Trends in Payments in India – from the eyes of the leading merchant acquirer

 

Today we are with Nitish Asthana of First Data, who provides insights on the fast moving payments scene in India, at this historic stage in the move towards non-cash payments. In this exclusive interview, we touch on key changes that could transform the card industry, and discuss a broad range of topics including E-tailing, Modern Retail, POS and the advent of mobile payments. Nitish shares four major trends that are transforming the way 1.2b consumers pay, as well as creating new opportunities in merchant-to-merchant payments potentially worth over $20b.

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Thanks for taking time out from your busy schedule Nitish! As context please could you share a bit about yourself and your role at First Data?

I am the VP & Head of First Data India Ventures and have also led First Data’s merchant acquiring business in India. At First Data India ventures, we focus on venture investments in POS, e-commerce, mobile commerce and digital payments.

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First Data is the global leader in payment technology and services solutions, operating in over 70 countries with relationships with over 3,500 Financial Institutions and offers a range of services including POS, E-Commerce and mobile (on internet and POS).

In India we are one of the leading merchant acquirers, providing services to over 250,000 merchants. First Data operates through an alliance with ICICI Bank (India’s largest private sector bank), ICICI Merchant Services. Our two lines of business are Merchant Services and Issuing. We offer POS, online, mobile and merchant processing and settlement for a broad range of consumer and business payments. Our issuing platform business runs on VisionPLUS, a First Data product and powers our service to leading banks in India.

 

Nitish, from your key perspective, which market segments seem to hold the most promise?

Activity in the payments space crosses a wide range of transactions across a set of vertical and horizontal segments.

In terms of vertical segments, E-commerce and especially E-tailing (Retail Sales on the Internet) is really important for us. Travel booking on the internet is already heavily penetrated, covering almost 100% of bookings and accounting for 75%-80% of online payments but this is fast reducing to 55% as online payments for retail, telecoms, utilities, insurance and tax take off. We also talk about point-of-sale (POS) as a vertical, within which Modern Retail is progressing very well, growing from just 5% of retail to 20% by 2020.

In terms of horizontal segmentation, large merchants of the country have already progressed in electronic payment, but today we see a lot more opportunity with small stores that accept only cash.

Overall in the market today card payments is a very small market as compared to US, UK, Australia and others but we expect 25-35% growth over the next few years.

 

The overall economic trends are also looking up?

Certainly, if you look at GDP growth, positivity is back! We are looking at a 7.5% growth in GDP expected to be the highest in the world.

A bigger driver for electronic payments is that currently over 90% of retail payments are in cash. The Government vision for less-cash is expected to bring out specific exemptions. Some are likely to relate to tax incentives for merchants and consumers to pay electronically.

If that happens, what is expected to be a $150b card industry over next 4 years could be pushed 50% higher going up to $250b-$275b by 2020. This would be much higher than current estimates, and we would reach an inflection point sooner with this planned government intervention.

 

What about the progress of Aadhaar-linked bank accounts and other key enablers?

Aadhaar has been an incredible journey with millions of customers enrolled. This received a massive boost from the launch of the Pradhan Mantri Jan Dhan Yojana (Prime Minister’s Benefit Fund) launched a year ago. It has created the rails to transfer benefits from the government, for instance LPG and fertilizer subsidy. NPCI recently confirmed that over 150m bank accounts have already been linked to Aadhaar numbers. All 170m beneficiaries were to be brought under the program by June 30, 2015. Banking inclusion has been greatly enhanced.

Regarding debit card infrastructure, India now has over 560m debit cards. Credit cards have been leading in the last 25 years, but debit cards are a more recent development. 60% of payment volumes are on credit cards despite them being fewer in number. The story so far was around credit but will be around debit cards going forward. I expect the ratio to reach 75% debit to 25% credit in terms of payment volumes.

In short we have a number of key enablers working together: the Aadhaar system enrolling people into electronic id, the push to mobile banking for the unbanked, the push to bank accounts, the roll out of debit cards and new POS infrastructure.

 

Could you please explain India’s position on merchant infrastructure?

In terms of a high level snapshot on merchant acceptance infrastructure, India has about 15 million merchants of which only 1 million accept cards. This is why card payments traction is so low. The barrier to acceptance is that terminal infrastructure is expensive, at a cost of around $150 - $200 per terminal. At this level return on investment on new terminals is difficult to justify. We have focused on bringing down the cost of a terminal to $25-$30, through the use of mobile POS. When you look at the last 8-9m merchants, mobile to mobile payments without infrastructure is the way to go.

POGO1First Data has launched our Pogo solution in July 2014, deployed at smaller merchants. At current take up levels the price point is higher but merchants do not pay upfront, we recoup the cost from on-going payments.

 

Could you tell us about the new services you launched recently?

We are one of the leaders in E-Commerce payments and operate across a number of categories. To simplify customer experience we are looking to launch our revamped internet payment gateway which would also work from mobile phones. Universal payment options also cover internet banking, integration to wallets, EMI products, payment in home currency and seamless plug in to all shopping carts and a mobile optimized interface as well. We are looking to launch this in next 2-3 months.

We are also adding a number of features to our MPOS launched last year. At that level of transactions we can simplify documentation for a merchant to quickly come on board. We’re launching a product for payments and other applications such as ERP, accounting, loyalty and a hardware/software.

Essentially small sized retailers have not invested in counter top infrastructure. Some may have PCs, some may not even have that. What we want to provide is a package deal for a small player by “miniaturising” the functionality used by large merchants: ERP, bar code reader, printer and other features. We believe that addressing the needs of small merchants is of great importance.

 

How about merchant to merchant applications and do you have estimates on how much the India B2B market is worth?

If you look at B2B, that too is very interesting for us as we address cash and carry. In India the market includes stores such as Walmart and Metro Cash and Carry. We’ve done a prepaid program, also a credit card with limit, accepted by closed group of retailers. Other interesting opportunities are around travel, for low cost airlines to sell their inventory and enjoy more card acceptance. The third interesting area is procurement that can help both parties optimise working capital.

