: Conclusion
Glossary
6 Figure 1: Rising consumer awareness
Introduction The payments industry is undergoing significant transformation, Executive Summary driven by the growing adoption of technology. The evolution of Consumer expectations regarding payment services consumer behaviour and changing expectations in relation to Section 1: payments in a shared economy has prompted a reaction from Introduction: Disrupting Payments industry participants that have harnessed technology to launch with Tech-Enabled Solutions innovative products, services and business models. Consumers supporting the use of Section 2: While traditional enterprises have been disrupted, tech-enabled 80% futuristic payments technologies Digital Infrastructure Enables businesses have created a completely different payments and currencies Payment Diversification ecosystem. The collective influence is visible in the range of new opportunities that have emerged in recent years. Simultaneously, Section 3: this transformation has led to multiple challenges and issues Collaboration for Paytech pertaining to data, security and regulations, creating confusion Innovation among incumbents and new providers alike. Consumers expecting facial Section 4: Traditionally, banks have been the cornerstone of the payments 33% recognition to emerge as a leading Balancing Fast Pace of Change ecosystem. However, as consumer expectations evolve with authentication option and Value Addition digitalisation, dissatisfaction with traditional payment options — often slow, complex and lacking agility and transparency — is on Section 5: the rise. The proliferation of mobile devices has further altered Adopting Diverse Business Models consumer behaviour. Figure 1 captures consumers’ evolving to Stimulate Growth sentiments regarding payment services. Source: Frost & Sullivan
Section 6: Beyond consumer payments, business-to-business (B2B) payments Conclusion is a complex corporate function, especially for organisations with a global footprint. Multiple components and developments over Glossary the years have led to fragmented systems. Companies struggle to adapt to new currencies, data rules and software, and this is further complicated by external considerations such as security concerns and a growing number of channels. Organisations need to manage payments effectively to optimise costs, revenue sources, and working capital. Incumbent banks have not been very
7 Introduction agile and innovative when it comes to offering solutions that enable a One of the most talked about regulations has been PSD2 (the revised Executive Summary seamless transition to more intuitive methods of payment. The advent Payment Service Directive), which empowers banking customers to of tech-enabled solutions has led to significant changes in the delivery use third-party providers to manage their finances. It enables Payment Section 1: and consumption of payment services across both the business and Service Users (PSUs) to pay bills or transfer funds using industry outsiders Introduction: Disrupting Payments consumer domains. like Facebook, Twilio or Twitter, and banks are required to provide access with Tech-Enabled Solutions via open Application Program Interfaces (APIs). Third-party providers Paytech: The tech-enabled payments ecosystem (TPPs) are emerging as strong competitors as they innovate and build Section 2: products and services using banks’ data and infrastructure. For instance, Digital Infrastructure Enables Innovations are flourishing across various financial technology sub- upon gaining permission from users, Account Information Service Payment Diversification segments such as peer-to-peer lending, management of assets, Providers (AISPs) can consolidate information from multiple accounts investments, payments and blockchain. Payments are one of the most and deliver a combined view to PSUs. Section 3: disrupted segments within fintech. There are a variety of payment Collaboration for Paytech processes and schemes that are either carried out by banks or other Technology has lowered entry barriers, with neo and challenger Innovation electronic money and payment firms. Some of these are national and banks and alternative payment companies introducing new solutions international money transfers, bill payments, loyalty-based cashback, that cater to specific needs. The paytech ecosystem comprises new Section 4: electronic money, intermediation of payments and payment channels. products and services such as e-wallets and enablers (platforms) as Balancing Fast Pace of Change represented in Figure 2. and Value Addition Paytech is a fintech sub-segment spanning This also means that the industry scope is extended and complexity Section 5: companies that provide solutions, services or increases to include participants providing digital support, infra Adopting Diverse Business Models products to process payments in the digital structure or niche services. to Stimulate Growth and physical world.
Section 6: Conclusion Payments typically need to follow the regulations and frameworks prescribed for the banking industry. For instance, in Ireland, Payment Glossary Services Regulations (PSR) 2018 is aimed at lowering the barriers to entry for third-party service providers and fintech entities into the payment services market. Similarly, the issuance of electronic money is governed by Electronic Money Regulations 2011. The Central Bank of Ireland remains the final authority for electronic money and payment institutions, ensuring that all sub-segments remain under a central jurisdiction.
8 Figure 2: Extensive paytech ecosystem Figure 3: Paytech industry participants*
Introduction Executive Summary Digital Support Invoicing Section 1: Wallets Cards Introduction: Disrupting Payments Money Transfer AI, ML, BDA Google Wallet American Express with Tech-Enabled Solutions MasterPass Mastercard Visa Checkout Visa Section 2: Neteller JCB Digital Infrastructure Enables Cryptocurrency Platforms Payment Diversification Digital Infrastructure Section 3: Collaboration for Paytech Paytech Platforms Adyen Innovation Wallets Ecosystem Blockchain First Data Clear 2 Pay Wepay Elavon Section 4: Credorax Global Payments Balancing Fast Pace of Change Poynt Ingenico Group and Value Addition Wirecard Sentenial
Section 5: Adopting Diverse Business Models Digital Niche Services to Stimulate Growth PoS Mobile
Section 6: Online PoS Mobile Conclusion iZettle Mozido POS Lavu Fire Glossary Payleven Samsung Pay Products and services Stripe Trustly Enablers Square Lemonway Channels Flypay MPESA Revel
Source: Frost & Sullivan Source: Frost & Sullivan; * Representative companies only 9 Introduction The paytech ecosystem is supported by companies that provide Alternative payment providers: Executive Summary security solutions and prevent fraud. Some of the findings of the European Payment Council’s 2017 Payment Threats and Fraud —— Technology companies providing alternative solutions Section 1: Trends Report are as follows: that are accessible via mobile devices and wearables Introduction: Disrupting Payments —— Use tools such as e-wallets and cryptocurrency with Tech-Enabled Solutions —— Instances of Distributed Denial of Service (DDoS) attacks targeting the financial sector are growing Although the industry is growing steadily, stakeholders encounter Section 2: challenges across a wide range of factors. Some of the most note —— The focus of attacks has shifted to social engineering Digital Infrastructure Enables worthy issues are highlighted in Figure 4. Payment Diversification —— IoT and mobile devices are increasingly being targeted
—— Payment providers must share fraud intelligence and Section 3: information to mitigate risks Collaboration for Paytech Innovation The report also mentions that more than 50% of all phishing attacks targeted the financial sector, with banks being the leading Section 4: target. Many regulations are in place to ward off such risks. For Balancing Fast Pace of Change instance, the Payment Card Industry Data Security Standard (PCI and Value Addition DSS) provides a set of criteria related to processing, storing or transmitting credit card information. Section 5: Adopting Diverse Business Models Payments industry participants face numerous challenges. For the to Stimulate Growth purpose of this eBook, we have considered traditional banks and card companies, neo and challenger banks, and alternative payment Section 6: providers as key stakeholders in the industry. Conclusion
Neo and challenger banks: Glossary
—— Employ a digital-first, online-first or mobile-first approach
—— Deliver state-of-the-art technology for innovative services and products to enhance the customer experience
—— May or may not possess a banking license
10 Figure 4: Challenges faced by payment ecosystem participants
