November | December 2016 | paymentscardsandmobile.com in this issue CARD NOTES Banking on biometrics REGULATION Strong customer authentication FINANCIAL INCLUSION Addressing the unbanked CYBER INSURANCE Mitigating cyber risk
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‘Money, money, money’ go the lyrics to an Abba hit from the www.paymentscm.com 1970s. Back then, the idea that a war on cash might be waged November | December 2016 was as incomprehensible as Blockchain as an everyday consumer Volume 8, Number 6 payment mechanism is today. Editor-in-chief and publisher It is testament to the payments industry’s enormous success in enabling Alexander Rolfe Tel +44 1263 711 800 digital money that we are actually able to have a sensible conversation about [email protected] what a cashless world might look like — and believe that it may be achievable. Staff Writer Cash is very simply loved or hated. But as PCM research shows, the idea of a Joyrene Thomas cashless world is not likely in the near future. Cash in circulation continues to Tel +44 1263 711 800 rise, despite the explosive growth in digital transactions. [email protected] Financial inclusion in both the developed and the developing world may Contributors Joyrene Thomas help us achieve the aim of a cashless planet, but what is the current status of inclusivity for the financially under-served? In this issue, we look at the Head of Business Development Wendy Sanders structure, business case and feasibility of banking the unbanked. Tel +44 1263 711 801 Cybercrime...we cannot go a single issue without mentioning it, such is the Fax +44 1263 456 100 [email protected] interest in the burgeoning and increasingly well-structured business of the criminal underworld. In this issue we take a slightly different view of the General Manager Gemma Haywood problem and research the peripheral market growing up around cybercrime: Tel +44 1263 711 800 cyber insurance. How do the policies work, who is responsible for managing Fax +44 1263 456 100 them and what is actually covered? [email protected] Subscriptions and General Alexander Rolfe, Gemma Rolfe Editor-in-chief and publisher, Tel +44 1263 711 800 Payments Cards & Mobile Fax +44 1263 456 100 [email protected] Address Payments Cards and Mobile Editorial Advisory Board The Stable, Hall Yard Kelling, Holt John Berns June Felix NR25 7EW Managing Partner, Accourt President – Europe, Verifone United Kingdom Sylvie Boucheron-Saunier Denise Gee Cover, Design and Origination General Manager, Continental Europe, ACI Director, Magna Carta Adam Unsworth Robert Courtneidge Simon Hardie Printing Global Head of Cards and Payments, Director, Magna Carta Micropress Printers Locke Lord
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ISSUING AND ACQUIRING COVER FEATURE 26. HALF OF GLOBAL BANKING 14-17. CUSTOMERS NOW USING FINTECH – LOSING THE WAR WORLD FINTECH REPORT ON CASH? Half of banking customers across the globe are using the products or services NEWS IN BRIEF Despite all the marketing money spent on promoting electronic of at least one FinTech firm according to 6-7. THE PAYMENTS WORLD payments over many decades, cash the first World FinTech Report (WFTR) from still accounts for around 80 percent Capgemini and LinkedIn, in collaboration IN 60 DAYS of consumer payments worldwide. with Efma. So, is a cashless society a realistic CARD NOTES aspiration, or is less cash the best we can hope for? 27. GROWTH IN GLOBAL PAYMENT 8. GLOBAL NON-CASH VOLUMES CARDS DRIVEN BY EXPANSION OF GROW BY TEN PERCENT IN 2015 18-21. BANKED POPULATION Global Payment Cards Data and Forecasts The growth in payments is fuelled by the ADDRESSING THE shows that the Middle East and Africa use of increased security measures, such UNBANKED IN (MEA) and Asia Pacific were the fastest as EMV and biometrics, new government DEVELOPING COUNTRIES growing regions for payment cards in 2015, initiatives and strong economic expansion Around two billion people worldwide with card numbers up by 13 percent and 10 in key countries. do not use formal financial services percent respectively. and around half the adults in the 10. BANKING ON BIOMETRICS poorest households are unbanked, With the rise of biometrics within financial according to the World Bank. When 27. 2016-2019: BREAKTHROUGH financial inclusion is a key enabler YEARS FOR ALTERNATIVE PAYMENT services, could you become your own to reducing poverty and boosting METHODS (APMS) AND MERCHANT password? prosperity, we investigate what the payments industry is doing around ACQUIRERS? financial inclusion. 12. 2016: THE YEAR OF THE MOBILE Last year Worldpay predicted that the BANKING APP digital payments market was overcoming 22-23. its growing pains and heralded 2016 as What has changed in mobile banking apps “the third age of digital payments”. and m-payments in the UK since last year? CYBER INSURANCE AND We examine consumers’ understanding MITIGATING CYBER RISK and attitude towards m-payment options, MOBILE PAYMENTS Cyber attacks are increasing and the implications. in number and sophistication. ‘Transfer’ is one of the four ‘Ts’ of risk 28. MOBILE PAYMENTS SOAR AS 13. THE RELENTLESS GROWTH OF management, alongside terminate, EUROPEANS EMBRACE NEW WAYS tolerate and treat. We examine the TO PAY CYBERCRIME growing market for cyber insurance, According to Visa’s 2016 Digital Payments The volume, scope and material cost of and the extent to which companies Study, the number of consumers regularly cybercrime are growing finds Europol’s can effectively transfer their cyber risks. 2016 Internet Organised Crime Threat using a mobile device – smartphone, tablet Assessment report. or wearable – to make mobile payments has tripled in the past year. REGULATION 29. AI BOTS TO DRIVE MOBILE 24. EUROPEAN REGULATOR PLANS REMOTE PURCHASES TO $2.1 AUTHENTICATION SHAKE-UP TRILLION New findings claim that merchant Following the European Banking integration of technologies such as AI bots Authority’s consultation paper on strong and natural language interfaces will lead customer authentication, the future for to remote goods purchases by mobile operators in Europe looks uncertain. totalling $2.1 trillion by 2021.
4 payments cards and mobile | November | December 2016 www.paymentscm.com contents
29. SMARTPHONES GENERATE 70 33. CONSUMERS WANT 37. 42 BANKS JOIN JAPANESE CENTS OF EVERY $1 IN MOBILE ADDITIONAL SECURITY TO PREVENT BLOCKCHAIN FOR PAYMENTS E-COMMERCE E-COMMERCE FRAUD CONSORTIUM Mobile e-commerce, through both apps As e-commerce and e-commerce fraud SBI Ripple Asia, a joint venture between and browsers, is surging to new heights, continues to expand, online payment distributed ledger tech provider Ripple and having grown 60 percent in 2015 to security is a top concern for merchants SBI Holdings, announced in August that a reach $120 billion, says Javelin Strategy & and consumers. Japanese consortium of 15 banks in a new Research. network will use Ripple’s Blockchain for 33. INDIA TO OVERTAKE US AS THE payments and settlement. 29. MICROSOFT WALLET, ANDROID NEXT E-COMMERCE SUPERPOWER PAY AND SAMSUNG PAY ENABLED India is en route to overtake the US to 37. MISYS FORCED TO CALL OFF VIA MASTERPASS become the world’s second largest CURRENT IPO PLANS Mastercard says it has reached e-commerce market, according to new UK financial software provider Misys has agreements with Microsoft, Google research by Worldpay. been forced to cancel its planned IPO, and Samsung to bring online payments citing “market conditions”, the latest in a capabilities to US-based users of their PRODUCTS series of pulled or troubled deals in the UK digital wallets via Masterpass. and Europe in recent weeks. 35. US BANKS ROLL OUT ZELLE P2P CONTACTLESS MONEY TRANSFER APP 37. ANT FINANCIAL ANNOUNCES A consortium of US banks, including Wells GLOBAL EXPANSION PARTNERS - 30. THE EVOLUTION OF DIGITAL Fargo, JPMorgan Chase and Bank of FIRST DATA AND VERIFONE WALLETS AND MOBILE PAYMENTS America, are rolling out a new P2P money Ant Financial Services is expanding its Aite Group, has released a whitepaper transfer app to take on Venmo and other global reach to make sure its millions tracing the growth and uptake of digital mobile payment upstarts. of clients can buy whatever they want, wallet services across the mobile and wherever they want, and however e-commerce sector. 35. EMVCO LAUNCHES EMV 3D they want. SECURE 2.0 SPECIFICATION 31. EUROPOL WARNS OF ANDROID EMVCo has published EMV 3-D Secure 37. NORDEA SACKS NETS AND PAY NFC TAP-AND-GO THEFT Protocol and Core Functions Specification TEAMS WITH DANSKE ON MOBILE Europol has warned that they believe v2.0.0 (EMV 3-DS 2.0). PAYMENT APP criminals are using Android phones to Nets shares took a bashing as Nordea trigger fraudulent NFC payments. 35. KOHL’S SEES MAJOR ADOPTION Bank dropped the electronic payment OF KOHL PAY system it was developing with Danish E-COMMERCE Kohl’s, a US department store chain, banks and instead teamed up with its main has witnessed a 70 percent increase in rival in Scandinavia, Danske Bank, to use its 32. WORLDWIDE RETAIL enrolment with user transactions doubling more popular mobile payment app. E-COMMERCE SALES WILL REACH over the same period for its payment app. $1.915 TRILLION CONFERENCES In 2016, total retail e-commerce sales 35. MIURA LAUNCH NEW DEVELOPER will reach $1.915 trillion, retail sales FRIENDLY MPOS SDK PLATFORM across the globe will reach $22.049 Payments and mPOS provider Miura Systems trillion, up six percent from the has launched a comprehensive mPOS previous year. SDK designed to offer developers a simple, best-in-class set of tools which significantly 32. THE EMERGING MARKET reduces the time taken for partners to deliver E-COMMERCE OPPORTUNITY payment or retail solutions. 42. MONEY2020 LAS VEGAS Global e-commerce is projected to grow As anticipated, Money2020 was a at a compound annual growth rate of great success. Las Vegas has so many
12 percent over the period 2015-20, paymentscm.com distractions and meeting places that it’s according a recent Euromonitor report. CONTRACTS always a hit with delegates. www.paymentscm.com payments cards and mobile | November | December 2016 5 news in brief
FIRST NOKIA. NOW BLACKBERRY. NORDIC SOFTWARE AND SERVICES The Canadian group has announced company Tieto has appointed a that it will stop making its own iconic bot to the leadership team of its new handsets, and focus instead on selling data business unit. Alicia T, the artificial software and services. Beloved by intelligence-powered bot, will support business executives and celebrities alike, decision-making and innovation, and the Blackberry accounted for one-in- vote in meetings. “Speculation, theory five smartphones sold at its peak in and research on the potential future of 2008. However, the firm could not machine-learning and artificial intelligence hold its own in the hardware stakes is running wild. With this project our against Apple, Samsung and low-cost team wanted to study the effects of SMALL MERCHANTS SUING THE Asian manufacturers, and its market decision-making in human-robot teams,” four major card schemes over EMV value slumped to around $4 billion down explained Taneli Tikka, head of innovation may proceed with their class action, a from $80 billion. Blackberry hardware incubation, Tieto. federal judge in California has ruled. The will continue to be manufactured under plaintiffs allege that the 01 October 2015 licence to third parties. US EMV chip liability shift constitutes a type of price-fixing by the card schemes. The merchants state that American Express, Discover, Mastercard and Visa all adopted the same liability shift policies for fraudulent charges, effective on the same day. This prevented merchants steering SAFRAN SA IS IN TALKS TO SELL customers to use cards with more lenient 193 PEOPLE SUSPECTED OF travelling its identity verification business terms. The long waits to have their EMV with airline tickets bought using to US private equity company Advent equipment certified by the card schemes stolen, compromised or fake card International Corp. for €2.43 billion as the increased their liability shift exposure, the details have been detained in a major French firm narrows its focus to aerospace plaintiffs argue. The case continues. international law enforcement operation, and defence. The deal would unite Safran’s according to a Europol statement. The biometric identification technology ANT FINANCIAL SERVICES GROUP, airline industry loses more than $1 billion with the security software activities of the operator of Alipay, has acquired each year due to fraudulent online Advent’s Oberthur Technologies, creating EyeVerify Inc., the creator of a patented, purchases. Such transactions are lucrative a business with €2.8 billion in annual secure mobile eye verification technology. for organised crime and often facilitate revenue, Bloomberg reports. The original More than 45 financial institutions use the more serious criminal activities, including shortlist of bidders is believed to have EyePrint ID biometric technology originally illegal immigration, human trafficking, drug included digital security firm Gemalto, in developed five years ago at the University smuggling and terrorism. The five-day addition to three private equity funds: Bain of Missouri Kansas City. This allows end operation involved cooperation between Capital, CVC Capital Partners and KKR. users to take a selfie to image and law enforcement, airlines, online travel pattern-match the veins and other unique agencies and private sector organisations. SIX, INFRASTRUCTURE OPERATOR micro features in and around the eye. for the Swiss financial sector, has In a blogpost, EyeVerify CEO Toby Rush INDIA’S TOP BANKS ARE ASKING partnered with Digital Asset Holdings to said: “This acquisition is an extension of a customers to change their PINs and prototype distributed ledger technology. relationship that we as a company have reissuing debit cards after a data The firms have signed an agreement to developed with Alipay over the past year.” security breach compromised around 3.2 build a proof of concept for securities million cards. The breach is suspected to lifecycle processing, and to develop a have occurred at malware-infected ATMs roadmap for future opportunities. in the country, and came to light following Elsewhere IBM and China UnionPay customer complaints of fraudulent card are partnering to allow customers to use in China and the US. In a statement exchange bonus points in different bank the National Payments Corporation of loyalty programmes using the Blockchain. India confirmed that the PCI council was Consultancy company Ernst & Young has conducting a forensic audit of the switch teamed up with New York start-up Paxos of “one bank which is likely to be the point on a Blockchain solution for the gold of compromise.” trading market.
