PAYMENTS INDUSTRY INTELLIGENCE March / April 2017
PaymCARDeS &n MOtBsILE
IN THIS ISSUE Islamic Finance TIME TO GO MAINSTREAM? MARKET OVERVIEW PAYMENTS IN RUSSIA
OMNI-CHANNEL WHAT DO RETAILERS REALLY, REALLY WANT? ·----· 1ngen1co • GROUP • 0 lngenico seamless payment module, for the next generation vending machines!
Be smart, be self service! PAYMENTS INDUSTRY INTELLIGENCE Payments ·----· CARDS & MOBILE March / April 2017 1ngen1co • Volume 9, Issue 2 GROUP Production Team Alexander Rolfe Is the future of finance Islamic? Editor-in-chief and publisher • Tel (+44) 1263 711 800 [email protected] The narrative has changed. Did we consciously decide not to talk about it? Has the FinTech bubble finally burst or did market forces just begin to let some air out? Joyrene Thomas Staff Writer Tel (+44) 1263 711 800 0 I am, of course, taking about the financial technology market. I believe this is the first issue [email protected] in years that we have not mentioned it, whether that be in terms of market sizing or the Wendy Sanders impact it is having on financial services. Head of Business Development Tel (+44) 1263 711 801 lngenico seamless payment module, Nonetheless, we are talking about finance. In this case, Islamic Finance. I am sure that you [email protected] are all aware of the term, but how many of you have actually delved deeper into this rapidly- Gemma Rolfe growing phenomenon, displacing more traditional types of finance? Islamic Finance is far General Manager more than just the prohibition on interest. Tel (+44) 1263 711 800 for the next generation vending machines! [email protected]
Much has been written about Russia in the mainstream press in the past months. Here we Gemma Haywood focus on the payments industry in Russia. It’s actually an incredibly vibrant market with lots Subscriptions and General Tel (+44) 1263 711 800 of innovation, including a new domestic card scheme set up to rival Mastercard and Visa — [email protected] good news for an issuing market growing at three percent year on year. Adam Unsworth Graphic Design Finally, we turn our attention to a piece of research we have done with RBTE and Ingenico. Tel (+44) 7932905744 Omni-channel is well spoken about across the board in the payments industry and indeed [email protected] the retailer communities. What we felt is that the consumer drivers behind the changes Contributors are often missed. In this research, highlighted with a teaser feature, we shed some light on Al Pascual - Javelin these shifting drivers. Valdis Janovs - Tieto Cliff Gray - Strawhecker Group Roger Niederer - Six payment Services
Alexander Rolfe, Printing Micropress Printers
Editorial Advisory Board AlexRolfe John Berns Editor-in-chief and publisher, Payments Cards & Mobile Managing Partner, Accourt
Sylvie Boucheron-Saunier SVP Financial Institutions, North America & Europe, ACI
Robert Courtneidge Global Head of Cards and Payments, Locke Lord
June Felix President – Europe, Verifone
Denise Gee Director, Magna Carta
Simon Hardie Director, Magna Carta All rights reserved. No part of the publication may be reproduced or transmitted in any form without the Be smart, publisher’s prior consent. While every care is taken to provide accurate information, the publisher cannot accept liability for errors or omissions, no matter how caused. Payments Cards and Mobile The Stable, Hall Yard, Kelling © PaymentsCM LLP 2017 Payment Cards and Mobile™ is owned and published by Holt, NR25 7EW, United Kingdom be self service! PaymentsCM LLP ISSN 1759-829X +44 1263 711800 / paymentscm.com contents
06-07 PAYMENTS NEWS THREE TRENDS SHAPING GLOBAL RISKS WHY IOT IS THE FASTEST GROWING RETAIL OVER THE NEXT DECADE TREND OF 2017
NEWS IN BRIEF Economic inequality, societal polarisation and A recent Gartner survey estimated that by All the latest news from the past 60 days growing environmental threats are the top 2020, the number of connected objects will three trends that will shape global development increase by 30 times current levels, making 08 - 13 CARD NOTES over the next decade, according to the World the Internet of Things (IoT) a huge untapped Economic Forum. opportunity for retailers which simply cannot
BLOCKCHAIN TO CUT INVESTMENT BANK be ignored. COSTS BY 30 PERCENT UK CONSUMERS DO NOT TRUST BUSINESSES Blockchain technology could reduce TO PROTECT FINANCIAL AND PAYMENTS DATA 24-25 ISSUING & ACQUIRING infrastructure costs for eight of the world’s ten More than half of UK consumers are concerned largest investment banks by an average of 30 about the ability of businesses and financial THE FUTURE OF THE MERCHANT PAYMENT percent, or $8-12 billion annually, according to institutions to protect financial and payments ECOSYSTEM a new report by Accenture. data, with 19 percent of respondents saying Now in its tenth year, the Merchant Payments they do not trust firms to protect their data and Ecosystem event in Berlin in February has THE AMERICAN LOVE AFFAIR WITH CARDS 33 percent saying they are unsure, according become a firm fixture in the conference CONTINUES to a new global report from ACI Worldwide and calendar. This year’s event saw an expanded Forget rock-paper-scissors. When it comes to Aite Group. exhibition area and separate streams how Americans pay, it is card, paper followed dedicated to mobile point-of-sale (mPOS) and by the two electronic-based systems some SEPA: IS THE ECB STIFLING COMPETITION online payment methods. way behind. WITH ITS LATEST MOVE? Ten years ago the European Commission and DOMESTIC PAYMENT SCHEMES SHIFTING VERIFONE NETWORK COMPROMISED BY the European Central Bank (ECB) announced a FOCUS TO NEW DIGITAL PAYMENTS SERVICES RUSSIAN HACKING GROUP common vision for the Single Euro Payments The development of new payment services Verifone is reportedly investigating a breach of Area (SEPA), which they described as an and the evolution of technology are currently its internal computer networks that appears to “integrated market for payment services which the top priorities for most domestic payment have impacted a number of companies running is subject to effective competition.” They schemes. An overwhelming majority of its point-of-sale solutions. Verifone confirmed described their role as “creating open and schemes are in favour of cross-border to security blogger Brian Krebs that the extent common standards that overcome technical collaboration. The top two rated actions are of the breach was limited to its corporate and commercial barriers and by fostering sharing of technical standards and jointly network and that its payment services network effective competition.” developing technical solutions. was not impacted.
MARKET OVERVIEW 18-20
14-16 COVER STORY: PAYMENTS ISLAMIC FINANCE: TIME TO GO IN RUSSIA MAINSTREAM?
The Islamic finance industry has expanded rapidly 22-23 in the last decade, growing at around 10-12 percent annually, according to the World Bank. We examine WHAT DO RETAILERS REALLY, REALLY WANT? the underlying Shariah principles and how this could inform banking and financial services within the Muslim world and more widely.
4 payments cards & mobile | March / April 2017 www.paymentscm.com contents
26-27 MOBILE PAYMENTS 31 E-COMMERCE 37 CONTRACTS
MOBILE MONEY TEN YEARS ON EBA ADOPTS RISK-BASED APPROACH FOR OPTAL TO ACQUIRE B2B PAYMENTS A decade on from the launch of M-Pesa in ELECTRONIC PAYMENTS BUSINESS INVAPAY Kenya, mobile money has become one of the The European Banking Authority (EBA) Optal announced the acquisition of Invapay, in primary tools for reaching the underserved and published the final draft of its regulatory a deal which will significantly expand Optal’s boosting financial inclusion. We look back on technical standard (RTS) on strong customer capabilities in the global corporate ten years of mobile money, and forward to authentication at the end of February. It payments space. the future. received 224 responses to the previous draft, the highest number it has ever received for any KENYA DEVELOPS BANKING INDUSTRY MOBILE WALLET SUFFERING AN IDENTITY consultation. SWITCH WITH TIETO CRISIS IN EUROPE Kenya Bankers Association (KBA), the banking New research by Juniper, analysing the 33 POS TERMINALS industry’s umbrella body, has awarded mobile wallet market, indicates that Europe is Tieto the contract to develop Kenya’s first lagging behind almost every other region in its HAVE PAYMENT GATEWAYS ACHIEVED industrywide switching platform in a move that transaction value forecast. This is despite high PARITY WITH PROCESSORS? will see banks enhance efficiency across all levels of technology adoption and smartphone It has been almost 20 years since the paradigm digital platforms. penetration. So, what’s going wrong? shift in transaction transport, which made simple payment gateway integration available UK’S LINK ATM NETWORK UNDER PRESSURE US MOBILE PAYMENTS PROJECTED TO GROW to an exploding community of web developers. TO DEFINE NEW STRATEGY 80 PERCENT BY 2020 More than one in seven free-to-use cash Although the mobile wallet ecosystem is INTERCHANGE FEE CAPS SHAKING UP THE machines across the UK could start charging maturing, in-store mobile payments have yet MARKET FOR ACQUIRERS or be shut down if the row about the Link ATM to take off. Consumer disinterest, coupled with The merchant acquiring market in Europe network cannot be resolved, ATMIA delays in fully implementing the necessary is operating on solid grounds of continuous has warned. infrastructure, are preventing mobile wallets transaction growth, however the cost pressures from achieving mainstream adoption. in the industry increases are very high primarily 39 CONFERENCES due to new regulation, such as PSD2 and the 28-29 CONTACTLESS interchange fee regulation. MERCHANT PAYMENTS ECOSYSTEM AND RETAIL BUSINESS TECHNOLOGY EXPO MOBILE PAYMENTS FRAUD SET TO BECOME 35 PRODUCTS It was noticeable that Merchant Payments PAINFUL IN 2017 Ecosystem in Berlin, 14-16 February, was much The mobile channel can facilitate nearly any VISA TOKEN SERVICE EXTENDS MOBILE larger, not only in delegate numbers but also type of consumer payment, often with greater PAYMENTS INTO 12 EUROPEAN COUNTRIES in the range of exhibitors and the diversity of convenience than before. This has attracted More than 12 European countries will have presentation subjects. As always, there were a growing legion of dedicated users, yet adopted the Visa Token Service by the end multiple networking opportunities including the wherever legitimate payments begin to flourish of this year, says the card giant. Tokenisation well-attended Awards Dinner where the 2017 fraud is soon to follow — and mobile payments makes mobile and online payments more winners were announced. fraud is no exception. secure and convenient by replacing the consumer account information with a NEXT EVENTS HCE - THE WAY TO MOVE MOBILE PAYMENTS digital identifier. Internet Retailing Expo FORWARD FAST 5-6 April, Birmingham No personal consumer device seems to have BITCOIN MOVES PAST GOLD PRICE TO HIT www.internetretailingexpo.com had the same impact as the smartphone. NEW HIGH Seamless Payments Asia 2017 Unbelievably it’s only ten years ago that Steve Bitcoin hit a new high, a day after soaring past 19-20 April, Singapore Jobs announced the iPhone at a Macworld the price of an ounce of gold for the first time in terrapinn.com/exhibitions/seamless/index.stm convention. its short but turbulent history. NACHA Payments 2017 23-26 April, Austin MORE THAN SIX BILLION SMARTPHONES EMV CARD MARKET STRUGGLES FOR www.nacha.org/events/payments-2017 BY 2020 GROWTH AS SATURATION LEVELS HIT The global smartphone installed base will grow Global EMV payment card shipments reached PAYMENTS INDUSTRY INTELLIGENCE from four billion in 2016 to more than six billion just under three billion in 2016, marking a year- smartphones in use by 2020, according to new on-year (YoY) increase of less than one percent analysis released by IHS Markit. between 2012 and 2015. PaymentsCARDS & MOBILE www.paymentscm.com payments cards & mobile | March / April 2017 5 PCM DAILY NEWS FEED Get the latest news in brief payment news in your inbox THE POUND will not be round for much longer. ADVENT INTERNATIONAL and Bain Capital SUBSCRIBE ONLINE NOW AT The UK Royal Mint is introducing a new 12-sided, Private Equity have acquired German payment WWW.PAYMENTSCM.COM bi-metallic £1 coin on 28 March. Billed as the service provider Concardis for an undisclosed most secure coin in the world, the new pound sum. Previously owned by a consortium of has a number of features that make it more German banks, Concardis is active across STOCKHOLM-BASED payments provider difficult to counterfeit. These include micro- Germany, Austria and Switzerland. The Klarna has acquired the German online payment lettering, milled edges, hidden security features new owners have completed more than 20 company BillPay. Headquartered in Berlin with and an image similar to a hologram which investments in the payments industry, notably offices in Zurich and London, BillPay employs changes when the coin is seen from different in ICBPI and ISP Processing in Italy, Nets in the 140 people and helps merchants selling online angles. 1-in-30 £1 coins currently in circulation Nordic region and Worldpay in the UK. “Concardis to convert sales using alternative payment is counterfeit. Shops and businesses will have will have financially strong partners to support methods. These include instalment and just over six months to adapt to the new coin, the continued growth and internationalisation other buy now, pay later options. Sebastian before the round pound ceases to be legal tender of the business. The payment industry is Siemiatkowski, co-founder and CEO of Klarna, in October 2017. undergoing significant consolidation, and we commented: “Germany is one of the largest want to be active participants in this process,” e-commerce markets in the world, and we are said Marcus W Mosen, CEO, Concardis. delighted to have strengthened our position with this acquisition.” UK BANKS and the Post Office have agreed a deal described by UK business minister, Margot James, as the biggest expansion in branch banking in a generation. Virtually all UK personal bank customers and around three- quarters of business customers will be able to do their day-to-day banking at 11,600 Post Office counters. The tie-up comes amid increasing SENGAL IN West Africa will issue digital currency branch closures as banks cut costs and switch alongside paper currency as legal tender later to digital services and access models. More than this year. Banque Régionale de Marchés (BRM) WESTERN UNION has agreed to pay $586 1,000 bank branches have closed their doors has partnered with Dublin-based eCurrency million and admitted to failing to prevent across the UK in the last two years, according to Mint Limited to provide digital currency to the money laundering and wire fraud. Lapses in the consumer association Which? seven countries in the West African Economic company’s controls allowed millions of dollars and Monetary Union. The new digital money in prohibited transactions to be processed, US will be issued in Senegal before expanding to authorities said. Western Union will be required Cote d’Ivoire, Benin, Burkina Faso, Mali, Niger, to further enhance its oversight of agents and Togo and Guinea-Bissau in the second phase. protection of customers. Those actions will be “We are committed to bringing digital financial reviewed by an independent compliance auditor services and true financial inclusion to West for three years. The deal was part of a wave Africa” said Alioune Camara, CEO, BRM. “We of settlements in the final days of the Obama can now facilitate full interoperability between administration. all e-money payment systems. This is a great leap forward for Africa.” MASTERCARD WON a High Court legal battle in late January over cross-border interchange CHARITIES MAY be missing out on more fees. A group of UK retailers were claiming that UK REGULATOR forces Diebold Nixdorf to sell UK than £80 million in donations annually by only credit and debit card interchange fees were business. UK Competition and Market Authority accepting cash, a Barclaycard survey has anti-competitive. To support their claims, the (CMA) has ruled that the Diebold Nixdorf merger found. One-in-seven people admit to passing retailers had relied on a 2014 decision by the needs a ‘structural remedy’. In order to force the on a donation opportunity at least once a year European Commission in which Mastercard acquisition through, Diebold Nixdorf has agreed because they were unable to donate via card. was found to have infringed European law by to sell its legacy business in the UK in order Barclaycard recently conducted a three-month imposing interchange fees on cross-border card to meet the regulatory requirements. Diebold trial of a contact/contactless card charity box transactions. In his ruling, Mr Justice Popplewell Nixdorf says it is already in talks with a potential with 11 national charities. The boxes are made ruled in favour of Mastercard, saying “I must purchaser to sell its legacy Diebold business in up of three parts, one of which is an app. This decide the case on the evidence before me, the UK. “The company believes it can satisfy can be set to collect the same amount each time which is largely directed to a different period of the CMA’s requirements and conclude this a donor taps the front of the box, or to variable time and a different market.” transaction as soon as practicable.” mode for one-off donation amounts.