Introduction Executive Summary Incumbents Alternate Payment Companies
Section 1: —— Regulatory intervention has created favourable conditions —— Core business of providers may restrict adoption by Introduction: Disrupting Payments for non-bank payments industry participants online merchants since companies like Amazon have their with Tech-Enabled Solutions own marketplace and can be perceived as competitors —— Increasing competition with more agile challengers entering Section 2: the market —— Increasing competition as a number of wallets and apps Digital Infrastructure Enables are competing for consumer attention —— Changing consumer preferences have led to greater Payment Diversification adoption of solutions offered by new industry participants —— Regulations differ by geography, making compliance complex Section 3: —— Lower margins if banks fail to innovate and continue to Collaboration for Paytech provide commoditised services —— Customer loyalty is low, and expectations are high. They Innovation are likely to move on to a different provider if dissatisfied —— Legacy infrastructure hinders efforts to introduce changes or if they perceive it to be more innovative due to high upfront costs and interoperability issues Section 4: Balancing Fast Pace of Change and Value Addition Neobanks / Challenger Banks
Section 5: —— Viable business models can be difficult to achieve. Initial Adopting Diverse Business Models attempts with free products and services have made to Stimulate Growth monetisation a challenge
Section 6: —— Scaling up with limited resources and funds is challenging. Conclusion The rather long road to gain customer trust and limited access to data hinders scalability Glossary —— Approach to technology requires a lot of planning. It can be difficult to balance a lean structure and uninterrupted services
—— Regulations have not been able to keep pace with innovation, leading to ambiguity in terms of compliance and regulatory requirements Source: Frost & Sullivan 11 Figure 5: Factors driving paytech industry growth
Introduction Conclusion: Co-existence of cash and alternate payment options Executive Summary The paytech ecosystem is still evolving. The 2017 World Payments Report 1 High adoption of mobile devices Section 1: by Capgemini and BNP Paribas predicts a continuous increase in the —— Wide range of usage ranging from peer-to-peer Introduction: Disrupting Payments volume of global non-cash transactions at an estimated CAGR of 10.9% (P2P) payments to PoS payments with Tech-Enabled Solutions in the period 2015–2020. Figure 5 presents the primary drivers for growth of the paytech industry as identified by Frost & Sullivan research. —— Real-time data collection can enable value- Section 2: added options such as biometric sensors for Digital Infrastructure Enables The growth of paytech will largely depend on the strength of the better security Payment Diversification ecosystem and developments in the support systems that span technology and regulations. Partnerships among different stakeholders 2 Improving cost structure Section 3: are the key to creating a stronger ecosystem. For instance, Mastercard —— Optimising fee structure to encourage Collaboration for Paytech Send™ is a global payments platform enabling rapid and secure sending customer adoption Innovation and receipt of money online. It works across banks, fintech companies and businesses for domestic and international transfers. —— Personalised services and sales and marketing Section 4: with real-time data will enhance conversion rates Balancing Fast Pace of Change Although consumers are moving away from cash payments, it is still and Value Addition the preferred mode of transactions for many. According to a report 3 Advanced technology for better experience by UK Finance, cash use is likely to decrease in the country over the —— Use of technologies such as cloud computing, Section 5: next decade – from 34% in 2017 to 16% in 2027 – as the popularity of ML to facilitate automation and enhance services Adopting Diverse Business Models alternative payment methods increases. Globally, cash and alternate to Stimulate Growth payment options will co-exist in the foreseeable future, although some —— Data analytics and determining behavioural countries will adopt cashless trends significantly before others. patterns to enhance digital security and risk Section 6: management processes Conclusion 4 Evolving regulatory framework Glossary —— PSD2 focuses on making European payments safer and innovative, but it will impact businesses globally
—— SEPA intended to create smooth, borderless payments zone and promote faster and transparent payments
12 Source: Frost & Sullivan Introduction Section 2 Executive Summary
Section 1: Introduction: Disrupting Payments Digital Infrastructure Enables Payment with Tech-Enabled Solutions Diversification Section 2: Digital Infrastructure Enables Payment Diversification Adoption of digital infrastructure will Section 3: Collaboration for Paytech transform the capabilities of payment Innovation providers. Innovative products will Section 4: Balancing Fast Pace of Change enhance customer satisfaction. and Value Addition
Section 5: Adopting Diverse Business Models to Stimulate Growth
Section 6: Conclusion
Glossary
13 Figure 6: Challenges beyond digital infrastructure implementation
Introduction The highly complex and regulated nature of banking makes it Executive Summary difficult for traditional companies to incorporate large-scale changes Interoperability as consumers use multiple in existing operations. Introducing new technologies and business payment channels Section 1: models in-house creates the risk of cannibalisation. Banks may find Introduction: Disrupting Payments it arduous to integrate flexibility, agility, internal collaboration, and Cybersecurity due to pervasive risk of data with Tech-Enabled Solutions rapid implementation techniques. and privacy breach
Section 2: Customer experience is about more than simply changing the user Consumers’ perception, acceptance Digital Infrastructure Enables experience (UX) or interface; the technology and approach also and reaction Payment Diversification needs to transform. Neobanks and alternate payment companies possess advanced digital infrastructure. However, the products and Merchant willingness for incurring Section 3: services should cater to a variety of customer types who may be at expenditure upfront Collaboration for Paytech different levels of tech adoption and maturity. Moving beyond the Innovation launch of apps and features, a seamless transition depends on altering Inconsistencies across markets and regions existing perceptions around banking. Most neobanks are in the early Section 4: stages of development, and long-term sustainability of their models Balancing Fast Pace of Change is yet to be proven. Differentiating in a fiercely competative market and Value Addition Some of the challenges faced by companies when digitally transforming Section 5: payments extend beyond implementation and execution as indicated Adopting Diverse Business Models in Figure 6. Source: Frost & Sullivan to Stimulate Growth The challenge for traditional banks is greater as they need to implement —— Easy and rapid onboarding Section 6: changes across multiple fronts to compete with neobanks and alternate —— Easy and secure authentication Conclusion payment companies. In many cases, this means initiating a completely different approach. For example, personalised services instead of a —— Ease of completing a transaction Glossary commoditised product, or 24/7 omnichannel banking instead of fixed —— Value addition in exchange of shared data business hours with bank branches. Neobanks and digital payment providers are typically much smaller Differentiating with value-added outcomes than traditional banks. While technology lowers entry barriers, success primarily depends on multiple factors such as business model, To identify and introduce the change necessary to keep pace with scalability, level of innovation, time to market and value to customers. rapid digital developments, companies can focus on outcomes that Figure 7 elaborates on some of these themes with examples of new will enhance customer experience to guide their strategies: companies that have focused on specific capabilities to stand out. 14 Figure 7: Key differentiators for success
Introduction Executive Summary 1. Value Proposition 3. Business Model
Section 1: Introduction: Disrupting Payments Highly defined and specialised products and services that Use of digital and social platforms as an inherent part of the with Tech-Enabled Solutions are designed in response to existing challenges. offerings to enhance ease of use and adoption by customers.
