Trends in Innovation Challenges and Opportunities Market Overview

Transcription

1 Trends in Innovation Challenges and Opportunities Market Overview SIA Central Europe Partner Event Hungary 25 th May 2012 Peter Jones, Managing Director, PSE Consulting

2 Topics for Today Payments Convergence and the Future Merchants Not Ready for Change Who Will Win the Race for ewallets? Interchange Complexity Increasing Costs BIN Sponsorship Model in Need of Repair ecommerce - A Dysfunctional Two Sided Market 2

3 Payments Convergence and the Future e & m commerce ewallets Social Media Mobile Banking and P2P Payments Loyalty Reward And Data Mining Advertising Promotions Mobile NFC, Contactless Payments 3

4 Why Change is Happening Young seeking new concepts, innovation, experiences social media. Consumers want new ways to chose products, get advice, share opinions, identify products and compare prices. Mobile/personal technology enabling consumers to buy and make payments seamlessly. mcommerce via smartphone potential to overtake ecommerce growing 20%+. Omni-channel/multi-channel promotion and selling and integrated couponing and loyalty reward. Conclusions: Many new players significant disruptive technologies changing the payments landscape; many unable to keep up 4

6 Change Impacting Merchant Payments Key Drivers for Change What Merchants Need 1. Better customer experience 2. Making online/ecommerce/f2f profitable 3. Productivity and cost reduction 4. Loyalty and stickiness 5. Data mining Resulting in Improved customer proposition and journeys Two channel customers Lower cash handling and back office costs Improved loyalty relationships, seamless redemption 6. Reducing risk Improved security, lower risk 7. Security and PCI DSS 8. Replacing platforms Best in class service Omni/multi-channel solutions Localisation Conclusions: Many drivers for change but merchants struggling to build their futures roadmap - not geared for major change 6

7 Building a Merchant Payments Acceptance Strategy - Four Steps Merchant Benefit Typical Payments Requirements Typical Assessment Criteria STEP 1. Simple Payments Consumer Convenience - a cost of doing business to be minimised Cash handling Cheque acceptance Voucher and private label processing Credit & Domestic Debit Card Acceptance (all cards) MOTO/eCommerce Settlement 100% availability First at the POS Debit utility service Minimum cost Rapid settlement Multi-currency, language, culture, country STEP 2. Margin Contribution Extracting more from every transaction Bills Payment Top-up services and vouchers/gifting VAT/Tax rebates DCC Merchant ATM services Recurring payments/ loans at the POS Size of contribution/ share Ability to increase footfall Attractiveness to customer base (eg traveller, unbanked etc.) Revenue sharing with banks STEP 3. Increased Multi Channel Customer Sales Understanding and rewarding my customers buying habits via multiple channels Loyalty schemes single merchant & walled garden Multi-channel service delivery Private label (gifting and accounts) Direct/targeted marketing (offers/promotions on the receipt) MIS/ data mining Supporting multi-channel customers Ability to increase footfall, spend per customer and brand loyalty Ability to generate useful MI STEP 4. Improving Operational Efficiency Driving out cost from my core payments functions Integrated payment provider solutions Multi-country treasury management Cash displacement (LVP, contactless, mobile etc.) einvoicing ERP/General ledger integration Employee incentives Vertical industry workflow for payments ACH transaction pooling (x-border & domestic) Internal cost reduction Business case driven investment Conclusions: Very few merchants able to build solid strategies 7

8 Convergence - Need for Multi-Channel Gateway Services Single point of compliance for PCI/DSS Single, integrated source of MI across MOTO, ecommerce/cnp and POS/CHP Single point of contact for all technical queries Support for multiple acquirers Integrated Merchant Requirements Integrated risk exception and fraud management Merchants Perceived Benefits All scheme compliance issues (particularly PCI DSS issues) managed by a single entity, significantly reducing the compliance burden More effective and efficient reconciliation across all channels, particularly as ecommerce grows in terms of revenue share Greater efficiency solution managed by a single entity - resolve issues in all channels Lower costs of switching for markets, particularly those with multiple acquiring relationships Single source of information for all risk exception and fraud issues Common platform for self service Lower back office support costs. Source: PSE analysis 8

9 Cardholder Merchant Emerging Multi-Channel Platform POI Hardware & Software Transaction & Terminal Mgt Third Party Services Acquiring Scheme Management Settlement Converged Payment Gateway (IP/POS + PSP) Credit Transfer, Direct Debit, PayPal, Wallets Traditional Bank Acquirer Role Consumer Purchases Multiple devices Payment Gateway Additional Services Multiple Acquirers Card Schemes Merchant Bank A/C Merchant Processing Contract Merchant Acquiring Contract Conclusions: Large merchants recognise benefits T2 & T3 yet to adopt

