The Payments Innovation Jury Report

•Biometrics: Security & Usability

•Cashless Europe: Revolution

•Social Payments: PingPay

•Digital Banking Club Debate

June 2015 Issue 336 www.electronicpaymentsinternational.com

The Payments Innovation Jury

Report

Currency Cloud’s Mike Laven selects the highlights

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EDITORS LETTERElectronic Payments International

PayPal snaps up Xoom ahead of demerger

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CONTENTSNEWS

2: Analysis: Worldline and FEXCO bringing DCC to European ATMs

3: Analysis: Azimo to spend funds on improving remittance service to developing world

5: Analysis: Western Union pushing for an omnichannel experience

COMMENT

6: MIKE LAVEN, CURRENCY CLOUD

8: NEIL COSTIGAN, BEHAVIOSEC

16: JOHN RAKOWSKI, APPDYNAMICS

FEATURE

7: EUROPEAN PAYMENTS

The European payments market continues to change with no end in sight. Roland Ludwig of SIX Payment Services examines this sector

9: PINGPAY

PingPay, India’s first multi-social payment app, has arrived. Is this the beginning of a new, open, social payments sector? Patrick Brusnahan speaks to both companies regarding this development

10-12: DIGITAL BANKING CLUB

The latest debate, hosted by the Digital Banking Club, focused on legacy infrastructure and the constraints it places on digital innovation and banks’ attempts to adapt. However, with legacy systems bogging down banking infrastructure, can the banks manage this? Franchesca Hashemi writes

COUNTRY SURVEYS

13: SINGAPORE

14: TURKEY

15: CANADA

Since eBay snapped up PayPal in 2002 for $1.5bn, it has acquired a further 20 firms, the most notable recent examples including Brain-

tree less than two years ago.But from the middle of July, PayPal will

demerge and go its own way, stopping only to snap up cross-border P2P remittances pro-vider Xoom in a deal worth nearly $900m.

In its investor presentations, PayPal has highlighted its mission to be an “Open Commerce Platform” incorporating PayPal Credit, its core wallet that offers rapid loans to consumers, in-app payments via Braintree, and in-store payments via Paydiant, through the development of merchant-led wallet and app loyalty programmes.

PayPal will start life as an independent firm with 155 million users, $13.8 in pay-ments, $500m loaned through PayPal credit, 27% credit growth and a useful cash pile of more than $5bn. The purchase of Xoom will strengthen PayPal’s cross-border prospects particularly in some emerging markets, in particular Mexico, India, the Philippines, China and Brazil.

Consumer sentiment towards PayPal in the US exceeds even Apple and Google. In an Accenture survey last year, 41% of respond-ents said that they would be happy to switch to PayPal if it offered banking services against 29% saying the same about Apple and Google.

For all the excitement about PayPal becoming a standalone firm, it has much work to do to become less reliant upon its two main markets, the US and the UK, which contribute the majority of its revenue.

Customer numbers growth also slowed, albeit it remained in double figures last year.

Meantime, lurking on the horizon is the remittances threat of Facebook-if it gets it right, its Messenger app remittances service really could be a game-changer.

Post demerger, it will be fascinating to track the fortunes of eBay and PayPal. In a note to clients, JPMorgan analyst Doug Anmuth has a valuation of $38bn on PayPal with a $44bn market cap; his valuation of eBay is lower at $30bn with a market cap of $33bn. Already there is analyst gossip, boosted by an interview given by leading Andreesen Horowitz venture capitalist Jeff Jordan that there would be merit in Google acquiring PayPal.

If it is to prosper independently and meet analyst forecasts, PayPal’s mobile strategy will be key. Bernstein is among the most upbeat analysts; forecasting that PayPal’s revenues will grow by a compounded annu-al growth rate of at least 17% percent over the next three years and record revenue of at least $10.8bn in 2016.

Meantime, exited PRs continue to try and pitch excitably about the prospects of Visa’s V.me mobile wallet that offers many of the features offered by PayPal. V.Me seems to have been around for an age but it actually dates back to just 2012.

In the UK, V.Me has teamed up with Lloyds and its Halifax and Bank of Scotland subsidiaries as well as TSB and Nationwide.

I have yet to work out a really compelling consumer case to use V.me let alone find any colleagues who are excited by its prospects. I will be very happy to be proved wrong if it ultimately becomes a roaring success. <

Douglas [email protected]

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Interview: Worldline and FEXCO bringing DCC to European ATMsWorldline and FEXCO have expanded their partnership to offer dynamic currency conversion (DCC) services to ATMs across Europe. Patrick Brusnahan speaks to Nick Dalgaard, head of acquiring services at Worldline, about this new proposition

DCC provides non-euro cardholders in Europe an option to withdraw money from ATMs when travelling abroad, with full vis-ibility of the exchange rate as well as the knowledge of how much they are withdraw-ing in their own currency.

To offer DCC services on ATM Networks to European Independent ATM Deployers (IAD’s) and Financial Institutions (FI’s), the companies have built technology offers an end-to-end solution to currency manage-ment, authorisation, clearing, settlement and dispute management.

Currently, Worldline is focusing on bring-ing this solution to their core markets in France and Belgium, with approximately 60,000 and 8,000 ATMs respectively.

Dalgaard says: “Our first priority is the core markets of Worldline where we today have, essentially, low penetration of DCC on offer at ATMs. You have some specialist players who may offer this, in an airport or

something similar, but none of the big Bel-gian or French banks are offering DCC at ATMs in popular locations, such as tourist or business destinations.“This is really the first focus, but the part-

nership is European-wide so we’re already looking at the next countries, prioritising them on the current stage of their DCC offerings on the ATM front.”

Dalgaard believes that this new offering is of substantial benefit to the consumer in comparison to other forms of foreign exchange. He says: “The value propostion is obviously choice and disclosure of the exchange rate if he or she is withdrawing cash in euros and is a foreign cardholder.“The cardholder can accept the offered

exchange rate and hence the transaction will go through the networks and to his issuing bank in the currency of his card. He locks the exchange rate and he knows what he will be charged at the end of the month on his bill. The charge he will pay is not on top of what he is already paying, it’s essen-tially substituting the Forex transactions that his issuer will make. The difference is really the choice and the transparency.”

In terms of charges and fees, Dalgaard

believes that this method is much more transparent than in other Forex services.

He adds: “The business model for the acquiring bank is obviously that they will apply a mark up on the exchange rate. FEXCO, being the Forex provider, will fix an exchange rate and add a mark up to the rate and it’s fully transparent. It can be cus-tomised all the way down to the individual ATM, but normally it will depend on the market, the volume and so on. It’s prefer-able to an unknown exchange rate, applied in 10-15 days time, with an unknown mark up.”

He concludes: “The banks should rec-ognise this as a value-added service which many of them are not offering today. We know that a lot of the backbones of ATM systems are not multi-currency. That’s where we come into the picture; to enable the banks a short time to get to market and a cost-effective solution.“We limit on the bank’s legacy system

and offer them this value-added service to their cardholders at an ATM as effectively as possible. It’s a cheaper way for the banks to do it rather than building everything in house.” <

PRODUCTS

Oberthur, ICA Banken launch dual interface payment cards in SwedenFrench digital security firm Oberthur Technologies (OT) has teamed up with Swedish lender ICA Banken to introduce dual interface payment cards in Sweden.

In the coming months, 500,000 cards will be distributed to ICA Banken customers by OT and ICA Banken.

These new contactless payment cards feature OT s Dual Interface platform Chrysalis Fly and OT s colored edge Smart Vibrant-e.

OT claims that s these cards will make transactions faster and more secure as well as provide customers a faster checkout, more fluidity and ease of use.

ICA Banken CEO Marie Halling said: “ICA Banken believes that contactless payments will play an important role in the future of payments and we constantly strive to make our customers’ lives easier with fast and convenient payments within ICA.”

Nets to acquire Nordea Bank’s merchant acquiring business for €230mDanish payment provider Nets has reached an agreement to acquire the merchant acquiring business (NMA) of Nordea Bank for €230m ($252m) on an enterprise value basis.

NMA operates as part of Nordea’s pay-ment unit managing acquiring of interna-tional payment cards in the Nordic and Bal-tic regions.

Nets Group executive vice president mer-chant services Asger Hattel said: “The acqui-sition enhances Nets’ ability to deliver first-class integrated acquiring services to a total of approximately 240,000 merchants across the Nordic and Baltic region.”

The acquisition will enable Nets to pro-vide integrated acquiring services to its customers across the Nordic and the Baltic region.

Subject to customary regulatory approv-al, the deal is scheduled to complete in the fourth quarter of this year.

As part of the deal, 40 staff in Nordea’s

merchant acquiring unit will become part of the Nets merchant services business unit.

Nordea said that the transaction will result in a capital gain after tax of around €175m that will be recognized under other operating income upon closing of the deal.

Hattel added: “The combined businesses of Nordea Merchant Acquiring and Nets fits perfectly into Nets’ strategy following the rapid evolvement of the payment market.“Close collaboration with the Nordic

banks is a key element in Nets’ strategy. The improved Nets unit will be dedicated to ser-vice both Nordea merchant customers and other merchants across the Nordic region with the best possible solutions within pay-ments.”