Section 2: Pippit (Ireland) Currencyfair (Ireland) Digital Infrastructure Enables —— B2B platform for international cash payments —— Global P2P exchange for individuals and businesses Payment Diversification to exchange currencies and send funds to bank accounts —— Cross-border bill payments in cash Section 3: —— Two domestic bank transfers instead of one, international —— Load cash to e-wallets Collaboration for Paytech transfer to reduce cost and increase speed Innovation —— Accept cash for e-commerce orders
—— International remittance 4. Scalability Section 4: Balancing Fast Pace of Change and Value Addition 2. Technology Ability to expand into relevant business areas without initiating fundamental changes. Section 5: Adopting Diverse Business Models Companies are created from scratch and are characterised Klarna (Sweden) to Stimulate Growth by a digital-first and mobile-first full stack with no legacy infrastructure. —— Started with the aim of simplifying the online Section 6: payments experience Conclusion Monzo (UK) —— Has applied for a banking license —— No branch, smartphone bank, hinges on an app Glossary —— Facilitates payments for 60 million consumers —— Instant balance update, notifications, visual and across 90,000 merchants in 14 countries interactive interface
—— Support for both Google Pay and Apple Pay
—— Applying AI and ML for analytics and fraud management Source: Frost & Sullivan
15 Introduction Most traditional banks have responded with their own digital strategy. and all these are based on insights from transactions. Customer Executive Summary For instance: experience is enhanced with access to relevant insights, with information delivered in a visual format that’s easy to use and consume. Section 1: —— BBVA, a Spanish traditional bank, has been focusing on strategic Introduction: Disrupting Payments partnerships and investments. In the last few years, the bank Advanced technologies will power next-generation payment solutions with Tech-Enabled Solutions has acquired Simple (an online bank), invested in Atom Bank (an exclusively mobile bank), and acquired Holvi (which caters The use of advanced technologies such as cloud computing, the Internet Section 2: to the self-employed and freelancers, a niche market segment). of Things, Big Data and Analytics, Artificial Intelligence, Machine Digital Infrastructure Enables Learning and blockchain are at different levels of implementation and —— Two traditional Chinese banks, CMB and ICBC, undertook Payment Diversification maturity within the payments industry. The exponential increase in data, technology upgrades and customer outreach to retain declining cost of computing, emergence of new database technologies market share in the face of strong competition from Alipay Section 3: and innovative applications have all impacted the payments sector. in the payments market. Some measures undertaken include Collaboration for Paytech The influence is visible in improved efficiency, distribution, time to improvements to banking apps, enhanced mobile banking Innovation market and UX. Figure 8 captures the contribution of different capabilities and developing a mobile-optimised website. The advanced technologies. banks were able to compete more effectively with new entrants Section 4: as a result of these steps. Balancing Fast Pace of Change Over the years, as technology adoption has progressed beyond and Value Addition —— As part of research and development initiatives to stay abreast automation and companies have re-focussed their approaches, of the latest developments in blockchain, Commonwealth Bank numerous trends have emerged in the payments industry. Figure Section 5: of Australia, Wells Fargo and Brighann Cotton undertook a proof 9 provides some examples of innovations driven by advanced Adopting Diverse Business Models of concept involving a global blockchain-based transaction technologies. While some of these have created unique experiences to Stimulate Growth between two banks. The transaction required a collaborative for customers and are likely to gain popularity in the next few years, workflow to track and pay for a shipment of cotton between the others that enhance critical features such as data security are Section 6: United States and China. inherent to the success of paytech. Conclusion Digitalisation of payments helps companies to gain access to Glossary information and insights garnered from transaction data. These insights can be used to offer personalised services to influence consumer behaviour via their spending and savings habits. Enterprise customers can benefit from value-added services such as cash flow forecasting and alerts, invoicing, and management of tax liabilities,
16 Figure 8: Influence of advanced technologies on paytech Figure 9: Examples of innovations using advanced technologies
Introduction IoT and AI Executive Summary Cloud Computing
Payment processing platforms, digital money and crypto- Section 1: Voice-enabled Payments – Payment instructions by speaking to currencies gain traction as the ability to offer service Introduction: Disrupting Payments devices such as Amazon Echo, Google Home or Apple HomePod. level agreements is aligned with payment standards and with Tech-Enabled Solutions regulations. Amazon ecosystem of Amazon.com, Amazon Apps, Amazon Pay Section 2: and Alexa can enable payments. Customers use Amazon Echo to Connected Devices Digital Infrastructure Enables make purchases. Alexa skills can be developed for Amazon Pay to Payment Diversification Mobile devices disrupt payment ecosystem as customers enable customers to order and pay for products. gain access to personalised services and a faster and Section 3: more convenient payment mode. ML Collaboration for Paytech Innovation Big Data and Advanced Analytics Fraud Detection – Using ML-enabled tools to draw insights from Capitalising on data to provide high-end services such as Section 4: existing data and information to predict and detect possible fraud. authentication, risk management, KYC, and leveraging Balancing Fast Pace of Change data for optimised solutions. and Value Addition Stripe Radar is a collection of tools, equipped with ML capabilities that can detect and prevent fraud. Information from every card AI & ML Section 5: payment across Stripe’s network of 100,000+ businesses is Adopting Diverse Business Models Significant impact of ML in terms of enhanced cyber aggregated to create behavioral signals to predict fraud. to Stimulate Growth security and ability to deliver personalised services. AI will enable advisory services and strengthen fraud analytics. Blockchain Section 6: Conclusion Blockchain Blockchain-enabled Donations – Increasing transparency by The technology behind cryptocurrencies can ensure Glossary allowing donors to track their donations. security of payment transactions; smart contracts will enhance accuracy and compliance. AID:Tech launched TraceDonate with Irish Red Cross. Uses AID:Tech Blockchain platform built on Hyperledger Fabric and digital identity core product. Technology can be used to make welfare distribution, international remittance, healthcare delivery, P2P donations and supply chain tracking transparent. Source: Frost & Sullivan 17 Introduction Large dynamic data sets enable new use cases based on tracking of environment where customers can access the best and most relevant Executive Summary consumer habits, pattern recognition and insights. Subtle shifts and solutions for their needs. The digital infrastructure transformation anomalies in the data are not missed and algorithms learn from them evident across the paytech industry has unleashed a series of changes Section 1: continuously. This impacts the quality of predictions by providing creating opportunities that will significantly enhance UX. Introduction: Disrupting Payments better accuracy and constant improvements in the system. However, with Tech-Enabled Solutions regulations around consumer privacy are becoming stricter. The General Data Protection Regulation (GDPR) mandated by the European Section 2: Commission (EC) defines requisites to protect consumer data within the Digital Infrastructure Enables European Union (EU) and the European Economic Area (EEA) and the Payment Diversification export of personal data outside of these areas. The regulation enables better control with cross-border consistence and clarity. Consumers Section 3: can demand access to all data — including payments data — that Collaboration for Paytech companies hold and can instruct on how it is to be used. As advanced Innovation technologies improve access to consumer data, companies must remain cognisant of how they are using it and whether they are using it within Section 4: legal confines. Balancing Fast Pace of Change and Value Addition Conclusion: The paytech ecosystem thrives on diversity of industry participants Section 5: Adopting Diverse Business Models Disruptors have transformed the payments industry with a combination to Stimulate Growth of alternate approaches and advanced technology stacks. The value additions administer a payment experience that leverages automation, Section 6: interoperability, security and analytics. Conclusion Continuous updates and innovations from tech companies such as Glossary Apple and Amazon keep customers interested in the next innovation that will enhance their experience. Traditional banks are investing in and adopting tech-enabled solutions and a digital approach. Regulators play a role as new innovations necessitate their involvement in making adoption and implementation smoother. This enables a competitive
18 Introduction Section 3 Executive Summary
Section 1: Introduction: Disrupting Payments Collaboration for Paytech Innovation with Tech-Enabled Solutions
