Payments Innovation and National Payment Strategies

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1 Payments Innovation and National Payment Strategies Peter Sidenius, Director Warsaw 9 December 2015

Peter Sidenius peter.sidenius@edgardunn.

financial services and payments consultancy.

range of strategy consulting services, expertise and market insight.

EDC leverages its global footprint and 30+ years of experience to facilitate development and

2 Peter Sidenius Global Financial Services & Payments EDGAR, DUNN & COMPANY (EDC) is an independent global financial services and payments consultancy. Founded in 1978, the firm is widely regarded as a trusted advisor to its clients, providing a full range of strategy consulting services, expertise and market insight. The financial services and payments industries are increasingly cross-border and global enterprises EDC leverages its global footprint and 30+ years of experience to facilitate development and implementation of successful strategies for our clients that satisfy both their market-specific and global needs Experts in Payment Strategy & Consulting Today we serve clients in more than 45 countries on six continents from eight locations worldwide 2

3 From Atoms to Bits (this) book is made of "unwieldy atoms" that will probably be replaced by a digital copy by the time anyone reads it Nicholas Negroponte

4 Digital Transformation Communications Computing Digital Transformation 4

5 Billions Source: KPCB; World bank data; Google public data Billions Old technologies being replaced by new Fixed-telephone subscriptions Mobile-cellular subscriptions 1,28 1,26 1,24 1,22 1,20 1,18 1,16 1,14 1,12 1, ,00 7,00 6,00 5,00 4,00 3,00 2, Fixed wired broadband Individuals using the Internet 0,80 0,70 0,60 3,50 3,00 0,50 2,50 0,40 0,30 0,20 2,00 1,50 0, ,

6 Quicker Path to Critical Mass To reach 50 million users Telephone Television Internet IPod IPhone Facebook Android 38 years 13 years 4 years 3 years 2 years 2 years 1 year More recently? Angry Birds 35 days Within ten years: 50 billion devices will be connected to the web up from 5 billion today Payments initiated by mobile devices will outnumber transactions initiated by plastic cards

7 Digital Disruptors Host Pays 3% Guest Pays 6-12% Source: Provider websites 7

8 Payments Innovation Cloud computing Physical Digital 8

9 The current favourite Confidential 9

10 Previous contenders, no longer favoured Confidential 10

11 The Enhanced Payments Landscape 11

12 Digital Commerce Matrix Remote Payments Physical Goods Point of Sale Customer Data Remote Payments Digital Goods* & Loyalty & Incentives Remittances, Personal & Bill Payments $ MOBILE / DIGITAL WALLETS mpos / Acceptance Social Commerce / Virtual Currencies Source: EDC; Forbes.com and other sites * Including in-app payments; carrier billing 12

13 Bringing it all together $ P2P/Money Transfer Payment Method Financial Management Coupons Comparison Shopping Tickets/Passes Loyalty Rewards Convenience Through Service Aggregation 13

14 Beyond Transaction Facilitation Source: American Express 2011 Confidential 14

New technologies show promise Examples of beacons 2 Check-in /receive coupons 1 Proximity marketing 3 Navigate indoors 4 Frictionless payments Beacons:

Does not affect current payment infrastructure Can directly increase sales and influence customer behaviour at point-of-sale Enable location-specific services

15 New technologies show promise Examples of beacons 2 Check-in /receive coupons 1 Proximity marketing 3 Navigate indoors 4 Frictionless payments Beacons: significant potential for retailers Description: low-cost device based on BLE (Bluetooth Low Energy) technology Why is it considering as significant? Does not affect current payment infrastructure Can directly increase sales and influence customer behaviour at point-of-sale Enable location-specific services such as indoor navigation, advertisement delivery, couponing, payments, file transfer, etc. Current status: need to be further assessed to understand full potential Confidential 15

16 Two Retail Payment Systems Bank Clearing Systems / Automated Clearing Houses (ACH) Payment Card Systems Confidential 16

Card Issuer Merchants Consumers Merchant s Bank ACH Payment

17 New Players Use ACH or Card Systems Payment Company Merchant Acquirer Card Payment System (payment charged to payment card) Card Issuer Merchants Consumers Merchant s Bank ACH Payment System (payment charged to bank account) Consumer s Bank ACH / Retail Banks 17

Bank Clearing versus Payment Card Systems Merchant Guarantee Payment Company Card Payment System (payment charged to payment card) Merchant Acquirer Card

18 Bank Clearing versus Payment Card Systems Merchant Guarantee Payment Company Card Payment System (payment charged to payment card) Merchant Acquirer Card Issuer Merchants Consumers Merchant s Bank ACH Payment System (payment charged to bank account) Consumer s Bank ACH / Retail Banks No Merchant Guarantee 18

Bank Clearing versus Payment Card Systems Merchant Guarantee Payment Company Card Payment System (payment charged to payment card) Merchant

19 Bank Clearing versus Payment Card Systems Merchant Guarantee Payment Company Card Payment System (payment charged to payment card) Merchant Acquirer Card Issuer Merchants Consumers Merchant s Bank ACH Payment System (payment charged to bank account) Consumer s Bank Fast ACH Merchant Guarantee 19

Alternative Players Merchant s Bank Consumer s Bank Terminal / mpos Providers

20 Today - Two Retail Payment Systems Payment Company PFM s Wallets Device Providers TSM s MNO s Merchant Acquirer Card Issuer Gateways / PSPs Merchants Consumers Alternative Players Merchant s Bank Consumer s Bank Terminal / mpos Providers Digital Content Managers Disruptors Social Commerce Social Networks ACH / Retail Banks 20

21 Regulation and payment innovation PSD and SCF drove initial SEPA vision But there were unintended consequences! Finextra, 2 nd December 2015: Commissioner Nelly Kroes, 25 th May 2009: The EPC clarification that card schemes not covering the 31 states of the SEPA territory can be compliant with the SEPA Card framework is a victory for the level playing field. This means that cheap and efficient national systems do not have to be abandoned for the more expensive existing international schemes Confidential 21

22 Regulation and payment innovation European regulation is setting scene: PSD 2 PSD 2 is intended to continue the standardisation of Payment Regulation across the EU and EEA, and; Amend and replace PSD I to Reduce ambiguity Level the playing field for payment providers Increase consumer protection Stimulate innovationmif MIF Reduce the level of interchange for consumer cards Increase competition Access criteria Regulated entities New payment service types Account Information Service Payment Initiation Service Confidential 22

23 The Australia Experience Source: EDC Analysis (2013); Reserve Bank of Australia (2013); Mercator Advisory Group (2007) Note 1: See graph on declining MSC in appendix 23

24 Unintentional Consequences 24

Convergence of cards and ACH payment infrastructure New payments regulation

25 With the increasing pace of change in payments this is the time to develop national payment strategies Issues to consider: Real-time ACH (ISO 20022) Convergence of cards and ACH payment infrastructure New payments regulation Divorce between scheme/processor New access requirements New payment services Ownership models

26 Thank You Peter Sidenius Director Edgar, Dunn & Company Candlewick House 120 Cannon Street London EC4N 6AS Tel Fax Edgar, Dunn & Company 26

Edgar, Dunn & Company A Closer Look at the Payment Regulations. Webinar 25 th June 2015

Edgar, Dunn & Company A Closer Look at the Payment Regulations Webinar 25 th June 2015 Edgar, Dunn & Company, 2015 Introduction This webinar will focus on two key regulatory topics: Multilateral Interchange