Latest Developments in Bank Technology

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1 2011 This is a high-level industry news and business intelligence update bulletin. For further information on any of the items contained within the bulletin or to discuss the potential impact of these items on your business, please contact Savantor on info@savantor.com. Savantor Limited 68 Lombard St London EC3V 9LJ Tel: Fax: info@savantor.com Items in this issue: Savantor s View... 1 Products and Initiatives... 1 ebay s payments unit discussing Bitcoin acceptance... 1 Barclaycard to use of bpay payment wristbands to gather behavioural data... 2 Barclays to use Pingit to offer gift cards... 2 Visa token service may be key to Apple's mobile payments plans... 2 Market News... 2 MasterCard and First Data team on Asia Pacific payments solution... 2 Misys acquires Custom Credit Systems... 2 Global retail bank IT spend to soar... 2 APCA: Australian consumers giving up on cash... 3 Launch of UK fintech industry body... 3 Government to review virtual currencies... 3 UK Payments Council chief leaves... 3 Sepa migration deadline day arrives... 4 Mobile Money... 4 US migration to EMV gathers momentum... 4 Fiserv report reviews current digital banking services for businesses... 4 Amazon mpos launch undercuts Square and PayPal... 4 Barclays opens Pingit to Indian remittances... 4 Paym experiences over one million users and 6.5 million spend in first 100 days... 5 Savantor s View Encouraging the growth of internet banking According to figures issued recently by the Office for National Statistics, although 53% of the general population uses the internet for banking, a breakdown of this number shows a large disparity between the different age groups. Whilst 71% of year olds have used internet banking over the past 3 months, this figure drops to only 23% in the over 65 s age group. Even though these figures suggest that there is a large proportion of the population who are not using online banking, there has been a steady increase since 2007, when just 30% regularly used the internet for banking. Whilst the level of many internet activities surveyed between 2013 and 2014 has stabilised, internet banking is one of the few activities where there has been an increase in usage from 50% in 2013 to 53% in This growth is not limited to the younger age groups, with the proportion of adults aged 45 to 54 using the internet for banking rising from 50% to 62% over the same period. Although high street banks actively encourage the use of online banking, there needs to be a more focussed approach to encouraging customers to adopt and use it on a regular basis. Whilst many older people are internet savvy and comfortable with using digital technology for tasks such as banking, there are also many people who are nervous of or do not understand how to get to grips with the newer technologies. Much of this hesitation is due to not necessarily being in a suitable environment on a regular basis to be able to gain an understanding of both how to use the internet and the benefits it can bring. It is therefore encouraging to see Barclays rolling out their free Tea and Teach sessions, where practical advice about the internet is apparently on offer without any confusing jargon. Although the Bank will obviously take the opportunity to introduce their banking services to customers, they are also happy to cover other internet activities such as s, shopping online and privacy. It is to be hoped that this holistic approach will be adopted by other Banks and companies pushing internet services a win-win situation for all concerned. Products and Initiatives ebay s payments unit discussing Bitcoin acceptance ebay s payments subsidiary, Braintree, which is part of the company s PayPal unit, is in talks with Coinbase and other processing companies to integrate Bitcoin acceptance into its platform. According to a report in the Wall Street Journal, PayPal executives have met with several Bitcoin facilitators in recent Whilst Savantor Limited ( Savantor ) has used reasonable efforts to obtain information from sources which it believes to be reliable it does not make any representations or give any warranties or guarantees that the information provided or any opinions expressed herein are accurate, reliable or complete and none should be relied upon as statements of fact. In no event, including (without limitation) negligence, and in no circumstances will Savantor be liable for any loss or damage of any kind whatsoever, including (without limitation) any direct, special indirect or consequential damages, caused by the use of or reliance upon information provided or opinions expressed herein. Savantor 1