Section 2: Digital Infrastructure Enables Banks need to collaborate with others Payment Diversification who can facilitate faster changes. Section 3: Collaboration for Paytech Innovation
Section 4: Balancing Fast Pace of Change and Value Addition
Section 5: Adopting Diverse Business Models to Stimulate Growth
Section 6: Conclusion
Glossary
19 Figure 10: Technology components transforming paytech
Introduction The paytech ecosystem has moved beyond IT providers to encompass Executive Summary a range of new market participants. Today, tech-enabled transactions Platforms are facilitated by a complex mix of intermediaries and stakeholders, —— Disjointed customer experiences across multiple Section 1: who come together to create a back end that can handle multiple tasks. payment channels cause confusion Introduction: Disrupting Payments These companies contribute tech components (mentioned in Figure 10 with Tech-Enabled Solutions alongside their areas of application) that are transforming the industry. —— Open platforms integrate multiple aspects related to paytech to create a seamless experience Section 2: The experience for customers is enhanced with a unified version that Digital Infrastructure Enables is fast, accurate, seamless and channel agnostic. Most solutions are Payment Tools Payment Diversification designed to target very specific pain points. Companies either work —— Apps and wallets improve customer experience with with others within the ecosystem (such as Ding, Ireland) or expand their notifications, self-checkout, authentication, etc. Section 3: own portfolio of services (such as Square, US) as illustrated in Figure 11. Collaboration for Paytech —— Selecting the right tools may prove to be daunting for Innovation APIs can be used to enable solutions to achieve a wider reach. The customers and may require integration new paytech ecosystem displays many unique characteristics that Section 4: aid collaborations among market participants. Figure 12 covers the New Interfaces Balancing Fast Pace of Change most notable attributes. —— Voice-enabled services, natural language recognition and Value Addition and chatbots will change how customers interact with The technology components and characteristics of the emerging payment providers Section 5: paytech ecosystem can contribute to success with a collaborative Adopting Diverse Business Models approach to provide end-to-end solutions to customers. When partners —— Access to real-time data will help to improve solutions to Stimulate Growth can create a workable formula, fragmentation ceases to be an issue. APIs Section 6: —— Application Programming Interfaces (APIs) are software Conclusion tools that help to create a cohesive system
Glossary —— They allow interaction and sharing of data between different systems and applications
Source: Frost & Sullivan, Illustrative list
20 Figure 11: Specific solutions with wide reach Figure 12: Paytech ecosystem characteristics impacting collaboration
Introduction Executive Summary Ding Fragmentation —— International mobile top-up platform Section 1: —— Entry of many new market participants, small and Introduction: Disrupting Payments —— 140 countries, 4 billion phones, 500 operators, large, created a fragmented market with Tech-Enabled Solutions 600,000 retailers, 1 top-up every second globally —— Those that achieve success are expanding and blurring —— Ding opens its API to allow other companies to Section 2: the boundaries of what paytechs were expected to provide integrate mobile top-up into their solutions Digital Infrastructure Enables —— Innovations occur faster than the pace of adoption Payment Diversification —— July 2018: Users have enabled 300 million top-ups since it was founded Section 3: Specialisation Collaboration for Paytech Square Innovation —— Started with a card reader for sellers that can now —— Market participants with niche offerings solve specific accept chip cards and NFC payments payment issues Section 4: Balancing Fast Pace of Change —— Cash app for immediate money transfer —— Adoption, testing and integration of such solutions can and Value Addition be tough and require more time to market —— Has grown to enable sending of invoices, offering delivery option for food businesses, salary payments, —— Prioritising changes can be a challenge Section 5: and offers capital Adopting Diverse Business Models to Stimulate Growth Customer Journey Source: Ding, Square, Frost & Sullivan Section 6: —— As customer experiences are assessed, continuous Conclusion improvements are key to sustain business growth and differentiate Glossary —— Partnership decisions are guided by innovation, security and compliance of solutions
—— Other aspects include authentication, interoperability and ease of integration
Source: Frost & Sullivan 21 Figure 13: Changing consumer preferences
Introduction Collaborative approach blurs lines of competition Executive Summary 2017 Visa Consumer Payment Attitude Survey, Southeast Asia The paytech industry is dominated by technology companies offering Section 1: tech-enabled solutions for payments. Customers see value when Introduction: Disrupting Payments they can complete transactions seamlessly and in real-time at their with Tech-Enabled Solutions convenience and in a secure environment. The ubiquity of smartphones has resulted in apps and digital options becoming the preferred mode Y-o-y increase on number of Section 2: of payment. Customers now expect similar experiences for in-store 80% e-commerce transactions Digital Infrastructure Enables or PoS transactions. Additional inputs such as upcoming payments, Payment Diversification prioritising payments, and other related information create unique and personalised experiences. As a result, customers seek providers that Section 3: can deliver more flexible and intuitive solutions. To cite an example of Collaboration for Paytech changing preferences, the 2017 Visa Consumer Payment Attitude Survey Innovation (Figure 13) indicates a shift away from traditional payment methods. 80% Device initiated payments Section 4: Regulators want to ensure a level playing field for all providers of Balancing Fast Pace of Change payment services, enabling cost benefits and enhanced service being and Value Addition passed on to customers. Authorities across countries have sought to influence the payments industry. For instance, as one of the country’s Section 5: key influencers, the Reserve Bank of Australia set many strategic Adopting Diverse Business Models objectives for the Australian payments system which eventually led Use mobile phones for banking to Stimulate Growth to the development of the New Payments Platform (NPP). 70% at least once a week
Section 6: New Payments Platform (NPP), Australia Conclusion —— Platform for all stakeholders to create fast, Glossary versatile and data-rich payments options Expect their country to be —— Real-time clearing and settlement for 43% completely cashless by 2024 simple or complex payment solutions
—— Collaborative development by NPP Australia Ltd and 13 financial institutions
22 Source: New Payment Platform Board, Australia Source: Frost & Sullivan Figure 14: PSD2: Way forward for stakeholders
Introduction Another regulation that is expected to have a far-reaching impact Executive Summary is the revised Payment Services Directive (PSD2) by the European Compete Collaborate Banking Authority (EBA). With its focus on transparency and innovation, Section 1: stakeholders will be able to compete and collaborate. Some of the —— Banks can access —— APIs will be used Introduction: Disrupting Payments most significant changes are related to Access to Account (XS2A) payment systems of to gain access to with Tech-Enabled Solutions and regulations for third-party service providers. competitor banks to banks’ data offer new services Section 2: The entry of Payment Initiation Service Providers (PISPs) is expected —— Banks must be open to Digital Infrastructure Enables to enhance the online experience by enabling payments from a user’s —— PSPs* can leverage the value addition that Payment Diversification bank account into a merchant’s account. The Real-Time Authentication information on fintechs can bring (RTA) and user consent mandated by PSD2 are expected to make consumer spending —— Fintechs will need Section 3: transactions more secure. PISPs will enable faster payments and habits to customise to establish ironclad Collaboration for Paytech reduce costs for merchants. Additionally, this promotes competition their products processes and security Innovation since banks, defined as Account Servicing Payment Service Providers and services features to ensure that (ASPSPs), cannot charge differently for services that originate from —— Mandatory trans consumer data is not Section 4: PISPs. Regulatory Technical Standards (RTS) on Strong Customer parency will increase compromised Balancing Fast Pace of Change Authentication (SCA) and secure communication are deemed critical competition on pricing and Value Addition to protect consumers, promote innovation and enhance overall security and margins of payment services across the EU. Although PSD2 is essentially Section 5: a European directive, other regions are expected to establish similar Adopting Diverse Business Models open banking regulations. Source: Frost & Sullivan; *PSP – Payment service provider to Stimulate Growth Keeping up with the fast pace of change evident across the payments Section 6: industry with in-house solutions could prove to be an impractical Conclusion approach for traditional banks. However, they need to be cognisant of customer demand and the changes in regulatory framework that Glossary are likely to impact payments.