Our own best estimates for the size of the B2B market is $15b to $20b of available market across the country.

 

How has the Indian payments market changed over the last year?

The first major trend has been the move from credit to debit. In the past cards were used more for discretionary expense, now the trend is towards non-discretionary, as consumers use cards instead of cash in their wallet. Supermarkets are adopting cards and issuers have provided a lot more debit cards.

Secondly, it is contactless. We were the first to introduce contactless terminals. For small value transactions, you can now tap and go. I believe Contactless could be very important going forward.

The third trend is mobile especially through mobile internet. India has 900m mobile phones and 300m smartphones, growing to 500m. People prefer to shop on their mobile rather than using their laptops or PCs. This is higher even than the US, and considering how important the Indian market is apps are being rolled out and payment systems are evolving fast. Mobile optimised pages and plug-ins are being rolled out. We expect this market to reach $35 million.

The fourth major trend has been the growth of our local network, RuPay, similar to China UnionPay. In the past Visa and MasterCard held dominant positions in India, but issuance in the last 18 months has changed things. NPCI RuPay has issued a huge number of cards and will play a very important role as all the new bank accounts use RuPay.

 

How important will the physical card be in India?

I think plastic cards will continue to be very relevant in the near future. Mobile wallets have not been adopted as fast as hoped and have been around prepaid rather than card in store.

I believe however that the form of plastic will change though, with more Chip & PIN EMV cards being rolled out as we speak.

 

Do you have any idea of the number of contactless cards and terminals?

I’d say terminals accepting contactless cards are in the region of 20,000-25,000. Also, if you talk to top acquirers, they’re all talking of deploying a large number.

We expect pretty much all of our new deployments to be contactless this year. Over 80% of the transactions on POS are less than $30 and could qualify as contactless. Some categories would go better, for instance super-markets and transit.

 

Transport has not come up as much as it could, do you see this changing?

A number of metros are leading in the investment in tap and go. Toll is not yet integrated and as it is not interoperable it means that people cannot yet buy prepaid. With regard to Prepaid, services Mobikwik offers card payment service for Android and iOS users and now supports paying for Uber.

The form factor of cards will change, as this increasingly moves to Chip & PIN and contactless rather than magnetic stripe as the price of contactless terminals is not that much more.

 

What significant changes are likely in the way people pay in India over the near future?

We are keen to look at in particular in terms of how government participates. Deploying acceptance infrastructure and now systemic incentives will help non-cash payments to reach tipping point.

Everyone understands the cost of cash. The goal is to get people to prefer electronic payments over cash. However affinity to cash is too high and must be broken. Government incentives made available to all, including merchants, consumers, acquiring banks and others, will help to lower costs and promote adoption.

 

Nitish, thanks for sharing your insights with us. I wish you the very best for your initiatives as India continues to adopt non-cash payments at this unprecedented pace.

 


imageNitish Asthana is the VP and Head of First Data India Ventures, focused on venture investments in POS, e-commerce, mobile commerce and digital payments. He has led the merchant acquiring business for First Data- ICICI Merchant Services (ICICI MS) and had overall responsibility over ICICI MS revenue lines across the company’s POS and Ecommerce businesses, acceptance and acquiring product solutions, sales, business development and marketing.

 


LIviewport_india_2014 For more information on “Digital Money in India”, Shift Thought’s unique 360-degree coverage of the Indian payments scene, or to gain access our self-service portal with the latest knowledge on the ecosystem, initiatives, regulations and more,  just email us at contact@shifttthought.com.

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Payments systems in the US – A sleeping giant awakes

 

This weekend as we joined in wishing our American friends and family around the world a wonderful Independence Day, my thoughts turned to how Payment Systems are changing in historic ways in America, in many ways setting off a chain reaction that will transform the way we transfer value, not just in the US but world-wide.

 

The danger was that the land that introduced the first universal credit card back in 1950 had done such a good job of meeting consumer needs that it would be hard to get people to adopt new methods. It took a number of different initiatives of a decade or more to finally get this to happen.

 

Mobile Payments starts to take off at last

Did you know that mobile payments in America are expected to grow from $3.5b spent by 16 m shoppers in 2014 to a massive $27.5b by next year? Even then this will still be just a fraction of the $4.3t retail store payments made in the US. The common man or woman in America is seeing changes in the way they pay for tolls on the roads and how they pay each other, as well as pay bills and shop online.

 

Digital wallets – not there yet, but on the move

For the longest time it seemed as if this would not happen, especially after the strong push towards digital wallets in 2011 seemed to fizzle out. However now it seems this was simply the calm before the storm. Each side has reinforced itself as major battle commences to win hearts, minds and mobile wallets, but this time I believe what happens in America will not stay in America.

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The US market becomes NFC-ready

Finally this year we have seen important moves towards new forms of mobile payments vi a NFC, QR Codes, MST, BLE and more, with a reported 70% increase in mobile commerce in the US since 2012.

On the one hand US POS is finally beginning to support EMV, as the October 2015 deadline looms.  As the difference between the cost of contactless and non-contactless terminals is not vast, retail outlets are increasingly becoming NFC-ready.

 

Retailers look for online and mobile innovation

On the other hand top US Retailers have finally realised that the future of their brands depends on a golden braid of inextricably woven marketing and payments campaigns that rely on ever deeper market understanding to help get, keep and grow their customer base.

As in other countries, transport is becoming one of the first applications for consumer adoption of digital payments, as existing methods for paying get removed and replaced by new ones. Online payments are now widespread, but fear of loss of identity and security breaches still leaves a gap to be filled, causing a lot of focus on biometrics, authentication and fraud prevention. However for adoption to deepen across America the real driver will be offers and marketing campaigns.

 

Marketing  and Payments: Perfect Partners

Here is where mobile payments comes into it’s own, with a unique appeal with respect to marketing. By 2016 over 196 million smartphone users become accessible to persuasion to buy in new ways. When Amazon was founded on July 5, 21 years ago (Happy Anniversary Amazon!), Jeff Bezos and team showed that deep understanding of what we want can actually be used to help us in finding what we’re looking for without proving overly offensive. Now we are at the cusp of a new revolution, as every possible route is being explored in pursuit of a new American Dream. The subtlety with which the new marketing capabilities are used will largely decide how quickly people adopt new payment methods.