Nordea head of retail banking Lennart Jacobsen said: “The sale of the NMA busi-ness and the establishment of a partnership with Nets will secure a long-term Merchant Acquiring offering to our corporate custom-ers on competitive terms.” <

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Billing Systems partners with oti to provide NFC payment solutions in JapanBilling System, a payment service provid-er, has teamed up with On Track Inno-vations (OTI), an Israel-based provider of NFC and cashless payment solutions, to resell oti’s NFC payment solutions in Japan.

The partnership will see Billing Sys-tem launching oti’s range of NFC-based cashless payment readers and devices to Japan’s retailers, vending machine opera-tors and taxi companies.

On Track said that its NFC readers and

devices will allow Japanese businesses to support the growing domestic and inter-national demand for cashless payments.

Billing System CEO Toshihiko Eda said: “This new alliance with oti is an important strategic step for us, given oti’s already strong global presence, including its 50% market share of the U.S. connected vend-ing machine market.“Our partnership positions Billing Sys-

tem to capitalise on the rapidly expanding contactless payment market in Japan.” <

Interview: Azimo to spend funds on improving remittance service to developing worldFollowing the news that remit-tances provider Azimo has raised a further $20m, what’s next for the digital start-up, pushing 100 employees? How will it spend its latest funding and how does it see the market it’s operating in? Michael Kent, CEO, speaks to Anna Milne

Azimo’s market is migrant workers from the developing world: the Philippines, parts of India, Latin America, and Afri-ca. The latter is a vastly-grow-ing market for Azimo- par-ticularly West Africa, Ghana, Nigeria, French speaking West Africa, Sierra Leone, Senegal.

It makes you wonder who else might be going after this market- surely there is a race on to gain market share in populat ions where smart phone adoption is soaring at a rate of knots? Not so, accord-ing to Kent. He sees Azimo’s only viable competition in the space as Western Union and MoneyGram and even then, he sees Azimo as an entirely dif-ferent service; as the challenger bank of the remittances world, if I may say such a thing.“There’s a t ipping point

we are seeing right now, tra-ditionally people have sent money using high street legacy operators like Western Union,

MoneyGram. People are start-ing to realise they can save themselves a lot of money, has-sle and time by using a digital solution. There is a trust hurdle that, as a new brand, we need to get over but once we have satisfied customers, that is powerful and makes people in the market aware,” says Kent.

Kent explains the biggest push for Azimo is into the mobile wallet ecosystem, and more specifically, the one in Africa. Azimo already works with M-Pesa, in mobile wallet integration in 11 countries.“This market is growing very

fast, there are 2.2 billion finan-cially excluded adults globally- who don’t have a bank account and these people increasingly have mobile phones and in hav-ing phones soon they will have pseudo bank accounts in the form of mobile wallets. That’s potentially life changing- it’s also a huge number of people who can then start to receive remittances digitally rather than in the traditional manner of a cash payout.”

And it is not so much increas-ing the number of countries Azimo sends to but improv-ing the service within the 200 it already serves. As Kent says, the UN only recognises 208

countries so there isn’t much scope for further country accrual anyway.

Kent plans to spend the fresh injection of funds on two things: technological develop-ment and marketing.“We’re a technology company

and our product in some ways is innovation. We’re paranoid about what’s coming next- and are experimenting, looking at block chain technology- look-ing at different parts of the world where already there are huge numbers of potential cus-tomers who are smart-phone enabled, like Asia, and unless you’re thinking like a start-up you get a bit fat and lazy.”

It’s true banks tend not to go after this market- even recent remit tance services, nota-bly Transferwise, go after a wealthier segment with a high-er average transaction value. That of Azimo’s is a modest $600, or thereabouts.“We’re keen to take a chunk

of European market share but we want to do that by serving customers better. We have to be ten times better than West-ern Union to get people to switch and we have to be better on price and convenience and speed, ground interaction- eve-rything.” <

Partnership

Yes Bank partners with Western Union to boost international remittances

India private sector lender Yes Bank has partnered with Western Union to boost its international direct-to-bank remittances.

The partnership will enable consumers in the US, UK, Canada, Australia and many other countries, to send money directly to more than 900 million bank accounts in India.

Yes Bank managing director and CEO Rana Kapoor said: “Western Union’s international direct-to-bank services which will be backed by YES BANK’s state-of-the-art security protocols, is a great example in banking payments technologies that enables a convenient cashless option for families and individuals who depend on remittance money.“Inward Remittances under RDA -

Rupee Drawing Arrangement are a crucial component of India’s GDP, and we are certain that YES BANK relationship with WU will significantly boost further granular FX inflows into India.”

Western Union president and CEO Hikmet Ersek said: “I am confident that services like the Western Union international direct-to-bank offering will encourage greater use of banking accounts and boost the government’s progressive efforts like the Jan DhanYojana.”

The direct-to-bank service is facility that allows money transfers to bank accounts in India, through the NEFT as well as IMPS clearing systems with fees starting as low as zero and transfers as quick as in a few minutes.

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Ecobank, MasterCard sign e-payment agreement in 32 African countriesAfrica’s Ecobank Group has inked a multi-country agree-ment with MasterCard to expand MasterCard payment solutions to over 32 sub-Saha-ran African countries.

The agreement aims to accel-erate the acceptance and adop-tion of electronic payments in Africa.

As part of the deal, more than 1,300 Ecobank subsidiaries will issue MasterCard-branded cards to customers in 32 coun-tries across Africa.

Also, cardholders can access their funds at millions of ATM’s

in Africa and worldwide as well as pay for products and services in 210 countries and territories where MasterCard payment cards are accepted.

The agreement will also allow Ecobank to launch thousands of mobile point-of-sale devices to retailers in selected African countries, allowing them to process MasterCard payment card transactions with their smartphones.

In addition, the deal will see Ecobank launching the MasterCard Payment Gateway Service in selected countries to

enhance online commerce for Ecobank’s small and medium enterprise, commercial and cor-porate customers.

Ecobank group CEO Albert Essien said: “Specifically, the initiative enables us to extend our MasterCard acquiring capabilities at thousands of merchants across Africa, grow our e-commerce acquiring busi-ness, and expand our service offerings to retail and commer-cial customers in Africa.”

MasterCard president Mid-dle East and Africa Michael Miebach said: “By collaborat-

ing with a leading pan-African financial institution such as the Ecobank Group with its exten-sive regional reach and estab-lished infrastructure, another successful step has been taken in ensuring access to safe, secure and convenient pay-ments via MasterCard payment solutions.”

This agreement follows a licensing agreement signed between Ecobank Group and MasterCard in January 2014 to issue MasterCard prepaid and credit cards to the bank’s cus-tomers over the next 10 years. <

DIGITAL

China UnionPay, JETCO to launch mobile payment service in Hong Kong

China UnionPay in partnership with JETCO, a payments business and ATM network, is set to launch a mobile online payment service called Quickpas in Hong Kong later this year.

The service will enable users to conduct peer-to-peer transactions after linking their mobile phone number to their bank accounts.

JETCO CEO Angus Choi said that the company will support UnionPay cards on its contactless NFC mobile payments system Quickpass later this year.

He added that JETCO intends to increase the number of terminals in Hong Kong and Macau from 3,200 terminals to 10,000 by the end of 2015.

With this service, Hong Kong users can pay up to HK$500 per transaction for goods and services in QuickPass terminal-equipped shops either in Hong Kong, Macau or the mainland.

UnionPay has already purchased a 3% stake in JETCO to promote cross-border e-payments between Hong Kong, Macao and the mainland. The financial terms of the acquisition were not disclosed.

Tappr to integrate its POS application with Mint’s payment solutionMint Payments has signed a deal with fin-tech company Tappr, under which Tappr will integrate its point of sale (POS) appli-cation with Mint’s ‘card present’ payment solution to accept a wide range of card payments.

The Tappr solution features a reader, app and dashboard analytics with a view to servicing direct SME customer chan-nels.

Under the agreement, Mint will pro-

vide merchant acquiring services to Tappr. These services will allow both the compa-nies to generate revenues from a share of the monthly fees, merchant services and transaction fees.

Tappr co-founder and CEO Brett Hales said: “Tappr will capitalise on the rapid growth in the mPOS and mobile pay-ments industry by offering the Tappr solution directly to SME’s and retailers. Tappr’s vision is to be a market leader in

the mPOS space by the end of 2015 and our partnership with Mint, a leading pay-ments solution provider in Australia, will allow us to do that.”

Mint CEO Alex Teoh said: “We are delighted to have been chosen as a pay-ments partner by such an innovative company and we are looking forward to working with Tappr to provide SME’s with a unique and cost effective POS solu-tion.” <

HSBC joins NETS payment networkHSBC has joined NETS payment network that will allow its debit cardholders to make NETS payments at 87,000 acceptance points across Singapore from 23 June 2015.

HSBC is the third foreign bank after Standard Chartered Bank and Maybank to join this network.

NETS said that the move will allows HSBC debit cardholders to enter into Singapore’s payment net-work, which has over 10 million cardholders.

Currently, 80% of retailers in shop-ping centres and 60% of neighbour-hood retailers accept payments via NETS.

The NETS Debit service, which was launched in 1986, allows partici-pating banks’ cardholders to pay for purchases electronically at the point of sale.