Fintech start-ups are typically innovative and agile but with limited More than meeting the minimum requirements of regulations such as access to resources and customers. This makes Return On Investment PSD2, collaboration makes business sense as it keeps customers happy (ROI) a challenge. Traditional banks have access to customers but lack and engaged, helping to build and develop new sources of revenue. state-of-the-art technology. Collaboration enables delivery of innovative Figure 15 encapsulates some examples of collaborative efforts such payment solutions via APIs or integrated software. as that of the Bank of Ireland with WorldFirst.
23 Figure 15: Collaborative efforts of stakeholders
Introduction Executive Summary Traditional bank collaboration with fintech platform Leading paytech companies collaborate Stripe Bank of Ireland partners with WorldFirst and Alipay, WeChat Pay forges global partnership Section 1: Introduction: Disrupting Payments To offer Benefits To offer Benefits with Tech-Enabled Solutions —— Foreign exchange and —— 24/7 service, no transfer —— Online merchants using —— Merchants globally can Section 2: payments service for fees, competitive FX Stripe can integrate accept payments from Digital Infrastructure Enables businesses in the US rates, seamless interface Alipay and WeChat Pay consumers in China Payment Diversification on their websites —— Online product range —— Better solution than main —— Opportunities of a vast includes spot contracts, banking provider for —— Consumers can consumer base Section 3: bulk payments, regular international payments access more Collaboration for Paytech transfers and forward international merchants Innovation contracts
Section 4: Joint venture between Telco and Bank of Tokyo-Mitsubishi Balancing Fast Pace of Change Intermediary collaboration with Open Banking API UFJ and KDDI launch 50-50 JV with Jibun Bank and Value Addition platform Temenos collaborates with LUXHUB
To offer Benefits Section 5: To offer Benefits Adopting Diverse Business Models —— Launched in 2008, Jibun —— High productivity and to Stimulate Growth —— Help banks meet PSD2 —— Facilitates competition Bank is a digital-only profits with the standards and innovation as profitable bank business model and Section 6: mandated by PSD2 small workforce —— Real-time 24/7 —— Deposit volume is Conclusion support for open APIs; —— Helps maximise comparable to a mid-tier —— >2million mobile enhanced security and opportunities from regional bank bank customers, Glossary authentication API economy largest in Japan
—— Scalability for higher —— Compliance and transaction volumes, flexibility less predictable queries —— Quick time to market Source: Frost & Sullivan
24 Introduction There have been numerous instances of failed collaborations Complementary vision and ethos Executive Summary and strategic investments. Initial growth potential and expansion strategies are unable to withstand the pressure of trying to prove —— Credibility of partners Section 1: a business model or lengthy processes involved in obtaining —— Extensive interaction to understand commonalities and Introduction: Disrupting Payments licenses. Careful consideration is critical when selecting partners; areas of diversity with Tech-Enabled Solutions the same set of decision-making criteria may not apply for different types of collaborations. —— Digital transformation guidelines Section 2: Digital Infrastructure Enables Imperatives for successful collaboration Competitive advantage with first-to-market solutions Payment Diversification The payments industry will be driven by the collaborative approach —— The first-mover advantage could be in the form of a new Section 3: of ecosystem stakeholders. Given the large number of stakeholders product, service, business model or market segment focus Collaboration for Paytech it can be challenging to identify the right partner, especially in a fast- Innovation paced payments environment where companies’ growth plans need Conclusion: Strategic long-term partnerships are imperative to be flexible. Aligning with another company and its plans requires for value addition Section 4: foresight. Similarly, issues such as security standards, maturity of Balancing Fast Pace of Change technology, team vision and existing products, services and ecosystem As payment providers seek to provide ubiquitous, consistent and and Value Addition partners need to be a good fit. transparent services, collaborating with those in the ecosystem that display common goals is imperative. Collaborations will help Section 5: Some of the imperatives for a successful collaboration include: to challenge the status quo and muster capabilities for faster Adopting Diverse Business Models delivery, efficient information exchange, and more payments to Stimulate Growth Value-addition with complementary capabilities options for customers.
Section 6: —— Access to new market or technology Capgemini and Efma’s World Retail Banking Report 2017 reveals Conclusion that 91.3% of banks mentioned that they need to collaborate with —— Enhances customer experience with faster go-to-market fintech companies. The paytech ecosystem mandates that companies Glossary —— New revenue sources reassess their future plans and offerings to avoid disruption. Since a lack of innovation may lead to fulfilling only low-margin commoditised Easy integration for rapid implementation customer needs, dependence on other stakeholders is unavoidable.
—— Plug and play solutions that are customisable and flexible
—— Seamless integration into existing systems for operations, customer support, etc. 25 Introduction Section 4 Executive Summary
Section 1: Introduction: Disrupting Payments Balancing Fast Pace of Change and with Tech-Enabled Solutions Value Addition Section 2: Digital Infrastructure Enables Payment Diversification Delivering digital products and services Section 3: Collaboration for Paytech comes with its own set of challenges. Innovation The enhanced UX should balance cost Section 4: Balancing Fast Pace of Change and effort in terms of execution, security and Value Addition and compliance. Section 5: Adopting Diverse Business Models to Stimulate Growth
Section 6: Conclusion
Glossary
26 Figure 16: Steps to capitalise on paytech opportunities
The paytech ecosystem encompasses a broad range of solution providers. Introduction When these providers collaborate, the emerging innovations — spanning Accurate customer segmentation and tailored Executive Summary products, services, business models, and intermediaries — result in value proposition further complexity. Section 1: Compatible with (and enable access to) diverse Introduction: Disrupting Payments The future of the paytech market will be driven by the growing channels with Tech-Enabled Solutions acceptance of electronic payments, increased use of cards (including contactless) and growth of new payment products such as e-wallets. Adopt new payment types and remain agnostic Section 2: Cryptocurrencies may also play a more pivotal role, although it is too Digital Infrastructure Enables early to assess the true impact. Payment Diversification Gain access to data and identify monetisation and To strike a balance between rapid innovation and the identification business model Section 3: of those that will add value, payment providers should be able to Collaboration for Paytech isolate the outcomes that they are looking for, to capitalise on the Flexibility to adopt latest technology Innovation opportunities. Figure 16 highlights some of these steps.