 

Loyalty provides an incentive for change

Today store-issued credit cards and store rewards are being added to Apple Pay, Google Android Pay. Soon Walgreens hopes their 80 million members of Balance Rewards program will be able to use loyalty points with Apple Pay, and all eagerly anticipate smartphone, device and watch payments to increase. The new mobile payments methods will allow consumers to save on their shopping, by directly saving with the use of loyalty rewards.

 

American providers look for world markets

But this time American providers have a much larger canvas. If they get the digital loyalty-payments nexus right, there are other markets in a high state of readiness across the Atlantic that can help their brands grow. Apparently I am not the only one to leave my loyalty card behind, on the day when I find a retailer has one of their nicest sales on - in the UK unused loyalty cards reportedly cost us shoppers an estimated £5.2 billion.

 

The future – real time payments

But as I have said before, the real value comes when channels are made to properly work together, and this is what is starting to happen in the US. On my recent visit a short while ago I found payments really getting embedded into very interesting user experiences thanks to growing investment in FinTech.

Consumers and merchants are likely to see a lot of value-add over the coming months and years as Americans increasingly declare independence from cash payments, especially if payments can become real-time, something that has proven elusive until now. Importantly, it will not be long before the ecosystems grow beyond the US, and partnerships that are under formation now are likely to be important at least in the first phase of expansion.

 

Happy Independence Week America!

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Mobile Payments in Europe: State of Play and Future Outlook

 

In this interview Christian von Hammel-Bonten shares insights on how he sees mobile payments develop across Europe, from his key position as EVP at Wirecard AG, a technology and financial services payments company that is a leader in both acquiring and issuing business across the region and world-wide.

 

Christian thanks very much for your time today. Could you please give us some context of Wirecard and what you do?

Simply said, Wirecard is a global technology group that supports companies in accepting and issuing means of electronic payments. We offer services in all roles of the payment value chain: issuing, issuing processing, payment service provider, acquiring and acquiring processing. Group operating activities in our core business are structured into key target industries: Consumer Goods, Digital Products, Travel & Mobility and Telecommunications. The idea of these verticals is to understand needs of our clients and deliver focussed solutions. In my current role, I am in charge of the Telecommunications sector that includes all products & services related to mobile payments.

 

Europe has historically had the longest history with pursuit of mobile payments. From your experience over the years how has 2014-2015 differed?

In past years, NFC was always a topic that was discussed but had not seen solutions being commercially rolled out. This changed in 2014-2015. We’ve seen launches in mobile payments, with Wirecard involved as well. Bank activities have increased with cloud based payments involving Visa and MasterCard. On top of this, the launch of Apple Pay in the US and now announced for UK, has increased awareness and interest on the merchant and consumer side.

 

EuropeFreeMap

 

Would you say that mobile payments is converging or diverging?

I believe we are at the early stage of Mobile Payment and as I look at the early activities in Fintech we’re at the beginning of a disruptive era. When we started Wirecard 16 years ago e-commerce was below 1% of retail sales, no one would have predicted the size of retail sales online today. Looking back I compare it with the trend relating to digital cards.

The activities and discussions focussed too much on the term mobile payment. It is digital payment that may be delivered through the mobile but other device types such as wearables may be equally promising. One thing that is clear is that the physical element, namely the plastic card, increasingly disappears – it will be transformed into another form factor, digitized credit credentials.

 

But how would we extract cash in that case?

In a number of European countries we observe initiatives that are resulting in cash fading out. Take Sweden, Denmark and UK for instance. In my opinion, cash will not ever disappear in the near future but the majority of payments you receive will increasingly be digital payments going forward.

 

What are some peculiarities you observe in Europe versus your other activities in other regions such as APAC, UAE and South Africa?

Developments in E-commerce across all these regions differ, and even within Europe, countries are at different levels of maturity. E-commerce in Europe as a whole is highly developed, as we enjoy high levels of mobile coverage of good quality. Infrastructure is essential, of course, for the success of digital payments. Communications infrastructure becomes the highway for retail stores and effective communication networks are a pre-requisite.

Another factor is payment culture in various countries. The use cases and consumer needs differ. If you look at Africa it’s not NFC mobile payments that is needed, rather it is mobile money because of the lack of banking infrastructure. Across APAC again it differs widely. In Singapore there is a high penetration of cards and terminals, but in nearby Philippines this may be completely different. Similarly you can compare Germany and UK on these parameters. In Germany ELV solves merchant problems and consumers still prefer cash.

Success in payments comes from understanding the needs of players in all parts of the ecosystem. Paying with a mobile device may not be needed as a tool for financial inclusion where we have well-developed banking infrastructure, but in Western countries and world-wide, crowd funding, P2P lending and other services are rising up to meet unique consumer and business needs.

M-Pesa recently launched in Romania possibly as they identified a larger proportion of under banked, largely based on cash. This may be a viable solution in the Romanian market but not suitable for UK or Germany. Although there is a short distance geographically between European countries, there can be big difference in payments.

 

Could you share some insights from your work on mobile wallets such as with the BASE Wallet, Deutsche Telekom MyWallet, Orange Cash and Vodafone SmartPass?

We see huge differences in European markets that cause different states of readiness. In UK we have markets ready for digital payments, but Germany is somewhat behind in this respect as payment culture is different.

A good way to understand this is to study the number of terminals and the number of cards in each European market, and trace the growth of contactless in POS. Apart from UK, Switzerland is also heavily contactless. In Spain too consumers have embraced contactless payments. In other countries we have to be patient until the necessary relevance is established on the consumer side.

So we have to be somewhat patient but no one contradicts that in a few years the majority of payments will be made digitally – with a smartphone, wearable or other digital form factor.

 

Is it digital natives who are installing these apps or others interested as well?