6 payments cards & mobile | March / April 2017 www.paymentscm.com news in brief
INDIA IS poised to launch a payment system AFTER A year-long pilot, a dozen banks are now based on its national identity scheme, according live with SWIFT’s global payments innovation PCM DAILY NEWS FEED to The Times of India. Around 1.1 billion people (gpi) service. This overlay on the current SWIFT have registered demographic and biometric messaging system enables banks to provide information and received a unique 12-digit faster, more transparent cross-border payments. Insight is Aadhaar number. 14 banks have signed up for Corporate treasurers get real-time, end-to-end Aadhaar Pay and 49 million bank accounts linked view on the status of their payments, including to Aadhaar. Banks are planning to introduce an confirmations when payments have been everything additional one million point-of-sale terminals credited to beneficiaries’ accounts. Remittance In-depth analysis, by March 2017 to enable people to make and information, such as invoice references, are now receive payments using their Aadhaar number also transferred unaltered to the beneficiary. The industry snapshots, and biometrics, the finance minister confirmed. 12 banks live with gpi make up about 75 percent news in brief and of all SWIFT traffic. The aim is to roll out to more banks and establish gpi as a standard. authoritative features. Payments Cards & OVER HALF of all ATMs installed are away from bank branches, recent figures from RBR Mobile's authoritative show. With rising operating expenses and editorial coverage fewer customers visiting branches, banks in developed markets are streamlining their branch separates the hype networks and turning to offsite ATMs as a from the happening more cost-effective customer service channel. In developing markets, offsite ATMs are also within the payment being used to compete for new customers and cards and mobile increase financial inclusion. 99 billion cash withdrawals were made from ATMs worldwide payment industry. in 2015, up ten percent on 2014 and the biggest VISA AND IBM have announced a partnership growth since 2011. to introduce payment to the Internet of Things (IoT). Businesses will be able to introduce COFFEE LOVERS will be able to order their secure payment throughout the IoT using Visa’s favourite brew by speaking into their iPhone Subscribe now payments capabilities and the IBM Watson IoT and then collecting their drink from a Starbucks platform. For example, a connected car could nearby. The Seattle-based coffee chain is alert the driver to schedule a service, order integrating voice ordering via Amazon’s Alexa a part or pay for petrol using the car as the platform into its existing iOS mobile app. payment device. As part of the collaboration, the Customers can interact with a virtual barista companies will use Visa’s tokenisation service to on their phone to order any drink. A re-order secure customer payment data. function is also available when customers say “Alexa, order my Starbucks.” Currently in beta ANT FINANCIAL Services Group, the parent testing, My Starbucks Barista will be available company of Alipay, has underlined its global to 1,000 selected US customers initially, with a ambitions with the purchase of MoneyGram planned roll-out in the summer and an Android for $880 million. The deal will connect Ant version to follow. Financial users with MoneyGram’s network of 2.4 billion bank and mobile accounts, plus 350,000 physical locations in more than 200 countries. “The combination of Ant Financial and PAYMENTS INDUSTRY INTELLIGENCE MoneyGram will provide greater access, security and simplicity for people around the world to remit funds, especially in major economies, such PaymentsCARDS & MOBILE as the United States, China, India, Mexico and the Philippines,” said Eric Jing, CEO, Ant Financial. paymentscm.com MoneyGram will remain headquartered in Dallas and continue to operate under its existing brand. www.paymentscm.com payments cards & mobile | March / April 2017 7 card notes GLOBAL
BLOCKCHAIN TO CUT INVESTMENT BANK COSTS BY 30 PERCENT
Blockchain technology could reduce replacing traditionally fragmented transaction operations, such as trade support, middle infrastructure costs for eight of the world’s ten processing databases with distributed ledger office, clearance, settlement and investigations, largest investment banks by an average of 30 technology, banks could reduce or eliminate could also lower their operating costs percent, or $8-12 billion annually, according to reconciliation costs and improve data quality. by 50 percent. a new report by Accenture. The report, Banking on Blockchain: a value “Capital markets institutions have faced Investment banks are currently maintaining analysis for investment banks, argues that this a perfect storm of regulatory compliance their own independent databases of would bring significant savings to banks’ core costs and revenue pressures in recent transactions, customer information and other middle- and back-office processes. year, prompting them to invest in emerging reference data. To complete any transaction, Finance reporting costs could shrink by technologies as a lever to improve they need to reconcile and confirm their 70 percent. Compliance costs could drop by profitability,” said Richard Lamb, group chief data with counterparties and clients, which 30-50 percent due to improved transparency executive, financial services, Accenture. is complex, costly, labour-intensive and and auditability of transactions. Centralised “Through analysis of real-world cost data, we prone to error. operations supporting KYC and client draw a clearer line under Blockchain’s value to Blockchain technology supports a shared on-boarding could mean savings of 50 percent investment banks.” digital ledger of transactions recorded and through the sharing and managing of digital Joint analysis was performed by Accenture verified across a network of participants. By identities across multiple banks. Business and benchmarking firm McLagan.
THE AMERICAN LOVE AFFAIR WITH CARDS CONTINUES
FOR 46 YEARS, THE LEADING PUBLICATION COVERING PAYMENT SYSTEMS WORLDWIDE DECEMBER 2016 / ISSUE 1100 Forget rock-paper-scissors. When it comes to respectively over the five years to 2015. And percent of all consumer payment system how Americans pay, it is card, paper followed Tokenare Reciprocityexpected to for increase Network every Digital year Wallets to 2020, volume. This is expected to decrease slightly by the two electronic-based systems some when card-based payment is projected to to 13 percent in 2020. way behind. make up 70 percent of all consumer payment Purchase Transactions on U.S. US consumers purchased $9.5 trillion worth system volume. Consumer Payment Systems (Bil.) of goods and services in 2015, up three percent The growth in card-based purchases in 2010 in 2015 year-on-year, according to a recent Nilson comes largely at the expense of paper-based Cash 50.7 47.3 down Report study. methods, such as cash, cheques, money 7% The four card-based methods of payment orders, travellers cheques and official cheques. Checks down (credit, debit, prepaid and electronic benefits These paper-based methods generated $2.4 17.0 11.2 34% transfer) accounted for $5.6 trillion in purchase trillion or 26 percent of all consumer payment value, or 60 percent of all consumer payment system volume in 2015. This was a drop of Credit up Cards 21.2 31.4 48% system volume. Credit cards accounted for $2.9 two percent on 2014 and is expected to fall billion or 30 percent of volume. Debit cards further to 16 percent of consumer payment Debit up Cards 43.9 63.8 46% accounted for $2.4 billion or 25 percent of volume. volume by 2020. Credit and debit card payment continue The two electronic-based systems in the Elect. up Pymts. 9.2 13.3 45% to gain share over other payment methods. US are remote and pre-authorised payments. They increased 48 percent and 46 percent In 2015, these generated $1.3 trillion or 14 Source: The Nilson Report
VERIFONE NETWORK COMPROMISED BY RUSSIAN> see p. 8 HACKING GROUP Card Manufacturer Shipments — Part 3
Verifone is reportedly investigating a breach Shipmentswarning by manufacturer they had of high-security24 hours andto otherchange payment all which was obtained by KrebsOnSecurity — of its internal computer networks that appears cardscompany were shown passwords. in issue #1092. Cards not shown there included also informed employees they would no longer SIM cards, prepaid and other phone cards, private label prepaid to have impacted a number of companies “We are currently investigating an IT control> see p. 7 be allowed to install software of any kind on running its point-of-sale solutions. Verifone Visamatter Debit Routingin the VerifoneRules environment,” reads company computers and laptops. confirmed to security blogger Brian Krebs Mostan big-box email retailers memo and supermarket penned chainsby Stevewould prefer Horan, Asked about the breach reports, a Verifone that the extent of the breach was limited to thatVerifone’s debit card transactions senior disintermediatevice president the predominantly and chief spokesman said the company saw evidence signature-based Visa and Mastercard networks for predominantly its corporate network and that its payment information officer. “As a precaution, we in January 2017 of an intrusion in a “limited > see p. 12 > see p. 10 services network was not impacted. are taking immediate steps to improve portion” of its internal network, but that INSIDE 2 – 4 Fast Facts CHARTS 4 Investments & Acquisitions — November 2016 On 23 January 2017, Verifone sent an our controls.”4 Investments & Acquisitions — Nov. 2016 7 the Telephone,breach Transpo., never Prepaid impacted & Nonpayment Cardits Shipmentspayment e-mail to all company staff and contractors, The5 internalAmex Pay Verifone Launches in Canadamemo and the— U.K.a copy of 9 servicesLargest network.Maestro Issuers Worldwide 2015 10 – 11 U.S. Consumer Payment Systems
© 2016 HSN Consultants, Inc. THE NILSON REPORT VISIT US ONLINE AT WWW.NILSONREPORT.COM 8 payments cards & mobile | March / April 2017 www.paymentscm.com ADVERTORIAL
CROSS-BORDER E-COMMERCE BOOSTED BY NEW PAYMENTS-INDUSTRY PARTNERSHIP
To expand cross-border, e-commerce merchants must get to grips with alternative payment methods (APMs), or risk alienating consumers in their new markets. Vantiv’s partnership with global payment specialist PPRO could be the answer to merchants’ prayers.
E-commerce is going global. Merchants the At the moment, merchants who’ve grown up With just one contract, one integration and one world over are expanding into new markets. It’s and done most of their business in one market, settlement, PPRO provides payment industry easy to see why. The days of the Internet being are often entirely unable to offer customers leaders globally with access, processing and a Western phenomenon are numbered. The in other markets the payment methods they collection services for alternative payment world is coming online. Today, only around 40% prefer. And that has big implications. According methods and value added services. Of the of the world’s population – 3 billion people – is to YouGov, 50% of consumers will simply cancel world’s estimated 300 major APMs, PPRO online. By 2020, research suggests that this their purchase if they can’t pay using their already has integrated with 140 — with more number will grow to 4 billion. preferred payment methods. being added all the time. Adding these APMs to Vantiv’s offering gives US merchants, at a And when people get connected, they start Vantiv and PPRO have single blow, access to the preferred payment spending. At a time when the US e-commerce methods of millions of customers worldwide. market is growing at just 15% a year, the the solution For any company wishing to expand into foreign Chinese market has an annual growth rate of markets, this takes away a major headache, 32%. In Russia, it’s 42%. In India, it’s even higher, Vantiv, Inc is a leading integrated payment allowing them to integrate both established at 45%. Lucrative growing markets are opening processor in the U.S., serving the full value cardbased payment methods and APMs into to Western merchants and at the same time, chain from merchant acquiring through their web shops. e-commerce sites from developing markets issuer processing services. It already want to cut out the middle-men and sell directly serves 800,000 merchants and processes Working with PPRO, Vantiv is able to offer to Western consumers. 25 billion transactions a year. The company its merchants the entire range of payment is one of the largest credit-card acquirers means, from traditional payment cards to But before they can go global, there is a hurdle in the USA, offering its customers access locally preferred APMs for every market in the merchants must jump. In every market, there to the widest possible range of established world. For any e-commerce business planning is a unique local payments culture. In many payment methods. to expand, this delivers an instant head start. markets, card transactions are the minority. Instead, customers use alternative payment As Vantiv´s e-commerce merchants methods (APMs). These range from bank- increasingly target customers outside their transfer apps to cash-payment schemes, which home markets, they need access to APMs. allow users to shop online but then pay at a That’s why Vantiv has partnered with global participating shop or kiosk. payments specialist PPRO.
To find out more about what PPRO can do for your business get in touch with us today at [email protected]. www.ppro.com Figure 3: The Global Risks Landscape 2017 card notes GLOBAL
THREE TRENDS SHAPING GLOBAL RISKS OVER THE NEXT DECADE
Economic inequality, societal polarisation and need to re-build social cohesion, and address risk of cyber attacks, industrial and natural growing environmental threats are the top the cultural change which leaves people disasters. It may also be part of the solution. three trends that will shape global development marginalised or feeling marginalised within According to the report, the biggest risks of over the next decade, according to the World their own societies. doing business globally were unemployment Economic Forum. The risk of extreme weather events,Figure major 3: Theor Globalunder-employment, Risks Landscape energy 2017 price shocks, Respondents to the Global Risks Report 2017 natural disasters and failure of climate-change fiscal crises, failure of national government found that rising income and wealth disparity to mitigation all came within the top five global and profound social instability. External socio- be the most important trend determining global risks in 2017 in terms of impact. Around political and environmental risks may seem far developments. Over-indebtedness is increasing 25 million people have been uprooted by removed from the payments industry. However, at a personal and country level. Many measures natural disasters, according to the Worldwatch such risks characterise the landscape in which taken in the wake of the 2008 economic Institute. Water scarcity, exacerbated by the industry operates. crisis have exacerbated both income inequality climate change, could cost some regions up External risks are naturally more difficult to and lack of growth. This begs the question, to six percent of their GDP, says the World influence directly, compared to internal risks is market capitalism broken? If so, how do Bank. Environmental risks are pivotal because arising from particular business decisions. governments, banks and those operating in they interconnect with other risks and act as a Every organisation has to deal with the the payments space act to reform the market, force multiplier. consequences of external risks. However, the stimulate growth and re-build customer trust? Technology is both an opportunity and a likelihood and impact of these risks will depend 2016 was a year of surprise election results risk. Artificial intelligence, robotics and on how each organisation manages them. This and the rise of fringe parties campaigning for biotechnology could deliver the largest is how risk management can become a source greater national sovereignty across Europe benefits to society, but also result in the largest of competitive differentiation. and beyond. This has propelled trends of negative consequences. Due to the increasing Around 750 experts contributed to the Global societal polarisation and intensifying national interconnectedness and interdependence of Risks Report 2017 by assessing 30 global risks sentiment into the top five. There is clearly a our world, technology may exacerbate the and 13 underlying trends.