NETS CEO Jeffery Goh said: “We welcome HSBC to our EFTPOS net-work. The move will allow HSBC debit cardholders to pay for purchases electronically at all NETS acceptance points across the island, including top-up stations at all carparks and transit stations. The NETS debit net-work is open for participation by all QFBs and we look forward to more participation from the QFBs.”

HSBC Singapore’s head of retail banking and wealth management Matthew Colebrook said: “This is a significant milestone for HSBC’s retail banking business in Singapore. We aim to put our expertise and glob-al reach to work to meet our clients’ needs, and the launch of NETS for our debit cardholders is a significant step in achieving this strategy.”

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Westpac signs four-year PoS deal with VerifoneAustralian lender Westpac has inked a four-year agreement with Verifone Systems under which the bank will deploy over 100,000 VX 690 point of sales (PoS) payment termi-nals and accompanying online services.

Westpac will offer Verifone’s VX 690 pay-ment terminal as well as full terminal man-agement to customers leveraging Verifone’s Payment as a service platform.

VX 690 payment terminal, which features bluetooth, 3G radio and Wi-Fi connectivity, will accept all types of payments including

EMV, NFC, and mobile wallets as well as accept cards branded by UnionPay Interna-tional.

Verifone said that its platform will allow merchants to connect the terminals to its gateways for transaction routing, simplified device monitoring and enhanced payment security and compliance.

Westpac Group head of product Austral-ian financial services Steve Aliferis said:

“That’s why we are one of the first banks in the world to introduce the latest Verifone

terminals which are designed to solve pay-ment challenges and bring convenience to our merchants to accept emerging forms of payments in any type of environment.”

Verifone general manager of Australia and New Zealand Peter McLeod said: “This new platform provides Westpac Group a core end-to-end solution to help solve pay-ment challenges for merchants, enhance the customer experience and easily go to market with additional payment products and ser-vices in the future.” <

Interview: Western Union pushing for an omnichannel experience

The Western Union Company has signed an agreement with British retailer WHSmith to activate its Western Union Money Trans-fer services via Western Union’s self-service kiosks. Patrick Brusnahan reports

This service will be available in 300 of WHSmith’s high street stores and allows customers to enter their transaction details at the kiosks and pay for their transaction at a self-checkout.

On the motivation behind this move, Mas-similiano Alvisini, Regional Vice President (Northern Europe) at Western Union, said:

“What we are aiming to do is move into a new class of trade and attract new custom-ers, including mainstream customers, to our service. “We see an opportunity as there is much

more need now for people to move money cross-border. Western Union is the company

in the best position to do that.”He continued: “With WHSmith, we have

a great opportunity with our innovative technology. People are precious with time, they don’t want to queue. We have deployed the technology so people can go to a kiosk where they can stage the transaction with all their details. This is key for us as it positions us with one of the best and most popular brands on the high street and we can reach out to most of our mainstream customers.“A lot of our success here will be driven by

customer acquisition so we want to enlarge that. “Obviously, this is connected with financial

return and number of transactions. The key point here is entering a new class of trade with new technology attracting a new class of customer and making this service more accessible to customers.”

One of the reasons for this collaboration is to make Western Union a more omnichannel option, rather than just being retail, branch-based brand. This includes a big push of digi-tal channels.

Alvisini said: “Western Union has a strat-egy in place to give our customers the oppor-tunity to cross-border any payment. Today, customers want to be able to make cross-border payments without restriction. West-ern Union wants to be at the forefront of that, in the position that all of these channels are available for the customer so they can choose the best option for them.“Our digital channels are some of the fast-

est growing parts of our business. Already, 6% of our company revenue is from digi-tal. We have a strong digital presence in 25 countries already, including the UK, and it is growing in high double digits.” <

eBay board approves PayPal spinoffThe board of directors of e-commerce giant eBay has approved the planned spinoff of its online payments unit PayPal, which will trade as an independent company from 20 July 2015.

The separation will take place through a pro rata distribution of all of the stock of eBay’s subsidiary PayPal Holdings to eBay shareholders.

eBay shareholders will receive one share of PayPal common stock for each share of eBay common stock held as of the close of busi-ness on 8 July 2015, the record date for the distribution.

The distribution of PayPal common stock is expected to occur on 17 July 2015.

Following the distribution of the shares, PayPal will be listed on the market under the ticker PYPL, while eBay will continue to trade under EBAY.

In 2014, PayPal processed $235bn in pay-ments and managed 1 billion mobile trans-actions. It generated $8bn in revenue last year and worked with 10 million merchants worldwide.

eBay president and CEO John Donahoe said: “As separate, independent companies, eBay, led by Devin Wenig, and PayPal, led by Dan Schulman, will each have a sharper focus and greater flexibility to pursue future success in their respective global commerce and pay-ments markets.” <

DIGITAL

Snapcard unveils new cross-border payout solution

Snapcard, a bitcoin payment processor and e-wallet provider, has launched a new enterprise-level cross-border payout solution built on top of the blockchain network.

Snapcard said that MassPay API instantly allows merchants to send mass payments to a phone number or e-mail address without taking on any exchange rate volatility risk.

Dubbed as MassPay, the new platform has been launched in partnership with Tango Card, a rewards-as-a-service platform.

With this platform, recipients can instantly receive funds and also withdraw funds to over 15 local currencies for a fee of less than 0.25%.

According to the company, the platform will allow merchants to hold funds in US dollars, Australian dollars, Canadian dollars and euros and automatically disperse payouts with a single API call.

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MIKE LAVEN, CURRENCY CLOUD Electronic Payments International

Chaired by John Chaplin, the report looks to provide expert analysis on the global payments industry including the challenges, barriers

and opportunities that lie ahead.This year we were lucky enough to sup-

port the launch of the 2015 report, made up of the thoughts and opinions of 40 individu-als who have been part of this multi-billion dollar industry for a long time, and have done it all before. So, what did the Jury find?

Change is goodThe Payments Innovation Jury Report cov-ers a wealth of different areas within the payments industry, from mobile money and innovation in the developing world to regu-latory standards.

What really stood out to us and made us proud to be part of such an energetic Fin-Tech community, is the sheer scale of change FinTech start-ups are driving in payments; and not just from a technology perspective but also in the way that FinTech firms are being viewed by traditional players and tech giants.

By a large margin, the jury found start-ups to be the best at innovating in the pay-ments sector. For us, the start-up world has not only driven innovation in the sector but it has also captured crucial mindshare with regards to the future transformation of the world of finance.

The impact of this should not be over-looked by large financial institutions, who can be tempted to evaluate the start-up world based solely on current market share. Furthermore, when asked what the most likely future of a successful payments start-up is, the Jury saw acquisition by tech giant as the most likely option.

With the likes of Google, Apple and more recently Facebook, making inroads into a space dominated by financial services firms, this is not all that surprising.

Collaborate, not competeAlthough the Jury said that an acquisition with a bank is a much less likely endgame for a successful payments start up, it’s impor-tant to note that the majority of tech firms

are not out there to try and replace banks. Instead, they look to optimise particular seg-ments of the financial value chain, offering a solution that sits on top of existing tradi-tional systems.

This presents a real opportunity for Fin-Tech firms and banks to collaborate and the Jury was largely in agreement that the best model for established payments firms to approach payments innovation is by part-nering with innovative start-ups.

However, only if the banks open up their payments Application Programming Inter-face (API), will FinTech firms and banks truly be able to innovate together.

Understandably, banks have convention-ally been very introverted in their approach to innovation, choosing to develop technol-ogy in-house to protect themselves from out-siders. The benefits of opening up their APIs, which essentially allow two different pieces of software to interact with one another, are enormous.

Rather than overhauling their entire IT infrastructure, a costly and labour-intensive task, banks can piece together building blocks of flexible services, much like finan-cial lego, thus saving huge amounts of time and money, simply through an API.

It’s in the cloudIn reality, the Jury thought it relatively unlikely that banks would open up their APIs willingly anytime soon. In part due to concerns over security and compliance but also for fear of revenue loss or losing brand awareness, all of which were listed as some of the key inhibitors.

However, as the payments industry con-tinues to evolve to meet the changing needs of businesses and consumers, it will only be a matter of time before incumbent firms look to their younger, more agile counterparts for potential partnerships. One Juror pointed out that banks will also find themselves una-ble to compete with nimbler competitors if they are late to adopt the cloud.

On the whole, the Jury felt that most inno-vative firms deliver their services through the cloud and that established players will make more widespread use of cloud tech-

nology over the next three years. Although the approach to the cloud might be a cau-tious one, and doesn’t mean having to fully replace their cores systems, the Jury believes more and more established payments firms will use cloud-based technology to deliver standalone new services for their customers.

An area identified as a key opportunity for payments innovators to sell in news services to compliment and operate alongside exist-ing systems.

The verdictFinTech has increasingly become one of the most talked about sectors in the European technology scene, however some of the areas identified by the Jury were found to be ove-rhyped. Contactless/NFC technology in par-ticular, was pulled out by many jurors as a

‘solution still looking for a problem’. Similarly, Cryptocurrencies such as Bit-

coin were also viewed as overhyped with the underlying technology that sits behind Bitcoin – blockchain – referenced as having the power to significantly change how pay-ments are made.

Despite some areas being overhyped, there was one topic on which the Jury universally agreed when it comes to innovation in pay-ments – that it can be a significant driving force for social and economic change.