It is really both. The ones who adopt are generally people who have an affinity to the service, but also towards technology. If you use your mobile phone today only to make phone calls you’re not perhaps someone who would adopt mobile banking and mobile payments.

Generation Y use smartphones heavily and rely on mobile banking for managing family finances. We also see that males are more predominantly early adopters of the new services.

 

Would you say there is a growing importance of the mobile number in all of this?

Yes, Certainly. Like the email address is already more important today for your communication than your postal address is, the mobile number is already a personal identifier for many activities.

The mobile number has the potential to act as a proxy for many underlying financial services. Take for example P2P transfers. It is challenging to remember bank details, more so with IBAN, so the mobile number becomes a link to your bank details in successful solutions such as Pingit, Paym or MobilePay. Also, you don’t have to remember phone numbers as the phone book does this.

 

Do you see SEPA as an instrument for achieving more consistency in payments across Europe?

At first people took some time to be convinced but today SEPA Credit Transfer and SEPA Direct Debit simplifies things for people making payments across Europe. It is a future enabler for a number of bank services and if banks want to stay competitive they need this form of interoperability.

The only thing missing is instant payments, and I hope this will come, European-wide. However banks are finding it difficult to set something like this up on their own. Really it should already have been made available across Europe, as UK already has Faster Payments. There are a number of banking innovations in the UK such as Pingit, Paym and Zapp (expected) and these are greatly facilitated by real time instant payments.

A good financial and payment infrastructure is crucial for supporting businesses and consumers. It is as important as a good road infrastructure and it is the prerequisite for innovative digital services.

 

Yes, I see how this could help to address some of the disruption to banks from FinTech, but also enable innovative new services from new entrants that compete with the banks. Speaking of this, Wirecard launched the Wirecard Smart Band based on HCE – could you please share a bit about your experience with HCE?

HCE or Cloud based payments has greatly increased the possibilities for banks, telecommunication companies and others to offer mobile payment services. In the past, almost all such projects depended on hardware-based elements such as the SIM and embedded secure elements (eSE). However, something that is hardware based has an owner who seeks control and finding collaborative models between all stakeholders delayed or prevented the launches of mobile payment solutions.

With HCE/Cloud-based payments however, such collaboration is less essential, which is its best advantage. Financial Services groups across Europe are looking closely at this technology. No solution I’ve seen is as convenient in being able to enrol users and deliver digital cards to them. Why should we buy gift cards in supermarkets, when we can just send them digitally and use gifted money through apps?

I believe the distribution of cards is about to change, and plastic cards will increasingly disappear as we have digital cards, and not just one each!

 

What does Wirecard do to help companies, say a UK-based retailer wanting to move on this opportunity?

Wirecard offers two different approaches. Firstly we help our partners to build up new card portfolios by issuing cards, irrelevant of the form factor as an issuing bank with licences for the SEPA region.

Secondly, we enable our partners to digitise their existing cards and it does not matter which NFC approach – SIM, eSE or HCE – clients prefer, we are technology-agnostic and support them all. So with respect to retailers, we enable them to issue digitized cards to their customers as part of their loyalty solution. This allows retailers to offer their customers a convenient and fast option for paying, in order to simplify overall checkout and at the same time leverage additional opportunities to engage with customers.

 

Do you also provide an app if clients don’t have one?

Yes, we have built a flexible, agile platform to cater to different environments. We offer to integrate through Software Development Kits (SDKs) with existing apps or we can provide a customized app.

All apps of our live solutions including Orange Cash and Vodafone SmartPass have been customized to meet the client’s branding and functional requirements.

 

What is the best path to interoperable mobile payments across the EU, for instance for a UK customer using a smartphone to pay in Spain, and what’s the outlook for 2015 and beyond?

Right now existing solutions are based on Visa and MasterCard specifications and may be used not just across Europe but also world-wide.

Your example is an interesting one, as travel is one of the biggest drivers for prepaid in the UK market. If you are going to Spain, instead of buying a card you can just go online, register and get your digital / virtual card, top-up and start to spend.

This is a good example of how we see the future of cards. Digitization started and progresses in many areas of our life and payment cards will be clearly affected as well. Short term we will see the first big success of a mobile payment solution with the launch of Apple Pay in UK in 2015. This will spur all activities around mobile payments in Europe and bring us closer to a world of digital cards and a cash-less society.

 

Thanks very much Christian, it has been very useful to gain your insights on mobile payments in Europe and I take this opportunity to wish you the very best for the future.


Wirecard AG_Christian von Hammel-BontenChristian von Hammel-Bonten is Executive Vice President Telecommunications at Wirecard AG. Christian has almost a decade of experience in the online payment industry. From 2002 until 2009 he was responsible for Project Management at Wirecard. Before returning to Wirecard in October 2011 Christian worked as Senior VP of Product Management for Clickandbuy, a company of Deutsche Telekom. In his current role Christian is responsible for the Telecommunications sector at Wirecard.

 


Charmaine Oak

Author of The Digital Money Game, co-author Virtual Currencies – From Secrecy to Safety

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How Android Pay changes Mobile Payments–and why you should care

 

Now that details regarding Android Pay have emerged, I thought it would be interesting to contemplate on how key mobile payments “ecosystem builders” as I term them, stand with respect to the on-going mobile payments game. Here is the State of Play in the Mobile Payments Game, post Android Pay

 

The latest move is Google’s announcement of Android Pay at the Google I/O conference today. This allows customers to pay at retail stores by simply unlocking their phone, without the need to open an app, in a “Tap and go” experience. Loyalty programs and offers can be applied at checkout. Also the contactless terminal receives not just the payment details but also loyalty points and offers.

Assuming things go to plan as per announcements, here are my thoughts on where players are positioned.

AndroidPay

 

The Prize

Over 2014 to 2016, the mobile commerce market is set to grow by a factor of five. This is 10 times faster than the E-commerce market. But by 2016, with less than 500 million mobile payments users, and a market worth $600 billion there is ample scope for further growth. PayPal recently announced that while online and mobile shopping accounts for $2.5 trillion in annual retail sales, with the convergence of the online and physical world, a unified world of commerce could be worth $25 trillion, resonating arguments I made in my book “The Digital Money Game”.