6 payments cards and mobile | November | December 2016 www.paymentscm.com newsnews inin briefbrief
VeriFone has had the wind taken out Visa is working with several DUTCH BANK ING HAS ANNOUNCED FOR THE LATEST IN WEARABLE of Sail, its app and dongle-based Indian banks in order to utilise plans to cut around 5,000 jobs, or tech, Gianoi is offering hand-crafted system for turning smartphones into card the country’s biometrics-based national 11 percent of its workforce, over the next Italian handbags that can be controlled acceptance devices. Having failed to gain identity system to bring financial services five years. The bank expects to save about via an app. Users can connect their €900traction million with a year merchants, through theVeriFone cuts, which will mobileand electronic phone via payments Bluetooth andto millions the bag’s of includesinstead offabout er the 2,300 technology job losses to banks. in the Sail gold-platedpeople. The logo ‘Saral flashes Money’ different account coloursfrom Netherlandswas launched and in aboutMay 2012, 3,500 but in accordingBelgium. forVisa, calls, Axis texts Bank, and HDFC e-mails. Bank, Designed ICICI Bank, to Theto the number company, of thebranches standalone in Belgium economics is allowIndian owners Overseas to Bankengage and more the State in social Bank expectedof micro-merchant to halve as acquiring ING upgrades ultimately to a occasions,of India is the designed handbag to willsolve inform the themlong- digitalproved model. to be unprofiThe announcement table. follows whenstanding they problem need to of checkhow to theirauthenticate phone. years of restructuring, following a €10 Thethe built-in many USBmillions charger of alsoIndians ensures without that billion capitalVietnamese injection payment from theswitch Dutch operator state ownersexisting never bank run accounts out of battery or adequate life on during Smartlinkthe 2008 isfinancial working crisis.with Singapore theirforms mobile of ID. phones They whileplan onto thetap go.into the tech vendor Tagit to build a mobile bank- government’s Aadhaar national identity ing service. Tagit’s Mobeix platform will system which uses fingerprint and iris Insight is be available to over 40 million cardholders biometric information to verify users and belonging to Smartlink’s more than 50 mem- authorise payments. There are currently everything! ber banks. Vietcombank will be the fi rst to 210 million Aadhaar card holders, with roll out the service, enabling customers to the government planning to expand this download an iOS, Android, BlackBerry or Java to 600 million by 2015. In-depth analysis, app that can be used for account information industry snapshots, news BBVA IS ENABLING ACCOUNT queries, fund transfers, bill payments and Just 3% of UK organisations have GERMAN BANK-OWNED PAYMENTS opening via selfie. To start the in brief and authoritative mobile top-ups. Through the Tagit system, made preparations for the intro- group, Concardis, is up for sale process, customers in Spain either visit the Smartlink customers will also be able to con- features – Payments according to Reuters reports. Concardis BBVAduction website of SEPA or fordownload direct debits, the bank lagging app nect with third parties such as utility compa- provides card acceptance and payment tobehind their mobilerivals inphones. France Theand newGermany remote as Cards and Mobile’s nies and government agencies. processing solutions for more than 110,000 registrationthe countdown service to asksthe 2014customers migration for authoritative, impartial, customers and processed €38.3 billion photobegins. ID The and survey a selfie. of 300 BBVA businesses matches in Royal Bank of Scotland, Lloyds in 2015. The firm is jointly owned by the theFrance, images Germany through and a thefacial UK recognitionconducted editorial coverage TSB and NatWest in the UK are in German savings, cooperative and private processby Edgar and Dunn also & verifiesCompany the on customer’s behalf of separates hype from a generous mood, having set aside £10 banks, who were not immediately available identitySteria, throughfinds that a videoalmost call. 70% “We of Europeanknow our million to refund customers who forgot happening within the or declined to comment on the sale. customersbusinesses value are aware their timeof SEPA and in like general, to do to pick up cash dispensed at the ATM. The everythingand more throughthan 80% their of mobilebusinesses phones,” have payment cards and banks are set to compensate hundreds IT MAY NOT QUITE BE A LICENCE TO saidheard head about of SEPA BBVA Direct Spain, Debit Cristina in France de mobile payment of thousands of customers who made a print money, but new £5 notes Parias.and Germany. “With this However, new solution, only BBVA 26% takesof UK withdrawal at the ATM but walked away industry. with low serial numbers are selling anotherbusinesses step are toward aware ofmaking the mandate. people’s onwithout eBay the for cash. around Unlike £200.other banksThe whichmost lives easier.” inautomatically demand are re-credit the first consumer batch accountsof notes TimelyTimely insight insight - Sweden’s Swedbank is piloting startingwhen the AA01 machine followed retracts by the a forgottensix-digit A NEW TROJAN DUBBED ODINAFF the use of mobile couponing with on paperon paper - on screen number,cash, the bankswhich divertedwent into the fundscirculation into their in has been reported attacking banks merchants in Uppsala, the country’s mid-September.own reserves account The andBank only of paidEngland up if and other financial targets worldwide, says subscribeon screen now! fourth-largest city which is attempting spentthe customer around £70 asked million for a on refund. introducing the an official blog by security firm Symantec. on-line new polymer note, featuring former British Odinaffto eradicate shares cash a asnumber part ofof a links local withcrime- the Visit: prime ministerUS start-up Winston Movenbank, Churchill. which The note has Carbanakfi ghting initiative.Trojan, which Swedbank is believed is trialling to have the subscribewww.paymentscardsandmobile.com now! is expectedpositioned to last itself 2.5 as times a mobile-only, longer thancard- stolenuse of hundreds MasterCard’s of millions from banks in and click ‘Subscribe’ www.paymentscm.com aless, paper branchless note, and bank, includes may be forcednew security to off er recentmobile years.application Attacks involving Odinaff featurescompanion to make plastic it hardercards toto counterfeit.customers in appearKoy withto have high begun in January 2016, order to be compliant with MasterCard rules. withstreet the merchantsUS the most frequently targeted, Movenbank is working with MasterCard on a followedwho can by Honguse the Kong, Australia, the UK and planned February 2013 launch which will see Ukraine.app to One post of dealsthe most common methods of customers issued with contactless stickers attackto subscribers is through thatlure documents containing a malicious macro. If the recipient opts to enable that they can attach to their mobile phones, can be redeemed macros, this installs the Odinaff Trojan on says founder and CEO Brett King. However, from the user’s their computer. he maintains that the fi rm is still “anti-card”. smartphone.
www.paymentscm.com payments cards and mobile | November | December 2016 7 paymentscardsandmobile.com payments cards and mobile | January | February 2013 7
PCM_JF13_40pp.indd 7 28/01/2013 11:49 card notes GLOBAL GLOBAL NON-CASH VOLUMES GROW BY TEN PERCENT IN 2015 Global digital payment volumes continue to increase, with annual growth projected to top ten percent for the first time to reach 426.3 billion transactions in 2015. This is well above the record 8.9 percent growth or 387.3 billion transactions in 2014. The uptick was driven mainly by accelerated growth in developing markets, which recorded a 16.7 percent increase in 2014, while mature markets grew by six percent, according to the World Payments Report 2016 by CapGemini and BNP Paribas.
THE GROWTH IN payments is fuelled by the recorded in North America (4.4 percent) and expectations, and the complexity and cost use of increased security measures, such Latin America (8.3 percent), although these of compliance. as EMV and biometrics, new government rates were down on the previous year. This Developing a holistic compliance vision initiatives and strong economic expansion in could be as a result of the increased use is critical and many banks have already key countries. In particular, China recorded of alternative payment methods in North taken initial steps to making this a reality, the a 47 percent growth rate, surpassing the UK America, such as closed loop mobile wallets, report finds. However, execution remains a and South Korea for the first time to take which often go unreported. Meanwhile Latin challenge due to the pace and impact of fourth place among the top ten markets. America has been hit by slowing economies individual regulations, lack of clarity and India also had strong growth of 13.4 percent. and declining GDP. harmonisation overall. To avoid lagging China’s growth is due to underlying behind, banks are advised to find ways economic growth, rising living standards THE COMPLIANCE CHALLENGE to accelerate their compliance efforts in and the entry of millions of people into the a transformative manner. Suggestions banking system. The strong performance As growth accelerates, basic payment include re-defining the scope of compliance of Alipay and foreign card brands is also a challenges remain. From the point-of-view programmes, streamlining investments factor. While growth in non-cash transactions of banks, these are control, visibility on particularly around IT, recruiting skilled in India is improving, it is still below full market cash, and risk management. However, staff, improving the collection and efficacy potential. Not all banks promote digital customers are demanding more digitised of compliance data, and moving towards payments and the card acceptance network services, particularly at the corporate end integrated compliance risk and governance is considered too narrow. of the market. These include centralised models. Central Europe, the Middle East and account management (53 percent), process Africa was the next-fastest growing region automation (50 percent), data analytics (35 THE FINTECH CHALLENGE with a growth rate of 12.3 percent. Europe percent) and fraud detection and prevention saw growth of 6.4 percent, led by the (32 percent). To provide these services, banks Innovation is key especially in the face of new UK, Germany, France but also Sweden must manage the additional challenges of FinTechs entrants, positioning themselves as and Denmark. Positive growth rates were new FinTech entrants, evolving customer nimble and able to provide state-of-the-art customer experiences. There are currently NUMBER OF WORLDWIDE NON-CASH TRANSACTIONS (BILLION) BY REGION, 2010-14 three great opportunities for banks to innovate in payments, the report finds. Banks can focus more on interbank collaboration, they can partner with FinTech to provide new digital offerings to treasurers, or they can open up internal systems through open APIs. This will enable them to create new digital ecosystems, products and services around improved customer experience, detailed insights and quicker regulatory compliance. As societies move towards being less cash dependent, digital payment transactions are only going to increase. The time is right to develop a more collaborative approach to both FinTechs and other banks to deliver enhanced payments experiences that Source: World Payments Report 2016, CapGemini/BNP Paribas customers demand.
8 payments cards and mobile | November | December 2016 www.paymentscm.com ADVERTORIAL
The banking and identity industries are constantly trying to keep up with the huge demand imposed on them by modern day society’s widespread use of smart cards.
Billions of cards are being created Contactless is the key feature proposed by the bank: • To reduce the cost of cash handling every year by card manufacturers • To facilitate the customer experience, with a friction-less and personalization companies who check out are responsible for offering their SPS has stated that the techniques available on the market client a robust and secure product. for the manufacturing of dual interface card, are all presenting the same main drawbacks : SPS eBooster® technology has set itself as the • Physical connection between module and inlay new standard for Dual Interface cards, expanding • Specific manufacturing equipments and processes required its market offer with a new secure solution called to make this connection eBoost PAY ® Dual 6. • Low mechanical durability of the finished card
eBoost PAY® is stimulated by SPS ‘inductive To solve these drawbacks, and to bring the market a better coupling’ technology, which enables card response, SPS has then developed the unique eBooster manufacturers to use their own standard technology, based on inductive coupling between module equipment with no extra investment towards and inlay. machinery, assuring both a low card manufacturing cost and high card reliability. Dual 6 is the same size SPS eBooster® technology is a key ingredient for fast moving as a regular 6 contact micro module(the same as EMV markets. those used for SIM or contacts cards) and so many banks are able to evolve from contact to dual It allows card makers to migrate smoothly from contact card interface without any change in their artwork. The to dual interface card manufacturing, since the production Dual 6 micro-module allows card manufacturers to lines to be used are exactly the same. It allows them to easily switch from contact to dual interface cards, easily manage their production capacity while minimizing and so assuring best flexibility and product chain investment in new production equipments. Thanks to a single efficiency to answer card issuers demands. production line, regardless of the kind of cards to produce (contact, DI), they are able to meet their market demand with Contactless transaction is a massive trend of a great flexibility and fast response. It is the perfect answer to global moving EMV market, since many years. their challenges.
www.paymentscm.comwww.s-p-s.com payments cards and mobile | November | December 2016 9 card notes GLOBAL BANKING ON BIOMETRICS Bill Gates claimed the password could not meet the challenge of keeping information secure and predicted its demise. That was back in 2004. Twelve years later, passwords are still very much alive. With the rise of biometrics within financial services, could you become your own password?
THE AVERAGE PERSON has about and technology advisor, National federated services just as consumer- 90 passwords, according to password Institute of Standards and Technology facing web companies do via use of login management company Dashlane. That is (NIST) confirmed that his organisation credentials on partner websites. just too many to remember, which leads to was working on a common framework poor ‘password hygiene’ — choosing weak, to measure biometric authentication DEATH OF THE PASSWORD easy-to-remember passwords, reusing strength. Work commenced on the them across websites and writing them strength of function for authenticators - So, how will we identify ourselves in 20 down. Given recent high-profile password biometrics (SOFA-B) in early 2016 and a years from now? Many are predicting compromises, such as Yahoo, LinkedIn discussion draft of the proposal is open for the death of the password, but is this and Dropbox, biometrics is emerging as a consultation. premature? “Passwords won’t die soon. credible alternative. Passwords add an authentication factor. IDENTITY-AS-A-SERVICE They could be considered complementary BODY OF EVIDENCE to other authentication factors, especially Banks have been trusted to keep people’s biometry,” says Guillaume Yribarren, vice Biometrics involves using measurable money safe for centuries, but what president, marketing, digital security & physical characteristics as a way of about their identities? Perhaps there is authentication, Safran Identity & Security. establishing or verifying identity. Examples a new role for banks as stewards of “Passwords are still a very efficient way to include fingerprints, facial, voice or iris digital identity and identity-as-a-service add a security layer on top of biometry. recognition, eye prints and heartbeat. offerings. When asked who they would You could access some very secure areas Within banking, biometrics is increasingly trust to offer biometric authentication on your smartphone with a selfie as well as being used to enhance security and as a service to confirm identity, the a password,” he concludes. reduce fraud, drive efficiency, improve majority of respondents in a Visa survey “Biometrics are one part of the answer customer experience and promote said banks ahead of payment networks, to replacing passwords,” agrees Mike financial inclusion. online brands and smartphone Lynch, chief strategy officer, at risk As a snapshot of recent companies. 80-86 percent management and authentication vendor biometric activities, Barclays of those surveyed in InAuth. “Another is identifying a device, has rolled out voice France, Germany, such as a smartphone, and using that recognition to UK personal Italy, Spain and UK trusted token as another factor. To use the customers telephoning trusted banks. mobile device as a trusted token, you must the contact centre, However, banks assess that it is low risk, and that is where removing the need are not the analysis of many [device-related] factors for security questions only organisations is important.” and cutting call times. capable of providing Whilst biometrics, trusted devices and Japan’s Ogaki Kyoritsu identity-as-a-service. Big Data authentication techniques will Bank is expanding Smartphone providers influence their decline. Passwords are likely the use of palm vein could also play in this to live on for a few more years yet as a authentication from selected space. Some smartphone secondary or fallback authentication factor. ATMs to all branches. Mastercard models are able to capture Plus, different companies are on different is rolling out its fingerprint and facial biometric data from users. This timelines. Implementing new authentication recognition application in Europe to transfers the hardware costs of biometric methods takes time and budget. Many verify a cardholder’s identity and simplify enrolment from the bank or retailer to the companies will adopt a phased approach online shopping. consumer in the price of the phone. and are unlikely to migrate their entire Standardisation work is also underway Smartphones are also able make multi- customer base to a new authentication to help organisations measure, compare modal biometrics possible (e.g. fingerprint, method quickly. Passwords as part of digital and combine authentication mechanisms. face and voice), as well as serving as identification and verification are set to Speaking at the Biometrics 2016 a trusted device for extra security. This be alive a while longer, even for the most conference, Paul Grassi, senior standards enables smartphone providers to offer progressive organisations.
