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Fintech Connect Live 9th December 2015
- Mobile/digital payments are a fundamental building block for digital/mobile banking and commerce as well as financial inclusion. - The ecosystem is becoming more complex by integrating mobile money/payments, mobile banking, and mobile commerce. It is also becoming more competitive through new entrants and regulatory pressures. - Regulation plays a key role in intensifying competitive pressures as the ecosystem develops both horizontally through general payment systems and vertically through industry-specific systems.
Fintech Connect Live 9th December 2015
- 1. Shape of thingsto come: Mobile Money, Mobile Payments, Mobile Banking, Mobile Commerce Fintech Connect Live, 9th December 2015 Jean-Stéphane Gourévitch CEO and Founder, Mobile Convergence Ecosystems Ltd. & Business Development, Europe, Matchi.biz
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- 3. Summary • Mobile/digital paymentsa fundamental building block for digital/mobile banking and commerce but also financial inclusion • Overall ecosystem is becoming much more complex integrating mobile money/payments, mobile banking and mobile commerce • But also much more competitive through new entrants on payments markets and regulatory pressures • It develops both on horizontal and vertical ways (general payment systems/products and industry verticals specific systems/products) and adapt to customer/user requirements
- 4. 1. Some figuresand data
- 5. EXPONENTIAL GROWTH OFUSERS AND TRANSACTIONS Sources: Pymnts.com; Gartner, Juniper Research, GSMA; Pew Research
- 6. On emerging markets,different models co-exist with a crucial role anyway by mobile operators Source: GSMA, 2014Source: JSG, 2015
- 7. ANOTHER VISION…. World populationper continent… SOURCE: The Guardian and Visa, November 2015 The world per bank accounts held in banks/financial institutions The world per mobile money penetration The world per use of online shopping/payments
- 8. Source: Worldpay, 2013and McKinsey, 2015 Evolution of global payments market and growth of alternative payment mechanisms
- 9. 2. Digital andmobile payments developments in emerging and developed countries
- 10. Mobile money/payments decisivecontribution to financial inclusion in emerging countries § Mobile money evolved from remittances and P2P money transfers to a much more complex ecosystem including other services § Africa has seen some tremendous successes although not “one size fits all”: § Eastern and Southern Africa: Great successes since 10 years § Western Africa: Difficult evolution, picking up now. § Northern Africa (aside of Egypt): Almost no development § Latin America is developing § Asia: some tremendous successes and failures § Market conditions incl. cultural and policy context are crucial § Countries where regulation ban mobile operators from direct provision of financial services have witnessed horrible growth rates of mobile money (e.g. India, Nigeria, A number of countries in Western Africa). Change is coming though § Countries allowing mixed models & direct involvement of mobile operators have seen major growth rates (e.g. Kenya, Tanzania, Philippines,etc.) § Some countries like Brazil have linked developments in digital/mobile payments with major public policy initiatives Digital financial services ecosystem, GSMA 2015
- 12. Mobile Payments growingin developed country, with an increasingly competitive ecosystem and some of this growth driven by contactless/M-payments in mass transit, mobile commerce, etc. • Increasingly part of broader products • e.g. mobile banking, mobile wallets • Specialisation for industry verticals: • Transportation • Hospitality, Restaurants, Bars; • Healthcare & wellness; • Education; • Energy • Mobile Payments are growing and the use of cash decreasing • Retail & mobile commerce Increasingly engine for growth & integration of mobile payments & other facilities • Major retailers use digital/ mobile technologies to not only improve shop floor and checkout management. • Increasingly essential to cover the whole customer shopping journey before, during and after visiting a shop/store. • Digital/Mobile wallets combining payments, loyalty, coupons redeeming functions. Source: JSG, 2015
- 13. A good exampleof competition in the remittances/payments market
- 14. Source: ING, 2015 Theuse and inclination to use m-Payments & m-Payments apps in particular for shopping is growing in developed countries
- 15. Mobile banking isalso growing and being used more generally in developed countries, with positive impacts on financial inclusion and literacy