Section 4: Basic standalone terminals are gradually giving way to advanced Balancing Fast Pace of Change multichannel payment systems that incorporate mobile PoS, Source: Frost & Sullivan and Value Addition contactless payments or both. Meanwhile, customised payment systems that cater to the preferences of different customer types have Section 5: the potential to add immense valued, depending on their size, global Adopting Diverse Business Models presence and industry focus. Although customers are moving from to Stimulate Growth cash to cards and mobile wallets, they need access to all payment types. Cryptocurrency, albeit new, is also on the horizon. Section 6: Conclusion Customisation, seamless experience and mobility will be the game changers Glossary Customers are increasingly demanding the ability to make payments across multiple channels. Devices such as smartphones, tablets, laptops, wearables and other connected devices are driving demand for on-the-go financial services. Additionally, access to multiple interfaces via apps and APIs create a dynamic paytech environment. Preference for e-wallets and social media payments is also on the rise. Figure 17 outlines some of the popular e-wallets globally. 27 Figure 17: Popular e-wallets globally Figure 18: Consumer preferences in payments
Introduction Executive Summary Multiple benefits with e-wallets Strong Consumer Interest
Section 1: Introduction: Disrupting Payments PayPal Wallet Payment options with Tech-Enabled Solutions —— Enables online and in-store purchases Consumers indicate high level of interest in digital wallets, with 75% of conversations across various social media platforms Section 2: —— Agreements with others in ecosystem such as Android Pay referring to it Digital Infrastructure Enables and Samsung to extend presence Payment Diversification —— Customers can use PayPal app or PayPal Emerging technologies
Section 3: —— Mastercard to make payments Wearables (mentioned in 37% of conversations) and IoT Collaboration for Paytech (mentioned in 29% of conversations) specifically Internet of Innovation Alipay Payments where all connected devices can be used for payment dominated —— Seamless blending of social media, e-commerce, Section 4: payment and other finance functions Balancing Fast Pace of Change Authentication and Value Addition —— Took advantage of market and consumer requirements High interest in biometrics (43%) for better security, lower levels of fast and dependable services of fraud, and moving beyond traditional passwords Section 5: —— As per 2018 annual report, Alipay has 900 million active Adopting Diverse Business Models users globally Source: Mastercard, Frost & Sullivan to Stimulate Growth
WeChat Section 6: Conclusion —— China-based messaging, social media and mobile payment app developed by Tencent Glossary —— Aggressive global expansion plans and plans to enter B2B market space According to a global 2017 Mastercard Digital Payment Study that analysed more than 3.5 million conversations over social media —— Works across multiple payment methods such as QR-code, (Twitter, Facebook, Instagram, Weibo and others), consumers in-app, web-based, Quick Pay are expressing growing interest in the use of advanced payment technologies. Figure 18 captures some of these trends.
Source: Frost & Sullivan 28 Introduction Customisation: Many white-label products allow enterprise clients Executive Summary to customise payment interfaces using their own branding and design. Ingenico Group, France Similarly, when consumers receive relevant notifications or other —— An agreement with Alipay for a solution to allow Chinese Section 1: personalised services based on their payment behaviour, brand loyalty customers to use preferred wallets in Europe, duplicating Introduction: Disrupting Payments is enhanced. BluePay is a Canadian provider of payment processing the experience at home with Tech-Enabled Solutions that can customise solutions for different types of businesses. —— Banks and acquirers can deploy this payment method Section 2: for automatic boarding and activation of merchants and Digital Infrastructure Enables Bluepay, Canada transaction reconciliation-profits Payment Diversification —— Offers customised solutions, equipment and software for different customers Section 3: On the go: With multiple options such as cards, digital wallets, Collaboration for Paytech —— Online payments for SMEs or streamlined billing and e-wallets and wearables, consumers increasingly expect to receive Innovation invoicing for large enterprises invoices and be able to pay on-the-go. This is another step towards increasing convenience and enhancing the consumer experience. —— Cater to specific needs of verticals such as Section 4: Using mobile phones to deposit, withdraw, transfer and transact has simplification of donation process for non-profits Balancing Fast Pace of Change promoted financial inclusion in regions including Africa and Asia. For and Value Addition a generation that is more comfortable with digital- and mobile-first solutions, mobility is a crucial factor when selecting payment options. Seamless experience: The customer experience is enhanced when Section 5: DumaPay app is a service provided by DPO, a payment technologies they can use multiple payment channels with ease and in a secure Adopting Diverse Business Models provider in Africa. environment. The ease of the process also helps regarding brand recall. to Stimulate Growth Smart terminals and mobile solutions that can be deployed for in- store, online and mobile channels globally are critical when creating Section 6: DumaPay, Kenya a seamless experience. Merchants will increasingly look for solutions Conclusion that allow them to work with multiple banks — both traditional and —— DumaPay Mobile payment app for merchants accepts new — and access multiple payment methods. Ingenico provides a cards, mobile money, QR codes, and enables online Glossary comprehensive range of solutions to reduce payment complexity and invoices on the go speed up purchases seamlessly in a secure environment. —— DumaPay Super Wallet allows consumers to save card details in a secure environment, supports faster checkout with card / mobile money, recurring payments, and all currencies
29 Introduction Although it can be difficult to select the most relevant solution from Executive Summary the large number of paytech solutions available, it is apparent that Citowise, Estonia many local factors play a role. Consumer preferences and behaviour, —— Provides a secure and convenient solution for Section 1: local regulations, digital infrastructure and access to banking are simplifying token payment processes, and promote Introduction: Disrupting Payments some of the aspects that must be considered. adoption of crypto payments with Tech-Enabled Solutions Sustainable growth requires a cautious approach —— Secure mobile and desktop wallets, and a payment Section 2: gateway based on smart contracts Digital Infrastructure Enables Cryptocurrencies are an emerging sub-segment within the alternate —— Citowise wallet is a free product accessible and Payment Diversification payment ecosystem, based on blockchain. Volatility in the second available globally half of 2017 raised awareness about its use as a viable payment Section 3: option. Regulators and governments are taking concrete measures —— Other features include: Free wallets for desktop, Google Collaboration for Paytech to streamline and regulate cryptocurrencies. Android and Apple iOS platforms; Support for ERC-20 Innovation tokens and Ethereum coin; balance updates; value in Besides a lack of clarity among consumers and enterprises, there ancillary currency; ICO participation Section 4: are other practical issues restricting mainstream adoption of Balancing Fast Pace of Change cryptocurrency. According to Citowise, an Estonian payments SGPay, Singapore and Value Addition platform providing a wallet and gateway, there are more than —— SGPay is a 3rd generation e-wallet and e-payment mobile 900 public blockchains globally. Users need to download many application that allows users to trade cryptocurrencies Section 5: gigabytes of data before they can access cryptocurrencies, which Adopting Diverse Business Models proves to be a barrier. Other hindrances include limited scope —— Platform users can pay for regular purchases and select to Stimulate Growth of usage, inconvenient interface and lack of guarantee, since preferred payment mode – e-payments or cryptocurrency cryptocurrencies are not backed by governments. However, many —— Provides APIs that tie-in with other services Section 6: companies are now offering wallets and platforms to encourage Conclusion use of cryptocurrencies. The following examples indicate efforts —— Possibility of own ERC-20 compliant utility token by various companies to gradually position cryptocurrency as a called SGPay Token (SGP). Tokens will enable benefits Glossary mainstream proposition. such as lower transaction fees when buying / selling cryptocurrencies on the SGPay platform
—— Other features include: Compatible with Android and Apple iOS; Support for cryptocurrencies like SGPay Token, Bitcoin; Future support for local cryptocurrencies including Kyber Network Crystals, Zilliqa tokens etc.