For example, in the developing world, the inception of mobile money services such as M-Pesa and bKash have dramatically impacted the way communities in places such as Kenya and Bangladesh access money, changing the economic situation of a largely unbanked population.

This is just one example among the many ways payment innovators are changing the way money is sent, moved and received around the world.

Whether it’s a standalone service or in col-laboration with a tech firm or a traditional player, the full potential of this rapidly changing industry is clear, but beyond short-term profit, payments have the ability to trig-ger real social and economic change. <

Mike Laven, CEO Currency Cloud

Payments Innovation Jury Report: Future of Payments InnovationEvery two years, the Payments Innovation Jury Report details global trends in payments innovation based on the expertise of business leaders in the payments sector from 23 countries, across six continents. Currency Cloud CEO Mike Laven writes

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EUROPEAN PAYMENTSElectronic Payments International

Europe’s payments ecosystem is in dra-matic flux. Volumes of cashless pay-ments are soaring, while cash trans-actions rapidly decline. In the United

Kingdom, a ‘tipping point’ arrived on 8 March 2015 when, for the first time ever, there were more cashless than cash payments made.

The implications for consumers, merchants, financial services companies and regulators are equally dramatic: all parties will have to adapt to the new realities, changing their practices, technology and approach to trans-actions.

For the regulators, the new payments land-scape presents particular challenges: national currency systems are becoming less relevant, and the traditional boundaries of banks and accounts are blurring. Payments via smart-phone apps or peer-to-peer networks can circumvent regulators and security and fraud issues are growing concerns, to which regula-tors are struggling to respond.

With the globalisation of payments, it is not easy for regulators to introduce effective security measures, without the risk of hin-dering innovation and future development. The pace of change, increased competition and the advent of new technology has led to regulations quickly becoming out of date. At present, regulation is prompting innovation by encouraging new business models and intermediaries and, as a result, competition is enhanced through the emergence of new entrants to the market.

SIX Payments Services is among the com-panies aiming to gain an increased foothold, with a peer-to-peer smartphone application launched at the end of May 2015 and a peer-to-merchant version in prospect for early 2016.

In the course of planning our product launches, we have had lengthy discussions with the Swiss regulators about these appli-cations. Their main concern was fraudulent money laundering, so an annual maximum turnover limit of CHF5,000 (€4,830, £3,420) was agreed. Further discussions centred on security measures to vet new customers and for authentication processes are also taking place.

The discussions were an essential part of

the planning process because our mandate is that of a secure provider with high ethi-cal standards. But, there are other players coming into the market simultaneously who aren’t engaging with the regulators to this degree. This raises important questions over whether they are and will remain compliant. Our view remains that it is essential to pro-vide long-term solutions that are accepted and approved by the regulators.

Achieving pan-European standards is a long-term ambition for the continent’s regula-tors. There are multiple obstacles to achieving this vision, however progress is being made. A few years ago, regulators operated differ-ently in different countries. Now their work is more closely aligned, and new entrants are more aware of how they need to operate across Europe, helping the industry to reach an agreed standard.

Authentication processes, for example, are becoming more ‘dynamic’ – using SMS technology to verify a customer’s identity for example, rather than ‘static’ password protec-tion. But even here, there is still a disparity in approach: some European countries are unhappy with SMS technology, whereas oth-ers endorse it.

The forthcoming roll-out of Apple Pay, whereby iPhone or Apple Watch users will be able to make instant payments using their devices, could prove a game-changer. This may accelerate the replacement of cash. Where this infrastructure is in place, we would expect to see increases in m-payment levels above 50 per cent in a year.

One recent report predicted that global e-payments will rise by 16 per cent in 2015, compared to a 60 per cent growth in m-pay-ments (albeit from a far lower base). Some European countries, including France, Italy and Spain, remain a long way behind on the adoption of an e-payments culture. In France in particular, the use of cheques is still preva-lent.

From a payments perspective, it would be helpful to have euro-wide regulations, but there is still a long way to go before we can expect to see this come to pass. The European Central Bank is currently concerned with two main areas: how to authenticate e-payments, which should become clearer by the end of

2015; and the implementation of the revised Payment Services Directive (PSD2), which was officially agreed by the European Com-mission in early May 2015.

This directive, which has been under dis-cussion for at least two years, is intended to promote a ‘digital single market’ by making internet and mobile payments cheaper and safer, for both retailers and consumers. It proposes to cap the interchange fees levied by banks, makes low-cost payments easier, cheaper and more secure, protects consumers against fraud and increases consumer rights when remitting money outside the EU.

A level playing field will be created for pay-ment services providers, new players will be able to enter the market and offer innovative services, retailers will make big savings by paying lower fees to their banks and consum-ers will benefit through lower retail prices, as the European Commission has stated.

In its latest announcement, the Commis-sion has confirmed that the measures will be brought forward, following agreement between the Commission, the European Par-liament and the Council of Ministers (known as ‘trilogue negotiations’). The Commission has argued that the agreed proposal aims to improve consumer protection against fraud, possible abuses and payment incidents, such as disputed transactions. Placing all payment providers under supervision, the new regula-tions will create the right incentives for the emergence of new players and the develop-ment of innovative mobile and internet pay-ments in Europe, according to the Commis-sion.

The Commissioner for Financial Stabil-ity, Financial Services and Capital Markets Union, has also pointed out that the agree-ment is an important step forward in making electronic payments for consumers safer as well as encouraging competition and inno-vation. The proposal is likely to be formally adopted in late 2015.

We foresee a period of positive competi-tion between global players, such as Apple Pay, and local providers. In the next three to five years we will reach a point of decision: can Apple Pay implement a Europe-wide solution? If you look at the United States, the market is far more standardised. We think it would be wise to set up a similar system in Europe, to transpose payments from one country to another.

If this does transpire, European payment providers may find it tough to compete with global rivals. The European Union might wish to support ‘home grown’ players, but in a global environment, that’s not easy.

In an atmosphere of continuing payments flux, it is clear that in the coming years, it’s still all to play for. <

Changing the Ways Europe Pays Roland Ludwig, Head of Client Relations, Management Financial Industry Services, SIX Payment Services, looks at the developments within the European payments market and the cashless revolution

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NEIL COSTIGAN, BEHAVIOSEC Electronic Payments International

One of their recent reports found that the number of victims of identity theft rose by 31% to 32,058 in the first three months of 2015, com-

pared to the same period in 2014 – with criminals increasingly using internet forums to buy and sell data.

Clamping down on payments technology and implementing increasingly tight security controls may seem the obvious approach for banks in the face of this growing issue, how-ever financial institutions are facing a com-plex juggling act between protecting consum-er data and providing the simple, easy-to-use service that today’s customers demand.

The explosion of new payment provid-ers offering innovative and faster services is proof of the value consumers place on con-venience when it comes to making online payments. The subsequent competition in the marketplace has led to payment provid-ers, established technology companies and challenger brands alike competing to reduce the barriers to entry for consumers. The ulti-mate goal is to achieve a ‘one click’ or even a

‘zero click’ process for users to authorise pay-ments. However, as many of these payments providers operate outside the normal avenues of finance, this brings further concerns for consumer security.

Traditional banks are keen to support access to digital payments and online or mobile banking, all the while keeping their customers safe. As such, many have intro-duced security tools such as card readers to enforce two-factor verification. However, forcing consumers to carry around supple-mentary technology components contradicts the purpose of using smart devices for easy access to payments and banking and reduces the benefits of speed, flexibility and simplicity that these services should offer.

Security for today’s payments landscapeFaced with this dilemma, many payments firms and banks have recently looked to bio-metric authentication to help navigate the line between security and usability. Thanks to the introduction of fingerprint scanning in a number of mobile devices, including Apple iPhones, biometric technology has recently

moved into the consumer conscience. This is an example of static biometrics, which is typically based on a user’s physical attributes.

With static biometrics, authentication is generally carried out at point of entry - the moment that a user connects to a service, whether on a PC or a mobile device. The main concern with this form of authentica-tion on its own, is that it does not account for the user during a session.

Behavioural biometrics has stepped in as an additional layer in the authentication process. This technology takes into account details such as the way in which a person interacts with a device, the force with which they hit a key, the angle they use to swipe a touchscreen, or their typing speed.

Unlike traditional security techniques, such as passwords, or card readers, which require customers to pass through a series of stages in order to complete a payment or online bank-ing service, behavioural biometrics answers consumers’ desire for minimal disruption, in that it does not require anything of the con-sumer that is outside of whatever it is they’re doing already in that particular session – whether making a payment, or checking their bank balance.

Authentication sits in the background of a website or app and as it is based on how users act, rather than what they know, it is not called out as an explicit security step. Instead the user is continuously assessed to ensure they are who they say they are – not just at point of log-in, but throughout the entire process.

Behavioral biometrics is ideally suited to mobile payments thanks to the variety of sen-sors that are available on these devices, pro-viding a rich set of biometric data. Users will brace stronger authentication if it is simple to use, and time efficient. This is particularly true on a mobile device, where the user may be swapping in and out of apps. Moreover, when banking on their mobiles, people are often on the go, and generally hoping to com-plete the function as quickly as possible– they don’t want to spend 45 seconds of a 60 sec-ond session getting through security barriers.