 

Key Players

The current scene of the battle is playing out in the US with heavy-weights placing large bets on paying by mobile phone.  Big players currently making investments include Apple, Google, PayPal, Samsung, Facebook, Visa, MasterCard, MCX and others. Also there are several mobile payments providers who have obtained some traction in the market and may now be up for grabs.

Some have folded their hands – Softcard (formerly ISIS) was recently acquired by Google, as an important precursor to their current play, as now handsets from AT&T, Verizon and T-Mobile can come pre-loaded with Android Pay.

 

Key Enablers

Once an area dominated by mobile operator SIM-SE standards, the dam has burst and we have a number of possible technologies emerging. Samsung’s embedded approach recently announced is similar to eSE introduced by Apple for ApplePay and both work with tokenization services of card schemes. HCE and tokenisation hybrid models first introduced by Google for Android Kitkat (4.4) have since resulted in the launch of a number of pilots around the world. Meanwhile QR Codes have seen good traction, being behind some of the best adopted services, such as the Starbucks Wallet.

Now Android Pay says their service is secure as they won’t send your actual credit or debit card number with each payment. Instead a virtual account number represents the account information. Android Device Manager is to allow consumers to instantly lock their device from anywhere, secure it with a new password or even wipe it clean of personal information. 

 

Country Positioning

Apple Pay is still largely US only, although reports have emerged from Singapore of people successfully using their Apple Watch to make payments there. Android Pay has a huge potential in terms of reach but for now nothing much seems to be clear in terms of when it will launch outside of the US. While Apple benefits from premium user status, in terms of sheer numbers , once the gameplay extends out of the US, Android is better placed in terms of penetration.

US is pulling ahead, but China, India will not be far behind as they develop apps to meet the requirements of the US and then seek to bring out cheaper and more appropriate services for Asian and emerging markets. Europe though risks being left behind in all this, pity, with it (arguably) being the birth-place of e-money.

 

Customer Adoption

Recent reports claim $2 out of every $3 spent using contactless payments across Visa, Mastercard, and American Express were being made with Apple Pay.  

PayPal now with Paydiant seeks to challenge this thanks to Paydiant’s earlier work with MCX.  This month PayPal reports it processes nearly 12.5 million payments for customers every single day.

Now Android Pay promises to offer better ease of use than Google Wallet, benefiting from support for fingerprint authentication in Android M. Also with pre-loaded handsets the only challenge that remains is having led the horse to the water, to actually get it to drink: as several steps will still be needed before customers actually make their first mobile payments transaction.

Samsung Pay though claims potential acceptance at 30 million merchant locations worldwide, with near universal acceptance thanks to Magnetic Secure Transmission (MST) magstripe emulation platform, LoopPay.

 

Reactions from the rest of the ecosystem

Merchants are signing up to many of the new services, whilst also engaged in MCX and so far tending to favour the QR Code approach.

Schemes are not taking sides. Visa, MasterCard, American Express and Discover have announced support to Android Pay, as also with other services. In general schemes are keen to support all options, something that brings joy to their investors.

Mobile operators are on a back foot, but regrouping – more co-operation, greater focus on transport (such as Mi-FARE) where they still hold an advantage, and a continued emphasis on security – though biometrics, tokenisation and the passage of time will leave this argument somewhat weakened.

For now banks can play with the different providers, but where will they invest and how long will it take them? The banks in the US are moving quickly – USAA and US Bank have already declared their support for Android Pay. Citibank had been quick to provide the support needed by Google Wallet.

Regarding processors, for Android Pay Google is partnering with Braintree, CyberSource, First Data, Stripe and Vantiv to make integration easier. There is a huge opportunity from tokenisation which is up for grabs and processors need to also back every horse, while continuing to build the required infrastructure.

 

Outlook for Mobile Payments

This further confirms the growing fragmentation, with potentially myriad implementations as service providers seek to navigate a murky minefield of patents relating to mobile payments, and still bring out something that helps maintain some control over large, desirable customer segments.

What is quite clear though is that massive disruption to existing business models is now well and truly on the cards. Current retail, banking and payment systems must consider their roadmaps as payments becomes invisible, embedded, transparent and often free. The future of payments is in the cloud, but could this result in massive “honey pots”?

When will Android Pay, Apple Pay, Samsung Pay and PayPal’s newest services launch across Europe, UK, Canada, Australia, Poland Germany, Singapore and other countries ripe for these services? And where does Android Pay leave Google Wallet? A lot of important, yet unanswered questions that will become clearer in the next few months perhaps.

 

Charmaine Oak

Author of The Digital Money Game, co-author Virtual Currencies – From Secrecy to Safety

PayExpoSpeakerLogoI'm speaking on “Role of mobile in omni-channel payments 

June 10 at 13:30 at PayExpo 2015 Mobile Money Europe, London.

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The impact of HCE and Tokenisation on the US Payments Market

Host Card Emulation (HCE) and Payment Tokenisation (or Tokenization for readers in America) are two highly significant new developments from 2014 that have the potential to radically change the way online and mobile payments are carried out and address some of the issues regarding security and fraud. These are not just about technology but about creating shifts in the control of payments that could impact the business models of key players.

As part of our review of the key developments in payments over 2014, I had a really interesting discussion with Sai Casula, a payments expert and Banking, Cards & Payments Consultant for Tech Mahindra. Sai shared his thoughts on Digital Payments, Tokenisation and HCE: What these mean and how they may affect the US in particular, as well as other markets world-wide. Below I share highlights from our discussions, to offer a basic introduction to these two important areas that are poised to bring about big changes in the way we pay.

 

Sai Casula, thanks for your time today. Please could we start with a bit of background about yourself and your organisation, Tech Mahindra?

I work for Tech Mahindra where we support customers worldwide, and in particular I am engaged in key projects with MasterCard. With the acquisition of a majority stake in Comviva in 2012, Tech Mahindra gained a strong foothold in Digital Payments space including mobile wallet, mobile POS and Cloud Payments technology. Mahindra Comviva has over 120+ deployments across 55 countries. Our mobiquity® Wallet and mobiquity® Money platform supports 2 of the top 5 Mobile Money installations globally. mobiquity® Wallet supports NFC, QR Codes, BLE and other contemporary technologies to enable mobile commerce.