GLOBAL RISKS LANDSCAPE 2017
Source: World Economic Forum Global Risks Perception Survey 2016 Note: Survey respondents were asked to assess the likelihood of the individual global risk on a scale of 1 to 7, 1 representing a risk that is not likely to happen and 7 a risk that is very likely to occur. They also assess the impact on each global risk on a scale of 1 to 5 (1: minimal impact, 2: minor impact, 3: moderate impact, 4: severe impact and 5: catastrophic impact). See Appendix B for more details. To ensure legibility, the names of the global risks are abbreviated; see Appendix A for the full name and description
Source: World Economic Forum, 2017 Source: World Economic Forum Global Risks Perception Survey 2016 10 payments cards & mobile | March / April 2017 Note: Survey respondents were asked to assess thewww.paymentscm.com likelihood of the individual global risk on a scale of 1 to 7, 1 representing a risk that is not likely to happen and 7 a risk that is very likely to occur. They also assess the impact on each global risk on a scale of 1 to 5 (1: minimal impact, 2: minor impact, 3: moderate impact, 4: severe impact and 5: catastrophic impact). See Appendix B for more details. To ensure legibility, the names of the global risks are abbreviated; see Appendix A for the full name and description UK card notes
UK CONSUMERS DO NOT TRUST BUSINESSES TO PROTECT FINANCIAL AND PAYMENTS DATA
More than half of UK consumers are concerned Trust and Security Perceptions surveyed more about the ability of businesses and financial than 6,000 consumers from 20 countries on institutions to protect financial and payments their perceptions and opinions toward fraud in data, with 19 percent of respondents saying shopping, data protection, and the ways they invested considerably in sophisticated they do not trust firms to protect their data and want to engage with firms to minimise fraud. fraud monitoring and prevention solutions; 33 percent saying they are unsure, according More than a third of UK respondents (35 however, fraudsters also invest considerably. to a new global report from ACI Worldwide and percent) consequently see theft by computer They continually find new ways of attacking Aite Group. hackers as the biggest fraud risk, while using IT systems and thereby collecting and Confidence levels were similar across the cards for purchases via telephone, using monetising confidential data," explains Jay globe and only three countries had more than a phone or tablet to shop or pay bills and Floyd, head of fraud strategy and solutions 50 percent of respondents indicate that they shopping online are all perceived as less risky. EMEA, ACI Worldwide. trust institutions to protect their financial After experiencing fraud or data breach, 56 “The findings should serve as a wake-up call and payments data. In some countries with percent of UK consumers said they would stop to the industry to better educate consumers very strict data security guidelines, such as shopping with a given merchant. and to highlight security measures that are Germany and Singapore, consumers report “With stories about data breaches regularly in place. Consumers on the other hand must some of the lowest levels of confidence in data dominating the news headlines, these results become more proactive in securing their security and control. do not come as a surprise. Most financial data and make use of the fraud prevention The Global Consumer Survey: Consumer institutions and businesses worldwide have measures and services offered by their banks.”
www.paymentscm.com payments cards & mobile | March / April 2017 11 card notes EUROPE
IS THE ECB STIFLING SEPA COMPETITION WITH ITS LATEST MOVE?
Ten years ago the European Commission and costs. SEPA aims to increase efficiency and the European Central Bank (ECB) announced a reduce prices by making the euro area banking common vision for the Single Euro Payments market more competitive. Opening the whole of Area (SEPA), which they described as an this market to competition should force down “integrated market for payment services which prices and enable you to shop around for the is subject to effective competition.” They best deal.” described their role as “creating open and “While the EU does not control market prices common standards that overcome technical for payments, its competition authorities will and commercial barriers and by fostering be closely following market developments and effective competition.” will be swift to intervene if banks use SEPA as place to address settlement risk will lead to You will notice the repeated use of the an excuse to increase prices.” payments being rejected. The obvious solution word “competition”, and indeed SEPA has And because it is central to the argument, to this is simply to extend the operating hours been implemented by several payment clearing here is the EC’s take on state owned enterprises: of its existing settlement mechanism, as the companies across Europe who compete for the “Recent experience has shown that State- Bank of England is contemplating. But the payments business of banks. Owned Enterprises (SOEs) can be an important ECB has decided that it wants to create a new “The market is working and there is no need source of concerns in at least three areas: settlement mechanism that can handle the for intervention by state or super-state actors,” market functioning, public finances and transaction volumes of all euro denominated say Tom Hay, head of payments, and Mark financial stability.” instant payments settling individually. Burlison, senior consultant, Icon Solutions. “This clearly indicates the ECB’s intention So what is the ECB up to? They recently The EC’s position is as follows: to step outside of the traditional settlement published the Target Instant Payments (TIPS) role of central banks, and enter the hitherto Settlement User Requirements. The rather • Opening the whole of the Euro payments commercial area of payments clearing. Despite dull title conceals — perhaps deliberately — an market to competition should force the ECB’s principle of not providing clearing apparent attempt by the ECB to offer instant prices down services, TIPS positions the ECB as a clearing payment services that directly compete with • The EU does not control market prices for house, targeting the same business as Stet, commercial clearing and settlement operators. Euro payments Equens, SIBS and the other commercial for- Such a competition cannot be fair, because • State-owned enterprises can be an important profit clearing houses,” Hay explains. “TIPS shall operate on a full cost-recovery and source of concern in market function not-for-profit basis.” Why would the ECB make THE DEATH OF THE SEPA SPIRIT? such a move? ECB MISSION CREEP “Existing providers of Euro clearing services SEPA AS A FREE MARKET Now onto the ECB, which (via national central must be wondering what the EC will do banks) is a state-owned enterprise that receives about a state-owned enterprise entering and “The crux of the matter is that the European its mandate from and is held accountable undercutting a competitive marketplace by Commission (EC) and ECB are at odds over by the European Parliament. The TIPS new operating as a non-profit organisation that the new SEPA credit transfer instant (SCT project focuses specifically on the settlement sets the price for Euro denominated instant Inst) scheme. The scheme is designed to of instant payments: payments,” says Hay. bring SEPA in line with the wider market shift “TIPS is a service for the settlement of “No doubt they are nervously eyeing toward instant payments, such as the UK’s instant payments. TIPS will offer instant the amount they have invested thus far in Faster Payments scheme and similar initiatives settlement services to its participants when implementing SCT Inst. They must also be that are now happening across the globe,” an originator instructs the transfer of funds to questioning whether they should continue continues Hay. a beneficiary.” to invest in SEPA payment initiatives going According to the EC, SEPA exists to make “all Other instant payment implementations forward, if those investments could be electronic payments in the euro area as easy as settle using existing central bank mechanisms jeopardised at a bureaucratic stroke.” cash payments. You can make fast and secure and do not settle per individual payment. The ECB seems to be sending a message transfers between bank accounts anywhere in Instead they accrue settlement positions for that payments are better provided by a state- the euro area.” This is a laudable goal, but in a many transactions over a period. supported infrastructure than by the operation free market there is a danger of the dead hand This means that on days when the central of the market. This confusion can only damage of the state writing regulations that increase bank settlement mechanism is not available business confidence, and may mark the death costs for end consumers. The commission is (the four-day Easter weekend being an extreme of the spirit of SEPA. Instead of opening the quick to reassure that will not be the case: example) positions accrue over a longer period market to competition and innovation, state “On the contrary, SEPA will mean lower and there is a chance that mechanisms put in intervention will stifle it.
12 payments cards & mobile | March / April 2017 www.paymentscm.com GLOBAL card notes
WHY IOT IS THE FASTEST GROWING RETAIL TREND OF 2017
A recent Gartner survey estimated that by 2020, more than doubling in the past year. It is now are viewing, and using this information to the number of connected objects will increase imperative that retailers, irrespective of size, start customise convenient and relevant offerings by 30 times current levels, making the Internet adapting offerings to suit this changing behaviour. for individual customers, retailers will of Things (IoT) a huge untapped opportunity for Examples, such as Amazon’s dash stick, and begin to feel the pay-back and keep up with retailers which simply cannot be ignored. Baidu’s smart chopsticks demonstrate how IoT the competition. As a result, 2017 will see retailers either jumping in retail is now being used to aid customer’s This year must see the start of smart retailers on the IoT bandwagon or risk being left behind. path to purchase and simplify their journey. As reacting to this trend by deploying technology or Soon we will see the first steps by leading multi- a result, smaller retailers need to be mindful of processes to acknowledge that the customer is channel retailers keen to explore the adoption these developments and consider what they can potentially shopping around, allowing them to of IoT in store to bridge existing gaps between realistically do to ensure that they are not left accurately price-match in store. Additionally, the their current online and physical offerings, behind their bigger, wealthier peers. retailer may also send the customer a discount for as well as ensuring they are aligned with the So what do retailers have to do to survive future purchases online or in-store to drive loyalty. changing behaviour of tech-savvy consumers, this connected landscape? The answer lies in The progressive retailer will put the consumer’s according to Jason Bramsden, CTO, SQLI, a digital employing a best-of-both world’s experience, on needs first, constantly responding to their transformation firm. and offline, that develops a profile of a customer’s evolving expectations and demands. In today’s Connected retail technology links devices and shopping behaviours, enabling the retailer to retail arena, shoppers expect personalised data for a smarter shopping experience. And the personalise their service around individual communication and targeted offers. The data speed with which the technology is adopted by the interests and needs. potential IoT offers can only have a positive consumer is rapid. Smartphones now play a big By analysing the consumer experience; impact on retailers’ ability to customise their role in the shopping experience, with the number when they enter the store or click on a website; offerings and engage with consumers in a highly of consumers using their mobile devices in-store how long they browse; what products they relevant, value-added manner.
www.paymentscm.com payments cards & mobile | March / April 2017 13 ISLAMIC FINANCE: TIME TO GO MAINSTREAM?
by Joyrene Thomas
The Islamic finance industry has expanded rapidly in the last decade, growing at around 10-12 percent annually, according to the World Bank. We examine the underlying Shariah principles and how this could inform banking and financial services within the Muslim world and more widely.
Shariah-compliant financial assets are ban on interest and contractural uncertainty, estimated at around $2 trillion globally, says the an adherence to risk- and profit-sharing, and World Bank. This includes bank and non-bank asset-backed, ethical investment. financial institutions, capital markets, money Quranic verses prohibit riba, interest or markets and insurance (takaful). However, usury. Interest is felt to give the lender an with roughly 1.6 billion Muslims worldwide and increasing interest from non-Muslim countries and consumers, there is significant Attitudes to money growth potential. and risk or uncertainty At the same time, the underlying principles underpin much of Islamic of Islamic finance help make the sector more resilient to economic downturns. Socially financial thinking. responsible investing has also seen a massive uptick over the last decade, particularly among unfair advantage over the borrower as the latter millennials. Influencers such as Klaus Schwab, becomes doubly burdened. He has to repay the the founder of the World Economic Forum, debt and the finance charge regardless of his are on record as saying that capitalism in its financial circumstances in the future. This may current form no longer fits the world around us. increase his financial hardship and cause him So, is Islamic finance a viable way of addressing to be overloaded with debt. Interest is felt to be economic and societal imbalances? And what a lost opportunity to act generously. are the implications for the development of Attitudes to money and risk or uncertainty financial products? (gharar) underpin much of Islamic financial thinking. Muslims believe that money cannot THE PRINCIPLES generate money. Thus trading money for money is not permitted; transactions must have an There is a considerable body of scholarship underlying asset. Islamic scholars are generally informing Islamic or Shariah law. Scholars uncomfortable about any investment based on do not always agree, nor do all Muslims. a contract as the underlying asset. However, the main financial principles are a Whilst there is no prohibition on making
14 www.paymentscm.com cover story
money or the pursuit of wealth in Islam, The global, interconnected nature of net or savings, and the market for insurance hoarding money is frowned upon. Savers are financial markets amplifies the problem. is small. The institutional structures are not not paid interest for putting their money away Islamic banks act in accordance with Shariah always there at a macro-economic level. in a savings account. This goes to views on risk principles, yet central banks act for the most Meanwhile at the retail level, there is no and reward, and the social dimension to money part in accordance with conventional financial take-up without products, and no products and wealth. There is a strong commitment to principles. Islamic and non-Islamic banks are without take-up. risk- and profit-sharing in Islam. There is no subject to the same regulatory, legal and tax When governments and regulators get such thing as money for nothing. If the saver arrangements. behind Shariah-compliant finance, it can is not taking a risk, they cannot expect to This sometimes explains why Islamic banks move the market. The Malaysian government be rewarded. create overly-engineered, synthetic products, has issued a number of fixed-income Sukuk Almsgiving or charity (zakat) is one of the five which mimic the functions of conventional bonds. The Malaysian equity markets and pillars of Islam, which reflects the community products. It helps them to comply with Basel pension funds are increasingly allocating III and other prudential regulation. However money to be managed in a Shariah-compliant at the same time, Shariah scholars way. Bank Negara (the central The principles of Islamic and end-customers are left bank of Malaysia) is also finance go beyond a feeling uncomfortable promoting Islamic banks prohibition on interest about products that may to tap into risk-sharing adhere to the letter but pools. It was also far- dimension to wealth among Muslims. The not necessarily the sighted in addressing tithing of a percentage of one’s wealth each spirit of the law. the skills shortage year is a commitment to social justice and for Elsewhere there are of Islamic finance the care and protection of others. If everything tax implications, for professionals when it ultimately belongs to God, returning to God example capital gains tax set up the International a portion of the bounty he has conferred for in home finance agreements. Centre for Education in re-distribution within the community is felt to Such agreements work on a Islamic Finance (INCEIF) in be appropriate principle of diminishing musharaka, 2005. This was the first international Islamic financial dealings are characterised where the bank and customer go into post-graduate university specialising in by fairness, equality and transparency. This partnership over a jointly-owned asset. The Islamic finance. extends to where and how Muslims may invest, property is seen as a series of units. The There are some things that only government and how business transactions are conducted. customer’s payments are partly rent for the can do, reasons Omar Shaikh, executive board Forbidden investment areas include alcohol, right to live in the property, and partly unit member, Islamic Finance Council UK. “One gambling, pork products, pornography, tobacco, acquisition. The bank’s share diminishes over of the core elements in all pension funds is weapons and heavily indebted companies. As to time as the customer makes payments, before government-backed, fixed-income notes — business dealings, these should be transparent ownership transfers to the customer at term. sovereign bonds of debt. There is no GBP and eliminate contractural uncertainty, doubt, “You’ve got to buy the house and then sell it government-backed Sukuk that is accessible,” and ambiguity. to the customer, so there are two transactions. Shaikh explains. When Britain became the first The bank buys first and then sells later, in western country to issue a Sukuk bond in June SQUARE PEG, ROUND HOLE? which case they would pay capital gains tax 2014, it was over-subscribed by ten times. The in countries where there is such a tax. In £200 million sale attracted orders of more “In terms of needs, Shariah-conscious conventional financing, there is only one owner. than £2 billion, however it remains the only UK consumers are not massively different to It is debt-based or loan-based and the customer government Sukuk. “How can you construct anybody else,” says Hamza Abu-Musa, founder just pays the loan,” explains Ezamshah Ismail, a pension fund for public sector workers and of SharedEq, an online portal for financial dean at the International Centre for Education others, who wish have their pensions managed literacy and halal (permitted) products. “There in Islamic Finance (INCEIF). in line with their faith-inspired, ethical principles is a need to store money somewhere, purchase without such notes? That is something that a house or finance a business.” CHICKEN AND EGG government needs to do because the private Developing Shariah-compliant products sector cannot issue government bonds.” within the conventional financial system is Uptake of Shariah-compliant institutional and So, what are the factors that need to come challenging. “It’s like trying to fit a square peg retail products remains a chicken-and-egg together to break the chicken-and-egg scenario into a round hole,” says Abu-Musa. “Even the scenario. Uptake of any product in the capital and help Shariah-compliant finance take off term ‘Islamic bank’ is almost an oxymoron. markets is driven by the large pension funds, more widely? “It is the culmination of political You have an equity mode of finance and you insurance companies and asset managers. will, enabling regulatory frameworks, education are trying to fit that into something deeply However, this is difficult in emerging markets and awareness and effective delivery channels ingrained that revolves around debt.” where people do not have a pension safety at the retail level,” says Shaikh. www.paymentscm.com payments cards & mobile | March / April 2017 15 CONSUMERS AND COMMERCIALS customer bases are lower.” The higher costs pursuit of profit maximisation at any cost. are passed on to the consumer, who pays a Wealth transference over wealth creation. For Islamic finance to take off, there also needs premium for a Shariah-compliant product. Short-term gains over long-term sustainable to be greater awareness at the individual level. “It’s really about ethical and Shariah- growth. Increasing social and economic “You need greater awareness so that people compliant products being on par with traditional inequalities. It is time for an alternative. It have a change of mindset,” says Ezamshah products. From a commercial and consumer is time to get real. Real in the sense of real- Ismail, dean, INCEIF. The barriers are twofold: perspective, they should be no difference. I think economy transactions that build something increasing financial literacy and overcoming that we are at that point now where FinTech can physical, create jobs and generate revenue financial apathy. “Many of us have taken a form eliminate a lot of back- and middle-office costs for people, as opposed to paper speculation. of financing, but do you really look through and provide a level playing field,” says Khan. And real in the sense of moral values that are and find out how things work? If you own an ethical, honest, simple, un-spun, sustainable, insurance policy, have you read your policy, even TIME TO GET REAL rooted and human. with conventional finance?” he asks. “Looking at the crisis of conventional Abu-Musa of SharedEq hears two common If technology is the great leveller, principles and banking, the FinTech headwinds described complaints from consumers: products are not values become the great differentiator. Subject as the ‘Uberisation’ of the banking sector, Shariah-compliant and they are too expensive. to having the budget, any organisation can buy I am seeing genuine signs that there are “There have been trust issues over the past and use technology. What sets organisations opportunities to influence and change the way 15-20 years, where certain products have been apart is developing ideas around how to the broader banking system or intermediation fixed-income,Sukuk -type products, and it turned make technology meaningful, authentic and role works,” says Shaikh. “The way retail out later that they were not Shariah-compliant real for customers and staff. This is where consumers in the digital world are engaging at all. They were just replicating conventional the principled and values-based approach of with their banks has changed. The appetite, bonds,” he says. Shariah-compliant products Islamic finance gives it an edge. openness and willingness of millennials to typically also cost more than conventional Islamic financial principles go beyond a invest in products with social along with products. Either the consumer is paying more prohibition on interest to encompass the financial returns is considerably more than in for a current account or home financing, or they social and commercial framework around the previous generations,” he concludes. are earning a lower rate of return. transaction. As a result, the appeal of ethical Looking to Islamic finance to rehabilitate Irfan Khan, CEO and co-founder of Yielders, a and Islamic finance goes beyond Muslims. broken business models, market structures and Shariah-compliant, equity-based crowdfunding Socially responsible investing has seen a consumer trust is a big ask. Timing is everything platform explains: “The reason why traditional massive uptick, particularly among millennials. in life as in business. Is it time for Islamic Islamic finance has found it challenging is Sustainable investments totalled around $21.1 finance to go mainstream? Now is as good as because of the commercial viability. They trillion globally in 2014, up 61 percent from 2012, any time in the past. are doing the same processes and practices according to the Global Sustainable Investment Innovation is hard, yet the addressable as traditional banking, but have additional Alliance. The appetite for ethical finance as a market for ethical and Islamic finance is huge. overheads due to the compromises they have viable alternative to conventional finance exists. In innovation, as in Islamic financial dealings, to make. Their operating costs are significantly People are turning to ethical finance as an risk and reward are balanced. There is no such higher as well, yet their transaction volumes and alternative to the excesses of capitalism. The thing as money for nothing.