Source: Citowise, SGPay, Frost & Sullivan 30 Introduction Due to a lack of clarity, governments and regulators are adopting —— Four in 10 of the biggest proposed ICOs were based in Switzerland Executive Summary a cautious approach to cryptocurrency. While governments in —— Zug, near Zurich, is called ‘Crypto Valley’ because several countries such as India and China have restricted the use and trade Blockchain companies are based in the area, including the Section 1: of cryptocurrency, many others are actively regulating it despite Ethereum Foundation and cryptocurrency wallet company Cardano Introduction: Disrupting Payments some initial setbacks. The following examples are representative of with Tech-Enabled Solutions the approach by different governments towards blockchain-enabled ICOs come with their own set of challenges, such as a lack of cryptocurrencies and the current environment in these countries. transparency and the fear of being the victim of scamming. As a result, Section 2: Security Token Offerings (STOs) are increasingly considered a viable Digital Infrastructure Enables Japan supports cryptocurrency despite setbacks option. STOs include know your customer (KYC), anti-money laundering Payment Diversification (AML) requirements and other compliance measures. This will make it —— First country to adopt national system to regulate cryptocurrency easier for regulators to formulate policies, although very little has been Section 3: trading with clear framework for virtual currency exchanges and done to date in this emerging area. Collaboration for Paytech ICO operations Innovation —— Suffered a ~$400million exchange hack in January 2018 and Conclusion: Identifying sustainable solutions for consistent growth another in 2014, after which many regulations were introduced Section 4: Banks are typically risk averse and have multiple regulatory and Balancing Fast Pace of Change —— Japan’s Payment Services Act legally defines virtual currency as compliance obligations. Cryptocurrencies are emerging and as customers and Value Addition a form of payment veer towards them, banks may find it difficult to completely ignore this —— Virtual currency exchanges looking to do business in Japan need payment option. However, the significant investment required to enable Section 5: to register with Financial Services Agency (FSA) cryptocurrencies could prove to be a hurdle. Banks are investing in the Adopting Diverse Business Models underlying blockchain technology, with patents being filed across a range to Stimulate Growth —— Largest market for Bitcoin, with ~50% of daily volume being of applications such as digital wallets and authentication. Some neobanks traded here are also investing in cryptocurrencies. Revolut, for instance, a neobank Section 6: —— 16 licensed exchange operators plan to launch the Japanese based in the UK, allows its customers to convert and hold Bitcoin and Conclusion Cryptocurrency Exchange Association (JCEA) other cryptocurrencies in their accounts.
Glossary Switzerland - home to Crypto Valley The adoption of new technologies and the development of new approaches are important to improve efficiency and create a more —— Cryptocurrencies are legal and accepted as payment in effective payment system. It is also a critical component to retain some contexts competitiveness. However, rapid implementation of secure and efficient payment systems depends on effective standards, critical assessment —— Exchanges dealing in cryptocurrency need to register with the and monitoring. Adequate care needs to be taken before changes are Swiss Financial Market Supervisory Authority, which has set out launched for public consumption to avoid mishaps. guidelines for ICOs 31 Introduction Section 5 Executive Summary
Section 1: Introduction: Disrupting Payments Adopting Diverse Business Models with Tech-Enabled Solutions to Stimulate Growth Section 2: Digital Infrastructure Enables Payment Diversification Payments industry disruption has Section 3: Collaboration for Paytech encouraged new business models, Innovation but monetisation and long-term Section 4: Balancing Fast Pace of Change viability remain a concern. and Value Addition
Section 5: Adopting Diverse Business Models to Stimulate Growth
Section 6: Conclusion
Glossary
32 Figure 19: Growth of API transactions in banking
Introduction The evolution of the paytech market — featuring a diverse range of Payment values ($ million) Executive Summary products, services, and technologies — means that no single market participant can control the entire ecosystem. Companies must identify 2000 Section 1: dynamic, scalable, cost-effective and tech-agnostic business models CAGR: 22.4% Introduction: Disrupting Payments to gain a competitive edge. with Tech-Enabled Solutions The application of technology has been instrumental in delivering a Section 2: broad array of payment options. Mobile, cloud, biometrics, wearables 1500 Digital Infrastructure Enables and IoT-based transactions have increased significantly. Similarly, Payment Diversification technologies and services such as tokenisation, chips and geolocation will significantly impact future trends. Section 3: Collaboration for Paytech As customer expectations for convenient and frictionless solutions 1000 Innovation increase, incumbents struggle to incorporate different technologies to transform their delivery channels. The complexity created by myriad Section 4: payment options can be challenging for traditional banks; maintaining Balancing Fast Pace of Change clarity, consistency and quality across all interaction points is difficult. and Value Addition Competitive advantage with new business models 500 Section 5: Adopting Diverse Business Models Responding to the needs of customers with a flexible and agile to Stimulate Growth approach is important to stay competitive. With tech-enabled solutions, the entire approach needs to be recalibrated. Use of APIs is an effective Section 6: way to create a more flexible and agile business, and increased use Conclusion globally indicates a growing preference. Figure 19 provides estimates of 2016 17 18 19 20 21 22 23 API transactions in banking from Frost & Sullivan’s research Banking-as- Source: Frost & Sullivan Glossary a-Service to Bring Agility and Flexibility to Financial Services, Forecast to 2023.
To ensure successful implementation of new business models, banks need comprehensive reorientation to fulfil customer demands, adopt new processes and employ new skills. Figure 20 indicates the evolution of banks’ involvement in the payment ecosystem and the gradual change in business model. 33 Figure 20: Evolution of banks’ role in the payments industry
Introduction While changes may start at a smaller scale and for low-value Executive Summary Reliance on banks for payment services customers, it helps banks to formulate a strategy and clarify their approach to extend the same facilities to larger customers. For Section 1: instance, enabling social media payments and integrating invoice Introduction: Disrupting Payments Customers prefer to use bank Banks have traditionally generators will attract consumers and enterprises respectively, with Tech-Enabled Solutions accounts to make payments been prime providers of augmenting existing payment systems rapidly and effectively. all payment services Section 2: A combination of key industry trends and the demands of Digital Infrastructure Enables customers can help organisations to realign their business models. Payment Diversification Figure 21 highlights some of the key trends in the industry. Changing customer demands Section 3: These business models offer excellent growth opportunities as Collaboration for Paytech they enable in-demand global solutions and value-added services. Consolidated payment Integration of new payment Innovation Companies can partner to incorporate the value propositions that offerings with easy-to- options into existing solutions best fit their long-term strategies. For instance, P2P payments can complete transactions Section 4: be applied to remittance services. Use of smartphones or mobile Balancing Fast Pace of Change devices can enable a faster transaction. Issues such as regional bias, and Value Addition regulations, security and partnering with a local entity will have Business model rearrangement a significant impact on the final offering. Section 5: Adopting Diverse Business Models Viability and scalability are vital to challenge the status quo to Stimulate Growth New products such as digital New and alternative payment wallets enable new customer options mandate significant Implementing a new business model involves multiple challenges. Section 6: interfaces changes in payment delivery Additionally, companies need to consider monetisation, scalability Conclusion and the viability of the new solutions. Neobanks have created significant disruption in the payments market and Figure 22 Source: Frost & Sullivan Glossary indicates some of the monetisation strategies. Not all strategies will work, but leaner neobanks can rework their business models much faster than traditional banks.