 

NFCPaymentsHCE is an important development going back to end-2013. Could you share a bit about what HCE is?

Host Card Emulation (HCE) was introduced by Google in November 2013 as part of their Android 4.4 KitKat update. It allows for cards to be issued from the cloud and used by mobile payment transactions anywhere. This was a highly significant move from Google, who had earlier faced a pushback from mobile operators in the US at the time of the launch of their Google Wallet in May 2011. It is significant because it for the first time created a level playing field for all to participate in NFC.

Prior to this it was mobile operators who could dictate terms, thanks to their control of the SIM and hence ability to own and control the Secure Element (SE) in the Universal Integrated Circuit Card (UICC) which is the smart card used in mobile phones.

With the introduction of HCE consumers with Android devices could make NFC payments using Visa or MasterCard cards provided by the consumer’s own banks. This gives banks the freedom to deploy mobile/digital payment systems everywhere.

 

Thanks for this background on HCE. Could you shed some light on tokenisation?

Historically there is too much fraud involved in online payments and card not present (CNP) scenarios. Consumer concerns of fraudsters stealing and using their cards online have historically inhibited people from fully enjoying online shopping.

Merchants and Card issuers in particular bear a high cost from fraud relating to payment cards. Apart from the online fraudulent transactions we also see large scale security breaches similar to Target and Neiman Marcus where the card numbers are stolen in millions and the card issuers incur an extremely high cost to replace all the cards.

Tokenisation is a model that stands to change this. Payment tokens are surrogate values that replace the Primary Account Number (PAN) with the alternate card number or “token” in the payments ecosystem. Tokens are mapped to the funding account, leveraging existing payments infrastructure and messaging formats for authorization and processing. Tokenisation reduces fraud for the entire digital payments ecosystem.

 

How is Tokenisation being received by the various players in the US payments ecosystem?

This brings advantages to a number of players across the ecosystem.

Firstly, the Bank Issuers really like this. When issuers provide a token to a consumer for the purpose of making a payment, this limits the use of that token to a single transaction or context, as appropriate. If there is a breach then, it is only that token that is compromised, and not the original payment card. This is also an opportunity to extend the existing card business in digital space, with more secure transactions and fewer chargebacks.

Secondly, The Networks also like this as it benefits their customers the Bank Issuers, and helps bring down the cost of fraud, within an established card scheme model.

Thirdly, any mobile wallet can accept a token, Itworks seamlessly with existing mobile payments systems and needs no changes to the Point of Sale (POS) Fourthly, merchants like this as the same token can be used on the internet as also across other channels such as mobile and POS. This brings the advantages of reduced chargebacks, faster checkout, more security and more payment options.

Last, but by no means least, consumers benefit due to better user experience and added peace of mind as they would be spared the anguish connected with a loss of a payment card or worse still the wider effects that this may have on their identity and credit history.

So there is an immediate business case and ROI for the key players through the potential reduction in fraud and the reduction of friction in Ecommerce.

 

What is the importance of HCE and Tokenisation in the US in particular?

Given the high-profile breaches suffered for instance by Target, Home Depot and Neiman Marcus in 2014, merchants are very concerned and anxious to reduce their exposure that comes from the existing card-on-file model. That is where Tokenisation has a welcome role to play.

The implementation of Apple Pay is an interesting case of HCE principles and Tokenisation that come together to create a seamless payments experience.

 

How is all this likely to affect the adoption of NFC in the US over 2015?

NFC has had a good ride recently. After a slow and unsteady history over the last 10 years, Apple Pay has created a resurgent interest in NFC. The strong user experience with Apple Pay has also increased the adoption rate of Mobile Wallets in the US Market.

Of course, NFC has a number of uses beyond payments. For instance Apple’s new iOS 8.0 is geared to health care applications.

I think the biggest war in 2015 is going to be the tokenisation war.

The big questions are who will own the key positions in the newly developing value chain? Who will manage tokens? Who will issue them? So apart from the payment networks such as Visa and MasterCard, there are many more players lined up for this. The Clearing House – Secure Token Exchange, Mahindra Comviva, Gemalto, FIS, Fiserv and First Data are all keenly interested.

At Tech Mahindra we feel uniquely position to provide an “End-to-End Cloud Payments Solution” including Cloud Payment HCE/Module, Tokenization and Mobile Application Module. We believe that our expertise in Mobile Cloud Payments, out of the box solutions and Integration expertise can help Bank Issuers bring enhanced digital experience to their customers in short time span.

 

So all in all we agree this is a very important space to watch then! Thanks so much for sharing your very interesting thoughts with us and I wish you every success in the key projects you are managing this year.

 

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Sai Casula is VP and Banking, Cards & Payments Consultant for Tech Mahindra, and is currently based in the Greater New York City Area.

Through years of experience in the banking, cards and payments industries, Sai has acquired a deep understanding across these connected areas, with strategic and operational working experience across several regions worldwide.

Charmaine Oak is Author of The Digital Money Game and co-author of Virtual Currencies – From Secrecy to Safety

viewport_china_2015Shift Thought is a UK-based consultancy that offers subscriptions to a unique, constantly updated portal that covers a set of 32-key services we include under Digital Money.

To commemorate Chinese New Year 2015 we have just released “Digital Money in China 2015”, a 380 page report that completely dissects the progress of money going digital in China, and the shadow this could cast on your plans, wherever you may be in the world today.

Contact us today at contact@shiftthought.com for details on our unique resources that you can leverage to stay ahead of competition in this important, fast moving industry.