GLOSSARY OF TERMS
Gharar — can be translated as uncertainty, Murabaha — a trade with cost plus mark- Sukuk — financial certificates or certificates hazard, chance or risk. In the context of up, usually used as a method of financing of ownership. A fixed income investment Islamic finance, it usually means uncertainty goods. Typically the asset is purchased product, similar to a conventional bond. The in a contract. on behalf of a client and resold at a pre- returns on the certificates are directly linked determined price. Repayment can be made to the returns generated by the underlying Ijara — a lease contract, which may be in a lump sum or in instalments. The asset assets. combined with one or more other contracts remains with the financier until repaid in full. to form a more complex transaction. Takaful — can be translated as solidarity or Musharaka — an investment partnership, mutual guarantee. This is Shariah-compliant Maisir — gambling or betting, which is similar to modern venture capital. Similar insurance organised along mutual or prohibited in Islam. to the concept of mudaraba, except there is co-operative lines. no one individual managing the investment. Mudaraba — an investment partnership or Profits are split between the investors Zakat — can be translated as purification. trustee financing. Investors place money with according to a pre-determined ratio. Losses Almsgiving or charity and one of the five a manager, who invests or manages this to are borne in relation to the amount invested pillars of Islam. Generally, this consists of produce a return. Profits are split between the by each individual. Muslims giving 2.5 percent of their wealth investors and the manager according to a pre- each year, although calculations can vary. determined ratio. Losses are borne in relation Riba — usually translated as interest or usury. to the amount invested by each individual.
16 payments cards & mobile | March / April 2017 www.paymentscm.com 17 market overview PAYMENTS IN RUSSIA
by Joyrene Thomas
On the centenary of the Russian Revolution, we examine payments in the world’s largest country. How do Russians pay today? And given the state bank dynamic, a new domestic card scheme and an internet-connected, tech-savvy population, what does the future hold for payments in Russia?
Russia covers 13 percent of the world’s payment. Around 60 percent of all payments methods, such as credit transfers or direct surface, spans eleven time zones and is are made in cash. “Half the population like to debits. The number of bank payment cards in home to 143 million people. It is a vast have their savings under the pillow at home. issue rose to 243.9 million in 2015 from 74.6 country of contrasts, which is reflected in They spend cash as opposed to paying by million in 2006, taking total card issuance national payment habits. How people pay card or other payment methods,” explains to 1.95 per capita, according to central bank in big cities differs markedly from payment Dmitry Danilenko, vice president, strategy figures. This compares to an average of 1.24 behaviour in towns and rural areas. And and business development at payment cards per capita for the ten countries in the while internet and smartphone penetration services provider, Qiwi. The domestic Eurasian Payment Cards Yearbook 2016-17, in Russia is higher than average for eastern infrastructure is set up around cash. Qiwi and a European average of 1.53 cards per Europe, Russians pay cash-on-delivery for is the largest operator of cash kiosks in capita. Debit cards outnumber credit cards online purchases more than half the time. Russia with around 175,00 nationwide, 60-65 by about 7:1. They are particularly popular percent of the market. Such kiosks are a as salary or payroll cards. While around CASH AND CARD popular way for Russians to pay utility bills, 70 percent of card use is cash withdrawal taxes, online retailers or each other (P2P), at ATM, habits are slowly changing. The The economic downturn in Russia together send international remittances and access acceptance network is improving and with the devaluation of the ruble, rising a range of other financial services. Russians are starting to use their cards more inflation and numerous bank closures have When not paying cash, Russians prefer at point of sale. made people cautious about electronic cards over other electronic payment On the acquiring side, the Bank of
18 payments cards & mobile | March / April 2017 www.paymentscm.com market overview
“The competition This seems to run counter to the practice purchases, have become almost a hygiene in many other markets, where smaller, factor for customers. So, if the offering from big is so high that you more nimble start-ups have a reputation for banks, certainly in the larger cities, equals and see excellent branch innovation. “Large Russian companies have exceeds that of banks in other regions, what service, mobile managed to keep the innovation impulse and does the future hold? not become corporate players,” says Dostov. applications, QR They are flexible and implement new ideas THE MOBILE FUTURE codes and a lot of free quickly, which is positive. “The negative thing services.” is that the regulatory environment is very hard. To some extent, the future has already We do not have waivers or easy licences.” This arrived. 83 million Russians are active internet gives incumbents with both scale and brand users and mobile phone penetration is high. Maria Vinogradova, OpenWay Group recognition the innovation advantage in Russia. According to Yandex.Money, 91 percent of online purchases in Russia are via desktops, International Settlement reported 1,481,469 CAN-DO CULTURE the remainder via mobile phones. However, POS terminals as at the end of 2015, up mobile devices are involved in around half of all from 354,491 at the end of 2009 (CAGR 27.8 The lack of legacy infrastructure also enables online transactions, as purchases started on a percent). Based on the 2015 figure, there were banks to be more agile from a technology desktop may be authenticated via an SMS code 10,109.3 POS terminals per million inhabitants and cultural point of view. “In Russia, the to the mobile phone. in Russia, compared with an EU average of infrastructure and systems are much newer 21.893.2. Card acceptance is concentrated in than in Europe. Credit cards appeared in Russia Moscow and St Petersburg, although this is around 15 years ago, so the systems are quite “Russia is characterised expected to change rapidly over the next few new. It’s a classic situation when you can have a by cheap, simple years due to new legislation described below. lot of functionality in one system — not like the mobile devices and big zoo behind the scenes you have in Europe. The BIG GREEN BROTHER architecture is more transparent,” says Maria ecosystems.” Vinogradova, director of strategy and market The recent history of banking in Russia has intelligence, OpenWay Group. Maria Gracheva, CEO, Yandex.Money. been one of fragmentation and consolidation. As to business culture in Russia, “it’s easier to Four-to-five years ago, there were more than be agile with Russian banks, similar to banks in There are no fewer than five different ways 1,000 banks in Russia. But in the wake of the south-east Asia. They take decisions quicker,” to pay via mobile in Russia today. This ranges economic crisis, the central bank increased says Vinogradova. “We had a discussion from mobile carrier billing and SMS check-out capital requirements and revoked the licences with one of our acquirer customers, and via the banking network, to integrated in-app of more than 300 banks. The big players demonstrated that we could do card migration payment, mobile NFC and QR payment. Will merged to create even bigger players, the projects in four months. They told us they all these methods still be available in five biggest of which is Sberbank (The Savings could not take a decision within four months, years’ time? Bank of Russia). let alone implement the solution. This is the Probably, but the marketshare of each will Known within the industry as the ‘big green huge difference.” Julia Lutskaya, marketing change. Mobile carrier billing with its niche brother’ on account of its size and green logo, communications specialist, OpenWay, agrees appeal and high merchant fees of 15-20 percent state-owned Sberbank accounts for around and highlights another aspect of Russian is likely to be a long-term loser. Methods half the cards issued (117.9 million) and half business culture. “The relationship between involving heavy merchant integration, such the POS terminals (552,000) deployed in vendors and banks is closer. In Europe, it is as SMS check-out and in-app payment, may Russia. Sberbank also has one of the biggest more formal. But in Russia, informality and not grow quickly. Host card emulation (HCE), IT departments of any Russian company. It relations mean a lot.” shortly followed by both Apple Pay and is held to be progressive and innovative by Bank consolidation, big company innovation, Samsung Pay came to Russia in 2016. However, industry experts, which illustrates a particular lack of legacy systems and a can-do business with a large proportion of simple smartphones characteristic of the Russian market. culture make for a dynamic, competitive and not equipped with NFC and low contactless “An interesting feature is that payment innovative market. “If we talk about digital acceptance, the ‘Pay’ solutions may struggle innovation is very concentrated in big banking — web and mobile banking — the to gain traction. companies. The regulation, market and society services we deliver to our customers are very “If we had an audience where everyone work in such a way that the most interesting advanced in terms of functionality, such as had the latest model of smartphone, Apple or things do not appear from the garage, but security services, one-time PIN codes, geo Samsung Pay would be very popular in Russia. from the likes of Sberbank, Alfa Bank, Qiwi limiters, cash withdrawal limits, ATM cash by But we have a very democratic smartphone and Yandex Money,” says Dr Victor Dostov, code,” says Lutskaya. Indeed some innovative market, and it allows us as an e-wallet platform president, Russian E-Money Association. services, such as SMS notifications for card to create and distribute alternative solutions www.paymentscm.com payments cards & mobile | March / April 2017 19 available for a wide audience, based not on ‘Mir’ card (Mir means ‘world’ in Russian). As at over the next ten years. “We will have more NFC but on QR code,” explains Gracheva. The mid-October 2016, there were one million Mir and more direct payments, namely account- future is looking even brighter for the humble cards in market, according to an official press to-account. We already have some interesting QR code, following government intervention on statement. Around 120 million Mir cards are signs. Sberbank controls around half of the an unrelated issue. expected by 2019. By January 2016, almost card issuance and acquiring in the market, the entire ATM network and 85 percent of the and has produced a closed-loop system,” he ACCEPTANCE NETWORK EXPANSION POS network accepted Mir. The third phase says. “I believe that banks will start to remove will involve the international expansion of Mir international payment systems and even The Russian government introduced the first card acceptance, variously by co-badging with probably Mir from the chain. Because if you phase of legislation to prevent tax evasion in the international schemes, or extending the Mir can move inside the bank or have agreements retail sector in 2015. All food and drink retailers acceptance network into CIS countries. between banks, then you have a good incentive were required to install 2D scanners to scan to process transactions directly, as in China.” bottles of alcohol sold. From this summer, all AUTOMATIC FOR THE PEOPLE Elsewhere the slow erosion of cash small and medium-sized retailers across Russia continues. For example, Qiwi has launched will be required to provide real-time, line-by-line National sovereignty and digital agendas non-cash-on-delivery — much as a horse-less reporting of all items sold. This is to control goods collide in Mir. The NSPK has ambitious plans carriage or a driver-less car, the product is purchased against those sold for tax purposes. to include government identity, transit and defined by the removal of a key characteristic. “These 2D scanners only need a small loyalty functionality on the card. Meanwhile, Qiwi undertakes to deliver physical goods on integration on the back-end of the cashier citizen-to-government interactions are already behalf of merchants. Consumers are offered software to start accepting payments from heading in a digital direction with online various types of payment method; merchants e-wallets on any smartphone without any portals for the issuance of passports, driving are paid immediately at check-out. “Our first additional equipment, such as NFC,” says licences, registration at schools and municipal client is the Chinese consumer goods company Gracheva. “I think that a lot of loyalty programmes kindergartens. “If our government decides to be LeEco, which manufactures mobile phones. and data-driven products will be based on this digital or more innovative, they will be successful,” 60 percent of all orders are now non-cash on new technology of real-time reporting,” she adds. summarises Gracheva. delivery. They avoid this cash relationship,” Government support in Russia means a Payments are set to become more automatic says Danilenko at Qiwi. lot. Nowhere is this more clear than in the or invisible. “Payments will not require any In Russia, as elsewhere, the future will development of a national card payment activity from the customer,” says Gracheva. This be increasingly digital, or as Danilenko system. The ‘NSPK law’ was signed by president includes road toll payments through licence puts it, “people can still like cash, but they Putin in May 2014 in response to sanctions, plate recognition, POS payment through facial can preserve it if they choose to pay by which resulted in the blocking of certain bank recognition as well as recognition-based payment another means.” transactions by Mastercard and Visa. The NSPK more generally. Sberbank has already started law requires all processing to be carried out hand payment in schools. An infra-red scan of the Note: This article is compiled using detailed within Russia. By 2015, all international payment hand veins of the pupil automatically charges the information adapted from the Russia chapter schemes were processing domestic transactions parental bank account. of the ‘Eurasian Payment Cards Yearbook via the new national switch. Others are predicting that payments will 2016-17’. The second phase of the national payments become more automatic between banks, with strategy was issuance of domestic cards, which significant impact on card schemes. Dostov For more information visit began in December 2015 with the pilot of the predicts the removal of the four-party model www.paymentcardyearbooks.com
BANK CARDS ISSUED IN RUSSIA
2011 2012 2013 2014 2015 GR 14/15 CAGR 5Y
Cards with a cash function 200,169.8 239,547.5 248,573.7 278,497.6 286,153.8 2.75% 14.66%
Card with a payment function 162,898.1 191,495.3 217,463.5 227,665.9 243,907.2 7.13% 12.09%
- Cards with a debit function 147,872.3 169,012.7 188,274.6 195,904.4 214,443.4 9.46% 10.91%
- Cards with a credit function 15,025.8 22,482.6 29,188.9 31,761.5 29,463.8 -7.23% 24.01%
Cards with an e-money function 37,271.7 48,052.2 31,110.2 50,831.7 42,246.6 -16.89% 45.03%
Total cards 200,169.8 239,547.5 248,573.7 278,497.6 286,153.8 2.75% 14.66%
Payment cards per capita - Russia 1.40 1.67 1.73 1.90 1.95 2.55% 14.07%
Payment cards per capita - EA10 total 0.88 1.00 1.13 1.20 1.24 3.33% 10.58%
Payment cards per capita - EU total 1.45 1.47 1.50 1.51 1.53 1.32% 1.08%
Note: debit card figures include delayed debit cards. Active cards are cards which are used per quarter. Source: CBR, BIS / Eurasian Payment Cards Yearbook 2016-17
20 payments cards & mobile | March / April 2017 www.paymentscm.com 2016-17 EDITION Payment Cards Statistical Yearbooks Stay one step ahead with deep industry information and a wealth of statistics from central banks, interbank companies and associations and individual banks.