10 payments cards and mobile | November | December 2016 www.paymentscm.com ADVERTORIAL
Opening Up may be Good for You Making PSD2 access to accounts work in practice. By: Dr Michael Salmony, equensWorldline SE, Executive Adviser and Anuschka Diderich, equensWorldline SE, Global Account Executive
There is a massive trend in many in their innovations, as clients can build on industries for co-development of top of the API and make applications that solutions. Apple does not develop all apps suit their specific business needs. This is far themselves but provide a platform for more efficient and effective for them than others. Supermarkets do not bake the building applications from scratch. APIs bank-verified age/address ) which will know bread themselves but provide shelves also demand a new way of working where to be much in demand by third parties and for others to populate. Amazon does not equensWorldline seek new ways of client merchants and offer business opportunities produce own books and electrical goods interaction and the co-creation of products to banks beyond compliance. CAPS also but provides the means for others to sell and services. The reader is encouraged to proposes how to significantly reduce the their wares. Now banks are looking not visit https://developer.equensworldline.com effort to manage disputes (of which initially only to develop their own mobile apps, to further explore APIs. there will likely be many) with standard their own cash management solutions Some banks such as Credit Agricole, procedures rather than each user calling his but also to enable third parties to do this. ING, BBVA have already embraced bank’s hotline or sending emails between Third parties (e.g. FinTechs) may be faster, APIs and host their own app stores to merchants/third parties/users. CAPS also more flexible, have better understanding allow customers more choice in proposes directory services that allow of modern customer interactions and may how to manage their accounts using parties to find each other, ensure reliable thus offer innovative financial solutions innovative apps developed by non-bank mutual identification and maybe provide that solve new problems and provide a third parties. some convenience (e.g. initiating a payment better user experience. In Europe the regulator has taken the bold towards the recipient’s mobile number This open ecosystem has many step (“Payment Service Directive 2” PSD2) than towards his IBAN). Also included is a advantages over the previous closed world, to force all banks to open up their payment proposal for supporting fraud detection where everybody tried to do everything accounts to third parties by January 2018. which can be done much more effectively themselves. The key to successful “opening equensWorldline recognised the potential in such a community solution across many up” is to provide a standard interface (e.g. (and the risks) of this development very banks and third parties than any single to the iPhone, to the bank account) that is early and has formed a coalition of the entity can do by itself. There is much more to accessible to third parties whilst retaining willing around this topic with partners from CAPS and the reader is encouraged to visit the necessary control (especially to avoid diverse industries. The goal is to make PSD2 www.caps-services.com to explore this. fraud and illegal third parties getting in work safely, at scale and in practice. This Through all these function in CAPS, we and to avoid any phone or account being has led to the formation of an open CAPS aim to make life easier for all stakeholders compromised or accessed against the (Convenient Access to Payment Services) in PSD2. equensWorldline helps banks by wishes of the user). A typical standard initiative with an ever growing number of reducing their cost of compliance to the interface is the API (Application Program stakeholders which have come together to new law whilst ensuring that third parties Interface). define an open framework for cooperation can only access accounts safely and under APIs are used in the billions by Twitter, and for the benefit of all parties. the user’s full control. Also new business Google, Facebook, eBay, Amazon, Netflix This framework proposes solutions to models – fully compatible with PSD2 - are and all other digital champions. Now a number of issues raised by PSD2. For enabled where banks and new third parties banks and bank service providers such as example instead of each third party having can position themselves in a new way with equensWorldline are also leveraging the to work out how to connect individually to new sources of revenue in the new open advantages of APIs. equensWorldline has each of the thousands of banks in Europe digital world. Together we have developed also recently started to expose selected in their own local way, CAPS proposes a many use cases showing how FinTechs, third functions in a safe and controlled way to standard API for the Payment Initiation and parties and banks will be able to develop developers of its current banking clients. Account Information services demanded new services, new solutions for consumers This allows these selected banks to develop by the regulator. This is an idea that is and corporates and generate new revenues new applications on the equensWorldline currently being adopted by the ERPB under using data and payment based on PSD2. assets and infrastructure. By making APIs the title of “PIS Harmonisation”. CAPS also Collaboration between stakeholders from available equensWorldline facilitates clients proposes value-added services (such as different industries can be a win-win for all. card notes UK 2016: THE YEAR OF THE MOBILE BANKING APP
WHAT HAS CHANGED in mobile banking that UK consumers are confident in use a location-based service to receive apps and m-payments in the UK since conducting financial transactions via offers or discounts on their smartphone last year? We examine consumers’ mobile, which is a strong foundation for from a restaurant, merchant or coffee understanding and attitude towards further innovation in the area. shop when nearby. m-payment options, and the implications. When it comes to P2P payments, MOBILE PAYM ENTS features that could accelerate uptake MOBILE BANKING of such payments included guaranteed Three-quarters of respondents are aware security and fraud protection (61 percent) 2016 may be the year of the mobile of in-app payments, and almost two-in- followed by guaranteed reliability (58 banking app. This is according to the five had made one in the last six months. percent) and presence of an established TSYS UK m-payment and P2P payment The most common type of purchases consumer protection regulation (55 consumer study, which found that 56 made in-app were for clothes at 53 percent). percent of consumers used their mobile to percent, a five percent increase on last FINDINGS & INSIGHTS access banking services more than once year, paying utility bills (48 percent) and RECOMMENDATIONS a month. This is an increase of 12 percent buying transportation tickets online (46 on last year’s figures, which showed percent). This is attributable to the growing The most used m-banking feature is consumersSegmenting either used the m-banking Respondents a lot trendby Digital of m-banking Capabilities: apps, e-wallets and transferring money between accounts, or notRogers’ at all. The Diffusion underlying of data Innovation dispels transport Theory apps, which offer a seamless allowing consumers to control their the popular belief that m-banking apps payment experience for customers. finances. Payment providers should look 8 areAccording the exclusive to Rogers’ diffusion domain of innovation of millennials. theory, Consumersonce a technological showed trend gainsequal a foothold. levels In of for new ways to add control features to there are five different types of technology adopters: our context, they are the respondents who use In fact,Innovators, 71 Earlypercent Adopters, of Early respondents Majority, Late aged awarenessa mobile bankingof both app lessin-store than monthly m-payments to a few their offering. This could include alerts as Majority and Laggards. For this study, we combined times a month. 35-44these reportedgroups to create using three categoriesm-banking according apps. to and P2P payments (81 percent). However, well as helping consumers to manage their • represent Rogers’ “Laggards” their usage of mobile banking apps. Our categories, Emerging Digitals And only those aged 55 and older showed only 25segment. percent This group of isconsumers the last to try and had potentially made spending within their own limits. together with Rogers’ theory, provide us a predictive adopt a new technology. For the purposes of our a usageframework below for making 50 conclusionspercent. regarding an in-store m-payment in the last six As in-app payment grows, payment research, they are the respondents who use a emerging trends. The most popular m-banking activities months,mobile compared banking app less with than once34 apercent month or have who providers who present themselves poorly undertaken• Hyper Digitals are represent verifying the “Innovators” balances and (82 had nevermade used it.a P2P payment. Location- in the the payment experience face “Early Adopters” categories. These consumers Particular attention should focus on Hyper Digitals, percent),are the firsttransferring to use and value anmoney innovation— between based services could boost the uptake missing out on a key customer touch who are the pioneers of new banking features. A helping to diffuse a new technology. These are the accounts (72 percent) and verifying of in-storepositive user m-payments. experience among this 52 segment percent means of point. As the payment itself is pushed respondents who use a mobile banking app daily. transactions (69 percent). This shows consumersother consumers said — “Accomplishedthey would Digitals” be andlikely to to the background, payment providers • Accomplished Digitals represent the “Early “Emerging Digitals” — will mostly follow their lead, Majority” and “Late Majority” segments. This group based on customer satisfaction, loyalty and word-of- must leverage their relative position UK followsMOBILE the “Innovators” BANKING and “Early Adopters” APP ADOPTIONmouth CURVE advocacy. of trust to re-engage cardholders through increased loyalty initiatives, Rogers Diffusion of Innovation: the study suggests. Providers are Adopter Categories IN APP M PAYMENT CONTACTLESS PAYMENT also recommended to embrace P2P 39% usage level 51% usage level P2P PAYMENT payments to remain relevant. 34% usage level TY LA DEBIT & RI TE IN STORE JO MA Increasing real-time capability MA J CREDIT CARDS M PAYMENT Y OR RL IT EA Y 24% usage level and contextual services are key for
! S CHEQUE both communication and payments. R TE P DO BITCOIN A Location-based services are poised to LY LA AR GG 3% usage level E AR DS
UR E play an increasingly critical role with
RS IL VATO INNO FA cardholder engagement, especially when coupled with the value of 2.5% 13.5% 34% 34% 16% transactional data. Permissioned geo- targeted offers can deliver the right
Innovators Early Adopters Early MajorityLate MajorityLaggards offer at the right time to the right person. While merchants and service Please select the option that best describes your usage of a mobile banking app. Use it a few Use it a few Use it less providers can deploy beacon alert Use it daily times a week times a month Use it once a month than monthly Do not use 22% 21% 12% 5% 5% 33% technology, the payment provider’s Digital Capability ability to leverage purchase data 22% 39% 39% and consumer location is a powerful HYPER ACCOMPLISHEDEMERGING proposition that makes contextual
Source: 2016 UK 2016m-payment U.K. M-PAYMENT and AND P2PP2P PAYMENT payment CONSUMER consumer STUDY study, TSYS 11 marketing complete.
12 payments cards and mobile | November | December 2016 www.paymentscm.com GLOBAL card notes THE RELENTLESS GROWTH OF CYBERCRIME
THE VOLUME, SCOPE and material cost dependence on technology and the high-value targets (e.g. CEO phishing fraud), of cybercrime are growing finds Europol’s internet. We have also seen a marked and ransomware that extracts payment in 2016 Internet Organised Crime Threat shift in cyber-facilitated activities relating exchange for decrypting data belonging Assessment report. Indeed cybercrime to human trafficking, terrorism and other to the victim. offences may well exceed those associated threats,” said Rob Wainwright, director EMV and other industry measures continue with traditional crimes in some European of Europol. to prevent card-present fraud within the countries. This trend is partly fuelled by the Many of the key threats remain EU, forcing criminals to migrate cash-out growing number of cybercriminals and unchanged from the previous report. operations to other regions. Malware attacks opportunities to engage in highly profitable Crime-as-a-service where criminals buy, directly against ATMs continue to evolve and illegal activities. rent or outsource their activities underpins proliferate. Card-not-present fraud continues However, while new crime-as-a-services the criminal underground, as well as lowers to grow, with e-commerce, airline, car rental tools continue to be released, criminals the barriers to entry for would-be criminals. and accommodation representing the are still profitably exploiting known Ransomware and banking Trojans remain industries hit hardest. The first indications that vulnerabilities, for which security solutions the top malware threats, which is unlikely to organised crime groups are manipulating are available but not widely adopted. The change for the foreseeable future. or compromising payments involving effectiveness of criminal activity is due in Data remains a key commodity, as in contactless (NFC) cards have also been seen. part to the poor cybersecurity hygiene the legitimate economy. It is procured for The use of end-to-end encrypted platforms practiced by businesses and individuals. immediate financial gain, increasingly used for sharing media, coupled with the use of “Europol is concerned about how an to commit more complex fraud, encrypted largely anonymous payment systems, has expanding cybercriminal community has for ransom, or used for extortion. There led to an escalation in the live streaming of been able to further exploit our increasing has been an increase in phishing aimed at child abuse.
www.paymentscm.com payments cards and mobile | November | December 2016 13 Despite all the marketing money spent on promoting electronic payments over many decades, cash still accounts for around 80 percent of consumer payments worldwide. So, is a cashless society a realistic aspiration, or is less cash the best we can hope for?
by Joyrene Thomas
THE FIRST COINS were issued in around contactless usage are increasing. Yet so consumer transactions are made in cash. 640 BC in Lydia, modern Turkey. Prior to is cash in circulation. Around 18 billion But like any statistic, this hides dramatic that the ancient Chinese used jade, bronze payment cards had been issued at the differences across the world,” explains Andy and cowrie shells as a means of exchange. end of last year, up from 12 billion in 2010, Brown, marketing director, payments, NCR. The modern-day contradiction of cash according to the Nilson Report. Europeans “Globally I think we are a long way from is that, while there are ever more digital regularly using a mobile device to pay a cashless society, however Scandinavian ways to pay, the demand for physical cash has tripled year on year, according to a countries are moving towards a cashless has never been higher. So, how far from a recent study by Visa. Meanwhile Mastercard environment.” cashless society are we? What are some reported processing more than one billion of the challenges of going cashless? And contactless payments in 2015, a 150 percent “It’s very important to recognise the specific requirements of to what extent will technology change how increase on 2014 figures. At the same consumers in different countries. we pay? time, the ratio of cash in circulation to Some expect a stage payment GDP is increasing across major markets. for buying consumer goods or SHOW ME THE MONEY In Europe and the US, the cash-to-GDP cash-on-delivery, so finding an ratio grew 4.4 and 3.9 percent respectively electronic mechanism that allows that is important.” The statistics on electronic payments during 2013-14, according to the 2016 World and cash present a confusing picture. Payments Report. Andy Brown, marketing director, payments, NCR Payment card numbers, and mobile and “If you look globally, 80 percent of
14 payments cards and mobile | November | December 2016 www.paymentscm.com cover story