2 weeks, although are yet to reach any agreement. Rumours are that ebay and PayPal are not set to accept Bitcoin straight away, but that this could well change over time. Senior ebay executives have previously described the move to accepting digital currencies as inevitable. (Source date: 15th August 2014) Barclaycard to use of bpay payment wristbands to gather behavioural data Barclaycard is attempting to increase the reach of its bpay contactless wristbands beyond payments by offering businesses customer behavioural data gleaned from the wearable devices. The company is due to begin a full-scale rollout of its bpay bands next year, enabling users who link their credit and debit cards to make low-value payments through the tap of a wrist at over 300,000 spots in the UK. Barclaycard is also working with customer relationship management (CRM) specialists Green 4 Solutions to bring extra value to sports and leisure venues that accept bpay payments. The intention is to provide the venues with a greater understanding of their customers' preferences, helping them to capture data, grow loyalty and boost revenues through a single tool for merchandise, corporate facilities and food and drinks. (Source date: 14th August 2014) Barclays to use Pingit to offer gift cards Barclays Bank is teaming with Blackhawk Network to provide a range of merchant gifting options to users of its Pingit mobile payments app. Originally launched in 2012, Barclays Pingit is connected to the bank accounts of Barclays customers, who in turn are able to send and receive funds using just a recipient's mobile phone number. For non-barclays customers, a digital wallet is created so easy payments, top-ups and withdrawals can be made. In partnering with Blackhawk, Barclays will make it possible for users to buy and send gift card tokens over the network. (Source date: 6th August 2014) Visa token service may be key to Apple's mobile payments plans Analysts at Pacific Crest Securities (PCS) are speculating that recent security moves by Visa will see the iphone 6 go contactless. Last month there were reports claiming that Apple is in talks with Visa ahead of a potential mobile wallet launch when the iphone 6 arrives this autumn. A report by PCS analysts says that they believe that a partnership between Apple and Visa would make strategic sense and that an announcement could happen as early as this fall. However the report also acknowledges that it can see relatively little opportunity to generate profits that would be meaningful on Apple's scale. (Source date: 5th August 2014) Market News MasterCard and First Data team on Asia Pacific payments solution MasterCard and First Data have announced that they are partnering to provide a unified solution for First Data s FirstVision platform powered by VisionPLUS, by introducing MasterCard incontrol for banking clients and customers in Asia Pacific. (Source date: 12th August 2014) Misys acquires Custom Credit Systems Misys is looking to extend its footprint into the commercial lending software market with the acquisition of Custom Credit Systems (CCS), a US-based provider of commercial loan origination and workflow management software. With the acquisition, the UK-based core banking systems vendor says it now supports the full lending workflow from origination, credit analysis, and document generation in the front office, to servicing and accounting in the back office, covering syndicated and high volume commercial lending. (Source date: 11th August 2014) Global retail bank IT spend to soar According to figures from Ovum, global retail bank IT spending is to set to rise 19.9% over the next four years to hit $150 billion in The analyst house says investment will be concentrated on expanding core platforms and growthsupporting infrastructure, particularly in mature markets. A renewed focus on both digital banking Savantor Ltd. Confidential Page 2 Savantor 2

3 channels and branch transformation will also drive IT spending, with channel investments a priority in countries with less developed banking sectors. The firm says retail bank IT budgets are expected to grow at a 4.3% CAGR between 2014 and Banks headquartered in North America will continue to make the largest investments, spending $58.5 billion in 2018, compared to $47.3 billion in Europe and $32.3 billion in Asia. The Middle East and Africa will see the most rapid growth, at a CAGR of 6.2% to (Source date: 8th August 2014) APCA: Australian consumers giving up on cash New research from the Australian Payments Clearing Association, shows that as with cheques, Australian consumers are increasingly giving up cash in favour of cards, mobiles and online transactions. The Milestones Report, drawn from Apca-commissioned research developed by RFi Consulting, shows that Australians are using less cash as the uptake of contactless and other electronic payments continues to gain pace. The number of cash payments has dropped five percent since down to an estimated 11.7 billion in 2013, says Apca. This decline is predicted to accelerate, dropping a further 20% over the next few years before it plateaus in The RFi study also shows that the share of cash within all of the payment transactions made in Australia has fallen from 73% in 2005 to 59% in 2013, with a further share decline forecast to 43% in (Source date: 6th August 2014) Launch of UK fintech industry body An industry body promising to be the 'voice of UK fintech' has been launched, with more than 50 founding members onboard and the backing of government. Innovate Finance aims to make the UK the centre of the rapidly growing fintech market, bringing together startups and big banks under one umbrella to promote the industry's interests and foster collaboration. The body says that it will champion the UK as the centre of financial services and technology innovation and provide a single point of access to clients, technologies, talent, finance and international marketplaces. It will also carry out research and hold roundtables, workshops and events as well as work with the Open University to create fintech-based courses. Another key objective will be to help shape UK regulation. Established players such as Lloyds, HSBC and Visa are signed up alongside startups from the worlds of remittances, cryptocurrencies and P2P lending. (Source date: 6th August 2014) Government to review virtual currencies The UK government is setting up a review into the potential of virtual currencies, and whether they should be regulated, as part of a wider push to make the country the fintech capital of the world. The Chancellor George Osborne told the audience at the launch of the industry body Innovate Finance, that he wants the UK to lead the world in developing fintech. One of the ways he hopes to achieve this is by turning the country into a hub for the rapidly growing cryptocurrency ecosystem. A programme of work is to look into whether regulation should be introduced that can make it attractive for cryptocurrency firms to set up in the UK while still affording protection to people and businesses that use them. (Source date: 6 August 2014) UK Payments Council chief leaves The UK Payments Council's chief executive, Adrian Kamellard, is leaving the bank-run organisation as it prepares to "refocus" ahead of the introduction of a new payments regulator. In nearly three years in the job, Kamellard oversaw the successful rollout of two major projects - the current account switch service and mobile payments tool Paym. However, he was also left to deal with the fallout from an earlier Council decision to abolish cheques. Although a U-turn was made before Kamellard joined the organisation, the bungled process prompted the government to move to rein in the self-governing body. This resulted in a decision to create the utilities-style Payment Systems Regulator (PSR), which will become operational next April, necessitating a "refocusing" for the once all-powerful Council. There have also been rumours that the Council could end up merging with the British Bankers' Association. (Source date: 4th August 2014) Savantor Ltd. Confidential Page 3 Savantor 3