In the Nordics where behavioural biom-etrics has experienced wide penetration in

the banking industry, online banking has risen from twice a month to 15 to 16 times a month on average in recent months. This suggests offering a smooth authentication process can play a part in impacting user behavior. Nonetheless, a bank’s security offer-ing is never going to drive customers to switch banking providers. The industry has to focus on the overall customer experience to drive loyalty - and creating a seamless process for digital engagement with the bank is a key part of this.

Contradictory consumer demandsThe complex task of providing consum-ers with the ease of use they desire, while implementing the level of security they need does not stop there. Security experts are also forced to navigate consumers’ perception of security. While banks and payments opera-tors are working towards the nirvana of truly frictionless, yet secure banking and payments, there are instances when we as consumers want – or at least expect – to have our user experience disrupted.

The key is for the level of security disrup-tion to equate to the service which we are try-ing to access – if the risk at stake is higher, the security barriers should match this. However, we should not be faced with multiple barriers when a smooth, simple solution would be just as effective and preferable. When it comes to making payments from our smart devices, we want rigorous security that offers us flexibil-ity with minimum interruption.

As the payments landscape continues to evolve, the security space is going to be forced to keep pace with it. It’s an exciting time for both industries and we’re going to see a lot more fast-paced developments emerging from the biometrics space, as technology giants and banks alike look to improve both the user experience and security associated with this lucrative market.

Ultimately, consumers rule when it comes to technology developments and it’s up to security and payments experts to navigate their complex and often contradictory demands. <

Neil Costigan, CEO, BehavioSec

Security and usability in payments: A complex juggling actAs we continue to transfer more and more of our daily activities online, the security risks are inevitably rising. Fraud involving highly sensitive payment details is a frightening prospect for the everyday consumer and according to fraud prevention agency Cifas, this particular form of crime is on the rise. Neil Costigan writes

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PingPay gives the consumer the abili-ty to send money to each other with their mobile phone, using their number, email, Facebook, What-

sapp or through Twitter without needing any bank details. It can be utilised by Axis Bank customers and others, though if not with Axis, you can only receive payments.

Fund transfers are available twenty-four hours a day and free of cost up to a maxi-mum of approximately $782 a day. Texts, images, video or audio messages can also be attached to increase the social aspect of the solution.

This is a grand opportunity for Axis Bank. India currently has 110 million users on Facebook, second only to the 150 million users in the United States of America.

While this is of great utility to the largely underbanked and unbanked population of India, it is not necessarily the segment the Axis and Fastacash are aiming for.

The social media generationWhen speaking to EPI, Sohini Rajola, head of electronic banking at Axis Bank, says:

“This is basically targeted at more of the youth as they practically live on social media. You could even say they breathe it, but there can be many businesses customers that can come out of it. We believe that a lot of small businesses can use it when asking for pay-ment. “It depends which segment really takes

it up, but the whole premise is that we’ve changed the dynamic from just sending money to asking for money being the key activity here. “When you put that it in that perspective,

anyone from your driver to your grocer to anyone you owe money to anyone offer-ing a service can virtually be asking you for money on this social platform.”

Radhika Angara, chief marketing officer of Fastacash, says that Fastacash’s product is doing what banks are failing to do; under-standing the digital consumer.

She says: “What makes this solution fun-damentally different from some of the solu-tions that banks are offering is that they have

understood what social media and social platforms are being used by the Indian con-sumer. “I think our solution meets the needs

of [the underbanked and the unbanked] because they are on their mobile phones, they actually have started using social media. When you look at the underbanked popula-tion, it could be a youth population as well. It doesn’t necessarily mean they don’t have access to the banking network, it’s just that their tastes are different.”“We are looking at people who are rela-

tively tech-savvy, who are using their mobile phones in various situations and are using social messaging, as well as social networks. “You’re absolutely right in that the

underbanked and undersold comes into that, but they’re not the bottom of the pyramid.”

SecurityOnce you register with the app, the time taken to send the money relies completely on how soon you can select your friends and choose the amount. While this suggests a level of ease which could put security at risk, Axis is adamant on its safety.

Rajola says: “We follow the same two-factor authentication that is required. The difference is that we’ve made the user experi-ence very smooth. “When the originator of the transaction is

the sender, say me, then I set up a PIN code, send you the money and a link and you have to enter the code as well. In both sending and receiving, there is two-factor authenti-cation.“Because it is a financial transaction, secu-

rity is absolutely paramount. The links that are sent cannot be copied. It’s as secure as you would consider any banking app to be.”

“It isn’t just taking on Facebook or Twit-ter, but really understanding that the con-sumer is a constant in social channels and we need to give the consumer a choice of which social channel to use when making payments. “It needs to be a choice that the sender can

make and that’s the beauty of being a solu-tion that is agnostic to social networks as well as payments channels.”

Expanding horizonsFastacash’s ambitions are not just limited to the market it is already involved in; not only India, but Vietnam, India and Russia as well. It wants to expand to high spend, high receive and large domestic markets across the globe.

Angara says: “If you look at our strategy, I would define it as being three-fold. We’re interested in international remittances. There are key spending markets, such as the UK and the US. This is defined as countries with large migrant populations where the money is being originated. “Our focus is to build our presence in some

of these larger spend markets.“That automatically translates into us hav-

ing the receive network in place. Our focus is also to expand into these markets. India and a lot of South East Asia fall into this category.“Then we have the large domestic markets.

The reason for this is that people are moving from cash-based economies into the mobile payments space. “The penetration of mobile payments is

high but the unbanked population is also extremely high. “People are looking for these newer tech-

nologies to allow them to go from cash based society to a more digitally driven one. That’s happening through mobile phones, a result of which will translate into mobile payments as well.”

Looking aheadAxis has high hopes for the product and wants it to be fully ingrained in India’s finan-cial sector.

Rajola concludes: “Within the year, we expect to have had over a million downloads. In this, we believe that we will have a very high level of active usage.“What’s important for banks is to be rel-

evant to our customers. I can’t reel my cus-tomers away from social channels. “Banking transactions should be as fun

for them as posting a holiday picture. It shouldn’t be a drag or drudgery. “I’ve got to make it simple for my custom-

ers and if social media is where they are, then that’s where we’re going.” <

Social and accessible payments with PingPayThe new collaboration between Axis Bank and Fastacash has led to PingPay, India’s first multi-social payment app. For consumers, whether they are customers of Axis Bank or not, could this be the beginning of a new, open, social payments sector? Patrick Brusnahan speaks to both companies on this development

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There is a relentless pace of change driving digital innova-tion in the banking sector. However, there isn’t going to be a big bang moment and the system won’t change over-night, according to Simon Cadbury, head of strategy and

innovation at Intelligent Environments. Adding weight to the analysis, Cadbury said: “There are more chal-

lenger banks offering modern and competitive systems. If banks want to keep up, they have to adapt. If that goes well then big changes can be made to people's lives.”

While some panel members wanted to eradicate legacy infrastruc-tures, others preferred to modify existing IT systems on a piece-by-piece basis.

The debate covered cultural modernisation from the consumer’s per-spective and whether this will allow current banks to maintain market relevance. If this doesn’t happen, traditional financial institutions will be picked off by challenger banks and Cloud platforms in the next five to ten years.

A full house of members listened carefully to the straight-talking panellists, while group editor of Timetric’s consumer finance publica-tions, Douglas Blakey, chaired the event.

A plethora of contemporary issues soon followed, including business to business collaboration, whether small banks versus big banks is a legitimate argument, product testing and the impact Apple, Google and PayPal will have on banking ecosystems.

Cadbury said: “There are three phenomena changing the face of British banking right now. The first is obvious, it is digital, but we also have an array of new competitors which are shaking up the banking system by creating principal forms of interaction that are digital only.

The current online climate, he added, is revolutionising not only British banking, but the way we interact with each other.

This cycle, the panel agreed, impacts public expectation and in turn the digital experience.

Cadbury continued: “The new financial entities come from small and simple backgrounds yet are top for innovation and continue to change the way consumers use services. They come in the form of banks like Fidor and Atom who are trying to become fully accessible in their own rights. So for example, Anthony Thompson, the co-founder of Atom Bank, believes he can deliver a 30% lower cost-of-income

ratio in comparison to a traditional bank.”Presently, three of the big British banks cost income ratio stands at

RBS with 68%, Barclays at 64% and Lloyds at 47.7%.Yet across Europe, retail banks have digitised only 20% - 40% of

their services while 90% invest less than 0.5% on digital innovation, according to McKinsey’s figures from 2014.

However, Cadbury argued: “The third and final point is that current infrastructures shouldn’t support digital debt. The legacy is creaking at the seams and seems Victorian in comparison to new competitors.“We are also seeing evidence from organisations like the Tower

Group who are saying the cost of a branch telephone transaction is up to forty times the cost of a digital transaction, so we are really at a very early stage in this journey.”

A low digital offering from bank to customer has serious poten-tial to alienate millennials, tech-savvies and business people, who are increasingly self-directed when it comes to money management while looking to download apps and other interactive platforms that help prioritise expenses.

Richard Fraser, managing director at Global Financial Institutions and FIS, disagreed that legacy banking was crumbling and that while digitally transforming financial services is inevitable, he thought it dif-ficult ‘to create real relevance unless there is a big enough franchise’.