- 16. Financial inclusion isa real problem in developed countries too… • Solutions like Compte Nickel in France has shown that addressing the unbanked and Excluded markets with proper solutions is viable commercially (from 0 to 225,000 customers in 1 year) even in developed countries • Real concerns of impacts (and legitimacy) of bank de-risking e.g. money transfers/ remittances. Is it really because of regulation and risks or …to smother a market banks are losing Source: Financial Inclusion Commission, UK, March 2015
- 17. 3. The Regulatorycontext
- 18. Policy & Regulationhave key roles as enabler or obstacle to market developments § Governments, Regulatory Authorities, Competition Authorities, Standardisation bodies increasingly active § Market and dominance issues around agents networks exclusivity in Eastern Africa leading competition/ regulatory authorities to act (e.g. Kenya, Zimbabwe, Tanzania, Uganda) § Competition Actions and investigations in the EU (ECJ decision on MasterCard, 11 September 2014, new investigations on Merchant fees) and MasterCard and Visa continuous legal actions in the US § Interoperability and proprietary standards concerns in both emerging and developed countries § EU Regulation to cap Multilateral Interchange Fees and change card schemes rules entering into force § Push to increase speed in faster payments developments (US, etc.) § New specific payments/financial services legislations opening the markets: § Review of the Payment Service Directive 2007 (PSD2 adopted) and soon the E-Money Directive 2009 § Regulation on Payments Banks in India, 2014 and 2015 § New strategic review of the payments sector in France § New developments in the UK § New Payment and E-Money Regulations in Turkey, 2014 and 2015 § Regulation from People’s Bank of China on mobile payments, 2015 § Partnerships are also on the rise either intra or inter sectors, and Competition authorities are increasingly acting § Oscar/Weve case in the UK, Telefonica/BBVA/Caixa in Spain in the past few years, etc. § Creation of the Polish Payment Standard (PSP) by the competition authority and the Financial regulator in 2014 § Acquisition of PSPs by banks (Leetchi/MangoPay by Arkea), or stakes in challenger or neo banks by incumbent banks (Atom Bank/BBVA, BBVA/Simple) § Convergence of relevant legislations/regulatory authorities § Creation of the Payment Systems Regulator (PSR) in the UK § Increased cooperation between digital/telecom regulators, financial services regulators and competition authorities (e.g. EU, Kenya, Tanzania, Ghana, India, Bangladesh, Philippines)
- 19. The EU Regulationon Interchange Fees § 19 May 2015, Regulation on Interchange Fees for Card-Based Payment Transactions published in the EU Official Journal. It applies caps on interchange fees charged by cardholders’ banks to merchants’ banks every time a consumer makes a card based purchase. § 8 June 2015: Entry into force § Ban on “steering rules” comes into force § 9 December 2015 § New interchange fee caps come into force - Debit card transactions – Domestic: 0.2% of the value of the transaction or a per transaction fee of no more than €0.05 with a 0.2% cap and International 0.2% of the value of the transaction -Credit card transactions – Domestic: 0.3% of the value of the transaction but Member States may define a lower cap and International: 0.3% of the value of the transaction - “Universal”* card transactions – 0.2% of the value of the transaction or a per transaction fee of no more than €0.05 with a 0.2% cap and 0.3% of the value of the transaction for those transactions treated as credit card transactions § Territorial restrictions within the EU prohibited § Payee’s payment service provider (PSP) must provide the payee with breakdown of charges for card transaction incl. interchange fee and Merchant Services charge (MSC) § 9 June 2016 § Payment card schemes and processors must be independent, and cannot present bundled prices for both services § Any rules hindering co-badging of two or more payment brands or applications prohibited § Acquiring PSPs must offer and charge MSCs to the payees on an “unblended” basis § “Honour all cards” rule is abolished § 9 December 2016 § Member States may no longer define a share of no more than 30% of the domestic payment transactions for “universal” cards to be treated as credit card transactions § 9 December 2018 § Three party payment card schemes are no longer exempted from the Regulation § 9 December 2020 § Member States are no longer allowed to permit PSPs to apply a weighted average interchange fee