In order to respond to the changing and new payment industry markets, the 2016-17 edition Yearbooks have been enhanced by adding:
• More issuer information – issued brands by issuer • More acquirer information – acceptance brands by acquirer • More on contactless cards and digital wallets • More e-/m-commerce information, e-payments mix and statistics • More on notable mobile payments initiatives • More on basic fraud trends and statistics • Mobile merchants and MPOS terminals • Notable market trends – battlefields in the payment industry
European Payment Cards Yearbook and Eurasian Payment Cards Yearbook 2016–17 are available as a complete volumes or as individual country profiles.
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PAYMENTS INDUSTRY INTELLIGENCE www.paymentyearbooks.com PaymentsCARDS & MOBILE WHAT DO RETAILERS REALLY, REALLY WANT?
by Joyrene Thomas
It’s more than 20 years ago since the Spice Girls released their debut single Wannabe. In that time, the wants, needs and expectations of retailers — and their customers — have changed. We look behind the scenes of omni-channel retailing to examine how slick back-office capabilities are a prerequisite for supporting front-end, customer-facing innovations.
First came the internet. Then the smartphone. blogs or watch user-generated content on for delivery to their home, office, a store or Shopping was disrupted forever. The pace and the internet. They follow brands on social locker. Or buy in-store and order items for scale of disruptive change is quickening as media and talk to friends virtually. They try delivery later. technology adoption curves become steeper. on items in a virtual changing room and shop The blurring of previously separate channels Customers are expecting more from retailers. virtually, too. They post images of their new is only set to continue. According to research Retailers are expecting more from their purchases online. firm Forrester, purchases that customers begin technology, stores, staff and suppliers. “25 years ago retail was driven by availability using a digital channel but do not complete and proximity. If you wanted something, you online will reach €704 billion by 2020, up from SHOPPING DISRUPTED had to find, access and shop for it. That has €457 billion in 2015. Combined with online completely changed.” says Chris Harris, director sales, these cross-channel sales are expected Shopping was different in the old days, circa of sales & marketing, Ingenico Northern Europe. to reach €947 billion, or 53 percent of total 1990. The world seemed smaller, slower “With goods now always available on-demand, European retail sales by 2020. and more store-based. Take shopping for retail has become a leisure-based activity clothes, for example. Customers read fashion where the experience is critical.” THE PACE OF CHANGE magazines or watched fashion shows on Giving customers a great experience within television. They talked to friends or those and across channels has become essential. Retail has always been dynamic. Fashions whose style advice they trusted. They went to Retailers are striving for the holy grail of ‘omni- lasted for a season and there were only two: the shops, tried items on, possibly with a friend channel’, a term reflecting the blurring between summer and winter. Retailers would buy stock for a second opinion. They bought the items the offline and online worlds. Customers should in October for their spring season in April. in-store or via catalogues. not be able to see or feel the join as they buy However, retailing has sped up. Retailers in Nowadays, consumers read online fashion online and collect in-store. Or order in-store general have worked with their supply chains
22 payments cards & mobile | March / April 2017 www.paymentscm.com omni-channel
to identify, source and stock new products Payment software is following suit and will still have to deal with the most popular quicker. Fashion retailers have limited six- becoming modular via app marketplaces. offline payment in an increasingly digital and week stock lines. Grocers are more responsive Software is now open to developers who create digitised world. with expanded ranges and higher-priced speciality apps to manage accounts, inventory deluxe items. and staff rotas. PLAYING CATCH-UP It is not just the buying and replenishment cycles that are faster. Test-and-learn and STORES AND STAFF Whilst some things race ahead, others are feedback loops are faster, too. Retailers can playing catch-up in the race to omni-channel. test products online and do split-testing on Shopping is an inherently social experience, For Harris at Ingenico, marketing is racing offers and promotions. Immediate feedback and stores the original social media. Store ahead while post-sale engagement is playing on staff, menu items and daily specials are layout and merchandising is important. The catch-up. New media types are generating possible. This can be fed into the in-store in-store atmosphere and experience, too. Yet interest. This helps drive in-store and website environment to influence how staff engage these are only part of the in-store story. Stores visits and opportunities to convert sales. “Then with customers. are about people: customers, their friends and you have post-sales engagement, such as an Technology has also democratised staff, and where they all come together. electronic receipt or loyalty points. Putting this information in favour of the consumer. The The role of the store in the omni-channel age together is the hard part and where retailers mobile-toting customer is an increasingly has expanded. Stores are not only showrooms are struggling to make the technology work informed and demanding one. They can check for stock, but also fulfilment and distribution together,” says Harris. prices and reviews online in real-time when centres to customers and other stores. Card scheme rules are also playing catch- in-store. They can also buy goods online They can also act as collection points for up. They have evolved around the traditionally in-store if they find them cheaper or in their other retailers. discrete channels of card-present and card- preferred specification, a practice sometimes The democratisation of information through not-present. However, with various omni- known as ‘showrooming’. The retailer’s store technology means customers can be more channel use cases, the situation is no longer acts as a showroom for goods, which may not informed than the sales assistant serving clear-cut. This begs the question whether card result in a sale for them. The reverse is also them. This has implications for the in-store acceptance, transaction processing, receipting true. Customers can research online but buy sales process. This is moving from simply and dispute resolution rules are overdue in-store on account of the in-person advice helping customers locate goods in-store to an overhaul. or experience. more consultative, curated selling. Naturally, “This merging of information and speed of it also impacts how staff are recruited, trained PATH TO PARTNERSHIP change relates to all areas of the business: and retained. product, stock, proposition and the engagement Driven by consumer expectations and between store staff and customers. What SUPPLIERS behaviour, merchants are deconstructing the drives that change is consumer expectations path to purchase, reconstructing it afresh and and behaviour,” says Harris. Just as sales channels are blurring to create trading in new and different ways. This type of omni-channel, so are distinctions between joined-up sales and customer service requires TECHNOLOGY providers to create ‘omni-providers’. strong back-office support. Omni-channel Organisations are integrating themselves retailing demands more from technology, To cope with these changes, retailers are forward and backward in the value chain. They stores, staff and suppliers, particularly with expecting more from their technology behind are offering more and different services, trying regard to omni-channel payment infrastructure, the scenes. They are looking to next generation to serve their customers better and capture service and support. point of sale (POS). Solutions that are mobile, more value. Meanwhile retailers are looking The payments industry has a long tradition of combine hardware with software, and offer for end-to-end or as-a-service propositions, outsourcing, partnering, collaborating across them more. which includes omni-channel payment a wide range of organisations. Partnerships When POS goes mobile in-store, this has acceptance services. are set to become even more dynamic and implications for service, staff and store layout. As online and offline channels are blurring, important in the future as retailers explore new When POS moves from a purely hardware so too are online and offline ways of paying. partners, new relationships and new ways of play to ‘hardware plus software’, it has to be There are currently more than 300 alternative working with their existing partners. modular. Card terminals, printers, screens, payment methods (APMs) worldwide, ranging scanners and cash drawers are increasingly from real-time bank transfers and mobile Note: Findings from the report ‘Omni-channel available separately. Retailers can take the wallets to direct debits and e-invoices. APMs Retailing — The Demand for Cross-Channel elements they need, and leave the ones they are typically used for e-commerce payments, Payment Infrastructure Services’ by PCM do not. This helps smaller retailers deploy but why not for in-store payments, too? Research and Ingenico will be presented at the technology more cheaply, and larger retailers Likewise 80 percent of consumer transactions Retail Business Technology Expo 2017, 8-9 May deploy innovation more quickly. globally are still made in cash. Providers 2017, Olympia, London. www.paymentscm.com payments cards & mobile | March / April 2017 23 issuing & acquiring IN ASSOCIATION WITH
THE FUTURE OF THE MERCHANT PAYMENT ECOSYSTEM
Now in its tenth year, the Merchant Payments Ecosystem event in Berlin in February has become a firm fixture in the conference calendar. This year’s event saw an expanded exhibition area and separate streams dedicated to mobile point-of-sale (mPOS) and online payment methods.
BUSINESS AS UNUSUAL
Acquiring and payments is changing. The people who are shaping the business are changing. Even the way we make payments is changing. As we move into an app-centric world and the Internet of (Payment) Things, everything will be able to make and take payments. “We thought we understood what we had to do, how the technology worked,” said David Birch, innovation director, Consult PSD2 and the fourth anti-money laundering emphasised the need to separate B2C and B2B Hyperion in the opening conference address. directives in Europe, country-specific payments propositions. “We are moving into a time where everything regulations in Asia and the possible repeal of “For most people, payments are a means to will be utterly different. It’s not going to be Dodd-Frank in the US. One panelist described an end,” said Silvia Mensdorff-Pouilly, general business as usual,” Birch predicted. regulators as “creating a catalyst of confusion”, manager, ACI Worldwide. “We need to be clear The future is uncertain. Yet there has never which is undeniably so. The conference mood that payments are not a purpose in themselves, been a more exciting time to be involved was surprisingly pragmatic though, seeing they enable trade,” she continued. Christian in payments. According to Ron Kalifa, vice regulation as an opportunity as much as von Hammel-Bonten, executive vice president, chairman, Worldpay, payments is becoming an obligation. Wirecard warned the industry against taking much more strategic. No longer a back-room For those with a banking background, itself too seriously. “We need to facilitate IT activity, “payments have gone from boring regulation is seen primarily as a compliance payment and make ourselves invisible.” to boardroom.” Payments are a strategic tool burden. However it is no longer enough to just Consumers do not really care about whether inextricably linked with a company’s brand be compliant. All organisations have to do that, payment is card-based, bank account-based or and reputation. At the same time, they remain so there is no point of difference. Organisations a faster payment. They want to buy, not pay. strongly national. Payment habits have have to seize the opportunity to innovate new Invisible, frictionless check-out and payment developed over time and are formed by various products and services. This could be seen as were oft-mentioned, if not new, ideals. However, cultural, political, economic and technological the second or third effect of regulation. frictionless does not always equal fraudless. factors. Therein lies the complexity for Innovation has many fathers. Regulation Consumers may on occasion value some merchants wanting to expand globally. is merely one of them. Internal market friction, if it helps them to feel more confident International expansion means accepting competition another. Payment processing has and secure when transacting. There is a local payment methods, particularly when become a commodity and providers need to balance to be struck; many speakers mentioned trading online. If an online consumer’s add value. According to Michael Steinbach, the European Banking Authority’s proposals for preferred payment method is not available, CEO, equensWorldline SE, providers must strong customer authentication in this context. they abandon the transaction 25 percent of the think about developing new business models. Meanwhile enabling a frictionless omni- time in the US. In Europe, cart abandonment They must offer merchants new value-added channel journey remains an aspiration rather is higher at 45 percent and in Asia it stands at services and bundle card with card-less. Kalifa than a reality. It can be achieved in specific 60 percent, according to e-payment specialist feels that providers require more components niches or countries, but globally it is very PPRO. This is driving both take-up of local and capabilities to even compete, including different. Integration is difficult, particularly alternative payment methods (APMs) and licences, technology, scale and reach. with legacy systems in the physical world. back-office complexity for merchants. Hence Organisations have to be payments providers, In the online world, it is more a question of there is immense business value in simplifying not merely card payment providers. overcoming a legacy mindset, which tries payment for merchants. to retro-fit a face-to-face experience to a PUTTING PAYMENTS INTO PERSPECTIVE digital channel. SO MUCH REGULATION TO CHOOSE FROM Despite — or perhaps because of — the When payments professionals get together, changing nature of the industry, the Merchant The same is true for simplifying regulation. there is a danger of the debate becoming Payments Ecosystem attracted record The payments industry is currently beset by too narrowly focused on payments. Various attendance in 2017 with 810 participants, 145 overlapping regulation. This ranges from the speakers cautioned against this and speakers, 32 sponsors and 30 exhibitors.