Fraser argued: “We've seen improvements, a few of them have been mentioned already, but when you add it all together the result has not revolutionised true change in the way people make everyday transac-tions.”

When pressed on whether legacy infrastructure was holding back digital innovation, in relation to the recent IT system failure at RBS, Fraser suggested that modern life is now so reliant on timely payments that as soon as one system outs, the cost to the consumer is drastic. This, he argued, detracted from successful ‘layers of integrative appli-cations’ which have seen legacy and new systems work comprehen-sively.

Echoing this view, albeit from a different perspective, Benjamin Ensor, director of research at Forrester, added to the RBS system failure topic by suggesting the cost of replacing certain, big institutions legacy infrastructures ‘is greater than your royalties or profit’.

On closer examination, Ensor said: “Regulations are pushing down

The Digital Banking Club: “Get people together and invest in the future”A panel of financial experts gathered at the historic Law Society on Chancery Lane to debate legacy infrastructure and the constraints it places on digital innovation. However, with legacy systems bogging down banking infrastructure, can the banks effectively innovate? Franchesca Hashemi writes

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markets, plus banks are losing competition. So your margins are gradually squeezed. This leaves the bank’s ability to invest and make statutory system payments diminishable yet. In light of RBS, however, legacy infrastructure cannot be ignored for much longer.”

Roy Vella, managing director and consultant for V2, offered a solu-tion to the banking sector’s legacy-to-digital transition. His thinking effectively removed the middle person from any financial equation, while instead focusing attention on remote brand loyalty.

Vella said: “There is a modern and alternative system, which doesn’t have to be built in house or be stored on servers. The result is a plat-form that crosses between mobile, online and finance.

The digital entrepreneur and independent advisor went on to explain the benefits of running a modest banking IT system.

He added: “Interoperability and coherent relationships with differ-ent providers will create a superior and manageable route forward. This is exactly the reason why Amazon is so successful.

“It’s an old mentality that hypothesises on the inability to run legacy structures as they are, but we don’t need to think that way. In the modern world, everything is open and you only lock away items which need to stay secure - the question of whether a thirty year old legacy system should stay in place is ridiculous.”

Pitting old technology against new creates a valuable opportunity. The grey area between both issues can be filled with five key areas, according to Cadbury, that will help ‘incumbent and struggling banks’ seize the day.

He continued: “The first is mobile, and the fact there is a much bet-ter understood user interface and experience. That should be at the heart of what they do. Then look at a social media, challenge again the community aspect and send your message across in a cost effective and instantaneous way, while harvesting the data garnered from both platforms. “Helping customers understand their money and the organisation’s

proposition will instil a level of control and confidence. And not to

forget niche markets, fill the gaps in society because nothing these days is blindingly obvious. Trends come along that shock and surprise you: the world changes.”

The zenith of Cadbury’s five point plan was collaboration and cul-ture. This, he went on to state, will enable architects of legacy banks to reinvent their core system, while potentially opening the gates to a bigger target market.

Jake Chambers, head of innovation and insight at Nationwide, con-ceded that new IT systems were advantageous. However, he added that it is far more complex than stated to successfully operate and manage new digital infrastructures within start-up financial organisations.

Chambers said: “Some banks today have invested in modernising their legacy infrastructure, Nationwide restructured; others are repli-cating their systems with new variants already.

Furthermore, Chambers reasoned: “The point is you have to keep investing in your organisation: IT, the way you make decisions, the way your employees work, being able to respond to the changing world around you. This, alongside agility, is the essence of financial modernity. “It is an ongoing practice, and there is more to it than throwing your

hands in the air and declaring a new IT system will set your organisa-tion up for life. “

The panellist’s conflicting visions were soon balanced by a shared pragmatism: to create a virtual and physical community that focused on financial service’s interaction with consumers and potential employ-ees.

Nowadays, 71% of people would rather visit the dentist than listen to their bank manager, while 68% think the way in which we access money in five years’ time will be completely different to now, accord-ing to Fidor Bank’s latest statistics.

Investing in the culture of a financial organisation lay at the heart of the legacy debate. Hi-tech software aside, consumers have to want the technology created for banks by Fintech companies, and what better

Panellists Simon Cadbury Head of strategy at Intelligent Environments Simon joined Intelligent Environments in November 2013 as head of strategy and innovation. He came from Lloyds Banking Group, where he was responsible for payment technology and sat on the leadership team for credit cards. Having worked with Transport for London during the initial stage of the contactless payment project, Simon’s thorough understanding of the field has enabled an impressive catalogue of relative ventures, including mobile contactless payment projects with Lloyds, Visa and Samsung, product development roles with BT, (where he helped develop Europe’s first Blackberry and public Wi-Fi service, Vodafone (launching 3G in Australia) and BSKYB.

Jake Chambers Head of insight and innovation at NationwideJake leads Nationwide’s digital strategy, research and innovation team.

Alongside a deep understanding of consumer needs and unparalleled creative flair, Jake front’s Nationwide’s digital ambition and takes business steps necessary to maintain and develop his bank’s customer-focused products. At the heart of it is Jake’s commitment to helping customers get the best value for money, a job he’s been doing for Nationwide since 2012. Before this, Jake worked in strategy, customer and competitor intelligence for Vodafone. His most recent role was head of market intelligence, where he led a team responsible for analysing market trends and competitor activity.

Benjamin Ensor Research director at ForresterBenjamin serves eBusiness and channel strategy professional, where he researches the intricate nature of consumer perception, adaptation, and use of new technologies and the impact consumer behaviour has for business

executives and their company’s goals. The information is invaluable to Benjamin’s professional counterparts, providing stats and insight on consumer segmentation, business models as well managing multiple and diverse distribution channels. During his 16 years at Forrester, Benjamin has worked in the company’s technographics, financial services, and eBusiness channel and product management professional teams.

Richard Fraser Managing director at Global Financial Institutions, FIS Richard’s career began in retail banking as a management trainee with Northern Rock during the 1980s. He then went on to join the Nottingham Building Society and Bank of Scotland joint venture in 1984, which launched the United Kingdom’s first home-banking service. A few years later, Richard joined forces with FIS, first in sales and marketing roles then moving to IBM in 1995 as its head of the newly formed core banking solutions unit.

Re-joining FIS in 2009, Richard currently leads the GFI team and supports the company’s largest European clients.

Roy Vella Managing director at V2Roy is a digital entrepreneur and independent consultant to brands such as Visa, Vodaphone, GSMA, and small start-ups. Before offering his expertise at large, Roy served as leader of RBS global mobile banking efforts. Before this, he spent five years at Paypal, starting out as director of business development in USA merchant services before leading the mobile payments initiative across Europe. Prior to Paypal, Roy worked as VP of sales and marketing at 4charity, Inc, then as partner of Quantum Technology Ventures (which is a corporate VC firm focused on the storage industry).

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way to innovate than asking people directly what products will help them manage their life?

Ensor led the notion that success is met when customer centricity is based on collaborations as well as culture, making the quality over quantity argument as pertinent as ever.

He claimed: “It is about the attitude of a financial organisation and its willingness to invest in products and development, all of which are valuable to customers. The alternative is to continue as before, trying to make a profit off existing systems and fiddling with the rates. “Technology is an enabler. It is putting the transparency back into

banking for the benefits of its customer: from automated emails, send-ing money online, to the mount of people who now manage their accounts digitally.”

The big bank and small bank question proved popular in this debate, as Ensor continued to say that digital innovation is irrelevant to ‘the size of company, but rather take into account its willingness to change’. “It’s just not the case that big banks are doomed and small ones will

be okay. It's all about the culture in the organisation and whether they can be agile. So the premise of the digital debate should not take into account size but rather the organisation’s aptitude for innovation.“Regulations are pushing down markets, plus banks are losing

competition. So your margins are gradually squeezed. This leaves the bank’s ability to invest and make statutory system payments diminish-able yet. In light of RBS, however, legacy infrastructure cannot be ignored for much longer.”

The panel agreed on a need for technology infrastructures to part-ner with companies and use the abilities of other Fintech firms. Fur-thermore, Fraser suggested a shared service approach could ease and potentially safeguard established banks transition away from legacy infrastructures.

Coming in with a different take on the subject, Jake Chambers stat-ed: “No bank is perfect. That’s why we innovate. It is about trying to better the business.

Nationwide’s head of strategy drew on one particular example that strained his bank’s dip into digital: “The mobile operators at Nation-wide realised that trying to run everything early on was a losing battle, and that collaborating with established network providers like Apple and Google would prove beneficial in the long run. “It was a painful journey. We had to give up some ground and see

what other people and businesses could do for us.”The panel agreed on a business technology agenda, with reference

to small and unknown software companies developing into gigantic international brands, including PayPal, EBay, Amazon, Apple and Google.

Chair of the debate, Douglas Blakey, rounded up the discussion with a final proposition: if the financial sector took into account digital innovation on an Apple-scale, what would become of legacy infra-structures?

While Jake Chambers viewed aspects of the sentiment as ‘paradoxi-cal’, he also cited ‘brand loyalty, in the form of John Lewis’ to empha-sise a financial services appeal. On the other hand, Roy Vella listed Russian Standard as having a fantastic reputation amongst clients.

Vella expanded on this by stating two vital dynamics fundamental to successful digital innovation: “Customers at the centre, then test and learn. Taking up a scientific method and approach to your commer-cial business, involve the customer in the process of decision making. Without this, you won't attain innovation and drive.”