There will always be extremes in relation an evolution of cash with the benefits of to cash usage, and variations in between, being digital. It was instant, anonymous and “I believe that there is a market depending on individual geographies. worked without intermediaries. It would for cash in a different form factor. The properties of cash According to Brown, the outlook for the also have allowed the Mint to benefit are still required. The reasons next five years is that some countries will from close to 100 percent seigniorage, are different for each part of the become very low cash users. This depends the total profit from creating money. value cycle.” on various factors, including population Seigniorage is perhaps one of the biggest Dr David Everett, CEO, Microexpert demographics, the willingness of consumers counterarguments to moving towards a to use electronic payments, and the access more cashless society. Governments enjoy direction, for some it does not go far and enablement of technology. Maybe it considerable profits on their monopoly to enough. In his book The Curse of Cash, the really is a case of the cashless future being print and mint currency. However, creating former chief economist at the International here but unevenly distributed; hence the fiat currency in digital format may help to Monetary Fund, Kenneth Rogoff, calls for need to look behind the statistics. address this. the phasing out of all paper currency. As well as “a major impediment to the smooth LICENCE TO PRINT MONEY GOING UNDERGROUND functioning of the global financial system”, he claims paper currency is feeding tax The challenge of going cashless starts at Central bank figures show how much evasion, corruption and criminality. source. As long as central banks print and money is printed, distributed to banks “The effect of curtailing paper currency mint cash, it will be used. Central banks are and withdrawn. Thereafter the money on tax evasion alone would likely cover the creating cash in ever-greater quantities. trail goes cold. Why is cash in circulation lost profits from printing paper currency, Around $1.3 trillion worth of US dollar rising, particularly in developed countries even if tax evasion fell by only 10-15 notes were in circulation at the end of with electronic alternatives? People percent,” argues Rogoff. The effect on illegal 2015 or $4,200 for every person in the US, may be hoarding cash as a store of activities is probably even more important. according to the US Federal Reserve. It is a value, particularly as interest rates head In addition, there is the huge volume of cash similar story in other developed economies. towards zero. They may be holding it payments within the informal or shadow Australia, Canada, the Eurozone and the outside the country or using it in the economy. The long-tail of small, cash-in- UK have all seen an increase in notes in underground economy. hand payments to babysitters, builders, circulation over the last ten years. So, is Criminals love cash. It provides no plumbers and so on adds up. there is a different way for central banks to information about its origin and is valid no The shadow economy of undeclared organise and manage the supply of cash? matter who holds it. A 2015 Europol report work and under-reported sales is worth What if cash were digitised at source and entitled Why is cash still king? found: “In spite around €1.2 trillion in Europe alone. This issued as electronic money? This would of the changing face of criminality, with is equivalent to 18.5 percent of Europe’s decrease costs and increase efficiencies significant threats now stemming from new economic activity, according to a 2013 across the ecosystem, as well as influence technologies, money laundering schemes report commissioned by Visa Europe. The how cash was accessed and used. detected by law enforcement are still largely shadow economy is strongly correlated Dr David Everett has been the technical characterised by traditional techniques, in to economic cycles. During an economic architect on three electronic cash schemes, particular the use of cash.” downturn, more people tend to drift into including Mondex, Tibado, and MintChip for High denomination notes are particularly shadow activities to compensate for missing the Royal Canadian Mint. He is an advocate popular with criminals as they are easy income streams and improve their finances. for digital cash. to transport. €1 million in €500 notes In 2009, the first full year after the 2008 “If you take the bricks and mortar world, equates to just 2,000 notes weighing 2.2 economic crisis, the shadow economy grew then I would argue that payments isn’t kg, which easily fits inside a small laptop 0.5 percent relative to GDP, breaking a long- particularly broken. You can still use lumps bag. Meanwhile, the same amount in €50 term downward trend. of metal and bits of paper and plastic,” says notes equates to 20,000 notes, weighing Arguably the underground economy Everett, CEO, Microexpert. “I don’t see that over 22 kg and taking up the space of would still exist without cash, merely operate going away. It may reduce but I don’t think a small suitcase. In 2010, 90 percent of in a different way. The move towards a it’s going to totally disappear. In addition, all €500 notes in the UK were in the more cashless society would likely make we will have a digital format — electronic hands of criminals, the UK National Crime it harder for criminals and tax evaders, money. It’s the same concept of cash but in Agency found. which would benefit the Exchequer, rather a different form factor.” In May 2016, the European Central Bank than eliminate criminality altogether. MintChip was an attempt to anticipate the announced that it would stop producing the Authorities can combat the underground future of money and for the Mint to issue €500 note around the end of 2018 amid economy through direct law enforcement collateralised electronic coins in addition fears that it could facilitate illegal activity. measures. They can cut red tape, boost to metal ones. MintChip was conceived as Whilst this may be a step in the cashless financial inclusion and reduce the material www.paymentscm.com payments cards and mobile | November | December 2016 15 cover story advantage of participating in the shadow 20 percent of payments made in shops last million on contactless bank cards and £480 economy. Another way to tackle the year were made in cash. The society is moving million on pay-as-you-go Oyster contactless problem is cash displacement. Increasing rapidly towards less cash. However, the move is cards, according to official figures. electronic payments by an average of ten too rapid for the central bank, which fears that “The transit sector is more advanced than percent a year for at least four consecutive the pace of change may create problems for many others with regard to cash displacement. years could shrink the size of the shadow certain groups and exclude others. It has called Close to 20 percent of TfL’s revenue comes via economy by up to five percent, the Visa on parliament to make banks’ cash service a contactless payment cards alone. About 40 Europe report found. legal requirement. percent of the remaining revenue is collected via cards, either topping up Oyster cards or buying magnetic tickets from machines using CASH CULTURE “To really drive [cashless], there needs to be a collective push a payment card. The remaining 40 percent is Cash continues to be attractive because many across all organisations with a cash,” says John Hill, managing director, Cubic of its properties are still required. This is as real determination to reduce the Transportation Systems. true in the legitimate economy as it is in amount of cash being used.” There are generally few objections to the underground economy. Cash is a two- Andy Brown, marketing director, cashless payment and paperless ticketing payments, NCR party transaction with no-one else involved. among transport agencies, according to Hill. There are no witnesses, transaction fees or “Our customers are asking for it. They see the concepts of a chargeback. Cash is familiar, A move towards a cashless society requires benefits of doing it. Virtually every tender issued tangible, simple and irrevocable. It meets a holistic ecosystem to be in place. This today will include a requirement for contactless people’s needs and fits their beliefs. One of includes everything from how state welfare payment as well as payments with card,” he the major challenges to the cashless society payments and salaries are paid, to how says. A mindset change is required though. is overturning decades of habit and deeply recipients spend that money. It is a two-sided Similar to retailers, transport agencies need ingrained behaviour around how people market. Infrastructure needs to be in place to move from buying equipment to buying a access and spend cash. on both the issuing and acceptance side. This system to collect revenue and enhance the Cash is easily accessible from an increasing includes access to basic banking and electronic service. After all, transport agencies are not in number of ATMs. Worldwide ATM numbers payment instruments and a network of places the business of selling travel, but delivering it. grew by seven percent in 2014 to reach three accepting such payments. Payment acceptance is not their core business, million, according to RBR figures. Four million merely a means to an end. ATMs are forecast to be installed by 2020, with THE CASHLESS TIPPING POINT “Many of our customers don’t really China and India leading deployments. “Cash understand what it costs them today to withdrawal volumes and values are rising year One of the areas where cashless payments sell a ticket,” says Hill. While third-party on year. The $14 trillion withdrawn from ATMs has been particularly successful is closed- commissions to ticket vendors or acquirer around the world every year is equivalent to loop environments, such as campuses, fees are visible, others costs in the ticketing 18 percent of global GDP, or around $450,000 stadia and mass transit networks. These and cash management value chain remain every second,” says Colin Gordon, marketing environments typically have high volumes hidden. “The implementation of contactless manager, self-service re-invention, NCR. of low or lower-value, everyday payments. payment has really highlighted that. By going “Due to the sheer scale of this, it’s hard to The advancements of NFC contactless directly to the media already in the person’s comprehend that cash is going away anytime card technology, the compelling use case hand [contactless bank card or mobile phone] soon,” he continues. around speed and convenience for all parties, and collecting the revenue via the acquirer, Bank branches also provide cash deposit and the ability to build critical mass quickly you realise how many costs you are not and withdrawal services, and many retailers have created an almost perfect storm for incurring.” offer cash back with card purchases. A cash displacement. Long-held to be the so-called ‘killer app’ change in these distribution channels could Contactless payment on London’s transport for contactless, transit can act as a trigger to deter people from using cash. A reduction in network is held up as an exemplar project. ATMs or increase in charges for withdrawals More than 31 million journeys are made “Mobile is a potential game- could steer consumers toward electronic across the network every day. Long-term changer, acting as a method of payment or secure identification payment methods. Similarly moving partners Transport for London (TfL) and to allow subsequent payment. It towards cashless bank branches could Cubic Transportation Systems introduced is a two-way device, so the transit make it harder for businesses to deposit the proprietary Oyster contactless payment agency can communicate with the cash, steering them towards electronic system in 2003. Contactless bank cards on user as they going through their payment acceptance. London’s buses followed in December 2012 journey.” The obvious counterarguments to this are and across the rest of the underground and choice and financial inclusion, even in countries train network in September 2014. In the three John Hill, managing director, Cubic Transportation Systems with a high banked population. In Sweden, only months to June 2016, TfL collected around £216
16 payments cards and mobile | November | December 2016 www.paymentscm.com cover story contactless payment in other sectors. “We’ve high-value or cross-border payments. Then of articulating the value of cash displacement seen this in other countries. As the transit there are specific use cases (e.g. remittances) rather than replacement. Cash is not free, networks move to contactless, then you start where cash is not the best fit. especially to businesses, which must count, to see the acceptance of contactless cards, The payments industry could move away transport, insure and store cash, plus bear which migrates into shops as well,” says Brown from the idea of universal usage and coverage the costs of counterfeit and shrinkage. from NCR. — the so-called ‘Martini’ proposition of Besides which, cash will always need to be A degree of cash pragmatism is necessary. any time, any place, anywhere interoperable and co-exist with other For as long as cash co-exists with other — towards specific cashless payment types. payment methods, public transport agencies use cases and good-enough Sometimes and for some customer — and indeed other businesses — will have acceptance. Perhaps the and merchant segments, cash will to accept it. “The challenge for the transport success of non-cash payments in always be the preferred means of agency is making the collection of cash as closed-loop environments (e.g. mass payment. Cash has existed as a medium efficient as possible for the agency, and as transit) illustrates the value of specialising of exchange, store of value and unit of account convenient as possible for the traveller. It’s really in niche propositions, and achieving scale in some form for nearly 3,000 years. It is about optimising those two things rather than through fully exploiting these niches. unrealistic to imagine that it will ever disappear fixating about how to remove cash altogether,” Changes in technology notwithstanding, entirely. Less cash, rather than cashless, is the concludes Hill. the payments industry could do a better job workable aspiration. ATM WITHDRAWALS (MILLIONS) CASHING UP Country 2012 2013 2014 GR 13/14 CAGR 5Y It is difficult to say how far from a cashless Austria 149.6 157.2 257.5 63.8% 11.3% society we are. The statistics on electronic Belgium 420.1 429.1 347.3 -19.0% -2.0% Bulgaria 108.6 116.1 97.5 -16.0% -1.3% payment adoption and cash in circulation Croatia 94.8 97.2 106.9 10.0% 2.0% present a confusing picture. It really depends Cyprus 14.8 15.1 17.7 16.9% 7.4% on context and country: the context of any Czech Republic 179.5 182.5 184.2 1.0% 2.0% payment and the payments culture of the Denmark 16.3 14.4 13.3 -7.6% -6.9% particular country. Estonia 41.2 40.1 38.9 -3.2% -3.6% There are many challenges of moving to a Finland 158.3 151.4 145.1 -4.1% -4.4% less cash society. Cash is deeply embedded France 1,661.9 1,646.8 1,605.7 -2.5% -0.5% Germany 2,127.6 2,116.4 2,657.1 25.5% 5.4% in the culture and infrastructure of many Greece 190.2 181.4 197.8 9.1% 0.2% countries, and various parties have strong Hungary 124.9 117.5 112.8 -4.0% -1.6% vested interests in this continuing. This ranges Iceland 4.8 4.5 4.4 -4.2% -1.2% from governments and central banks who Ireland 179.9 192.3 133.2 -30.7% -7.8% earn money by printing money, to those Italy 747.3 798.9 954.9 19.5% 12.1% who count, transport and insure physical Latvia 51.2 53.3 56.5 6.0% 2.8% cash. Any move towards less cash requires a Lithuania 67.7 68.3 67.7 -0.9% 0.8% Luxembourg 15.9 15.1 15.6 2.8% 19.2% concerted and coordinated effort across many Malta 13.0 13.2 11.1 -16.0% -0.4% stakeholders with this clear goal in mind. Netherlands 438.9 414.5 391.8 -5.5% -3.6% Another challenge of moving towards less Norway 73.3 66.8 55.7 -16.6% -8.9% cash is that many of the properties of cash Poland 747.7 770.4 759.0 -1.5% 2.5% are still required: portability, convenience, Portugal 450.0 452.9 455.6 0.6% 0.0% privacy, speed and widespread acceptance. Romania 229.4 232.5 225.9 -2.8% 1.1% Serbia 65.8 71.5 74.4 4.1% 8.1% The characteristics of cash which make it Slovakia 90.6 90.7 89.6 -1.2% -0.7% so well-liked cannot always be replicated by Slovenia 59.9 57.3 57.3 0.0% -1.0% digital alternatives. Often there is no need for Spain 928.2 901.1 905.0 0.4% -1.8% them to be replicated: cash works. There is no Sweden 207.0 209.0 214.0 2.4% -3.7% particular problem that needs to be solved. Switzerland 128.2 130.4 131.5 0.9% 1.8% Other times there is no compelling business Turkey 970.9 1,036.4 1,109.0 7.0% 8.1% case to move to electronic payments. UK 2,915.0 2,899.0 2,830.0 -2.4% -0.6% Euro area 7,689.5 7,671.9 8,318.8 8.4% 2.3% Nevertheless cash is not convenient in every EU28 12,320.5 12,439.0 12,916.5 3.8% 1.4% situation. It is not always convenient for person- Total 13,672.3 13,743.2 14,323.9 4.2% 1.7% to-person payments when the persons are not Note: figures are for cash withdrawals at ATMs located in the country, with cards issued in the country and foreign cards; cash withdrawal at POS is not face-to-face, or for other remote payments included; Denmark series is for ATM use of foreign-issued cards only. Source: ECB, BIS, national central banks and payment companies. (e.g. e-commerce, mail order, telephone order), Source: European Payment Cards Yearbook 2015-16 www.paymentscm.com payments cards and mobile | November | December 2016 17 Addressing the unbanked in developing countries by Joyrene Thomas
Around two billion people worldwide do not use formal financial services and around half the adults in the poorest households are unbanked, according to the World Bank. When financial inclusion is a key enabler to reducing poverty and boosting prosperity, we investigate what the payments industry is doing around financial inclusion.