4 Sepa migration deadline day arrives After 15 years, the Single euro payments area (Sepa) has hit a major milestone with the full implementation for credit transfers and direct debits in the euro area. 1st August marks the (delayed) migration deadline for processing Sepa-compliant payment transfers, meaning that more than 500 million citizens and 20 million businesses can use a single bank account for all euro credit transfers and direct debits in Europe. Countries outside the euro area have until 31 October 2016 to migrate. Authorities hope that Sepa will give a significant economic boost to Europe, enabling businesses to expand into new markets without extra payment costs. However, the Sepa story is far from over - the ECB is already focussing on the harmonisation of the largest electronic retail payment instrument: cards. In addition, a newly-convened Euro Retail Payments Board (ERPB) has set up two working groups to explore the role of mobile and 'innovative' payments methods. (Source date: 1st August 2014) Mobile Money US migration to EMV gathers momentum According to the Payments Security Task Force (PST), a body set up to push the US migration from magstripe plastic to EMV, more than 575 million US payments cards will feature EMV chip security by the end of next year. Visa and MasterCard set out a roadmap for the introduction of chip cards in 2011, with liability for fraud-related loses switching to retailers that have not upgraded their hardware by October However, many financial institutions were initially hesitant to commit to EMV because of uncertainty around retailer adoption of chip card point-of-sale terminals, questions about the viability of the business case for migration, and unresolved issues related to regulation and support for merchant routing choice. Attitudes changed in the wake of the Target breach of late last year; recent research has found that 86% of US financial institutions plan to begin issuing EMV-based chip cards within the next two years. These include some of the biggest card issuers in the country, who between them forecast that half of their cards million - will be chip-enabled by the end of (Source date: 13th August 2013) Fiserv report reviews current digital banking services for businesses Financial institutions must find better ways to tailor their banking services to the needs of business customers, according to a new white paper by Fiserv. In the report, the financial technology provider urges the financial sector to work on enhancing their digital banking services to attract and retain customers. In particular, says the report, financial institutions should look to meet the precise security and monitoring demands of businesses, including offering more access control functions for employees with differing responsibilities. Businesses are also keen to reduce the need for branch visits, speed up banking tasks and access key information easily in order to make financial decisions online and on mobile. (Source date: 14th August 2014) Amazon mpos launch undercuts Square and PayPal Amazon has made its widely anticipated move into the crowded mpos market, launching its dongle and app-based contender with an aggressive pricing strategy that undercuts both Square and PayPal. Amazon Local Register consists of an app and a card swipe reader that plugs into mobile phones and tablets. The system works with ios devices, some Android handsets and Amazon's own Fire hardware. Retailers that sign up by the end of October will pay just 1.75% per swipe until the end of 2015, after which the price goes up to 2.5% - still less than the 2.75% charged by Square and 2.7% PayPal Here users pay. Similar to Square and PayPal, the Amazon Local Register app also provides analytics, letting businesses track their inventory and sales. (Source date: 13th August 2013) Barclays opens Pingit to Indian remittances Barclays is extending the reach of its Pingit mobile payments app by enabling users to send money to friends and family in India. The app lets people in the UK send payments to contacts in India using just the recipients' mobile phone numbers. Savantor Ltd. Confidential Page 4 Savantor 4

5 There are 1.5 million British Indians and another one million Indian students and visitors in the UK. Barclays hopes that its new service will help it capture a significant slice of a UK-India remittance market worth over 2.5 billion. Pingit has already been extended to Africa, with a link enabling people in the UK to send money to Kenya set up in 2012 and other countries added to the network soon after. (Source date: 7th August 2014) Paym experiences over one million users and 6.5 million spend in first 100 days More than one million people have registered with their bank or building society for Paym, the UK bankbacked mobile number payment service that was launched in late April. Customers of Bank of Scotland, Barclays, Cumberland Building Society, Danske Bank, Halifax, HSBC, Lloyds Bank, Santander and TSB have been able to send and receive Paym payments since 29 April During this time just over 6.5 million has been sent using the service. Later this year Paym will expand further by becoming available to more than nine out of ten current account holders. According to a spokesperson at the Payments Council, recent research by TNS indicates that the awareness of mobile payment services amongst consumers increased from 45% before the launch of Paym up to 75% just a week after the service became available. Of those already using Paym, 65% are apparently confident in its ability to be a safe and secure way to transfer money to family and friends. (Source date: 6th August 2014) Savantor Ltd. Confidential Page 5 Savantor 5