However, as Simon Cadbury pointed out: “Involving all aspects of your organisation, from finance to corporate, will create a highly inno-vative atmosphere.

“Get people together and invest in the future. Then will it become apparent that you can't test products by sitting in a room and talking about them. It is vital to get out there and see what happens.” <

EPI 335 (2).indd 12 07/07/2015 15:53:08


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SINGAPOREElectronic Payments International

Singapore’s payment cards market is one of the most highly com-petitive and attractive markets in Asia-Pacific. Singapore’s payment

cards market is mature and over served, with credit and debit card penetration rates of 1.7 and 2.0 respectively per inhabitant in 2014. In terms of transac-tion value and volume, Singapore’s pay-ment cards accounted for 0.6% and 1% shares respectively in the Asia-Pacific region in 2014.

During the review period (2010–2014), Singapore’s payments cards market changed rapidly with the center of innovation shift-ing from products towards channels and ser-vices. Although banks continue to develop new products, this tends to be little more than fine-tuning and modification of exist-ing products. Banks are increasingly using micro-segmentation to attract new custom-ers and encourage customers to spend with their own bank’s cards. Strategies such as personalized card designs and segment-spe-cific promotions and benefits were increas-ingly used during the review period.

Electronic payments gaining prominence in SingaporeElectronic payments in Singapore have steadily gained ground, and the country has invested substantially in building long-term infrastructure for cashless payments. Afford-able and widely available financial products, a competitive merchant marketplace, and a transparent business environment are strongly connected with progress toward cashlessness.

The advent of contactless technology, mobile payments and chip-and-PIN technol-ogy drove the shift towards electronic pay-ments. Contactless payments based on Visa payWave, MasterCard PayPass or NETS FlashPay were launched by several banks during the review period. Similarly, mobile phones supporting contactless payments are already available on the market, and both their number and use are expected to grow further over the forecast period.

Banks introduced one-time passwords (OTP), SMS and email alerts, and replaced

magnetic stripe cards with Europay, MasterCard, Visa (EMV) cards to help prevent card fraud. All card-based trans-actions in the country are processed via EMV-compliant payment cards and card readers. As electronic payments become more widespread, consumer convenience will increase and the inconvenience of han-dling cash will be reduced.

‘Intelligent Nation 2015’ to support growth in the cards and payments industryThe ‘Intelligent Nation 2015’ (iN2015) mas-ter plan, drawn up by the Singapore govern-ment, is expected to support to the growth of the cards and payments industry over the forecast period. The program aims to pro-mote electronic payments through increased adoption of near-field communication (NFC) mobile payments with the establish-ment of an interoperable infrastructure for NFC services.

The government of Singapore earmarked $20.6 bn (SGD26 bn) in investment in the development of infocomm infrastructure under the program, helping to expand elec-tronic and mobile payment platforms in the country.

Alternative payment instruments expected to boost cashless paymentsConsumers are increasingly inclined to use faster and more secure payment options,

resulting in mobile operators, traditional and online retailers, and other service pro-viders introducing efficient digital payment options.

Digital options including online and mobile payments are being conducted through alternative instruments such as PayDollar, Fastacash, PayPal and MOL-Points. These instruments are not only supplementing traditional cashless pay-ments, but also changing the way consum-ers and merchants transact. The launch of the MasterPass digital payment platform by MasterCard in June 2014 is expected to further shift consumer focus on digital pay-ments.

Growing prominence for mobile paymentsAccording to the MasterCard Mobile Pay-ments Readiness Index report released in 2012, Singapore was the most advanced market of the 34 countries surveyed, includ-ing the US, the UK and China, with a readi-ness score of 45.6. The country’s highly developed infrastructure, financial system and regulatory structure are the main rea-sons for its top ranking in this index.

Mobile payments are well established in Singapore, and consumers are very comfort-able with various types of electronic pay-ment; many use smartphones to make pay-ments. With technological developments, increased smartphone penetration, a robust mobile banking infrastructure, and banks’ introduction of advanced security measures led to growth in mobile payments in Singa-pore.

In June 2014, Standard Chartered Bank in partnership with telecoms service provider SingTel introduced the Dash mobile money service, which allows consumers to down-load cash on their mobile phones directly from their bank accounts. Consumers can use the service to make payments at nearly 20,000 payments points in Singapore. <

Singapore’s attractive card marketAs one of the most mature payment markets within the Asia Pacific region, Singapore is attracting a lot of attention. However, is this level of growth set to continue, stabilise, or drop?

n SINGAPORE CARD TRANSACTION VALUE BY CHANNEL ($ BN), 2010–2019

20102011

20132015

0

20

40

60

80

100

20182016

20142012

US$ bn

20172019

ATM

POS

Source: Bank for International Settlements, Monetary Authority of Singapore and Timetric

EPI 335 (2).indd 13 07/07/2015 15:53:09


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TURKEY Electronic Payments International

Turkey’s payment cards market is one of the most highly competitive and attractive in Europe, and is known for its emphasis on innovation. A

wide range of factors – such as successful economic performance, young popula-tion, qualified and competitive labor force, liberal and reformist investment climate, well-developed infrastructure, strategic geographical position, low tax rates and incentives and a large domestic market, as well as customs union with the European Union (EU) – make Turkey an appealing market to banks and card issuers. Conse-quently, the Turkish payment cards market flourished during the review period (2010–2014). In terms of transaction value and volume, the Turkish payment cards mar-ket accounted for respective shares of 6.2% and 5.8% in the European region in 2014.

Cashless payments enables growth of card paymentsWhile cash continues to be an important part of the overall payments system, it is increasingly being displaced by payment cards. To capitalise on consumer prefer-ences, banks and card issuers have adopt-ed various marketing and pricing strate-gies to encourage customers to increase card-based payments. Common strategies include offers, product discounts, reward points and insurance cover.

Additionally, leading banks and the Interbank Card Centre of Turkey (BKM) have conducted various marketing initia-tives to create consumer awareness of the benefits of payment cards and to encourage consumers to opt for cashless payments, such as the ‘Bye Bye Cash’ campaign, with the aim to eliminate cash entirely by 2023.

BKM intends to raise awareness regard-ing debit card use for all transactions, increase total frequency of card use, make new users aware of card features and encourage merchants to direct its clients to cards. With campaigns and initiatives from Turkish authorities, payment card transac-tion values and volumes are projected to increase over the forecast period.

Furthermore, in contrast to payment at physical retail outlets, most online pay-

ments are being made without using cash, with alternative payment instruments becoming increasingly important. Exam-ples include BKM Express, PayMobile, 3pay and iyzi Payments, among others. Such alternative payment instruments are not only complementing traditional cash-less payment instruments, but are also increasingly displacing them.

Increasing presence of foreign banks escalate competitionThe Turkish cards and payments industry is dominated by domestic banks, which generally have strong loyal customer bases. Competition is intensifying, however, with increasing international presence and the introduction of contactless technology and a mobile wallet. Leading global banks such as Citibank, HSBC and ING Bank also strengthened their presence in Turkey.

To compete, domestic banks have begun to introduce innovative products and expand the banking infrastructure. Almost all leading banks such as YapiKre-di, Ziraat Bank and İşbank have invested in new innovative products, services and marketing campaigns during the review period.

Reward and discount programs, custom-ised cards and co-branded products are time and again being developed by domes-tic banks in order to retain market share.

New regulations are expected to curb the rising credit card debtIncreased competition has caused banks to create new strategies to attract more cus-tomers.

Rewards and bonus points are some of the most common features which banks offer on credit card purchases. Customers can accu-mulate points and redeem them for exciting offers such as shopping discounts and free or discounted air tickets.

Banks in Turkey charge higher inter-est rates for credit card borrowing than for consumer loans. The Central Bank of the Republic of Turkey (CBRT) therefore advises credit card holders with short-term credit needs to seek a consumer loan, rath-er than borrowing on credit cards.

Credit cardsOutstanding credit card debt in the country grew significantly during the review period, going from $156.0bn (TRY234.5 bn) to $212.3bn at a CAGR of 8.01%.

Amid this mounting credit card debt, the Banking Regulation and Supervision Agency (BDDK) introduced a new set of credit card regulations in October 2013.

Under these regulations, payment in instalments is limited to six months for purchases in electronics, jewellery and car rental, while it is limited to a maximum of 12 months for purchases of domestic appliances and furniture. Furthermore, the minimum monthly payment on credit card dues has been increased from 25% to 30%.

Payments in instalments will be allowed at grocery stores or for gasoline purchases. The new restrictions on credit card instal-ments, along with the latest regulations regarding minimum payment amounts and limits, are expected to slow the growth of the credit cards market over the forecast period. <

Turkey’s payment delightsAs one of the most innovative payment markets in Europe, if not the world, Turkey is currently excelling in this sphere. Other markets are beginning to take notice and are rushing to grab their share

n TURKEY’S CARD TRANSACTION VALUE BY CHANNEL ($ BN), 2010–2019

20102011

20132015

0

60

120

180

240

300

20182016

20142012

US$ bn

20172019

ATM

POS

Source: Interbank Card Center, Bank for International Settlements and Timetric

EPI 335 (2).indd 14 08/07/2015 11:05:28

Canada has long been an established, modern, efficient and well-developed payments cards market. The market comprises debit, credit and charge

cards, and Canadian consumers are among the heaviest users of payment cards in the world with card penetration rate of 3.8 cards per individual in comparison to other mature markets such as the UK (2.5), Germany (1.7) and France (1.3).