24 payments cards & mobile | March / April 2017 www.paymentscm.com IN ASSOCIATION WITH issuing & acquiring
EUROPEAN DOMESTIC PAYMENT SCHEMES SHIFTING FOCUS TO NEW DIGITAL PAYMENTS SERVICES
The development of new payment services and the evolution of technology are currently the top priorities for most domestic payment schemes. An overwhelming majority of schemes are in favour of cross-border collaboration. The top two rated actions are sharing of technical standards and jointly developing technical solutions. These are the findings of a recent global report by CC Associates, Consorzio BANCOMAT and SIA, with the support of the European Card Payment Association (ECPA), on today’s challenges and opportunities for domestic and regional card organisations. The survey was carried out amongst 25 domestic payment schemes from five continents and was presented during the second International Conference on Regional Responding to commercial pressures by majority of schemes (92 percent) are in Card Organisations held in Milan. increasing revenues and/or reducing costs is favour of greater cross-border collaboration. rated as the third highest priority (25 percent). The clear message is that domestic schemes PRIORITIES AND REMIT OF DOMESTIC As domestic payment processing becomes see a need and a strong business case to PAYMENT SCHEMES more of a utility service and in the face work together. of fierce competition in the card market, The top two rated areas with the potential The report highlights greater optimism about domestic payment schemes know that they for collaboration are around the sharing of the future of domestic payment schemes than must continually improve their commercial technical knowledge and standards, and in the 2013-2014 survey. Almost 70 percent performance to meet the needs of their users. jointly developing technical solutions such see their prospects as better (compared to By a very large majority, domestic payment as tokenisation. 56 percent in the previous survey) and only schemes are in favour of extending their remit However, expansion of card acceptance is nine percent of respondents consider the beyond cards. Many feel that the widespread also seen as an area where domestic schemes situation as worsening (32 percent two years adoption of mobile phones for payments is should actively cooperate, although some ago). So, despite strong competition, domestic already happening and that domestic schemes schemes have already satisfactorily addressed payment schemes clearly feel that they have an must embrace mobile as well as other forms of the issue through bilateral arrangements increasingly important role to play. alternative payment. or cooperation with international partners. In terms of priorities and remit of domestic It is felt that as the distinction between Sharing of best commercial practice is seen payment schemes, development of new cards and other forms of payments (e.g. credit as important by many schemes and there is services was rated as the highest priority. 56 transfers) breaks down, the management also support for coordination in regulatory percent of schemes rated it as top priority experience of card schemes positions them lobbying efforts. and 44 percent medium priority. Schemes well to extend into these other payment “I think it is the increased willingness of recognise they cannot merely continue to methods rather than being replaced by them. domestic schemes to collaborate that is provide the legacy services on which they were Some schemes comment that in particular causing a big uptick in their confidence about originally based. markets, if they do not extend their remit, the future. And collaboration is now seen as The second highest priority was technology they risk being marginalised by alternative essential if they are to remain relevant; the (42 percent). Many schemes think they can payment methods. domestic schemes in Asia are particularly gain competitive advantage in developing advanced in this respect,” commented John their own specifications, particularly in terms COOPERATION BETWEEN SCHEMES Chaplin of CC Associates. of tokenisation. Some schemes, especially “It is likely that as well as increased technical in Europe, argue that compliance with ever- Domestic schemes are generally confined to and acceptance cooperation, we may see some changing regulatory requirements is a top a single market, which allows them to be very actual mergers of domestic schemes in Europe. priority, but mostly this is seen as a ‘business focused yet can also generate inefficiencies. And we could well see the surfacing of at least as usual’ requirement. The research shows an overwhelming one African multi-domestic scheme.” www.paymentscm.com payments cards & mobile | March / April 2017 25 mobile payments
MOBILE MONEY TEN YEARS ON
A decade on from the launch of M-Pesa in Kenya, mobile money has become one of the primary tools for reaching the underserved and boosting financial inclusion. We look back on ten years of mobile money, and forward to the future.
At the end of 2016, there were more than half potential of mobile money became clear. Greater financial inclusion not only has a a billion registered mobile money accounts Ten years on, there are 277 live mobile money positive impact on individuals and their worldwide, according to the GSMA. This is services across 92 countries. 13 new services families, but also the wider society. Improving equivalent to the third largest country in the launched in 2016 alone. While Sub-Saharan financial inclusion could increase the GDP of all world after China and India. Mobile money is Africa leads in the number of registered and developing economies by six percent, or $3.7 now available in two-thirds of low- and middle- active mobile money accounts, new regions trillion by 2025, according to a recent McKinsey income countries. have demonstrated strong uptake of mobile report. This is equivalent to an economy the size “Giving underserved people access to digital money services in recent years. In 2016, 40 per of Germany or larger than all the economies in payment has expanded financial inclusion to cent of all new registered accounts were from Africa combined. hundreds of millions of people in developing South Asia. In the period 2011-2016, active Mobile money is helping to contribute to countries and has enabled them to be more mobile money accounts in South Asia grew better financial inclusion. In sub-Saharan Africa, secure, more empowered and more active nearly 30-fold. there were 277 million registered accounts in contributors to local communities,” said Mats Latin America and the Caribbean has also December 2016, which is more than the total Granryd, director general, GSMA. experienced noteworthy growth. Active mobile number of bank accounts in the region. money accounts grew from less than a million Financial inclusion is akin to a jigsaw puzzle. A SNAPSHOT OF MOBILE MONEY WORLDWIDE in December 2011 to more than ten million by The various pieces have to be present to complete the end of 2016. The number of live mobile the jigsaw. These include digital and mobile In 2006, only six mobile money services had money services in the region grew from nine to infrastructure, a dynamic business environment launched in four countries, primarily in the East 30 during this period. for financial services, and products that meet Asia and Pacific region. While these services consumer needs in ways superior to what they came to reinvent themselves in the latter part of FINANCIAL INCLUSION currently use. However, there is no one set way to the decade, customer activity in the early days approach the challenges or assemble the pieces. was limited. That year, just 8.8 percent of the In the last ten years, financial inclusion has 6.6 million registered mobile money accounts emerged as a significant international policy EXPANDING THE PROPOSITION around the world were active (transacting at objective. The World Bank Group’s goal is for least once every 90 days). It was not until the adults globally to have access to a transaction Providers should be looking to add value over 2007 launch of M-Pesa in Kenya, and its sudden account or electronic instrument to store money, the informal savings clubs and Hawala systems and dramatic growth, that the transformational send and receive payments. already used by the unbanked. The more use cases you have on a device, the more effective NUMBER OF REGISTERED AND ACTIVE CUSTOMERS BY REGION it will be in driving financial inclusion. This could (ON A 90-DAY BASIS - DECEMBER 2016) be capturing transactions or driving different habits around saving and payment. Over the last ten years, mobile money has
Europe & Central Asia: South Asia: gone from P2P payment and airtime top-up 10.4 million registered accounts 164.2 million registered accounts propositions to encompass various other 1.4 million active accounts 40.4 million active accounts payment and financial services. International Middle East & North Africa: remittances, bill payments, merchant payments 44.1 million registered accounts and bulk disbursements (e.g. salary and 13.9 million active accounts government-to-citizen payments) accounted for 18.8 percent of total transaction volume in 2016, up from 7.8 percent in 2011. Various insurance Latin America & the Caribbean: and mobile money-enabled credit services are 23.0 million registered accounts East Asia & Pacific: 10.8 million active accounts 36.6 million registered accounts also now being deployed. 7.1 million active accounts Mobile money has created incremental and breakthrough innovations. This has caused the ultimate network effect, where the value Sub-Saharan Africa: 277.4 million registered accounts to all participants is further reinforced and 100.1 million active accounts expanded as more propositions and participants Source: GMSA, State of the Industry Report on Mobile Money are added. Figure 2: Growth of registered mobile money accounts in Sub-Saharan Africa
26 payments cards & mobile | March / April 2017 www.paymentscm.com mobile payments
MOBILE WALLET SUFFERING AN IDENTITY CRISIS IN EUROPE
New research by Juniper, analysing the foothold in European markets. fragmented,” Velasco-Castillo said. “Mobile mobile wallet market, indicates that Europe is “In the US they [mobile wallet companies] are operators compete against banks, device lagging behind almost every other region in its seeding the market, the lack of contactless, or manufacturers and start-ups. For this reason, transaction value forecast. This is despite high even chip and PIN, means their first experience service differentiation is challenging. There levels of technology adoption and smartphone of fast payment technology is using a phone,” are also signs that users in mature European penetration. So, what’s going wrong? asks Chris Holden said. “In the European market, you have markets may be experiencing ‘app fatigue’, Donkin at Mobile World Live. a very different case.” where most apps downloaded are rarely, if ever, Europe is expected to book lower mobile “People are already using contactless and used again.” wallet transaction values than Asia, Africa and it’s only in the last 12-18 months you’ve had He believes the largest opportunity for the Middle East, North America and the Indian real movement in the handset space. It’s generic mobile solutions in Europe (e.g. Apple subcontinent in the next five years. overwhelming how popular contactless cards Pay, Android Pay) is by enabling payment Services have been launched by big brand have become so it’s going to be a real struggle.” for physical goods from third party apps names in most markets – with handset “Is there enough of a differentiator in or browsers. The deep integration with the manufacturers, telecoms operators, banks services right now to make people pay with device’s operating system puts them at an and retailers all getting involved — yet it a handset rather than a card? At the moment advantage in providing a better user experience. would seem none have taken off in the way I’d say no.” The strategies of each player will differ on developers intended. There is certainly evidence loyalty can make a country by country basis. Economies still Part of the issue may be in the lack of a difference. Earlier this week, Ovum released heavily reliant on cash usage offer more of a differentiation. With contactless cards already a cross-market study showing 91 percent of first mover opportunity, while some markets popular in many European markets, consumers mobile wallet users aged 16-24 ranked the already seem to be trying to close the door on need to see a tangible benefit from using their ability to manage different loyalty cards in the big wallet providers. phone compared to their bank card – either their mobile wallets as either ‘important’ or The European Central Bank promised to through integration with retail loyalty cards or ‘very important’. look into standardisation across the through an incentive linked to other services Eurozone for mobile payments this year, while being offered by the same vendor. FRAGMENTED MARKET some countries have seen financial institutions come together to try and secure their place at PROBLEMS ON THE CARDS Enrique Velasco-Castillo, senior analyst, the centre of the ecosystem. Analysys Mason, believes the issue may lie Earlier this year, a move from the the major Windsor Holden, head of forecasting and with the sheer number of competing providers Norwegian banks to collaborate in offering a consultancy, Juniper Research, believes the in the market and changing consumer attitudes consolidated service looked like an attempt to lack of additional features is one of the central to app-based services. hold on to their market. This may well indicate flaws in many of the services trying to get a “The mobile wallet market in Europe is the shape of things to come in other markets.
US MOBILE PAYMENTS PROJECTED TO GROW 80 PERCENT BY 2020
Although the mobile wallet ecosystem is this year. Between 2015-2020, it expects consumers rely on their mobile wallets for other maturing, in-store mobile payments have yet volume to rise by a compound annual growth features (e.g. in-app payments), adoption and to take off. Consumer disinterest, coupled with rate (CAGR) of 80 percent to bring mobile usage will surge over the next few years. delays in fully implementing the necessary payments volume to $503 billion by 2020. BI Intelligence’s 2016 Mobile Payments infrastructure, are preventing mobile wallets The report expect to see a significant uptick Report forecasts the growth of in-store mobile from achieving mainstream adoption. in the number of US consumers making mobile payments in the US, analyses the performance While neither US merchants nor consumers payments, forecasting the number of in-store of major mobile wallets, such as Apple Pay, have yet to fully embrace mobile payments, mobile payment users to rise at a 40 percent Android Pay, and Samsung Pay, and address the mobile wallets offer benefits to all stakeholders. five-year CAGR to reach 150 million by the end barriers holding mobile payments back, plus These include enhanced security features, of 2020. This represents 56 percent of the the benefits that will propel adoption. faster checkout, and loyalty integration. Each consumer population during that year. Consumer interest is the primary barrier to of these is a plus for customers and merchants Mobile payments still face some high mobile payments adoption. Surveys indicate alike, and will in time convince both parties to barriers, such as consumers’ continued that the issue is less the mobile wallet itself, embrace the technology. loyalty to traditional payment methods and and more that people remain loyal to traditional A new report estimate finds that US in-store fragmented acceptance among merchants. But payment methods and show little enthusiasm mobile payment volume will reach $75 billion as loyalty programmes are integrated and more for adopting new habits. www.paymentscm.com payments cards & mobile | March / April 2017 27 contactless
MOBILE PAYMENTS FRAUD SET TO BECOME PAINFUL IN 2017
The mobile channel can facilitate nearly other forms of mobile payments on the same alternative to counterfeiting payment cards in any type of consumer payment, often with app, creating an even higher profile targets a post-EMV market. For many criminals, mobile greater convenience than before. This has for criminals. remote deposit capture presents a low-risk attracted a growing legion of dedicated users, Securing the enrolment and use of mobile opportunity to return to a fraud that they have yet wherever legitimate payments begin to payment apps will be critical to managing the already mastered. flourish, fraud is soon to follow — and mobile risk of mobile payments fraud. Unfortunately, As mobile payments fraud becomes payments fraud is no exception. criminals’ methods and skills are evolving more common, financial institutions run the With criminals’ aptitude for digital-oriented more quickly than the controls that are being risk of being caught napping. And may yet fraud rising and pressure in other channels put in place to protect mobile payments and exacerbate matters through their response, forcing them to find new targets, mobile underlying accounts. leading to unwanted attention from regulators payments fraud will experience a rise that Numerous vulnerabilities in mobile payment and consumers. most stakeholders are simply unprepared for, apps remain unaddressed, making them easy More specifically, unaddressed according to Al Pascual, senior vice president, targets for fraudsters who have honed their vulnerabilities in existing mobile payment research director and head of fraud & skills. For example, mobile wallets where the products will draw the ire of regulators who security, Javelin. indentity and verification process remains will scrutinise new high-profile failings on the Mobile payments are a veritable drop in dependent on the same weak forms of part of financial institutions. Undoubtedly, the ocean compared with payments in more authentication responsible for early Apple as fraudsters take over accounts using traditional channels, but the volume of mobile Pay fraud incidents. compromised credentials, many financial retail payments is nothing to scoff at. While US Secondly in mobile P2P apps where the time institutions will respond with tighter controls. consumer payments are a massive figure at $4 lapse between a recipient being notified of a This in turn will contribute to an trillion, mobile retail payments will still exceed payment and the account actually receiving increase in false-positive declines during $220 billion in 2017 — a value to attract the that payment is misused to defraud victims of mobile retail transactions, along with less attention of fraudsters in search of a payday. goods and services. generous funds availability policies for This is in addition to the billions of dollars Mobile technology is even making cheque mobile remote deposit capture and mobile in transactions conducted through mobile P2P fraud an attractive proposition again P2P transactions, thus negatively affect the payments. This is expected to converge with for fraudsters, especially those seeking user experience.