Global Account Penetration Source: 0–19 Global Findex database. 20–39 40–64 65–89 90–100 No data available
AT ITS MOST basic, financial inclusion Bank have a mandate to promote financial for the widespread adoption and use starts with having a bank account that inclusion. More than 50 countries have of digital finance. They are mobile and is used regularly. Although the number set formal financial inclusion targets. digital infrastructure, a dynamic business of unbanked people is falling, nearly 40 We examine the founding or design environment for financial services, and percent of the world’s adult population principles of an inclusive financial system products that meet the needs of customers still do not have an account with a bank in the developing world. We assess the in ways that are superior to what they or authorised non-bank service provider. barriers and challenges and the extent to currently use. Participation in the financial system makes which technology can facilitate inclusion Mobile phones are a catalyst for financial people more personally and financially and innovation. inclusion. Across developing countries, resilient. They are better able to invest in mobile network coverage, subscriptions education and the future, manage risk and INFRASTRUCTURE BUILDING and now smartphone ownership are high absorb financial shocks. BLOCKS or growing fast. People must have access Improving financial inclusion could to a mobile phone and an affordable data increase the GDP of all developing Digitising finance and payments in the plan. A national payments infrastructure is economies by six percent, or $3.7 trillion developing world can have a great another must-have. It enables safe, low- by 2025, according to a recent McKinsey impact on both inclusion and economic cost transactions between parties. report. Financial inclusion is recognised as growth. In Digital finance for all: Powering While not necessarily a pre-requisite, important. 67 percent of bank regulators inclusive growth in emerging economies, interoperability with the payment or in 143 jurisdictions surveyed by the World McKinsey proposes three building blocks banking infrastructure can help build a
18 payments cards and mobile | November | December 2016 www.paymentscm.com financial inclusion network effect. This can increase the believes that addressing the unbanked benefits to everyone involved and help in developing countries starts with first to build critical mass. One of the many principles: the proposition and business contributing factors to M-Pesa’s success in case. “It’s important to really understand Kenya was that it built critical mass quickly. the needs on the ground. It’s not just a Within three years of launching in 2007, matter of wanting to get more people into the share of adults using the mobile money the system — that’s an overarching goal — service grew from zero to 40 percent. By you need understand what would motivate the end of 2015, nearly 70 percent of adults people to get on board with your initiative.” were using M-Pesa. There should be some particular aspect Achieving interoperability with existing where providers can add value, whether payment or banking system is perhaps one this is transacting or delivering access or of the most difficult infrastructure challenges. a service. This is especially when entities target a specific segment or develop something “The more use cases you have on proprietary with a view to controlling the a device, the more effective it will environment. Other infrastructure must-haves be in driving financial inclusion.” include a network of cash-in/cash-out points Francesco Burelli, managing director, Accenture Payment Services for the conversion of cash into electronic money and vice versa, and a form of identification that financial service providers Providers should be looking to add can verify. This is aside from logistical issues, value over the informal savings clubs such as electricity supply, internet coverage, and Hawala systems already used by the government-mandated institutions, the the availability of a bank branch or agent unbanked. “The more use cases you have agenda there is different. They act more network, especially in rural areas. on a device, the more effective it will be like financial enablers — guardians of It is these various overlapping parts, in driving financial inclusion,” says Burelli. the financial infrastructure. They have a which makes addressing financial inclusion “This could be capturing transactions or more altruistic, non-profit motivation. Their a challenge. Financial inclusion overlaps driving different habits around saving and interest is to invest to create the financial with digital inclusion, identification with payment.” Use cases include bill payments, services infrastructure, which in turn could inclusion, and mobile phone ownership merchant payments, P2P, international be used by new businesses, banks and with identity. remittances and bulk disbursements. start-ups to create products and services Financial inclusion is akin to a jigsaw puzzle. Meeting the needs of the target audience for all these market segments, including the The various pieces have to be present to is critical. “The payment method has to previously unbanked.” complete the jigsaw. However, there is no be safe, robust, intuitive and easy to use However, financial inclusion projects one set way to approach the challenges or for everyone, whether they are computer typically operate on low margins and are assemble the pieces. literate, feature phone or smartphone dependent on volume. They are investment owners or cardholders,” says Burelli. A sensitive, so they have to be as efficient A COMPELLING PROPOSITION provider will also need to build trust with as possible to deliver the services as customers, who may be unfamiliar with cost-effectively as possible. “You have to Raivis Joksts, lead offering manager at their brand and products, so education is be careful about your costs and how you software and services company Tieto, absolutely key. attract sufficient market penetration to be self-sustainable, and even profitable,” “You need to be realistic about THE BUSINESS CASE advises Joksts. the scale and what can be He also cautions against making the achieved within certain timelines. Building the business case naturally depends one-size-fits-all mistake as the culture You cannot transform a society on the specifics of the project. A public-private of payments, expectations and historical or economic environment that partnership business case is very different to background is different country to country. is fully reliant on paper to digital overnight. There will always be that of a donor-sponsored scheme, which A successful project in one particular a transition period with financial does not necessarily need a business case. country or region does not guarantee that inclusion where payment Public-private partnerships also need to look you will be able to replicate this model methods co-exist and have to be at the total cost of having a specific segment elsewhere. “Each business case is different interoperable.” financially excluded as Joksts explains: and has to be specifically defined according Francesco Burelli, managing director, “If you work with central banks, to the need on the ground from the end- Accenture Payment Services. associations of commercial banks and user perspective,” says Joksts. www.paymentscm.com payments cards and mobile | November | December 2016 19 financial inclusion
TECHNOLOGY AS AN ENABLER and accessible, they can be used by players on the ground: banks, start-ups and other financial Technology can help providers obtain a positive institutions, who know the local market needs business case. According to McKinsey, digital best. That is where innovation would happen,” technologies can cut the cost of providing he believes. financial services by 80-90 percent overall. Various entities are driving financial THE MOBILE MONEY This includes a 65-75 percent saving on the inclusion either as an aim or as an outcome SUCCESS STORY costs of opening and maintaining accounts, a of other objectives. NGOs and particular 40-60 percent saving on cash-in/cash-out, and payment schemes have made financial “Mobile money is driving social and a massive 90-95 percent saving on the cost of inclusion part of their mission. Governments economic impact for millions in supporting money transfer services. are looking at the financially excluded for emerging markets,” says John Giusti, The payments industry is often guilty of socio-political or economic reasons. They are chief regulatory officer, GSMA. technology for technology’s sake. Or FinTech undertaking initiatives to include the under- “Over the last decade, mobile where the technology comes first. For Joksts, served or optimise their flows, or both. Profit- money has done more to extend technology is a tool used to achieve a result. making organisations are also attracted by the reach of financial services than It can be leveraged to build infrastructure and the commercial opportunities of extending traditional bricks and mortar banking innovation. “If the financial rails are made open the reach of financial services to fill a gap were able to do over the last century.” in the market. As a trade body, the GSMA is likely “Technology is a tool used The challenges cannot be underestimated, to present the achievements of its to achieve a result. It can be yet the opportunity in monetary terms members positively, nonetheless the leveraged to build infrastructure alone is huge: $3.7 trillion. McKinsey puts statistics are impressive. and innovation.” this as equivalent to an economy the size of Mobile money is now available in Raivis Joksts, lead offering manager, Germany, or larger than all the economies in 85 percent of markets where less ExhibitTieto E1 Africa combined. than 20 percent of the population Who are the financially excluded? has an account at a formal financial WHOFinancially ARE excluded THE population FINANCIALLY in emerging economies EXCLUDED? institution. The number of registered Share of financially excluded population mobile money users grew by 31 % Number of financially excluded percent in 2015 to reach a total of Million (% of adult population) Poor1 Women Rural 411 million globally, a third of which are active. 642 46 South Asia (53%) 57 30 services have more than one 71 million active accounts and seven have more than four million. Mobile money transaction volume grew by Africa and 467 46 Middle East (61%) 54 27 percent to more than one billion. 61 Africa accounts for more than half of the 271 live mobile money services
266 worldwide, and nearly two-thirds of Southeast Asia 48 49 (59%) 59 all active mobile money accounts. Six new services were launched in Africa in 2015, with another four services in
238 the first half of 2016. China 53 54 (21%) 56 Using mobile money as both a sending and receiving channel for international money transfers can 23 214 Latin America 48 significantly bring down the cost of (48%) 54 remittances for users. Cross-border mobile money remittance initiatives expanded to 29 corridors in 2015, 41 Eastern Europe 154 47 connecting 19 countries by the end of and Central Asia (39%) 54 the year. 17 of these corridors are in Africa and accounted for 83 percent 1 Defined as the bottom two quintiles of each country's income distribution. of all international remittances. Source: Digital finance for all: Powering inclusive growth in emerging economies, McKinsey,SOURCE: Global Findex2016 database 2014, World Bank; McKinsey Global Institute analysis
Access to financial products is also a problem for businesses. At least 200 million 20 payments cardsmicro, and small, mobile and medium-sized | November enterprises |(MSMEs) December in emerging 2016 economies have no www.paymentscm.com or insufficient access to credit, blocking their growth. The gap between the amount of credit currently extended and what these businesses need is estimated to be $2.2 trillion Digital finance(Exhibit E2). The problem is not limited to very small and informal businesses—medium- ES sized and small companies in the formal economy, which have the potential to be major job-creation and growth engines, account for about half of the gap.3 Even when businesses 0920 mccan obtain credit, the collateral required tends to be double or triple that in advanced
3 IFC Enterprise Finance Gap database 2011,SME Finance Forum, 2013.
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STRATEGY | DELIVERY | OPERATIONAL EFFECTIVENESS www.paymentscm.com payments cards and mobile | November | December 2016 21 Cyber insurance and mitigating cyber risk
by Joyrene Thomas
Cyber attacks are increasing in number and sophistication. ‘Transfer’ is one of the four ‘Ts’ of risk management, alongside terminate, tolerate and treat. We examine the growing market for cyber insurance, and the extent to which companies can effectively transfer their cyber risks.
IT SEEMS LIKE a scene straight out of Interpol’s top priorities, alongside terrorism, technology, especially the internet and fast- a Hollywood blockbuster: criminals plan human trafficking, crimes against children, evolving Internet of Things. a heist and make off with $81 million. A drugs and fire arms. Perpetrated by French TV network and the Ukrainian international crime rings, cybercriminals “The cyber market is growing by power grid are taken down. A German are highly skilled, resourced and motivated double-digit figures year-on-year, steel mill and Iranian nuclear power plant to monetise their crimes on an industrial and could reach $20 billion or both suffer massive damage. Half a billion scale. From denial of service attacks to more in the next ten years.” passwords are hacked. Yet these are ransomware, CEO fraud to banking Trojans, Nigel Pearson, global head of fidelity, not plot lines from a Hollywood heist or the new generation of cyber threats has Allianz Global Corporate & Specialty disaster movie. They are real-life cyber expanded beyond data breaches and attacks on banks, critical infrastructure privacy issues. As cyber risks have grown, so too has and corporates since 2010. Welcome to the The Institute of Risk Management defines the cyber insurance market. This is now world of escalating cyber threats. ‘cyber risk’ as any risk of financial loss, estimated to be worth around $2 billion disruption or damage to the reputation in premiums worldwide. The US accounts CYBER RISKS RISING of an organisation from some sort of for around 90 percent of this due to the failure of its IT systems. Modern-day data breach notification requirements in Cybercrime is costing the global commerce is increasingly connected, and place across the majority of states. Hong economy approximately $445 billion a the attack surface broad. Businesses need Kong, Singapore and Australia are among year, according to McAfee. The world’s to be concerned about direct attacks, but those countries looking at, or already largest ten economies account for half this also those arising from their extended enforcing, new data breach laws. In Europe, total. Unsurprisingly cybercrime is one of enterprise and their reliance on connected the general data protection regulation
22 payments cards and mobile | November | December 2016 www.paymentscm.com cyber insurance
(GDPR) comes do frequently include legally tested. “As time passes we may well into force in 2018. incident response and crisis see more litigation in this area. There will be This includes stronger management support, which uncertainty about how courts will interpret provisions on breach notification helps insurers and insureds contain and some of the concepts. This is not unusual and enforcement fines of up to four percent manage their losses. Another gap that with new products and will result in a body of of global turnover for data breaches. This is currently exists between traditional and knowledge for underwriters,” says Pearson. further driving interest in cyber insurance. standalone cyber insurance is for physical There are currently a number of gaps “The cyber market is growing by double- damage. A fire or explosion as a result of around cyber products and level of digit figures year-on-year, and could reach a compromised industrial control system, protection. Much of the innovation and $20 billion or more in the next ten years,” is not typically covered under standalone development is taking place at the corporate says Nigel Pearson, global head of fidelity, cyber insurance. Nor is it explicitly covered end of the market. There may be a shortage at specialist insurer Allianz Global Corporate under property insurance. of suitable products for small to medium & Specialty. Fewer than ten percent of businesses, meaning they are under-insured. businesses are thought to purchase cyber NO SILVER BULLETS As to protection gaps, physical damage insurance today, although as Pearson notes: and total business failure as a result of a “Growth in the US is already underway It seems a statement of the obvious but cyber incident are not generally covered as data protection regulations help focus purchasing cyber insurance is not a silver under standalone policies. “There is the minds, while legislative developments and bullet. A business cannot simply transfer potential for a catastrophic cyber attack. increasing levels of liability will see growth risk for their reputation, operations and Interest in protecting critical infrastructure accelerate in the rest of the world.” profits to their insurer. Insurance is only is likely to see governments becoming part of any solution. A comprehensive increasingly involved in cyber security, with COVERAGE AND CAVEATS risk management approach is central to much greater levels of scrutiny and liability,” reducing cyber risk and building resilience. concludes Pearson. Businesses may find that they have Businesses with mature risk management a patchwork of cover for cyber risks capabilities will not only find it easier to When it comes to cover, businesses across their existing insurance policies. reduce their levels of risk but to get cyber are advised to take out insurance These include traditional commercial insurance, and at lower premiums. proportionate to the risks they face. This is different to the property, business interruption, general Those in the payments industry, who size of the business, number of and professional liability and accident manage card data security risks in employees or data records held. policies. It does pay to read the small accordance with the PCI DSS have a good print, though. As the old insurance adage foundation. Much data security practice The insurance industry is also facing goes, where there is coverage, there is a translates well into managing cyber risk. a data and skills shortage. There is a caveat. To manage exposure, insurers are For example, building and maintaining lack of actuarial data related to cyber increasingly introducing exclusions to carve firewalls, intrusion detection and anti- risks, and insufficient technical security away coverage for risks they are unwilling virus programmes; patching applications experts within the underwriting community. to insure. Naturally exclusions also prevent and networks regularly; encrypting data The shortage of technical resource is also them paying out under several different and remote devices (e.g. laptops and mirrored within the business community. policies for one cyber incident. smartphones); devising and regularly Consequently, businesses simply may not “Traditional property and casualty testing business continuity, disaster understand their own cyber risk exposure insurers are now looking to examine the recovery and incident response plans, and to seek the appropriate cover. Or they may cover extended to cyber risks. Exclusions employing skilled data security staff and have a flawed ‘one and done’ approach in traditional policies are likely to become data protection officers. This culture and to insurance, thinking that the purchase of more commonplace. Standalone cyber practice can be applied companywide to insurance is a panacea to all their cyber ills. insurance will increasingly be seen as good effect. The risk landscape is constantly changing the main source of comprehensive cyber due to the changing nature of cyber threats, liability cover,” says Pearson. THE FUTURE OF CYBER regulation and legislation. Taking out Generally, standalone cyber policies INSURANCE insurance proportionate to the risks faced cover certain direct losses and/or liabilities is part of a balanced risk management to third parties, arising from authorised Cyber risks have emerged and evolved approach. However, businesses are advised access to or use of a business’s data. They rapidly. The same is true of cyber insurance. to continually access their risks, addressing typically also cover destruction or loss of This evolution will continue and naturally them in accordance with their risk appetite data. The financial cost of reputational brings with it challenges for both insurers and exposure, and build risk resilience. damage arising from a cyber incident and the insured. A number of policy Prevention is easier, cheaper and less painful is not often covered. However, policies concepts and wordings have yet to be than cure. www.paymentscm.com payments cards and mobile | November | December 2016 23 regulation EUROPEAN REGULATOR PLANS AUTHENTICATION SHAKE-UP
FOLLOWING THE EUROPEAN Banking are in place with each ASPSP used by Authority’s consultation paper on strong European consumers. customer authentication, the future for Broadly, the exemptions from strong operators in Europe looks uncertain. customer authentication are contactless Since the introduction of 3-D Secure for card payments under €50, card-not-present card-based e-commerce payments in 1999, transactions under €10, and payments to the industry has been moving towards a risk- a payee that has been specifically white- based authentication approach. Background listed (by the payer). On the current reading and step-up authentication, as and when of the draft text, clarification is required as required, has helped the industry strike to whether the exemptions are optional or a commercially sensible balance between indeed mandated. mitigating risk and delivering a low-friction The value thresholds require clarification as customer experience. This may be about low-value transactions do not automatically to change. equate to low-risk transactions. Moreover, the price of goods and average transaction BACKGROUND values differ across member states. The scope of the regulation and currency are On 12 August 2016, the European Banking also unclear. Does it encompass fiat money authentication via issuers as the sole risk Authority (EBA) published its long-awaited only or purchases made in whole or in part prevention method. consultation paper on strong customer with air miles, loyalty points and so on? The authentication and secure communications position around the international dimension TOMORROW IS ALREADY HERE under the revised Payment Services Directive requires further clarification, especially for (PSD2). The deadline for submission of so-called ‘one-leg’ scenarios, where the There is no such thing as 100 percent comments was 12 October 2016. card issuer or acquirer is based outside security, because criminals are unrelenting. Strong customer authentication in this the EEA and does not participate in strong What is secure today may be compromised context is defined as two or more the following: customer authentication. tomorrow. Fraud patterns change as do knowledge, possession or inherence. The authentication patterns. Few organisations elements must be independent to ensure that A QUESTION OF BALANCE adopt a blanket 3-D Secure approach, compromise of one does not compromise preferring one that is based on risk. 3-D the other(s). The authentication process must There will always be uncertainties in life as Secure version 2.0 announced by EMVCo in be designed to protect the confidentiality of well as in business — that much is certain. It October 2016 is designed to facilitate more the authentication data, and to dynamically is how individual stakeholders and industries risk-based authentication, not less. link it to the amount and payee for remote collectively manage these uncertainties or Some ‘friction’ in payments is necessary electronic payments. risks, which determines the success of the — even desirable in some cases. However, outcome, and the degree to which they tomorrow is already here with frictionless PROPOSALS protect their funds and assets. payment via wearables, stickers, key fobs Good risk management involves balance. and tags. Will these be subject to strong “The authentication procedure will remain It balances the risks and security needs of all customer authentication? What about in fully in the sphere of competence of the parties and the convenience for end users. instances when the payer not a person, for ASPSP (account servicing payment service If security is too cumbersome, making the example in the Internet of Things? provider),” says the EBA. For card payments, process onerous, it may deter people from Overall, the balance as outlined in issuers are responsible for payment security, using online services. If security is too light the draft RTS is not quite right. It may and with very few exceptions are required to and does not adequately protect the parties, even be counter-productive if it stifles the perform strong customer authentication on it may again deter people as they will not European digital single market and drives every transaction. have confidence in the system. an uptake in less efficient payment means. Acquirers and merchants are not Another basic truism of risk Fraud is seldom eliminated entirely, merely able to authenticate consumer payment management is that no single product displaced as fraudsters migrate to targeting transactions, acting alone or together. This or solution will provide total security. A the weakest link. The proposal may have may means that models currently used by layered approach is most effective in the effect of displacing online fraud. The Amazon and PayPal for card payments balancing risk exposure and convenience. outlook and impact remains uncertain. cannot be used for PSD2 payments, It seems strange, therefore, that the EBA The EBA did not respond to a request unless separate contractual agreements seems to be mandating strong customer for input.