11 Wallets and Mobiles The European Context Denmark TDC, Telenor, TeliaSonera and 3 common platform for NFC mobile loyalty, ticketing and wallet services, launch end Sweden Telia, Tele2, Telenor and 3 JV branded 4T, launch summer izettle a Square type offer across the Nordics Poland Orange Poland, Plus, T-Mobile and Play m- payments to a common NFC standard. T-Mobile service first quarter 2012, Orange Poland following soon after. Plus and Play own NFC later. Estonia An NFC research into viability of contactless, NFC and ticketing completion mid Participants: Sampo Bank, Nordea Bank, Swedbank and SEB Bank, EMT (TeliaSonera), Eliko and United Tickets. Czech Republic Globus all new stores contactless POS terminals after successful six month NFC trial with Telefónica O2, Komerční Banka, Citibank and Visa Europe. Komerční Banka and Visa Europe launching commercial NFC payments mid-2012 using Apple's iphone with Wireless Dynamics' icarte NFC accessory/mobile app. Hungary The Hungarian mwallet Association, an alliance between Magyar Telekom, Telenor, Vodafone, MasterCard, OTP Bank and SuperShop, has plans for launch of NFC-based mobile wallet services in Romania Visa Europe discussing with banks to introduce NFC payments in Turkey The three largest banks all have mobile payment products Turkcell has launched an NFC enabled phone Significant investment in all EU nations

12 Why the ewallet is Important Convenient way to securely access multiple payments and methods. Simpler solution for ecommerce payments reduces need to use 3D. Enables mobile payments mcommerce particularly. For players who are first to market, potential to capture competitor s payment relationships. For MNOs potential to control payments operations and generate new revenue streams. For acquirers/psps new payment method and exclusive deals. 12

13 Wallet Models Consumer Merchant Standard Description Simple, direct consumer-merchant relationships Card Payment Tool Payment Tool Reseller Platforms Vendor Pass Through Consumer managed payments tool with direct consumermerchant relationships ICS Visa/MC Merchant Platform Reseller managed contract & payments tool, with separate platform-merchant relationship Independent Wallet Independent payments tool, with separate top-up transaction and consumermerchant relationships Note that consumer does not have a direct relationship with the vendor 13

14 Current and Future Wallet Product Positioning CURRENT Market Impact * FUTURE Market Impact * ICS Visa/MC F2F (NFC) CNP P2P? F2F (non-nfc) CNP Acquiring P2P F2F (non-nfc) CNP Acquiring P2P F2F (NFC) CNP CNP ICS Visa/MC CNP Breadth** CNP CNP F2F (NFC) CNP Breadth** CNP CNP F2F (mag-stripe) CNP CNP F2F (NFC?) CNP *Expected by end 2012 **Current Breadth of offering reflects the number of channels and transaction types supported by the wallets 14 *Expected by end 2015 ** Expected by end 2015

15 Winners and Losers ICS Visa/MC Consumer Offer Merchant Offer 3 Party Offer Multi-Channel Offer Multi-Merchant Offer Changes Impact Total = 1 = 5 Conclusions: Visa & MasterCard to win closely followed by PayPal and Google 15

17 Interchange Too Complex to Handle! Scheme Rates Rates differ by Scheme - Visa and MasterCard Card Product Rates Different rates for card products, debit, credit, consumer, commercial Acceptance Type Rates Different rates for POS/F2F, paper and ecommerce Sector Rates Sector rate variations, airlines, petrol and supermarkets Transaction Rates Rates for EMV, CNP/MOTO, ecommerce Location Rates Rates for Domestic markets, European (intra) and International (inter) Defaults/Penalties Down grades that apply if certain criteria not achieved Optimisation Potential High Difference between Best and Worst Rates can be up to 100% 17

18 Who Has to Pay? Typically transactions that fail to achieve the optimum default to the highest level of interchange. For Interchange Plus merchants: Too much paid away to issuers Increased costs straight to bottom line Reduced profitability For MSC/bundled pricing merchants: Increased acquirer costs Potential for penalties Work through to MSCs at price reviews 18

19 Mistakes Increase Interchange Costs Face to Face Transactions: Provided all EMV automatically qualify for lowest rate. But typical causes of higher costs are: Delays in submission (most common) Offline terminals where submission delayed Key entry/magstripe of transactions Submission mis-matches with authorisation ecommerce Transactions: Failure to use/apply 3D/CVV2 (most common). POS/eCommerce in-store can generate higher rates. Mobile at POS/in-store/online generates higher rates. Transaction date (should be date of goods dispatch not authorisation date) Worst Case Merchant use of 3D = 5%; Best Case = 92% 19