TO ‘PAY’ OR NOT TO ‘PAY’? THE CHOICE AROUND MOBILE PAYMENT
Issuing banks often ask about the merits of has mandated merchant acquirers to support much technology for technology’s sake. implementing mobile wallets from the ‘Pays’ on-device cardholder verification for high-value Apple, Google and Samsung and other (Apple Pay, Android Pay and Samsung Pay) versus purchases on contactless-enabled terminals consumer-facing technology brands specialise in their own-brand wallets. To ‘Pay’ or not to ‘Pay’, that by this year. This follows the contactless POS understanding consumers as well as technology. is the question. terminal mandate in Europe announced by They establish what consumers need and value — "If the ‘Pays’ are coming to your market, you Mastercard and Visa in 2014. and deliver it. Then they find new and better ways have choices. You could be part of a market- Secondly, tokenisation and host card emulation to deliver it. Any issuer wanting to launch their wide ‘Pay’ launch. You could create your own (HCE) on the issuing side are also in place. own-brand mobile wallet could learn from this. mobile payments solution (or, perhaps more These enabling technologies can potentially drive The payments industry can also be too accurately, your own mobile solutions involving increased mobile contactless payment in-store narrowly focused on, well, payments. The payments). Large issuers could perhaps afford to via NFC, and tokenisation is critical to in-app technology giants have understood the real do both," says Valdis Janovs, Sales director Retail payment success. prize. Mobile wallets are less about payment Payments and Cards, Tieto. Thirdly, I’m a firm believer that no-one knows local and compartmentalising all consumer spend If the ‘Pays’ are not coming soon to your market, customers better than local players. Issuers have on a mobile device, and more about creating how do you best get started with mobile wallets? a huge opportunity to tailor mobile propositions closer, deeper, more profitable relationships with for their particular customers to differentiate customers through their mobile. This is another THREE REASONS TO BE OPTIMISTIC themselves from the generic ‘Pays’ and other key learning for issuers. local competitors.” “I’m quietly optimistic about own-brand mobile The customer proposition and experience wallets for three main reasons,” continues Valdis. is critical to the adoption and success of any “Firstly, the contactless acceptance infrastructure product. This may sound obvious. Yet the is improving — in Europe at least. Mastercard payments industry sometimes suffers from too
28 payments cards & mobile | March / April 2017 www.paymentscm.com contactless
HCE - THE WAY TO MOVE MOBILE PAYMENTS FORWARD FAST
No personal consumer device seems to have had This can be done by writing to the SIM card, on devices themselves and bypass the same impact as the smartphone. Unbelievably the SD card (a data storage device) or secure commercial roadblocks. It is only ten years ago that Steve Jobs announced element. Yet all these methods have one major HCE digitises the card on the phone, generates the iPhone at a Macworld convention. flaw in their DNA: they involve third parties. card numbers and talks to contactless POS Now over a billion iPhones have been sold. Issuers have to navigate partnerships, terminals. With HCE, there’s no need to rent space With the speed and scope of change in the complicated business and technology on the secure element, reissue the memory card mobile space, it can be hard to separate the hype infrastructure models to get mobile payments or certify hardware. It cuts hassle, cost and time from the happening, writes Valdis Janovs, sales into the hands of consumers. That is why take-up to market. director retail payments and cards, Tieto. has been slow. Mobile contactless payment is now easier Take mobile contactless payment enabled It was not so much the technology, rather to introduce as it runs off the consumer’s by HCE, for example. This seems to have been the commercials that held it back. It was akin phone and existing contactless card ‘coming soon’ for the longest time. But there has to a shotgun marriage between two different acceptance infrastructure. been no real break-through to mass adoption. industries: telcos and retail banking. Telcos were It is easier to provision as issuers can load Why and what is changing? Moreover, how can used to managing SIM distribution. Banks used and update the app and keys directly to the issuers take advantage of the changes to increase to managing card products. Simply put: each consumer’s device over the air. revenue, cut costs and improve their businesses party needed the other but they could not agree It is also secure as keys can be single-use and brand? on the commercials, and who owned the SIM and or limited. And they can be replaced on the the customer. device in real-time without blocking or recalling A SHOTGUN MARRIAGE the phone. ALONG CAME HOST CARD EMULATION (HCE) However, for a game-changing technology In truth, mobile contactless payments were with strategic implications, the devil is always technically possible long ago. There were (and HCE changed everything — both technically in the detail and there is more than one way to still are) various ways of replicating contactless and commercially. HCE allowed card issuers market. Issuers are advised to plot their HCE NFC payment functionality on a mobile device. to put mobile contactless/NFC functionality route carefully.
MORE THAN SIX BILLION SMARTPHONES BY 2020
The global smartphone installed base will grow “Mobile devices and services are now the hub for – accounting for more than 50 percent of from four billion in 2016 to more than six billion people’s entertainment and business lives, as consumers’ spending. ” smartphones in use by 2020, according to new well as for communication. The smartphone has analysis released by IHS Markit. replaced the PC as the most important smart DISRUPTING TRADITIONAL PAYMENTS AND Messaging and communications apps such connected device.” FINANCIAL SERVICES as Line and Whatsapp will grow from five billion users in 2016 to 7.5 billion by 2020. IN-APP SPENDING - $74 BILLION BY 2020 There were more than 120 million active mobile “Mobile innovations, new business models money accounts in emerging markets in 2016, and mobile technologies are transforming Global consumer spending on mobile apps is set according to the IHS Technology analysis. The every adjacent market as the mobile industry to reach $74 billion by 2020 up from $54 billion in number of addressable smartphones for device diversifies from the maturing smartphone 2016. Africa, the Middle East and Latin America based payment services will increase from 2.7 market,” says Ian Fogg, director, IHS Technology. will be the fastest-growing regions for mobile app billion in 2016 to more than five billion by 2020. “Revenues for smartphones shipped in 2020 will spend. Africa and the Middle East will grow at “Mobile payments and commerce are central total $355 billion.” an average rate of 18 percent each year to 2020. to mobile innovation and will be critical for future Globally, smartphones and tablets already “Latin America will see an average growth rate growth,” continues Kent. account for more than 60 percent of smart of 23 percent compared with the global eight “Mobile money services have been a vital tool connected consumer devices — up from around percent average annual rate,” says Jack Kent, for financial inclusion in emerging markets, but 17 percent in 2008. Smartphones and tablets director, IHS Technology. elsewhere, mobile money services are looking to make up more than 80 percent of connected “Africa, the Middle East and Latin America complement or disrupt traditional payments and devices in Africa and the Middle East. will be the fastest-growing regions in the next financial services through the launch of app-only “Smart mobile devices will rapidly become four years. There are many opportunities for banking services, device-based payments from universally adopted throughout the world, new apps, mobile payments and mobile money services such as Apple Pay, Android Pay and enabling innovative smart services, which will services. Asia, notably, will continue to play Samsung Pay, and payment integration via social transform emerging economies,” continues Fogg. the number one role in the global apps market media and messaging apps. www.paymentscm.com payments cards & mobile | March / April 2017 29
e-commerce
EBA ADOPTS RISK-BASED APPROACH FOR ELECTRONIC PAYMENTS
The European Banking Authority (EBA) published the final draft of its regulatory technical standard (RTS) on strong customer authentication at the end of February. It received 224 responses to the previous draft, the highest number it has ever received for any consultation.
Strong customer authentication is defined in the basis of objective and verifiable criteria, it this will indeed reduce the level of fraud on this context as two or more of the following: argued. Rather than by subjective and individual electronic payments. knowledge, possession and inherence. The assessments conducted by individual payment Elsewhere the impact of overlapping regulation final draft contains three main changes to service providers. on data protection (the EU General Data the exemptions from strong customer In article 16 (transaction-risk analysis), the EBA Protection Regulation) and initiatives such as authentication for electronic transactions sets out the exemption threshold value (ETV) 3-DS version 2.0 have yet to be worked through. in Europe. which electronic payment transactions must not The impact on merchants and consumers is exceed (see table below). also unclear. EXEMPTIONS Will merchants still be able to make risk-based CLARIFICATIONS decisions on authenticating electronic payments? In response to feedback, the EBA is allowing what Will their acquirers? How this will work in practice it is calling ‘transaction-risk analysis’. Also known The EBA has sought to clarify some points around is still to be determined. Will consumers have a as risk-based authentication, this considers the use of contactless payments in the face- consistent experience when transacting online, transaction risk against a set of thresholds and to-face environment, and recurring payments. given the different average transaction and fraud a fraud performance metric by payment service However, these clarifications may in fact warrant rates of the merchants at which they shop? provider. A review clause 18 months after the further clarification. application date of the RTS has been introduced Contactless payments up to €50 are exempt NEXT STEPS to ensure that “the calibration of the exemption is from strong customer authentication, with a sufficiently conservative,” according to the EBA. cumulative limit of €150 or five consecutive The EU Commission will now carry out a legal Secondly, payments from unattended terminals transactions. The case of wearables where the review of the text of RTS. The EU Council and in the transport and parking sectors are exempt customer is unable to authenticate themselves EU Parliament will also have scrutiny rights from strong customer authentication. This is still to be clarified. during this period. In theory the draft is still safeguards the proposition for contactless card Similarly recurring payments and those to subject to change. Indeed the EU Commission payment at fare or toll gates. The requirement trusted beneficiaries already white-listed has indicated that it intends to take the maximum to introduce additional authentication by the payer do not require strong customer time available for this review, which could be 3-4 would have led to long queues or tail-backs, authentication, under certain circumstances. months. The provisions will then become law in customer dissatisfaction and the extra expense One of these is when “the payer initiates a series the EU some 18 months later, namely by late 2018 of PIN pads. of payment transactions with the same amount at the earliest. Finally, the threshold for remote payment and same payee.” The case of utility or cable The EBA is currently developing 11 technical transactions has been increased from €10 to subscriptions with varying amounts based on standards and guidelines under the revised €30, with a cumulative limit of €100 or five usage is still to be clarified. payment service directive (PSD2) jointly with 28 consecutive transactions. national regulatory authorities across the EU. The These exemptions are optional, not mandated. OPEN QUESTIONS EBA has already published consultation papers For example, in the case of threshold amounts, on more than half of these mandates. Speaking at a payment service provider may always revert At this stage it is not clear whether the national an event in London at the end of February, Andrea back to strong customer authentication if a competent authorities are sufficiently resourced Enria, chairperson of the EBA confirmed that risk of fraud or other abuse is identified for a to monitor and review fraud thresholds consultation papers on the remaining mandates particular transaction. for transaction-risk analysis. Or whether are expected during 2017.
REFERENCE FRAUD RATE (%) FOR: ‘TRANSACTION-RISK ANALYSIS’
Exception threshold value (ETV) Remote card-based payments Credit transfers The EBA considered adding an exemption for transaction-risk analysis in its August 2016 €500 0.01 0.005 consultation paper. However, it was not able at that time to identify objective criteria that €250 0.06 0.01 would have been legally acceptable. Exemptions €100 0.13 0.015 from any law must be defined narrowly with Source: Draft RTS on strong customer authentication & common and secure communication, EBA clear and unambiguous thresholds and on www.paymentscm.com payments cards & mobile | March / April 2017 31 Money20/20 Europe is back 26-28 June 2017
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HAVE PAYMENT GATEWAYS ACHIEVED PARITY WITH PROCESSORS?
It has been almost 20 years since the paradigm implement APIs, but typically less feature/ lot of support from the gateway community, shift in transaction transport, which made functionality-rich. SDKs for Android and iOS are standard among simple payment gateway integration available The payment gateways have been busy, and the leaders. When it comes to Apple Pay and to an exploding community of web developers. are closing the feature/functionality gap quickly. Android Pay, gateways have been keeping pace, Payment gateways became the plug-and-pay Retail transaction support is a complex step for if not leading, that leg of the integration race. solution for the tsunami of new web-based, gateway players, but puts them on the same On the downside, these mobile platforms do card-not-present merchants writes Cliff Gray, playing field as larger players. not have the required security features to pass The Strawhecker Group. Many payment gateways have become PCI PA regulations. So, PIN debit, EMV and end- However, nowadays payment gateways full-service payment switches, processors to-end encryption require separate hardware, are one part Jackson Pollock and several in their own right. Some have direct-network such as PIN pads and encrypting readers and parts competitive technology. The old-guard connectivity, while others maintain the dongles. Sometimes this is a disadvantage processors have all expanded their gateway advantage of one-to-many back-ends, for a real against single-unit, secure countertop POS. offerings, largely via purchasing third-party omni-channel product. Sensitive account data continues to be products, which led to separate APIs and not a Payment gateways are about more than just pushed out of merchant environments. Virtually very omni-channel experience. credit cards. The leading gateways are providing all POS products support encryption today, with Many independent payment gateways have access to an array of payment brands such many looking towards network-endorsed P2PE built or are building card-present functionality as PayPal, Bill Me Later, Bitcoin, closed-loop as a long-term solution. For the e-commerce under their existing API. This is omni-channel, programmes and more. Automated invoicing, market, tokenisation and hosted-payment but sometimes with fewer features and less receipt pushes, EDI, account auto-updates solutions have been very successful at ‘breach- functionality compared to the processors who and other transaction mechanisms are rapidly proofing’ merchant networks. have been doing retail for decades. increasing product depth and flexibility. Payment gateways continue to influence Documentation mirrors this trend. Legacy Mobile platforms are proving popular with pricing trends in e-commerce, SMB, and PayFac. processors still publish ungainly APIs, merchants. With the right peripherals, they are Interchange+ remains the norm for merchants of hundreds of pages long yet full of functionality. reliable, cost-effective POS systems. Many of the any scale, but one-price-fits-all, pay-as-you-go The new guard caters to developer latest retail products employ mobile technology transactions, with simple, fast boarding continue communities, with concise, easy to and infrastructure. Mobile platforms enjoy a to generate healthy margins.
INTERCHANGE FEE CAPS SHAKING UP THE MARKET FOR ACQUIRERS
The merchant acquiring market in Europe are still paying the original amounts. relatively small costs to acquire new merchants is operating on solid grounds of continuous The intention of the European Commission and can offer much more competitive pricing transaction growth, however the cost pressures was to squeeze this behaviour out overnight. structures compared to existing contracts. in the industry increases are very high, primarily However, if we look at a similar situation in The incumbents in the market are competing due to new regulation, such as PSD2 and the Australia, the change took between two and three with each other knowing that prices will decrease. interchange fee regulation. years to implement. The real question is: how fast? Obviously, “The new interchange (IC) regulation that came “As a result, competitors are seizing the competition in the market is a good thing, but you into effect at the end of 2015 means that across opportunity to attract new merchant customers can ultimately destroy your own market, sooner Europe a total of €1 billion will simply be taken by offering new lower prices than merchants are than expected, if you overdo it. out of the payment ecosystem per year, which accustomed to. This may result in customers Transactions numbers are increasing by at least has a direct impact on the cost situation among being ‘bought’ from the competition, often at four or five percent per year. In certain markets, all parties — acquirers, processors and issuers terms that cannot sustain quality on a long-term such as Poland, the rise is in double digits. included,” says Roger Niederer, head of merchant basis,” continues Niederer. However, these transaction levels are increasing services, SIX Payment Services. “This leads to the question of what sort of regardless of the services offered, purely due to “The basic thinking behind the regulation is to price reduction should be offered to existing market trends. The key for most acquirers is to make sure that merchants pay lower interchange merchants? Of course, if acquirers go out and remain close to their merchants, deliver the best fees to the issuer via the acquirer, in some cases attack a new market with very attractive pricing, solutions and keep a loyal client base. as little as a third of what they used to.” they are likely to be in trouble when their original So it is important to make sure that, from the Unfortunately, this does not come with the customers become aware of the differing pricing.” client's perspective, a payment services partner highest level of transparency, as a whole set How long can anyone remain in this can offer different options, from FinTechs to the of fees for operational and technical services environment? The leeway resides with those who big players. The defining need of a merchant is to remains unaffected. Currently many merchants have economy of scale. They are able to absorb make sure that all options are catered for at POS. www.paymentscm.com payments cards & mobile | March / April 2017 33 IS NOW
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VISA TOKEN SERVICE EXTENDS MOBILE PAYMENT SERVICE
More than 12 European countries will have institution partners. Visa is working with its clients device, such as phones, tablets, wearable adopted the Visa Token Service by the end of and partners to extend the use of the technology to devices, even automobiles and appliances. this year, says the card giant. Tokenisation more countries and to online payments. “Since 2015, we have seen people throughout makes mobile and online payments more The Visa Token Service underpins popular Europe embrace mobile payments. Next on IS NOW secure and convenient by replacing the mobile payment services including Apple Pay Visa’s horizon is expanding our token service consumer account information with a and Android Pay, providing consumers a secure to give merchants an easy way to safely digital identifier. way to load and access their payment account store the customer account information they The technology is already supporting mobile on a mobile device. keep on file and enabling secure commerce payment schemes in 27 countries worldwide, The technology sits at the heart of Visa’s with a broad range of connected devices,” including in France, Ireland, Poland, Switzerland Internet of Things (IoT) vision, enabling secure says Sandra Alzetta, executive director digital and the UK, with more than 1,300 financial and convenient commerce on any connected solutions, Visa.