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www.paymentscm.comwww.paymentcardyearbooks.com payments cards and mobile | November | December 2016 25 issuing and acquiring IN ASSOCIATION WITH HALF OF GLOBAL BANKING CUSTOMERS NOW USING FINTECH – WORLD FINTECH REPORT
HALF OF BANKING customers across the president, marketing solutions, LinkedIn. achieve positive results from their innovation globe are using the products or services “FinTechs are largely gaining momentum initiatives with only ten percent of executives of at least one FinTech firm according to by meeting needs traditional players have stating they have been very effective at the first World FinTech Report (WFTR) from yet to address, but many FinTechs lack the achieving desired innovation results.” Capgemini and LinkedIn, in collaboration transparency required to earn the trust of The WFTR found that traditional firms with Efma. their consumer audiences to capitalise on are increasingly pursuing a wide range of The inaugural report quantifies and tracks these opportunities.” strategies in response to FinTechs. A majority customer response to the rise of FinTechs, of financial institutions (60 percent) now view includes the views of financial services COLLABORATING WITH FinTechs as potential partners, but nearly industry executives at both FinTech firms FINTECHS the same percentage (59.2 percent) are also and traditional financial institutions, and actively developing in-house capabilities. summarises how innovation is key in the Traditional financial institutions continue Beyond partnership and in-house emerging industry landscape. to face challenges, with less than half (44 development, executives are exploring a full In particular, the WFTR found that FinTechs percent) of executives confident in their range of models, whether it be investment are gaining momentum and mindshare FinTech strategy. in FinTech (38 percent), partnering with amongst younger, tech-savvy, and affluent This is not surprising given only about educational institutions (34.3 percent) or customers. one-third (34.7 percent) affirmed they have setting up accelerators (29.6 percent), while a Emerging markets led the adoption where a well-structured or proactive innovation much smaller percentage (18.6 percent) are over 75 percent of customers in China and strategy in place that is embedded culturally. acquiring FinTechs. India report using services provided by The risk-averse nature of traditional firms Traditional firms are in large, part FinTech firms, followed by the UAE and Hong also makes it difficult for them to create responding to this shift by giving highest Kong. FinTechs have made the greatest cultures that prioritise innovation, and 40.3 priority to investment in technologies which inroads in investment management, where percent of executives said that theirs is not facilitate more streamlined and effective 17.4 percent of customers rely on them conducive to innovation. operations, thereby providing better day-to- solely and another 27.4 percent use them in “Financial services senior executives are day customer experiences. addition to their traditional providers. seeing FinTechs in a whole new light as they “The arrival of FinTechs has accelerated With so many specialising in niche services, see greater opportunities to collaborate, the improvement of overall customer the WFTR also found that many FinTech but are also making significant headways experience in the industry but it is still not customers (46.2 percent) are using services in building more agile, in-house FinTech at the level that customers perceive that from more than three FinTech providers. capabilities.” said Thierry Delaporte, it should be. It is only a matter of time head of Capgemini’s global financial before BigTech companies and players CUSTOMER EXPERIENCE AND services business unit and member in e-commerce and telecommunications TRUST REMAIN LOW of the group executive board. join in to stake their claim to benefit from “But with the exception of a handful of this industry disruption,” concludesWorld FinTech Report Vincent 2017 While FinTech providers continue to have a industry leaders, most firms are struggling to Bastid, secretary general, Efma. disruptive market presence, overall customer CUSTOMERS USING AT LEAST ONE NON-TRADITIONAL FIRM FOR trust levels in these providers remain low. FINANCIAL SERVICES, BY DOMAIN (%), 2016 Only 23.6 percent of customers say they 50% trust their FinTech provider compared to 44.8% 41.6% 36.6 percent for traditional firms. Customers 40% 17.4% 13.8% 31.4% noted traditional financial institutions still hold 29.4% 30% 2.9% some advantage over FinTech providers 13.8% C ustomers using only non-traditional firms when it comes to fraud protection, quality of 20% C ustomers using both traditional and 27.8% non-traditional firms service, and transparency. 27.4% 26.5% 10% 17.6% “Rising customer expectations for 0% more personalised and advanced digital Investment Payments and Transfers Insurance B anking Management experiences, advancements in technology, Respondents (% ) greater access to venture capital, and lower Note: The percentage on the chart indicates the customers who use traditional and/or non-traditional firms Question: “Please indicate if you use the following products and the nature of the firm you interact with for each product; Products: Banking, Payments and barriers to entry have created fertile ground Transfers, Investment Management, and Insurance; Nature of Firm: Only traditional firms, Only non-traditional firms, Both traditional and non-traditional firms” for growing FinTechs,” said Penry Price, vice
Customers Using At Least One Non-Traditional Firm for Financial Services, by Country (%), 2016 26 payments cards and mobile | November | December 2016 www.paymentscm.com 100%
84.4% 80% 76.9%
) 69.6% % (
s t
n 60% e 53.5% 53.3% 53.0%
d 51.6%
n 48.8%
o 45.8%
p 42.8% s 40.6% 39.6% e 36.2% R 40% 30.4% 29.8%
20%
0% China India UAE Hong Spain Singapore Turkey UK U.S. Australia Japan Canada France Belgium Netherlands Kong Note: The percentage on the chart indicates the customers who use only non-traditional firms or both traditional and non-traditional firms Question: “Please indicate if you use the following products and the nature of the firm you interact with for each product; Products: Banking, Payments and Transfers, Investment Management, and Insurance; Nature of Firm: Only traditional firms, Only non-traditional firms, Both traditional and non-traditional firms” Capgemini and LinkedIn WFTR Voice of the Customer Survey, 2016
In general, customers who are younger, tech-savvy, and When customers look beyond their usual providers for affluent are much more likely to round out basic financial FinTech services, they tend to do so with increasing services with FinTech o erings (see Figure 1.4). Tech-savvy comfort. Nearly half of customers leveraging non-traditional customers are using services from FinTech firms twice as firms (46.2%) have relationships with three or more non- much as non-tech-savvy customers (67.3% versus 33.6%). traditional firms. Only 10.7% have a relationship with just The di erentials are also sharp between Gen Y and others one non-traditional firm. This trend of using multiple firms to (60.9% versus 44.4%) and between the affluent and non- fill specific needs may lead to disaggregation or unbundling affluent (61.0% versus 49.0%). With Gen Y and tech-savvy of financial services resulting in reduced brand loyalty in customers expected to become increasingly prominent financial services to dilute the concept of having a primary over time, the pool of customers turning to non-traditional provider. firms is likely to grow.
13 2016-2019: BREAKTHROUGH IN ASSOCIATION WITH YEARS FOR ALTERNATIVE PAYMENT METHODS (APMS) GROWTH IN GLOBAL PAYMENT CARDS DRIVEN AND MERCHANT ACQUIRERS?
BY EXPANSION OF BANKED POPULATION Last year Worldpay predicted that the digital payments market was overcoming its growing Global Payment Cards Data and Forecasts account. By 2021, debit cards are forecast to pains and heralded 2016 as “the third age shows that the Middle East and Africa (MEA) represent 72 percent of all payment cards. of digital payments”. E-wallets are growing and Asia Pacific were the fastest growing in popularity, NFC offerings from technology regions for payment cards in 2015, with card CREDIT CARD NUMBERS vendors, such as Apple, Samsung and Google, numbers up by 13 percent and 10 percent IMPACTED BY REGULATORY AND are fighting for mass appeal, and both financial respectively. ECONOMIC FACTORS institutions and brands are rolling out their Underlying this double-digit growth own mobile payment apps and competing for are financial inclusion measures, such as The number of credit cards worldwide rose consumer loyalty. digitalisation of salary and government by two percent in 2015, but their share of According to Worldpay’s Global Payment benefit payments, which have yielded total cards fell by a percentage point to 22 Report, alternative payment methods positive results. percent and is expected to fall further, to 19 (APMs) inched past card payments for the Forecasts show that the number of cards percent, by 2021. first time ever with 51 percent market share. worldwide will rise 28 percent from 13 billion The interchange fee regulation enforced E-wallets are predicted to overtake credit at the end of 2015 to 17 billion by the end across the EU in December 2015 typically cards in the global e-commerce market by of 2021. With projected growth rates of 49 lowered interchange for credit cards more 2019, accounting for 27 percent of global percent and 35 percent over this period, than for debit cards, and this has impacted turnover compared with credit cards at MEA and Asia Pacific will continue to be the issuance of credit cards in many countries. 24 percent. fastest expanding regions. In the Netherlands, for example, credit The card acquiring industry is undergoing “Although the growth rate in the card interchange was a major source of huge changes on the way to repositioning itself number of cards worldwide is slowing, revenue for banks, but some now appear to for the digital age and new types of payment there are several large markets which be discouraging customers from taking out methods. Acquirers are expanding their still have considerable potential,” explains credit cards because the caps have reduced role with: Chris Herbert, RBR senior associate. their profitability. • Open architecture and technologies “For example, there are comparatively low "Issuers’ immediate responses to reduced supporting card and APMs across multiple levels of bank account and card holding in interchange revenues included rationalising channels. India, Indonesia, Nigeria and Pakistan, and their product set, reducing rewards, and • New payments processes tailored to the therefore huge numbers of possible new increasing APRs and annual fees, and we omni-channel shopping journeys of digital clients who have not yet entered the banking predicted that issuers and co-brand partners customers. system.” would continue optimising their rewards • Business models supporting mobile, ACH/ programmes and narrowing the customer real-time payments and API-driven DEBIT CARDS WILL CONTRIBUTE value proposition of rewards to specific innovation beyond cards. THE MAJORITY OF GROWTH segments such as supermarkets, petrol, and • Combinations of physical POS and mPOS/ travel in the short-term," explains Elisabeth smartPOS and VAS supporting channel Debit cards make up 70 percent of payment Magnor, senior analyst, specialising in Europe convergence and omni-channel cards globally, up from 68 percent in 2014. As initiatives at First Annapolis. commerce unbanked individuals in emerging markets In countries such as Russia, the fall in the • Service levels expected for cards that are continue to enter the banking system, it is number of credit cards is directly related to now being extended to APMs. in the debit sector that we will see most economic uncertainty as banks often respond growth, as it is debit cards that are normally by tightening eligibility requirements and Card acquiring strategies will be discussed at the issued when a person opens a current increasing interest rates in such circumstances. MPE 2017, the top European merchant payments, CX, POS and card acquiring event. 300+ CXOs NUMBER OF PAYMENT CARDS WORLDWIDE BY TYPE bn and MDs, 150+ speakers, 1000+ participants from 40+ countries, 70+ sponsors and exhibitors bn are expected. re it MPE 2017 is one huge expo with three parallel h rge conferences, offering first class networking, the
ebit internationally recognised MPE Awards, the MPE re i C-Level Club, the Festival of European Online Payment Methods and Innovator Zone. Conference programme and registration at www.merchantpaymentsecosystem.com Source: Global Payment Cards Data and Forecasts to 2021, RBR www.paymentscm.com payments cards and mobile | November | December 2016 27 mobile payments MOBILE PAYMENTS SOAR AS EUROPEANS EMBRACE NEW WAYS TO PAY
ACCORDING TO VISA’S 2016 Digital Interestingly, mobile payments users also new ways to pay,” comments Kevin Jenkins, Payments Study, the number of consumers say that they are as comfortable making UK & Ireland managing director at Visa. regularly using a mobile device – more expensive purchases on mobile “Visa sees smartphones and wearables smartphone, tablet or wearable – to make devices as they are with everyday payments. as the beginning of a broader trend, with mobile payments has tripled in the past year. In the UK, over two-fifths (43 percent) millions of new connected devices making Currently, 54 percent of consumers purchase high-value items such as holidays it simple, safe and secure to integrate surveyed regularly use a mobile device to and electronics on a mobile device as well daily commerce transactions into almost make payments for a range of activities, as regular transactions such as paying any technology. compared to just 18 percent who were asked household bills (42 percent) and buying bus “In Europe, we’ve recently seen Apple whether they used mobile payments to pay or train tickets (41 percent). Pay launched in the UK, France and for everyday goods and services when the Switzerland, Samsung Pay has launched same study was conducted last year. MOBILE BANKING ON THE RISE in Spain and Android Pay in the UK. The study, which surveyed more than We’ve also seen a new era of wearable 36,000 online consumers in 19 European The research also shows that mobile payments: smartwatches, wristbands and countries, reveals how consumer adoption of banking activity is increasing across all age even clothing. It’s clear that this trend will digital payments has shifted dramatically in groups. For the first time, more than half of continue to accelerate, enabling consumers the last 12 months. One year ago, 38 percent European respondents in all age brackets to choose the connected device that fits with of the people surveyed said they had never are using mobile banking. their lifestyle.” used a mobile device to make payments and Whilst millennials remain the most prolific had no plans to do so. Today, that number category, other age groups are rapidly CORRELATION WITH has dropped to 12 percent. catching up. With a growth rate of 33 CONTACTLESS percent, the highest growth rate is the 55-64 WHO ARE THEY AND WHAT ARE year olds, while millennials 18-34 have a This increase in engagement with digital THEY BUYING? growth rate of 24 percent. payments coincides with greater adoption In the UK, the growth rate among older of contactless technology. The research When looking at the top ten countries users has increased by 18 percent. Nearly half indicates that, across all age groups, where mobile payments are most prevalent, (46 percent) of 55-64 year olds currently use a contactless payments are now the norm. In they fall into two categories: developing mobile device for banking compared with 39 the UK, more than half the people surveyed markets such as Turkey and Romania, which percent of respondents who accessed online (58 percent) used contactless cards this year, have been leapfrogging traditional payment banking through an app in 2015. up from 20 percent in 2015. methods to adopt new technologies faster; Across Europe, the uptick in the number The study highlights the correlation and developed markets – particularly of respondents using mobile banking is also between contactless usage and new the Nordics – which are evolving to new helping more people to keep track of their payment methods, revealing that contactless technologies at differing paces. spending and financial responsibilities – two- card users are more interested in using In the UK, nearly three-quarters (74 percent) fifths (41 percent) say they regularly check a mobile device as a payment method in of the people surveyed are mobile payments their balance online or via a banking app. a shop (52 percent contactless card user users. More than half of these users use their “This data is a confirmation that the vs 32 percent non-contactless card user), device to transfer money to friends and family future of digital payments has arrived, with shopping via a retailer app (49 percent vs 31 (59 percent) and just under half use it to buy consumers across the length and breadth of percent) or using a mobile device to pay for take-away meals (45 percent). the UK and Europe embracing a variety of a meal (50 percent vs 30 percent).