20 How to Cut Costs Benchmarks Build basic understanding of interchange benchmarks what you should pay versus what you are paying ask why are we paying at Standard Rates? MIS Implement basic MIS/exception reporting to highlight where not qualifying for lowest rates. ecommerce and 3D Specifically focus on ecommerce and 3D/CVV2 and maximise usage Data Quality Work with third party to improve accuracy of data and the correct population of fields - particularly relevant for the sector. Submission Timing Ensure data meets acquirer submission deadlines, particularly over the weekend. Conclusions: Strong potential to reduce the costs of interchange in many nations 20

22 BIN Sponsorship - What Might Happen! Cards business failure stops Christmas shopping in Budapest PSP mismanagement causes failure of Hungarian low cost airline Card issuer collapse impacts all of Bulgarian MNO s Major fraud breach costs Czech supermarket 2m Latvian cardholders loose due to cards business bankruptcy Slovakian card operators profits take a major hit from merchant bankruptcy Estonian fraudsters breach online payments network and steal millions 22

23 Evolution of the BIN Sponsorship Model Payment Services Directive (PSD) enabled non-banks to become members of Visa and MasterCard (ICS) Rapid expansion of prepaid cards and move out of closed to open loop by programme managers Six to eight non-banks established as EU BIN sponsors members of MasterCard initially then Visa Many small ICS branded programmes launched 200 to 300 within the EU Germany regulator (BAFIN) tightens up AML rules and bans anonymous prepaid cards Major BIN sponsor player exits from UK market. 23

24 BIN Sponsorship Causes of Concern ICS initial tests for PI membership too loose/relaxed failure to impress on BIN sponsors roles and responsibilities. BIN sponsorship market highly competitive with players offering plans at very low/no fees. Lack of card issuer experience perceive BIN sponsorship as simple ICS brand transfer. Rapid growth enabled prepaid programmes to be launched that would not pass ICS scheme compliance tests. BIN sponsors belatedly recognise their role as agents of Visa and MasterCard. Complex to retrospectively test programmes and implement retro active operational models. Risk and cost of ensuring compliance only now realised fear of a breach and loss of ICS licences. 24

25 Action to be Taken Improved, more rigorous PI membership criteria. Criteria to include ICS issuer knowledge, compliance officer and on-going monitoring processes. Closer on-going monitoring by ICS to ensure compliance. Greater scrutiny by national market regulators. Much closer scheme monitoring of new BIN sponsored issuers over first two years. Increased collateral/deposits by BIN sponsoring members. Conclusions: The BIN sponsorship model needs speedy improvement to reduce risk to payments sector 25

27 Why ecommerce Rapidly expanding market growth by up to 25% despite recession! mcommerce to accelerate expansion. Significant potential for new customers and sales for merchants. Generates good returns to PSPs, processors, issuers and acquirers. Technology in place in most countries. Key Question why does card usage differ so much across the EU? 27

28 Comparison of ecommerce Take Up Bulgaria Czech Rep Estonia Hungary Latvia Lithuania Poland Romania Slovakia Slovenia ecommerce Spend per head in 2011 in Euros Percentage of Households with Internet Access in 2011 Bulgaria Czech Rep Estonia Hungary Latvia Lithuania Poland Romania Slovakia Slovenia Benelux (BE, LU,NL) Scandinavia (DK,FI,NO,SE) UK ,000 1,200 1,400 Benelux (BE, LU,NL) Scandinavia (DK,FI,NO,SE) UK 30% 40% 50% 60% 70% 80% 90% 100% 28

29 Why ecommerce Markets are Not Working Consumers/Issuers Key Issues: Continued concern over security particularly unknown sites Preference to search and price but F2F to pay Misunderstand 3D processes No domestic debit usage Lack of credit cards Fear of complexity of refunds/returns Merchants/Acquirers Key Reasons: Defensive online offers from F2F Too few pure play online Lack of a benchmark leading successful online merchant Under investment in web upgrades/refresh Lack of PSPs/aggregators for SMEs Bank fees and penalties too high 29

30 How ecommerce Markets Can Improve Need for greater co-operation between banks and merchants. More local research into consumer concerns/attitudes. Promotion of 3D and refund guarantees/chargebacks. Collective programmes for consumer education. Encouragement of PSP to support SME sectors. Stronger incentives/rewards from all parties to make both sides of market work. Conclusions it s not the technology; it s encouraging consumers to use! 30

31 Summary of Conclusions and Observations The mobile is driving payments convergence major trend! Merchants struggling to adapt to change! Visa and MasterCard to win race for ewallet? Interchange complexity increasing costs! BIN sponsorship model needs restructuring! ecommerce market both sides not working! 31

32 Peter Jones +44 (0)