- 20. THE PSD2 nowadopted IMPACTS ON BANKS: 1- Extension of scope: • non-EU currencies • OLO (one-leg out) transactions • clarification of "main activity", "regular occupation or business activity"; group collection/payment factories; & acquiring • narrowing of exemptions like: commercial agent; limited network; digital devices; ATM operators 2- Business rules: • Application of charges/SHA, value dating and availability of funds • obligations on payee's PSPs regarding misdirected Payments (incorrect unique identifiers) 3- Security measures, including: • Operational risk framework • Incident reporting • The use of "strong customer authentication" when a payer accesses his payment account online, initiates a "electronic remote payment transaction" or carries on any other action through a remote channel which may imply a risk of payment fraud or other abuses, authentication to include elements dynamically linking the transaction to a specific amount and payee 4. Two new types of payment service introduced: • Payment initiation services (PIS) • Account information services (AIS) • PSD2’s approach is to set out framework for: • rights of PSU and obligations of AS PSP and PIS/AIS TPP • modus operandi between AS PSP and PIS/AIS TPP • PS’s rights include right to: • use a TPP where payment account is accessible online; • seek compensation from his AS PSP for unauthorised payment transactions (but AS PSP may have a remedy against the PIS TPP) • PIS TPP’s obligations include to: • act only within PSU’s explicit consent; • authenticate itself towards AS PSP every session; • not modify the transaction, nor hold the payer’s funds Key objectives Key changes
- 21. 4. A newparadigm
- 22. Focus in nowon use and user experience, not on products nor services Payment is no longer a tool or a stand alone product, it becomes a complete User Experience (UX). Customers are now surrounded by new technologies and new devices transforming the way to interact with others Source: JSG, 2014 Mobile commerce is increasingly based on an extension of the converged area Mobile/digital wallets are increasingly becoming like digital “Swiss army knives”
- 23. The digital worldgenerates new expectations, not regarding services but about the user experience itself Users are expecting Service Providers to be User Relationship specialists. Oh, and consider the number of users…. The Next Gen Banking services will not focus on one single service but will answer customers’ usages, ex. : the “smart wallet”
- 24. Source: World EconomicForum/Deloitte, 2015 INTERACTIONS OF PAYMENT INNOVATIONS WITH EXISTING SYSTEMS AND THEIR CHARACTERISTICS
- 25. Time to wake-up… • Accordingto the Chairman & CEO of BBVA, 50% of banks will fall wayward From digital and could disappear in the Next 10 years…. • And…BBVA in 5 years will not be a bank But a software firm…. Source: McKinsey, 2015
- 26. Streamlined Infrastructure: • Emergingplatforms and decentralised technologies provide new ways to aggregate and analyse information, improving connectivity and reducing the marginal costs of accessing information and participating in financial activities Automation of High-Value Activities • Many emerging innovations leverage advanced algorithms and computing power to automate activities that were once highly manual, allowing them to offer cheaper, faster, and more scalable alternative products and services Reduced Intermediation • Emerging innovations are streamlining or eliminating traditional institutions’ role as intermediaries, and offering lower prices and / or higher returns to customers Strategic Role of Data • Emerging innovations allow financial institutions to access new data sets, such as social data, that enable new ways of understanding customers and markets Niche, Specialised Products • New entrants with deep specialisations are creating highly targeted products and services, increasing competition in these areas and creating pressure for the traditional end-to-end financial services model to unbundle Customer Empowerment • Emerging innovations give customers access to previously restricted assets and services, more visibility into products, and control over choices, as well as the tools to become “prosumers” The World Economic Forum and Deloitte identified 6 importing converging themes cutting across the multiple clusters of fintech innovations Source: World Economic Forum/Deloitte, 2015 What the infographic is not showing is the growing Convergence between the different fintech segments
- 27. Conclusions • Digital payments increasinglypart of a broader, integrated, converged offering (payments+ banking + commerce) • Competition starting to hit at incumbent players both on specific vertical industry or customer segments but also through general payments systems • Regulation is playing a key role in Intensifying the competitive heat • The future: Convergence with other fintech products also emerging (Virtual currencies, P2P lending, Crowdfunding, Insurance, etc. Any questions?
- 28. Jean-Stéphane Gourévitch [email protected] +44(0)788 7754615 @jsgourevitch uk.linkedin.com/in/jeanstephanegourevitch Thank you very much for your attention!