MOBILE BANKING USE IS INCREASING ACROSS ALL AGE TOP 10 COUNTRIES WITH THE HIGHEST obile b n ing use is incre sing cross ll ge grou s in uro e To countires with the higest GROUPS IN EUROPE PROPORTION OF MOBILE PAYMENTS USERS ro ortion o mobile yments users
srael
r ey
relan
olan
inlan
orway
we en
el i m
omania
enmar
Source: Visa Digital Payments Study, 2016
28 payments cards and mobile | November | December 2016 www.paymentscm.com mobile payments AI BOTS TO DRIVE MOBILE REMOTE PURCHASES TO $2.1 TRILLION
NEW FINDINGS CLAIM that merchant search and menu-driven systems were Additionally, the research revealed that integration of technologies such as AI bots in place. substantial activity is taking place to improve and natural language interfaces will lead It suggested that where merchants the experience at the point of payment. to remote goods purchases by mobile deployed conversational interfaces, such Disruptive players are simplifying totalling $2.1 trillion by 2021. as bots and natural language search, the consumer experience by This represents a 100 percent increase they would be able to understand challenging tried-and-tested from this year’s projection for spend on the consumer’s intent far better. but frustrating checkouts. For physical and digital goods. Retailer North Face, for example, example, Klarna eschews card The research found that rising has developed an intelligent digital number entry and usernames smartphone use in digital retail was assistant to help consumers choose and passwords. Instead, shoppers the underlying cause for stakeholder the appropriate product. Meanwhile, can enter simple-to-remember development in the following areas: Facebook, Google and storefronts information, such as their email address 1. Bots such as Etsy are investing heavily in and postcode. 2. Natural language processing similar solutions. Meanwhile, the research examined 3. Disruption at the payment gateway “Product search and discovery is a how machine learning is used to minimise The new study, Mobile & Online Remote key stage in the shopper journey,” noted the chance of payment rejection. Adyen, Payments for Digital & Physical Goods: research author Steffen Sorrell. “Offering for example, are using the technology Opportunities & Forecasts 2016-2021 by Juniper a conversational consumer interface, then to avoid payment rejection due to bad Research found that shoppers would be marrying intent with contextual product data formatting or misrouted connections to driven away from merchants where keyword will drive merchant differentiation.” the acquiring bank.
SMARTPHONES GENERATE 70 CENTS OF EVERY $1 IN MOBILE E-COMMERCE
MOBILE E-COMMERCE, THROUGH while apps accounted for $46.9 billion. provide shoppers with mobile-exclusive both apps and browsers, is surging Merchants often struggle to differentiate experiences, enabling them to preview to new heights, having grown 60 their native app shopping experience purchases in their own homes and percent in 2015 to reach $120 billion, from that available through browsers, virtually 'try' products before making says Javelin Strategy & Research. giving on-the-go smartphone shoppers a decision.” Despite the opportunity that this growth little reason to install or open an app. PAYMENTS yments BY by SMARTPHONE sm rt hone ccounte ACCOUNTED or FOR o 70% OF MOBILE E-COMMERCE IN 2015 presents, too many merchants still offer "With the holiday shopping season upon mobile e commerce in experiences that are optimised for larger us, retailers must stay off of consumers’ m rt hone screens and that fail to meet consumers’ naughty list by meeting their mobile expectations for speedy checkout and shopping expectations for a streamlined flexible payment options. experience and fast and secure checkout T blet browser m rt hone Purchases via mobile browsers are options," advises Emmett Higdon, director browser far more common than payments made of mobile, Javelin Strategy & Research. through merchants’ native apps, such as “Cutting edge retailers such as Adidas, T blet Amazon or Uber. Purchases via mobile Nordstrom, and Sephora are also browsers last year totaled $75.3 billion, using augmented and virtual reality to Source: elin Javelin, ll ights eser e 2016
MICROSOFT WALLET, ANDROID PAY AND SAMSUNG PAY ENABLED VIA MASTERPASS MASTERCARD SAYS IT has reached Masterpass enables consumers to make of consumers who currently use Microsoft agreements with Microsoft, Google digital payments – across devices and Wallet, Android Pay or Samsung Pay. and Samsung to bring online payments channels – anywhere they want to shop: Consumers using those wallets will be capabilities to US-based users of their digital online, in-app and in-store using contactless. able to use their same secure tokenised wallets via Masterpass. To speed up and simplify the online checkout credentials and device authentication Starting early next year, Mastercard process, consumers’ credit, debit and methods to complete online transactions at cardholders that use Microsoft Wallet, prepaid card information, along with shipping any merchant site that accepts Masterpass. Android Pay or Samsung Pay will be able to addresses, are all securely stored in one place. The optimised checkout process creates a shop online at all the merchants worldwide The speed and simplicity of online seamless shopping experience, protected by where Masterpass is accepted. checkout will now be extended to the millions multi-layers of security. www.paymentscm.com payments cards and mobile | November | December 2016 29 contactless THE EVOLUTION OF DIGITAL WALLETS AND MOBILE PAYMENTS
AITE GROUP, HAS released a whitepaper explosion in wallet development. Successful optical/QR code and tracing the growth and uptake of digital digital wallet providers will be those that BLE beacons. wallet services across the mobile and offer consumers ease of use, peace of Today, banks, MNOs, e-commerce sector. mind (regarding security), and the ability to and merchants are all The whitepaper examines the contribution transact anytime and anywhere.” competing in this fast- of digital wallets in growth of commerce With the exponential growth of mobile evolving space, and and elaborates on the evolution of mobile and online commerce, and the variety to have an edge over wallets. Moreover, the study also highlights of approaches being taken to deliver a competitors, they need strategies adopted by various mobile digital wallet, the space is expected to to have a futuristic mobile wallet capability, wallet participants such as banks, original grow rapidly in every corner of the globe. whether a proprietary or branded wallet, equipment manufacturers (OEMs), mobile According to the whitepaper, the digital that suits their strategy and consumer network operators (MNOs), merchants, wallet is taking an evolutionary path; it is value proposition. and third-party providers, and further becoming an enabler of commerce rather According to the study, mobile and discusses the future opportunities for than a stand-alone revenue generator for digital wallets also provide opportunities these participants. organisations that offer them. for financial institutions to improve and The study provides a global online deepen their customer relationships. commerce forecast from 2012 to 2020, and DIGITAL WALLETS PROVIDE VALUE The evolutionary path for all wallet predicts that the global online commerce technologies will be driven by the desire market will grow to $7,114 billion by 2020, Digital wallets also provide value to to reduce friction in the transaction to and mobile retail commerce will be an retail financial institutions by increasing minimise cart abandonment and optimise important part of it. the connection between the customer customer satisfaction. “Digital wallets provide a secure and and financial institution, resulting in Commenting on the study, Srinivas convenient way for merchants to interact increased transaction volume for their Nidugondi, senior vice president and and transact with their customers over payment cards and ensuring higher head, mobile financial services, Mahindra all sales channels, both online and customer retention. Comviva, says, “The potential for digital offline,” says Aite Group senior analyst While digital wallets in the online/mobile wallets is extremely promising; they are Ron van Wezel. space are riding the e-commerce wave, taking an evolutionary path in evolving the “The reduced friction in the checkout physical-world mobile wallets are nascent entire ecosystem. Digital wallets simplify process leads to much better conversion but are expected to grow steadily. payments for customers and enhance the rates for merchants, helping them to The study indicates that mobile wallets will customer experience. increase sales. With a combination of follow two paths — general-purpose wallets Without a digital wallet, customers need widespread internet access and increased which will use NFC for connectivity, and the to enter a wealth of information into a form bandwidth, innovators can deliver a new proprietary, retailer-based wallets which constrained by the size of the smartphone customer experience which is driving the use a variety of technologies, including screen, which can create confusion in the minds of the customer, and they may GLOBAL ONLINE COMMERCE FORECAST end up opting for the traditional way $139 of payment.” “The true value of the digital wallet goes GLOBAL ONLINE COMMERCE, 2012 TO 2020 $1,120 (IN US$ BILLIONS) beyond the transaction; it has immense $130 potential to generate an unparalleled $837 amount of customer transactional data. $120 Digital goods This helps service providers and merchants $626 Mobile retail $109 harness information to engage the commerce customer with a better experience for each $97 $516 E-commerce stop on the path to purchase. $415 $83 $5,855 With a combination of widespread internet $4,608 $298 access and increased bandwidth, devices $68 $3,633 $60 $2,870 $52 $204 $2,273 can capitalise on the bandwidth to deliver $133 $1,588 $61 $1,136 a new customer experience which is driving $624 $832 the explosion in wallet development,” 2012 2013 2014 e2015 e2016 e2017 e2018 e2019 e2020 he concludes. Source: Aite Group analysis Source: Aite Group analysis
30 payments cards and mobile | November | December 2016 www.paymentscm.com contactless EUROPOL WARNS OF ANDROID PAY NFC TAP-AND-GO THEFT
EUROPOL HAS WARNED that they believe The report's authors add that one criminals are using Android phones to consequence of the novel crime is that trigger fraudulent NFC payments. shops might not know how to react even if The alert comes in Europol's 2016 Internet they detect the deceit. Organised Crime Threat Assessment report. "Currently, when merchants detect a Experts had previously said that the rollout fraudulent transaction, they are requested of smart wallet systems could raise such to seize the card," the report says. a threat. "However, the confiscation may not be However, the police are unsure exactly feasible when the compromised card data unclear whether the payments were how the attacks are being carried out and are recorded on the buyer's smartphone." triggered being by customised apps or via how common they are. The report concludes that smartphone Google's own Android Pay software. "The possibility of compromising NFC and touchless payment terminal "It's anecdotal evidence at the moment transactions was explored by academia manufacturers should "take action to - it could be either or both," said Prof Alan years ago, and it appears that fraudsters design out security flaws". Woodward, from Surrey University. "But have finally made progress in the area," the Europol is the EU's law enforcement whatever the case, evidence that it is report says. agency, which helps members states' happening is mounting." "Several vendors on the Darknet offer police forces co-ordinate operations and Prof Woodward said the criminals were software that uploads compromised card intelligence. Its report is intended to flag probably using Android handsets rather data on to Android phones in order to emerging cybercrime threats. than iPhones because Google did not make payments at any stores accepting One of the body's advisers prevent third-party apps using a device's NFC payments." acknowledged that investigators were still NFC chip, but Apple did.
www.paymentscm.com payments cards and mobile | November | December 2016 31 e-commerce WORLDWIDE RETAIL E-COMMERCE SALES WILL REACH $1.915 TRILLION
IN 2016, TOTAL retail e-commerce sales auction sites; and sales by motor vehicle see the fastest rise in retail e-commerce will reach $1.915 trillion, retail sales across and parts dealers and by gas stations. sales, climbing 31.5 percent this year. the globe will reach $22.049 trillion, up six Travel, event ticket and restaurant sales Expanding middle classes, greater percent from the previous year. are excluded from the forecast. mobile and internet penetration, growing eMarketer estimates sales will top $27 eMarketer has lowered its projections competition of e-commerce players and trillion in 2020, even as annual growth for overall retail sales since its previous improving logistics and infrastructure will rates slow over the next few years. forecast in December 2015, mainly due all fuel growth in the region. Included in the figures are sales across to low oil prices and negative currency The bulk of retail e-commerce will come all retail channels in its estimates for effects. The US dollar has risen against from China, where sales are expected to total retail sales. This includes sales from most major currencies, and as a result reach $899.09 billion this year, representing e-commerce retailers and transactions the value of retail sales denominated in almost half of all such sales worldwide. that occur over consumer-to-consumer US dollars is down across all markets in While there is plenty of opportunity for (C2C) platforms such as eBay and other the forecast. growth, parts of Asia Pacific are still faced
Retail Ecommerce Sales Worldwide, 2015-2020 Retail e-commerce sales, which include with challenges. trillions, % change and % of total retail sales products and services (barring travel, In Southeast Asia in particular, $4.058 restaurant and event ticket sales) ordered e-commerce still represents only a fraction $3.418 via the internet over any device, will reach of total retail sales. An underdeveloped $2.860 $1.915 trillion in 2016, accounting for 8.7 digital payments infrastructure and a $2.352 percent of total retail spending worldwide. weak logistics framework have made $1.915 While the pace of growth for overall retail these markets unprepared to handle high $1.548 sales is subdued, the digital portion of sales volumes of e-commerce orders.
25.5% 23.7% 22.9% 21.6% continues to expand rapidly, with a 23.7 Retail e-commerce sales in North 19.5% 18.7% percent growth rate forecast for 2016. America will rise 15.6 percent this year E-commerce sales will increase to $4.058 to reach $423.34 billion, maintaining 7.4% 8.7% 10.0% 11.5% 13.0% 14.6% 2015 2016 2017 2018 2019 2020 trillion in 2020, making up 14.6 percent of the area’s status as the world’s second
Retail ecommerce sales % change % total retail sales total retail spending that year. largest regional e-commerce market. The
Note: includes products or services ordered using Asia Pacific will remain the world’s largest region will see consistent double-digit the internet via any device, regardless of the method retail e-commerce market throughout the growth through 2020, fueled by increased of paymen or fulfillment; excludes travel and event tickets. forecast period, with sales expected to top spending from existing digital buyers, $1 trillion in 2016 and more than double to expansion into new categories such as Source: eMarketer 2016 $2.725 trillion by 2020. The region will also grocery and growing m-commerce sales.
THE EMERGING MARKET E-COMMERCE OPPORTUNITY GLOBAL E-COMMERCE IS projected to grow preferences and logistics environment may e-commerce companies are advised to at a compound annual growth rate of 12 be very different from what companies make it easy for millennials to shop on their percent over the period 2015-20, according a seeking to expand see in their own markets,” smartphones. Indeed smartphones are the recent Euromonitor report. Historically much comments Amanda Bourlier, senior main way for many consumers in emerging of this growth has taken place in developed research analyst, Euromonitor International markets to get online, irrespective of their markets. However, this is set to change and co-author of the report Strategies age. So, mobile optimised sites and smooth as internet access in emerging markets for expanding into emerging markets check-out processes are a must. increases and more trading is done online. with e-commerce. For those accessing the internet for Foreign players chasing global growth are The millennial market is massive in the first time, the idea of online shopping also looking to expand into emerging markets emerging countries, representing over 1.5 may not yet be intuitive. Online shopping via the online channel. billion people in 2015. China and India are the presents different risks to shopping in-store. Home to more than 85 percent of the biggest markets of millennial consumers, with This includes a greater perceived threat world’s population and totalling six billion more than 600 million people combined in of payment fraud, products not meeting people in 2016, emerging markets represent 2015, twice the size of the total US population. expectations, arriving in good condition or at a huge opportunity. However, understanding In countries such as Indonesia, Brazil, Russia all. “E-commerce companies may need to local consumers and market conditions is and Mexico, millennials account for more build trust in the transaction with consumers essential for shaping a successful strategy. than a quarter of the respective populations. in a way that they typically don’t in developed “The competitive landscape, payment To turn online browsers into buyers, markets,” explains Bourlier.
32 payments cards and mobile | November | December 2016 www.paymentscm.com e-commerce CONSUMERS WANT ADDITIONAL SECURITY TO PREVENT E-COMMERCE FRAUD AS E-COMMERCE AND e-commerce Meanwhile, 60 percent of merchants report require a separate one-time password for fraud continues to expand, online payment that they have experienced fraudulent additional security. security is a top concern for merchants and online sales, and 25 percent say their level 63 percent of online consumers are consumers. of fraud with online sales has increased open to creating a customer profile on the The 2016 American Express Digital this year. Participating merchants reported merchant’s website in order to complete a Payments Security Survey found that 70 on average 31 percent of their online purchase, but less than half of merchants (46 percent of US merchants are experiencing sales transactions in the past year were percent) provide this option online. an increase in sales through online and abandoned by their customers before a sale For consumers to trust an online merchant, mobile channels over the previous year. was completed. 84 percent want easy-to-find customer The report, which surveyed 1,021 US The good news is that consumers indicate service contact information and 78 percent consumers and 401 merchants, reveals that they are willing to take specific steps to want visible security cues on the merchant’s as e-commerce grows, payment security enhance the security of their information site. Yet, only 50 percent of merchants remains top of mind for both. Nearly half (48 when making an online purchase, presenting say they provide easy access to customer percent) of consumers who shopped online an opportunity for merchants to capture service reps on their websites and 52 in the past year have experienced payment more online sales and increase trust. percent report taking the step of using data fraud, representing nearly 80 million Nearly eight-in-ten online consumers (78 encryption on their website. online consumers. percent) are willing to enter a security Consumers also can do more to keep Four in ten consumers (40 percent) view code (CVV) for their credit card but only 57 their personal information secure online. online shopping as having more risk than an percent of merchants require the use of a Less than half (44 percent) use a different in-store purchase (28 percent). In addition, CVV code for online customer transactions. password for every online account; 30 42 percent of shoppers say that they have While 70 percent of online consumers are percent change their passwords once or abandoned an online purchase due to prepared to use security questions (e.g. twice a year; and 17 percent never change payment security concerns. ‘What was the make and model of your first their banking or payment passwords. This increases to 48 percent for Gen X and car?’), 43 percent of merchants have this American Express recommends Card 50 percent for millennials, suggesting that prompt available on their websites. Members create different passwords across while younger consumers are considered More than two-thirds of online consumers all banking, email and social media accounts early adopters of new technology, they also (68 percent) are willing to create a one-time and consider updating all passwords every place a high priority on security. password but only 37 percent of merchants six to 12 months.