34 Figure 21: New trends in the paytech business model Figure 22: New trends in paytech business models
Introduction Executive Summary Instant Payments Mobile Payments Freemium —— Basic services include mobile or web apps and are free Section 1: —— Real-time payment —— Using smartphones Introduction: Disrupting Payments —— Add-on services such as ATM or overseas withdrawals services with and mobile phones with Tech-Enabled Solutions may be charged immediate transfer for payments and notification to —— Complete transparency on fees charged Section 2: —— APIs and open banking both parties Digital Infrastructure Enables will drive mobile Marketplace Payment Diversification —— Strong authentication, payments and infrastructure —— Access to services from other providers —— Better security with Section 3: transformation biometrics, many —— May be co-branded products or services Collaboration for Paytech —— Standardisation across other payment Innovation —— Access to additional services such as insurance available multiple payment interfaces being as paid products schemes developed Section 4: Balancing Fast Pace of Change Product portfolio and Value Addition —— Company can earn revenues on the inherent product Invisible Payments P2P Payments offered such as interest / fee / commission Section 5: Adopting Diverse Business Models —— Pay-per-user or subscription pricing models work well —— Seamless and —— Wide adoption to Stimulate Growth with these kinds of products frictionless payment spectrum across developed and Section 6: —— In-app mobile wallets Technology emerging economies Conclusion are key interfaces and —— Companies are white-labeling tech-enabled platforms/ convenient —— Cross-selling solutions as an add-on revenue stream Glossary opportunities for —— APIs and IoT are key both consumers —— Innovations such as P2P models are enabled due to enablers, customisable, and enterprises innovative technology secure environment —— Platforms enable secure, fast, cost- effective and easy execution 35 Source: Frost & Sullivan Source: Frost & Sullivan Introduction Most companies will not be able to alter business models abruptly. Executive Summary Technical architecture, compliance, regional regulations, prevalence of existing products and future plans will impact strategies and Section 1: execution. For example, instant payment is a growth opportunity Introduction: Disrupting Payments that many companies are exploring. To facilitate this, cloud adoption, with Tech-Enabled Solutions high security standards and authentication protocols will be needed. Combined with cross-border payments, digital commerce and B2B Section 2: transactions, instant payments can be a game changer for many Digital Infrastructure Enables companies. Payment Diversification Conclusion: New business models hinge on customer engagement Section 3: Collaboration for Paytech Whether it’s social media, multiple channels or new revenue sources, Innovation the focus of introducing business models eventually leads back to customer needs. The original business focus of the companies involved Section 4: also has a bearing on the decision-making process. Subscription, pay- Balancing Fast Pace of Change as-you-go and usage-based models are gaining popularity as customers and Value Addition are able to retain control. Innovative business models are shaking up the industry and it’s essential that banks adapt. Section 5: Adopting Diverse Business Models to Stimulate Growth
Section 6: Conclusion
Glossary
36 Introduction Section 6 Executive Summary
Section 1: Introduction: Disrupting Payments Conclusion with Tech-Enabled Solutions
Section 2: Digital Infrastructure Enables Payments are one of the most disrupted Payment Diversification sub-segments within the financial Section 3: Collaboration for Paytech services industry. As the number of Innovation stakeholders increases, collaboration Section 4: Balancing Fast Pace of Change and innovation are key to retain relevance and Value Addition and competitiveness. Section 5: Adopting Diverse Business Models to Stimulate Growth
Section 6: Conclusion
Glossary
37 Introduction The payments industry is adopting tech-enabled solutions to meet Rapid implementation of secure and efficient payment systems depends Executive Summary challenges across a range of functions. This in turn is leading to the on effective standard setting, critical assessment of existing systems rapid growth of paytech. To sustain this surge, it’s imperative to create and monitoring performance to recognise areas of change within the Section 1: a strong ecosystem. Incumbents and paytech providers will need to organisation. To promote innovations, stakeholders must identify their Introduction: Disrupting Payments team up and collaborate to ensure that new solutions are supported own areas of expertise and select appropriate partners to fill gaps. with Tech-Enabled Solutions by adequate information and data. As various stakeholders explore Creating an ecosystem that explores new opportunities in a secure the idea of partnerships to enhance their offerings, the resultant robust and agile environment is the key to succeed in the paytech industry. Section 2: ecosystem will augment innovations and solutions. Digital Infrastructure Enables Payment Diversification The diversity of paytech participants will disrupt and transform existing approaches and promote the use of advanced technology stacks, Section 3: while value-additions that leverage automation, interoperability, Collaboration for Paytech security and analytics will enhance the payment experience for Innovation users. The tech companies within the paytech industry can benefit by enabling interoperability of solutions and creating platforms that Section 4: enable different technologies to work together. Given the focus on Balancing Fast Pace of Change security and compliance in the financial services industry, technologies and Value Addition such as ML and AI that can help companies achieve better adherence and ensure data security and privacy will find greater acceptance. Section 5: Adopting Diverse Business Models Additionally, regulators will play a key role as a flexible approach to Stimulate Growth to guidelines can ensure that innovations and implementation meet rules and regulations. Continuous involvement and coordination Section 6: with other stakeholders are important to ensure relevance and to Conclusion create a competitive environment.
Glossary As payment providers seek to offer ubiquitous, consistent and transparent services, a collaborative environment is imperative to challenge the status quo and create new opportunities to enhance the customer experience. The emergence of paytech encourages reassessment of future strategies, goals and business models to avoid disruption and retain competitiveness.
38 Introduction Glossary Executive Summary
Section 1: AI Artificial Intelligence PSD2 Revised Payment Service Directive Introduction: Disrupting Payments AISP Account Information Service Provider PSP Payment Service Provider with Tech-Enabled Solutions API Application Program Interfaces PSR Payment Services Regulations ASPSP Account Servicing Payment Services Provider PSU Payment Services User Section 2: B2B Business-to-Business ROI Return on Investment Digital Infrastructure Enables BDA Big Data and Analytics RTS Regulatory Technical Standards Payment Diversification DDoS Distributed Denial of Service SCA Strong Customer Authentication EBA European Banking Authority SEPA Single Euro Payments Area Section 3: EC European Commission STO Security Token Offering Collaboration for Paytech EEA European Economic Area TPP Third-Party Service Providers Innovation Efma European Financial Management and UX User Experience Marketing Association XS2A Access-to-Account Section 4: EU European Union Balancing Fast Pace of Change Fintech Financial Technology and Value Addition FSA Financial Services Agency FX Foreign Exchange Section 5: GDPR General Data Protection Regulation Adopting Diverse Business Models ICO Initial Coin Offering to Stimulate Growth IoT Internet of Things IT Information Technology Section 6: JCEA Japanese Cryptocurrency Exchange Association Conclusion KYC Know Your Customer ML Machine Learning Glossary MTO Money Transfer Operators NPP New Payments Platform P2P Peer-to-Peer PCI DSS Payment Card Industry Data Security Standard PISP Payment Initation Service Provider PoS Point of Sale
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