 

Copyright © of Shift Thought Ltd. All rights reserved. Reproduction by any method is strictly prohibited

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The year 2014 was a tipping point for NFC payments says Visa Europe

Today I am delighted to be speaking to Jonathan Vaux, Executive Director, New Digital Payments and Strategy at Visa Europe. Jonathan tells us what trends impressed him over 2014, which he considers to be a really powerful year for mobile payments. We discuss the UK and European developments and Jonathan shares his views on the outlook for 2015 for digital payments in Europe and world-wide. For background see my previous blog “How payments changed in UK in 2014 and what’s next

Jonathan, thanks for making time for this discussion. Could you please tell us a bit about yourself and your remit at Visa Europe?

Contactless PaymentsReally I have two major roles at Visa Europe. Firstly, to look at emerging technologies and gauge what our involvement should be. Is this a technology so impactful we must do something about it but not necessarily be a provider? A good example of this could be authentication or identity, where it’s probably more about us adapting our product rules and frameworks to recognise emerging technologies. Alternatively, is it a service we should provide as part of our core services? A good example of this might be tokenisation, or incorporating geo-fencing into our services as a way of improving our authorisation services and improving the customer experience to approve genuine transactions and help capture fraudulent ones.

Secondly my job is to create roadmaps and conduct prioritisation exercises.

At Visa Europe my job is really to look at changes in the way people want to pay and make sure that Visa is the preferred payment method for whatever app or wallet consumers wish to use for payments.

 

How has Visa Europe recently reorganised to address opportunities from changes in the way we pay?

We’ve undertaken a major reorganisation recently that resulted in positioning us very well with respect to the changes we expect in payments over 2015 and beyond. We have created a dedicated digital business unit as a group of 150 people looking at the services we must provide and also delivering the services. This is a dedicated team currently separate from our “core” business.

We want to make sure we are as easy to integrate into new banking and payments apps as possible, creating the connectivity and seamless payments experience consumers require.

 

What are some of the key global trends you observed over 2014?

To my mind 2014 was a tipping point for NFC payments. With the launch of Apple Pay and the number of developments over the year, some technologies that had been struggling to get adoption got legitimised. There has been more emphasis on customers wanting personalised services. Also we’ve seen much more adoption of online banking and mobile banking. More than ever banks have started to engage with digital channels, as an imperative rather than an option.

We saw some important traction in the role of biometrics, with TouchID for instance, and the technologies becoming more open.

Tokenisation is another major development. Another is the evolution of players such as Stripe with an open API approach. In short, 2014 has been a really powerful year for payments innovations.

 

On the other hand we had so many negative incidents, such as credit cards being stolen, that in a way may also precipitate tokenisation, and make paying by mobile even safer than other methods?

We need to make sure we consider this as we evaluate how to scale any potential new technologies, although the issues did not arise due to mobile as a channel as such just re-emphasised the importance of security.

Also if you look at fraud ratio in Europe, thanks to implementation of Chip and PIN, the rates are relatively low as compared to US for instance. In Europe there is more nervousness about technologies that are seen as less safe.

The other important point is we need to ensure that the way to mitigate fraud does not impact consumer experience. It is all about creating streamlined, secure methods to pay with consumer experiences that are also great.

 

On the topic of focus on consumer experience, do you see digital as an opportunity for banks to safeguard against becoming commoditised and also regain consumer goodwill?

As a general point most people look to retail banks to manage funds and trust their bank to keep their money safe. If you consider core propositions in this area, the customer looks to their primary retail bank for that. I’m not sure how much the potential peripheral services, such as loyalty, have a material effect in terms of customer relationship - the crux of it is: Is my money safe? Am I protected if something goes wrong?

However, a lot of day-to-day experiences in the banking world may not be consumer friendly enough. Consumers may shift for more convenience. PayPal, for instance, have had a lot of impact as they offered such a strong customer experience.

 

Over 2014 we saw so much traction in the UK with Transport for London (TfL). Could you please tell us more on this?

A lot of the services fail as they don’t become habitual for the customer. What is fantastic about applications such as TfL is that for people living and travelling around London the use of such services becomes habitual very fast. The use of contactless payments on TfL extends and reinforces the use of that plastic card that I use elsewhere. It’s a new use case and it works as it is something I use regularly.

It is interesting to see the number of transactions and also the number of people constantly using contactless cards has greatly increased over 2014.

Visa Europe predicts that, with the launch of contactless journeys on Transport for London’s (TfL) travel
network and the introduction of mobile contactless services, Brits will make 500 million contactless payments between now and December 2015.

Any update for me in terms of the use of mobile contactless payments? Now that services are available from some of the leading mobile operators, how are these being used so far?

I am not sure how much specific data I can share on that but I would say that today most transactions are still predominantly contactless plastic cards. We’ll probably see more focus from the operators in trying to capitalise on the press attention that things like Apple Pay’s launch in the US have received to grow their share of transactions and I think we’ll hear a lot more about wearables in 2015.

 

Within Europe, please could you describe some of the unique characteristics you have observed?

The big challenge for Europe is there are still lots of local processing systems despite Pan-European discussions. In 2014 we saw domestic regulators becoming more stringent on some issues, such as data storage required to be in the country, not overseas. This is an interesting trend that’s emerging. Over 2015 we must see how much that may counter-balance the speed rollout for global brands. It may also affect the scale of roll out of digital payments, and how that differs.

 

I agree it’s not just one market. I’m wondering if you have an update for me on Eastern European (EE) markets. I’m recently back from Poland and it was interesting to see the developments there.

Yes, there are a number of benefits in terms of markets such as Poland which have been very early adopters of contactless payments. There is a really high usage of contactless there. Merchants are actively leveraging technology to drive loyalty behaviour.

Nine Polish banks have confirmed plans to commercially launch Visa Cloud-based Mobile Contactless Payment services from early this year, re-enforcing Poland’s reputation as a hotbed for innovation in digital payment services.

Banking providers ING Bank Śląski, mBank, Bank Millennium, Raiffeisen Polbank, eurobank, Getin Bank, Bank Polskiej Spółdzielczości and Bank SMART will join Bank Zachodni WBK in rolling out services utilising Visa’s Cloud-based Payment specifications, enabling customers with payment apps utilising Host Card Emulation (HCE) functionality to make contactless payments quickly and safely using an NFC-enabled Android smartphone.