INDIA TO OVERTAKE US AS THE NEXT E-COMMERCE SUPERPOWER
INDIA IS EN ROUTE to overtake the US 2020 – 250 million higher than today. These new, richer, internet-enabled to become the world’s second largest Many of these new users will be mobile- consumers will also be ripe to participate in e-commerce market, according to new first, with India both the world’s fastest the online economy as, with almost 70 percent research by Worldpay. growing smartphone market and one of of its population under the age of 35, India has In its latest global overview of online the cheapest places to access the mobile the largest youth population in the world. consumer spending and payment habits, The internet with data plans two times cheaper All of these factors add up to make south Global Payments Report, has predicted that than in China. Asia the next centre of explosive e-commerce the value of India’s e-commerce market will growth after China, whose share of the At a glance E-commerce projected growth be $2,039 billion by 2034 – making it larger world online retailing market will reach its 1,267 Million 15% E-commerce turnover Desktop Mobile than that of2014 the popul aUStion – and secondIntern eonlyt penetration to (% oChina.f population) peak in 2034, accounting for 50 percent of 2015 US$17 bn US$14 bn US$2 bn
WhileIndia India accounts for less than one global spend. US$2.20 tn 0.75 2019 US$61 bn US$51 bn US$10 bn percent of2014 the GDP world’s e-commerceMobile subscriptions per spend capita Another strong signal that the Indian today, the Cashcountry’s on Delivery, Online online Bank Trretailansfer & Prmarkete-Paid Cards is 38% 2015-2019 CAGR e-commerce market is at a tipping point can Popular alternative payment methods set to grow by an astounding 28 percent Source: The Global Payments Report 2015, Worldpay be seen in the decline of cash on delivery per year over the next four years, making it as a form of payment for online purchases. eCommerce Cash on Delivery 24% Card scheme worth $63.7mix billion by p byayme 2020.nt Furthermore, with wagesbre ainkdown India rising by According to the Worldpay Global Payments This growthme thodswill be driven by a combinationBank Transfer ten percent 19%in 2016, according to research by Report, cash on delivery accounts for just over Visa 64% of technological change, rising incomeCr editlevels Card Korn Ferry, 16%the average Indian consumer’s a fifth (22 percent) of payments for online and favourable demographics. Around 730 spending power will increase significantly in goods in 2016, but this will decline to nine eWallet 11% million Indians will be internet users by the coming decade.MasterCard 21% percent of purchases by 2020.
24% PrePay 11%
American Express 9% www.paymentscm.com Debit Card 11% payments cards and mobile | November | December 2016 33
Pre-Paid 6% Local Card Schemes 5%
Others 1%
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A CONSORTIUM OF US banks, including Zelle users will be able to send money In addition, customers of the 17 Wells Fargo, JPMorgan Chase and Bank of to almost anyone, as long as they have a institutions that have founded the Zelle America, are rolling out a new P2P money Visa- or Mastercard-branded debit card. network, who number some 76 million transfer app to take on Venmo and other That is a feature that Venmo has long customers, will be able to use Zelle to mobile payment upstarts. had but something new for the big banks, send money while signed into their bank’s The app, named Zelle, will offer the same which have operated a more limited P2P mobile apps. kind of instant, P2P money transfers users of payment system for several years. In the long-term, the banks hope that Venmo have been making for years — and The money would be transferred essentially all US financial institutions will that banks have been eager to offer as they immediately and could be used to pay bills be part of the network and that the app try to stay relevant to younger customers. or make payments to friends or others. might not even be necessary.
EMVCO LAUNCHES EMV 3D SECURE 2.0 SPECIFICATION
EMVCO HAS PUBLISHED EMV 3-D Secure 3DS is a messaging protocol that “Besides security, the consumer Protocol and Core Functions Specification enables consumers to authenticate experience is central to EMVCo’s work,” said v2.0.0 (EMV 3-DS 2.0). themselves with their card issuers when Jonathan Main, chair of the EMVCo board The new specification provides a making card-not-present purchases of managers. “In addition to engaging with globally interoperable framework or verifying their identity for various industry experts, we conducted user testing that promotes a consistent consumer non-payment activities, such as adding in multiple markets to understand consumer experience across all e-commerce a payment card to a digital wallet. preferences for verifying their identity channels and connected devices The exchange of data between the online. Feedback has been incorporated when authenticating a cardholder. The merchant using 3DS and a card issuer to into the new global specification to specification is available, royalty free, authenticate a cardholder reduces the also accommodate country-specific from the EMVCo website. risk of fraud. preferences and regulatory requirements.”
KOHL'S SEES MAJOR ADOPTION OF KOHL PAY
KOH L’S, A US department store chain, has users are Yes2You Rewards members and witnessed a 70 percent increase in enrolment 40 percent of users are sending offers with user transactions doubling over the from their wallet. Moreover, according to same period for its payment app. retailer’s representatives “It’s been just a Kohl’s Pay, a QR code-based mobile few weeks since Kohl’s launched Kohl’s Pay, payments service, was launched in October a mobile payment offering exclusively for 2016 and since its launch the service has our Kohl’s charge customers, and customer been used in all 49 states across the US, with feedback has been extremely positive. We at least one transaction made in two thirds look forward to carrying this momentum of the retailer’s stores. into the holiday shopping season,” the Nearly all (99 percent) of Kohl’s Pay retailer adds.
MIURA LAUNCH NEW DEVELOPER FRIENDLY MPOS SDK PLATFORM
PAYMENTS AND MPOS provider Architecting the SDK around a familiar longer face lengthy project cycles and Miura Systems has launched a mobile development environment can accelerate time-to-market of any comprehensive mPOS SDK designed ensures there are no new processes or solution, with no need to study up on to offer developers a simple, features to learn, while out-of-the-box EMV, payment transaction flows, key best-in-class set of tools which example projects show how easy it can management or device configuration. significantly reduces the time taken be to plug in Miura payment or retail There is also best-in-class support, for partners to deliver payment or hardware to existing POS applications. tapping Miura’s knowledge in the mPOS retail solutions. With the new SDK developers no payments and retail space. www.paymentscm.com payments cards and mobile | November | December 2016 35 AN EVENT OF
Mobile has become fundamental to our everyday lives. It has inextricably changed how we communicate, interact, work and play as individuals. It is transforming entire industries, bringing new levels of productivity and eciency to enterprises.
Over three decades, mobile has evolved from an emerging communications technology to a phenomenon that is now at the foundation of everything we do. How can we describe the role of mobile in today’s world? Elemental.
Mobile is revolutionary, dynamic, ever adapting. It’s the force behind every emerging innovation, every forward-thinking enterprise. Join us in Barcelona for WWW.MOBILEWORLDCONGRESS.COM Mobile World Congress 2017, where the world comes 36together payments to showcase, cards and celebrate mobile | Novemberand advance | December mobile. 2016 www.paymentscm.com contracts 42 BANKS JOIN JAPANESE BLOCKCHAIN FOR PAYMENTS CONSORTIUM
SBI RIPPLE ASIA, a joint venture between the consortium says it has been “finally technical and operational perspectives distributed ledger tech provider Ripple and launched” with 42 member banks. on activities required in domestic and SBI Holdings, announced in August that a Using Ripple, customers of the banks foreign exchange services “to utilise Japanese consortium of 15 banks in a new will get real-time domestic and cross- Blockchain and other new technologies, network will use Ripple’s Blockchain for border payments, 365 days of the year. consolidate domestic and foreign exchange payments and settlement. Participants include Bank of Yokohama, SBI services, and build 24-hour and real-time It had anticipated about 30 member Sumishin Net Bank (SBI Holdings owns part remittance infrastructure”. banks joining by March 2017, but it got plenty of it) and Mizuho. The group has set a March 2017 deadline of responses from financial blockchain for SBI Ripple Asia says that the consortium for delivery of a proof-of-concept ahead of payments consortium institutions, and so will promote discussion from both a full commercial build.
MISYS FORCED TO CALL OFF CURRENT IPO PLANS
UK FINANCIAL SOFTWARE provider Misys institutional support”, but the FT reported that Bankers working on the deal had has been forced to cancel its planned IPO, the company’s management was struggling said they had been confident the listing citing “market conditions”, the latest in a to get investors on board. Company accounts would go ahead despite what is seen as series of pulled or troubled deals in the UK obtained by the FT showed revenues at the a difficult market for prospective stock and Europe in recent weeks. group fell almost five percent over the past two market listings following several cancelled or Misys said it had received “encouraging years, despite Misys’ claims of robust expansion. postponed IPOs.
ANT FINANCIAL ANNOUNCES GLOBAL EXPANSION PARTNERS - FIRST DATA AND VERIFONE ANT FINANCIAL SERVICES is expanding with merely 15,000 retailers. Last month transactions are, in order, Korea, Thailand, its global reach to make sure its millions that number had reached 80,000 stores Hong Kong, Japan and Germany. of clients can buy whatever they want, in 70 countries including the US, the The foray into the US market marks wherever they want, and however UK, Germany, Australia, New Zealand, one of the remaining crown jewels they want. Thailand, Singapore, Malaysia, in terms of luxury tourism for At the Money 2020 conference in and Vietnam. Chinese travelers. Las Vegas, the company announced a Alipay’s biggest markets are “The US market is vital for slew of partnerships in the US, with the Korea, Thailand, Hong Kong, Japan Alipay, not only it is a popular payment processor First Data and hardware and Germany. destination of Chinese visitors and manufacturer Verifone. During the Golden Week holiday tourists,” said Douglas Feagin, senior The partnerships expand on deals that the (October 1 to 7) in 2016, transaction volume vice president of Ant Financial and Chinese financial services giant (and Alibaba processed by Alipay at overseas destinations head of Alipay International in a statement. spinout) has cut across the globe. increased by four times compared to the “We aim to have at least one million Last year the company was working in same period last year. The countries and merchants outside the Chinese mainland Hong Kong, Korea, Macau, and Taiwan regions seeing the largest number of Alipay accepting Alipay worldwide in three years.”
NORDEA SACKS NETS AND TEAMS WITH DANSKE ON MOBILE PAYMENT APP
NETS SHARES TOOK a bashing as Nordea on Thursday. Nordea clients can, for Bank dropped the electronic payment now, continue using Swipp, a system system it was developing with Danish Nordea had developed with more than 70 banks and instead teamed up with local banks. its main rival in Scandinavia, Danske “MobilePay is known today for its user Bank, to use its more popular mobile friendliness, and we want to contribute payment app. to making the solution even more widely Nordea’s customers in Denmark and used and to continuing the development Norway will be offered MobilePay, the of MobilePay as an innovative digital mobile payment app, and the bank has payment platform,” Peter Lybecker, chief pledged to invest in the system, the executive officer of Nordea’s Danish unit, two lenders said in a joint statement said in the statement. www.paymentscm.com payments cards and mobile | November | December 2016 37 conferences
Conference diary
Pay360 Innovate 23 November, London emergingpayments.org/events/ innovate16/
Smart Ticketing & Payments 23 November, London smartticketingconference.com
The Open Mobile Summit 2016 29-30 November, San Francisco Money2020 Las Vegas openmobilemedia.com/san- francisco/ As anticipated, Money2020 was a great success. Las Vegas has so many Trustech 2016 distractions and meeting places that it’s always a hit with delegates. 29 November-1NEED December,COPY Cannes trustech-event.com The show attracted senior executives of over 4,000 companies from 85 countries. Five tracks of presentations and panel sessions covered everything from Retail The Future of Retail Banking 29 November-1 December, London and Commerce through Risk, Security and Fraud to Real-Time and Cross Border marketforce.eu.com/events/banking/ Payments. retail-banking
The buzz word I heard most was AI (Artificial Intelligence) which came up in several PayExpo MENA sessions on utilising it to make the payments industry more efficient. Linked to this 5-7 December, UAE payexpo.com/mena were panel sessions on the use of data analytics and, inevitably, with the increase in mobile, e-commerce and instant payments, the reduction of risk and instances of 9th International Conference fraud. Central European Electronic Card 7-8 December, Warsaw The overall message was that there are endless possibilities within payments and conkarta.pl technology is moving at speed. However, there is a corresponding need for improved NRF Big Show interconnectivity and increased security, with the inefficiency of traditional passwords 15-17 January, New York coming under scrutiny. nrfbigshow.nrf.com
For future attendees, something to bear in mind. This is a very large event that is The Cards and Payments Awards 2017 spread over three floors of the Convention Centre at The Venetian. The Exhibition Hall 2 February, London is a long way from the conference sessions, so allow yourself plenty of time if you cardandpaymentsawards.com have planned attendance at a session or meetings. Merchant Payments Ecosystem 2017 14-16 February, Berlin merchantpaymentsecosystem.com Ad Index November/December 2016 Accourt www.accourt.com P21 PayExpo Americas 2017 Entrust Datacard Group www.entrustdatacard.com Cover P2 7-8 March, Mexico Equensworldline.com www.equensworldline.com P11 clarionevents.com/region/south- FIME www.fime.com Cover P4 america Merchant Payments Ecosystem www.merchantpaymentsecosystem.com P27 Mobile World Congress www.mobileworldcongress.com P36 Miura Systems www.miurasystems.com/POSzle Cover P3 Seamless Africa 2017 PayExpo MENA www.payexpo.com/MENA P34 14-15 March, Cape Town Payment Cards Yearbooks www.paymentcardyearbooks.com P25 terrapinn.com/exhibition/seamless- RS2 www.rs2.com P13 and P31 SPS www.s-p-s.com P9 africa/index.stm
38 payments cards and mobile | November | December 2016 www.paymentscm.com POSzle. A revolution in how POS fits together
mPOS is changing shopper mindsets and their expectations of the retail experience. That’s why solutions like contactless, Apple Pay and Android Pay are so popular with demanding retail customers who won’t wait around.
Now POSzle makes it easy to take payments anywhere in-store, and its unique modularity ensures easy integration with POS software apps and future support for legacy hardware peripherals, providing a solution that is both scalable and future-proof.
Discover how POSzle is revolutionizing the retail point of sale miurasystems.com/POSzle
Beautifully simple payments and POS www.paymentscm.com payments cards and mobile | November | December 2016 39
POSzle_Press_ad_Retail_Systems_v1.1.indd 1 21/09/2016 13:25 © Fotolia, FIME © Fotolia,
40 payments cards and mobile | November | December 2016 www.paymentscm.com
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