The traditional notions of a payments card market, which revolve around payment net-works, financial institutions and payment processors, have evolved. The range of non-traditional competitors continues to expand, as does the range of businesses and technolo-gy through which payment services are deliv-ered to consumers and merchants.

Canada is poised for progress on tech-nological fronts such as m-payments. Its approach has been to make m-payments capability ubiquitous, recognising that con-sumers will benefit. Already pressing ahead with the adoption of EMV technology, and with the growing presence of contactless pay-ments, key infrastructure is already in place. In this context, m-payments will form a natu-ral extension of the established infrastructure.

Canada’s acceptance of contactless tech-nology has led to the introduction of virtual wallets by both financial and non-financial companies. Examples include Google Wallet launched in 2011, Suretap mobile wallet in 2013 and LoopWallet in 2014.

The changing competitive landscape in the debit cards marketDebit cards are an important part of Cana-da’s payment cards market, and according to Canadian Bankers Association (CBA) statistics released in October 2014, 94% of the total population has a debit card. In 2014, almost 34% of all transactions at POS ter-minals in Canada were settled by debit card.

The competitive landscape has gradually started to change, and Interac’s dominant position could be challenged. Furthermore, MasterCard announced plans intentions to launch debit cards in mid-2015. Internation-al scheme providers will also take advantage of the fact that all POS terminals support EMV-compliant cards.

Credit cards market is headed for upheavalThe Canadian credit cards market is concen-trated in terms of transaction value, with the five leading issuers accounting for a 73.7% share in 2014.

Changes are anticipated in the credit cards market between 2014 and 2019 due to gov-ernment intervention to regulate the market. The intervention aims to reduce the cost of credit card acceptance for merchants, to keep prices affordable for consumers.

In November 2014, Visa and MasterCard agreed to reduce the interchange fee on credit card purchases, and limit the amount charged retailers to process transactions to 1.5% of the transaction value.

The move is anticipated to cost banks and card issuers 10% of their business rev-enues. To compensate, banks and card issuers are anticipated to raise annual fees, amend reward programs, and increase interest rates on credit cards and related fees for card ser-vices.

Growing popularity of mobile paymentsThe MasterCard Mobile Payments Index Report released in December 2013 stated that Canada was the second-most-advanced market of the 34 countries surveyed, includ-ing the US, the UK and China, with a readi-ness score of 42.0. Technological develop-ments and an increase in smartphone pen-etration, coupled with the introduction of

advanced security measures by banks, led to the growth of mobile payments in Canada.

Consumers are using mobile payments for e-commerce purchases or bill payments via mobile banking apps and websites. To sup-port mobile payments, banks are offering advanced features through mobile banking apps. This includes the introduction of NFC payments by TD Canada Trust in May 2014, allowing consumers to make contactless pay-ments with NFC-enabled mobile phones at Visa PayWave POS terminals.

Similarly, In November 2013, President’s Choice Financial (PC Financial) and TD Bank Group launched an open near-field communi-cation (NFC) mobile wallet called Ugo, which enables consumers to pay, earn and redeem loyalty points.

Mobile payments are set to grow over the forecast period, with more consumers able to make contactless payments through NFC-enable phones. According to Visa, 80% of consumers will be able to make contactless and NFC payments by 2016.

According to the Technology, Media & Telecommunications Predictions 2015 report, 2015 will be the “tipping point” for retailers, banks, and telecommunication companies to adopt NFC technology. Its growth will be encouraged by a rising number of retailers accepting contactless mobile payments, and a change in consumer attitudes to mobile pay-ments.

In April 2015, Apple announced plans to launch its Apple Pay electronic payments service in Canada in November 2015. The company is in talks with six major Canadian banks to introduce the payment service for both credit and debit cards on iPhone and the Apple Watch, The Wall Street Journal reported. The anticipated launch of Apple Pay in November 2015 is likely to encourage competition in the Canadian cards and pay-ments industry. <


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CANADAElectronic Payments International

Canada’s digital pushIt should comes as no surprise to anyone that Canada is a well-established and well-developed payments market. What may come as a shock is that it is still looking for ways to innovate further

n CANADA’S CARD TRANSACTION VALUE BY CHANNEL ($ BN), 2010–2019

20102011

20132015

0

120

240

360

480

600

20182016

20142012

US$ bn

20172019

ATM

POS

Source: Interac and Timetric

EPI 335 (2).indd 15 07/07/2015 15:53:10


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JOHN RAKOWSKI, APPDYNAMICS Electronic Payments International

Firstly, millions of Nationwide cus-tomers were unable to access their accounts on Monday 15 June after a glitch during a planned IT upgrade

caused current accounts to apparently disappear.

Further still, two days later, RBS suffered a major glitch that affected 600,000 payments, which in some cases left customers unable to receive their wages or pay their bills.

From once glance on Twitter, it was clear that banking customers had had enough, with many of them vowing to change to alternative providers.

As most established banks have built their technology systems up for years through a number of mergers and acquisitions, they have been left with fragmented systems that serve as a ticking time bomb for customers.

Although banks have been reluctant to update these legacy systems due to the high costs and risks involved, a failure to intro-duce the latest tools and systems will ulti-mately mean a loss of customers and revenue.

This will of course take a vast amount of investment. Nationwide recently invested $2bn to overhaul its systems, and clearly still has some way to go.

However, with new, more flexible entrants to the market such as Atom bank and Renault challenging for market share, the pressure to innovate for today’s consumers is more important than ever.

To succeed, banks need to understand that account holders no longer distinguish between online and offline worlds and expect all experiences to be seamless.

As mobile applications and online banking are often the primary channel that consum-ers use, banks need to prove to customers that their online services are up to scratch. But how do CIOs deliver innovation while maintaining a high level of customer service?

What is holding them back?Accenture surveyed 25 senior banking executives from across European banking organisations - three quarters of respond-ents felt their banks have a “fragmented or opportunistic” approach to dealing with digital innovation. Furthermore, the report

details that 40% think the time it takes their organisation to deploy new technology is too slow. This is noted as negatively impact-ing organisations’ ability to realise value.

The majority are reported to believe that the banks lack the “skills and culture needed to succeed in the digital age”. This state of play is contributing to the rise of challenger banks across Europe.

The rise of the software-defined bank puts a renewed focus on innovation; how-ever, one of the main pressures on banks today is the increasingly high standards of performance and reliability that consumers demand from their mobile apps.

Given growing competition in the retail banking sector, online banking services must meet the highest standards of performance and reliability, regardless of time, location or device.

Additionally, a great mobile banking ser-vice must also provide a far greater range of services than traditional banking, all in the context of customer.

To achieve this, banks must ensure cus-tomers have 24/7 access to key services, whether it be through proactively predicting when their applications will experience surg-es in traffic or spotting and fixing emerging glitches in real-time, before they impact experience.

Although it could be argued that technol-ogy problems of some kind will always occur, organisations must ensure they have end-to-end visibility of their digital transactions in order to identify and repair performance glitches as quickly as possible.

Without this, banks are often looking for a needle in a haystack.

For example, RBS took over two days to solve the banking problem which is far too long for out-of-pocket customers.

With the correct application performance monitoring and analytics solutions in place, banks can spot the root cause of problems much more rapidly, minimising the level of damage done.

Apps are importantCrucially, CIOs will also need to think more about the performance of their applications

and the experience they provide if they are to remain relevant. Application Intelligence and performance monitoring solutions will be even more necessary if other organisa-tions are to follow suit.

IT departments need to look at where the most value can be added in innovating finan-cial services IT.

As customers expect the ability to man-age their accounts online at all times, many banking applications are not providing the performance - or even the services they need, in order to remain competitive.

The solution for the software defined bankProviding perfectly-performing mobile ser-vices that can deal with millions of transac-tions a day relies on complex, distributed applications working seamlessly.

It’s made harder still by the added com-plexity that comes from managing the mix of the requisite software, hardware, cloud services, app developers, third party web services and so forth.

All this, piled on top of the antiquated leg-acy IT systems that many traditional banks have accumulated, makes for a high risk sit-uation that neither challenger nor traditional banks can afford.

Software defined banks with highly com-plex IT architectures need to employ sophis-ticated analytics and monitoring applica-tions to help mitigate the risks mentioned above.

APM (Application Performance Manage-ment) solutions give online financial services certainty about the operation of their busi-ness, IT infrastructure and applications in real-time, and enable them rapidly respond to, or even predict, issues that may arise.

The digital-only Atom Bank might just be what Britain needs, so perfect performance will be imperative in a software-defined age where digital dispensation is never given on loan. <

John Rakowski is solutions evangelist at AppDynamics

Beating back bank outages and glitchesThe RBS outage has been a stark reminder of the IT problems that plague the financial services and banking sector with customers locked out of accounts and unable to make and receive payments. John Rakowski, solutions evangelist at AppDynamics examines the problems and looks to the solutions

EPI 335 (2).indd 16 07/07/2015 15:53:10

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The Payments Innovation Jury Report

Documents

Transcript of The Payments Innovation Jury Report