BITCOIN MOVES PAST GOLD PRICE TO HIT HIGH
Bitcoin hit a new high, a day after soaring past head of wealth services for GoldMoney, said in the price of an ounce of gold for the first time in an interview with Bloomberg. its short but turbulent history. “We’re a long way from Bitcoin establishing its One unit of the virtual currency was trading properties as anything that could be considered above $1,292.71 on 3 March in New York, to be a reasonably stable store of value,” Butler compared with $1,226.89 for an ounce of gold. said. “The fact that it is passing through gold is official efforts to shore up the yuan. The latest surge in Bitcoin’s value has been just arbitrary.” Investors may also be betting on a more attributed to tighter currency restrictions in China’s three biggest Bitcoin relaxed regulatory environment under US countries such as China, India and Venezuela, exchanges suspended withdrawals last month President Donald Trump. The US Securities and as well as speculation about prospects under after pressure from the People’s Bank of China, Exchange Commission were expected to rule on the Trump administration. which was concerned people were using Bitcoin a proposal for an exchange-traded fund based Bitcoin still has a lot to prove, John Butler, to move money out of the country, sidestepping on the digital currency by mid-March.
SATURATED EMV CARD MARKET STRUGGLES FOR GROWTH
Global EMV payment card shipments reached percent, affected by lower than usual social to seize new greenfield banking clients and just under three billion in 2016, marking a year- security payment and pure payment People’s open the doors for vendors to target net new on-year (YoY) increase of less than one percent Bank of China (PBOC) card issuance. Recent issuance opportunities.” between 2012 and 2015. events in China may also slow the country’s India is quickly moving from the physical The market became accustomed to annual short to mid-term growth prospects, with the (cash) to the digital, with measures now in growth rates in the 20-35 percent range, as first country’s major payment network, UnionPay, place to ensure that the region maximises China and then the US began their respective EMV pausing co-branded card issuance alongside a digital payments opportunities. Firstly, the GET READY TO migrations. But as overstocking, paired with near recent government initiative launched to limit the RuPay initiative continues to be a success in saturation hit both countries simultaneously, number of bank accounts one person can hold. increasing digital banking inclusion. Secondly, orders significantly slowed in 2016 to impact the Although 2016 proved a year to forget for a government-led initiative designed to reduce overall market, according to ABI Research. the US and China, India showed significant corruption by removing the 500 and 1,000-rupee US EMV shipments totalled 530 million promise as the region begins to increase EMV notes from circulation resulted in an unexpected GO SEAMLESS units in 2016, marking a YoY reduction of 19 card issuance in line with the mandate set by the boost for the digital payments market. percent. Overstocking proved a major barrier in Reserve Bank of India. “Removal of the 500 and 1,000-rupee cash 2016, having an additional knock-on effect on “India is arguably the last major country denominations directly led to a cash crisis, and 19-20 APRIL AT SUNTEC SINGAPORE contactless issuance expectations as issuers of significance to begin its EMV migration as a direct result, increased demand for point-of- first focused on depleting existing contact card process,” said Phil Sealy, senior analyst, ABI sale terminals and banking access,” concluded stock. The US will not likely see a significant move Research. “India will not only bring valuable Sealy. “A country once so reliant on cash was put to contactless until 2018, with the Citi Costco growth in terms of shifting from mag stripe to into an instant state of shock, but the subsequent GET YOUR FREE EXPO PASS HERE card being the only significant portfolio to shift. EMV card replacements, but the region also reaction will prove a positive one for all involved in China’s 2016 YoY reduction stood at -3.9 represents a fantastic market opportunity the digital payments market.” http://bit.ly/pcm-free www.paymentscm.com payments cards & mobile | March / April 2017 35
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Speakers in the dedicated payments theatre, programme subject to change in partnership with Barclaycard, include: Dr Geraint Evans, Group Head of Commercial & Strategic Juan Andrade, Payments Manager, Secret Escapes Programmes, ODEON & UCI Cinemas Janine Albrecht-Webb, GM Digital & Technical Marketing Vincent McKevitt, Founder, Tossed Integration, Shell Sean Cornwell, Chief Digital Officer,Travelex Neil Horden, Head of IT, Jones Bootmaker & Brantano Footwear Martin Alden, Head of Commercial Development, Wyevale Adam Bialy, Head of Payment Technology / Senior Product Garden Centres Owner Digital & Technology, Sainsbury’s
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OPTAL TO ACQUIRE B2B PAYMENTS BUSINESS INVAPAY
Optal announced the acquisition of Invapay, Once integrated, the solution delivers a “The acquisition of Invapay enables Optal in a deal which will significantly expand secure, data-rich automated payment solution, to deliver a one-stop-shop for corporate Optal’s capabilities in the global corporate with suppliers paid via electronic funds transfer, B2B payables needs," explains Rob Bishop, payments space. removing the necessity for card acceptance. CEO, Optal. Invapay enables corporate buyers to use The Invapay solution enables corporate "Combined with our existing highly credit cards to pay suppliers who historically buyers to obtain the extended payment terms successful virtual payment solutions including have not accepted card payments. Invapay’s of traditional card payments, while effecting virtual account numbers, Invapay completes platform integrates with the buyer’s existing automated, secure and efficient payments to our product offering, enabling us to offer enterprise resource planning systems (ERP) non-card accepting suppliers, in any location genuine ‘pay anyone, anywhere’ capabilities.” through a simple plug and play payment API. across the world in any currency. The acquisition is subject to FCA approval.
KENYA DEVELOPS BANKING INDUSTRY SWITCH WITH TIETO
Kenya Bankers Association (KBA), the banking “Tieto has been a key partner in the via the KBA Switch is an innovative, peer-to- industry’s umbrella body, has awarded Tieto the development of the industry switch, thanks to peer (P2P) transaction service enabling money contract to develop Kenya’s first industrywide their deep knowledge of the local market and transfer instantly and round-the-clock. KBA switching platform in a move that will see banks international experience in the area of instant plans to launch the real-time P2P service during enhance efficiency across all digital platforms. payments. This project is in line with the the first quarter of 2017. The Tieto-developed payments software will national payments system strategy which seeks The KBA Switch has the potential to assist enable KBA, via a subsidiary company called to promote financial inclusion and enhance the banking industry and Kenya’s financial Integrated Payments Service Limited (IPSL), interoperability through shared technology regulators in meeting their shared objectives to develop instant payment services for the 45 infrastructure. This platform will enable product of promoting increased efficiency and financial KBA-member banks, becoming the first real- innovations with high scalability and risk inclusion. Kenya has modelled the industry time interbank transaction platform in East- management,” said Habil Olaka, CEO of KBA. switch on similar platforms in Ghana, Zimbabwe Africa region. The first product which will be launched and the United Kingdom.
UK’S LINK ATM NETWORK UNDER PRESSURE TO DEFINE NEW STRATEGY
More than one in seven free-to-use cash According to the ATMIA’s estimates, “With the question remaining over whether machines across the UK could start charging around £14.7 billion of the cash withdrawn some banks will be willing to pay the true cost or be shut down if the row about the Link ATM each year would be affected by the 8,000 of providing ATMs, we still risk thousands of network cannot be resolved, ATMIA has warned. ATMs either closing or having charges these cash points disappearing from the most After a crucial meeting of the more than 30 imposed. It is not clear how much customers vulnerable communities. members of the Link ATM network failed to reach face being charged – the average fee paid “Many of my independent an agreement over a new charging system, the by customers at machines that currently members are now calling ATM Industry Association (ATMIA) said 8,000 levy a fee is £1.70, with the average amount on the regulator and ATMs were at risk of being removed or starting withdrawn is £69 government to be to charge for withdrawals. Link is grappling with concerns among some part of the review According to ATMIA, the cities most at risk members about the price they charge each other process, and to of losing free cashpoints are London, Belfast, to allow their customers to withdraw cash. There ringfence existing Glasgow, Birmingham, Sheffield and Cardiff. are calls for this interchange fee to be reduced, ATM interchange Other areas that could be hit hard include Devon, although no decision was taken at the meeting. to make sure Hampshire, west Wales, Northern Ireland, ATMIA’s calculations are based on the impact the current free Northumberland and Aberdeenshire. of a cut to the interchange fee, which is calculated to use estate is Under the current system, 97 percent of by dividing the cost of running the free-to-use not undermined,” withdrawals from cash machines do not incur a network by the number of transactions. he added. “This is charge. Of the 70,000 cash machines across the “Independent cash machines play a vital role key to securing the UK, 16,000 charge for withdrawals and 54,000 are in allowing all of us convenient access to cash,” free access to cash currently free to use. Of the free machines, some said Ron Delnevo, executive director for Europe that has so well served 23,600 are provided by independent suppliers. of the ATMIA. the public.” www.paymentscm.com payments cards & mobile | March / April 2017 37 conferences UPCOMING EVENTS Merchant Payments Ecosystem and Retail Internet Retailing Expo 5-6 April, Birmingham Business Technology Expo www.internetretailingexpo.com
It was noticeable that Merchant Payments Ecosystem in Berlin, 14-16 February, was much larger, Seamless Payments Asia 2017 19-20 April, Singapore I OPENED A not only in delegate numbers but also in the range of exhibitors and the diversity of presentation www.terrapinn.com/exhibitions/ subjects. As always, there were multiple networking opportunities including the well-attended seamless/index.stm Awards Dinner where the 2017 winners were announced. NEW ACCOUNT. NACHA Payments 2017 23-26 April, Austin MPE Awards Winners 2017 were: www.nacha.org/events/payments-2017 • Processing - VeriFone • International - ACI Worldwide • Data Information - Barclaycard • Emerging Payments - Yandex Money Seamless Payments Middle East • Acquirer - AIB Merchant Services • Mobile Payments - Spire Payments 1-2 May, Dubai www.terrapinn.com/exhibition/ • Data Security - Barclaycard • MPOS - Worldline e-payment services seamless-middle-east • PSP - Payvision • Channel - AEVI • Online Payment Method - Payza • Innovation Start-up - Wallee Connect:ID • Personality - Miriam Wohlfarth, CEO 1-3 May, Washington DC www.connectidexpo.com and Co-Founder Ratepay Retail Business Technology Expo The next major event for Payments Cards & Mobile involvement is Retail Business Technology Expo 8-9 May, London taking place at Olympia on 8-9 May and co-located with Retail Digital Signage. With the emphasis on retailbbusinesstechnologyexpo.com merchants and hospitality, the organisers are expecting over 17,000 attendees and 370 exhibitors. The ETA Transact 2017 conference sessions include payments, e-commerce, omni-channel solutions and analytics. Presented 10-12 May, Las Vegas by senior executives from major retailers and the payments industry, there will be 60+ sessions and all www.electran.org/events/ are free to attend. PCM will be co-presenting the keynote with Ingenico in the Payments Conference on etatransact17/
Monday 8 May. PCM will be at Booth 33 and looks forward to meeting you there. XCeed 2017 17-19 May, Belgrade www.Xceedconference.com Ad Index March/April 2017 Self Service Banking Europe Entrust Datacard Group datacard.com/pcmYour Cover P3 23-24 May, London Fime fime.comQuality Cover P4 www.rbrlondon.com/events/ssbeurope I was already excited about opening a new account, but when I visited the FIS Global fisglobal.comConfirmed . P17 Cards & Mobile 2017 branch, they handed me my new debit card right there. I walked out with a Ingenico ingenico.com Cover P2 30 May, Riga ready-to-use card — and bought myself a coffee. Ingenico & PCM Research ingenico.com P30 www.cardsandmobile.lv Test Solutions for the payments world Money2020 Europe money2020europe.com P32 Your success is our concern. You have ambitious goals and we are Payment Cards Yearbooks paymentcardyearbooks.comdedicated to helping you get there. We engage withP21 you, help you gain Secure Identification 2017 insight and advise you. 31May- 1 June, Riga What a remarkable experience. PPRO ppro.com P9 > Certify your EMV Payment Terminals www.secureidentification.lv > Minimize downtime of your ATMs and release changes easier Retail Business Technology Expo retailbusinessexpo.com> Validate your payment host and switch implementationsP36
RS2 rs2.comWe’d love to talk. Contact us at [email protected] & P13 The Future of Digital Banking Seamless Asia bit.ly/pcm-free P34 5-6 June, London www.marketforce.eu.com/events/ banking/digital-banking Entrust Datacard offers a complete portfolio of hardware and software solutions www.opentestsolutions.com Money2020 Europe 26-28 June, Copenhagen to help you create these remarkable customer experiences. See how instant www.money2020europe.com issuance can enhance customer loyalty and drive new revenue.
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38 payments cards & mobile | March / April 2017 www.paymentscm.com Entrust Datacard and the hexagon design are registered trademarks and/or service marks of Entrust Datacard Corporation in the United States and/or other countries. ©2016 Entrust Datacard Corporation. All rights reserved. I OPENED A NEW ACCOUNT.
I was already excited about opening a new account, but when I visited the branch, they handed me my new debit card right there. I walked out with a ready-to-use card — and bought myself a coffee.
What a remarkable experience.
Entrust Datacard offers a complete portfolio of hardware and software solutions to help you create these remarkable customer experiences. See how instant issuance can enhance customer loyalty and drive new revenue.
Visit www.datacard.com/pcm to download the free white paper.
Entrust Datacard and the hexagon design are registered trademarks and/or service marks of Entrust Datacard Corporation in the United States and/or other countries. ©2016 Entrust Datacard Corporation. All rights reserved. © Fotolia, FIME EXE-AP-210x280-21-03-20172.indd 1 21/03/2017 08:51