Poland tends to act more as a homogenous market, with more collaboration, as compared to some of the more developed markets in Western Europe. Sometimes entrenched legacy systems can actually be a constraint. So we are seeing some of the EE markets leapfrogging other European markets. They are building shared infrastructure backed by enabling rather than differentiating technology.

 

How do you see Tokenisation evolving – what are the promises and potential challenges?

Tokenisation already exists today and works successfully in a lot of online markets. It is important to look at the different use cases, and the ways it adds value and cost. With margins coming down markedly we need to be sure we don’t add layers of cost where it’s difficult to make sufficient money to justify this.

So if you compare the EU against US, the margins are very different in Europe. My customer asks, what’s the investment case? So there is little money to cover the costs, unless it gives significant upside.

 

I suppose big markets such as India and China already have their own cards roadmap. When we were in India recently we saw Rupay debit cards being issued for 53 million new accounts opened in just 2 months. What do you see in terms of global outlook?

The important thing is how do you transition quickly? It is a case of not just issuance but creating the necessary acceptance infrastructure. Time to scale of this would be a key differentiating factor.

 

Thanks Jonathan, this has been most interesting. To conclude, what do you most look forward to in 2015?

I think we’ll start to see material changes, new use cases and increasing adoption of the exciting new technology. As some of the things start to roll out I believe 2015 will be a really critical year as the new services become the norm and pilots go mainstream.

 

Which are the new technologies you would back?

You will see NFC, HCE, QR codes and more but as Visa we are agnostic. You will see these become more frequently used methods. You’re going to have very different consumer experiences. If Tesco offers a QR code app, that will be possible, just as other use cases such as NFC or HCE must also be possible, and that’s what we at Visa Europe are working hard to ensure the necessary support.

 

Jonathan Vaux is Executive Director, New Digital Payments and Strategy at Visa Europe. Jonathan is responsible for the development and execution of the New Digital Payments Propositions Strategy for Visa Europe. Key responsibilities include development of innovation agenda, development of digital roadmap and management of key partnerships and interaction with innovation partners, including startups, incubators and accelerators.

This is part of Shift Thought’s Focus on UK Series. Shift Thought provides unique, detailed and up-to-date Country Viewports on most developed and emerging markets around the world. Talk to us today at +44 (0)754 0711 848, or write to us at contact@shiftthought.com to learn more about how we can support your digital banking, digital payments and remittances projects.

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How payments changed in UK in 2014, and the perfect storm brewing for 2015

 

We in the United Kingdom already use so little cash that we could easily have gone the way of the Nordics, where consumers have such good payment systems that mobile payments took a back seat. Yet this year the UK pulled ahead in The Digital Money Game. At the player category level too we saw major upsets to the apple-carts of more than one category of providers, and a perfect storm is now in the brewing for others.

While the acceleration happened on several levels, in this blog I focus on how mobile payments took off this year and consumers now enjoy a raft of payment services on the go. It is fortunate that the Payments Council, Vocalink and Zapp had time to get a head start, as the likes of Apple Pay and Alipay prepare to descend on the UK in early 2015.

What do British consumers really need?

ukIn the UK with a population of 64 million, we have over 84 million mobile connections and more than 72% of these are smartphones. An increasing number of ‘phablets’ are rapidly coming into use.  We have 90.5% banked and a high penetration of internet services of over 84%.

We take internet banking for granted, and have enjoyed bank transfers in minutes for years now, thanks to Faster Payments. An estimated 5.7 million mobile banking transactions take place daily in the UK. We expect to pay everywhere with cards, with over 55 million credit cards and 95 million debit cards issued over the last year.

So do we really need mobile payments? We may feel overcharged by our banks, and while we may resent surcharges on card payments at some merchants in general domestically the use of cash is more of a lifestyle choice than a necessity. I can’t recall when I last used a cheque book. Yet survey results this month claim that enthusiasm for mobile payments has skyrocketed over the last 15 months, with 44% of those polled prepared to even switch accounts to access mobile payments.

London transport goes cashless

Absence of a real need may be one reason why the promise of NFC remained unfulfilled since 2005, but neither consumers nor merchants quite invited it in- until recently. I have been closely involved in projects involving mobile payments and NFC since the early days when Transport for London (TfL) was considered to be the major prize that everyone worked hard to win. Yet it took a decade before mobile payment services on the TfL network launched and even today while it is possible to pay using mobile phones, people are just beginning to use their contactless cards. While in theory mobile payments are available on EE and Vodafone, in practice some elements of the consumer experience remain to be ironed out.

Contactless payments – here at last!

imageIt was quite a novelty to see the new Barclaycard contactless payment gloves trialled for Christmas shopping at some stores this season. The Barclaycard gloves have an embedded contactless chip that is linked to a credit or debit card to pay for transactions of up to £20. Contactless payments are also supported by the Barclaycard PayTag on London buses, McDonalds, Pret, Starbucks and many other chain stores.

We’ve had contactless payments infrastructure building up for years now, accelerated by the 2012 Olympics, attracting major investments from Visa Europe and others. Today across the UK, an estimated 300,000 terminals accept contactless cards. There are over 48.3m contactless cards issued, with a quarter of all plastic new cards being contactless-enabled. Over 2014 UK consumers are expected to spend £2 billion through contactless payments,

What does it mean for the consumer in everyday life?

As a British consumer, paying for things has now become easier. Apart from the danger of card clash, for which we have been most soundly educated, we have to be savvy to protect ourselves from a constant stream of marketing offers. From the consumer perspective, the winners are those who use the new features to shop smarter, save money and stick to their budget.

We now need even less cash, and at stores there are many more self-service checkout points that there were in 2012. You won’t have to tote around a load of loyalty cards either – Tesco has already begun to trial their PayQwiq service at 32 stores. Triallists use the online grocery service and add card details for use through the app. In store they buy up to £400 a day, sign into the app with a four-digit PIN and pick the card they want to use. A QR Code appears on their phone which the till scans to take payment and credit them with Clubcard points.

Life has become easier in many ways. Just as you can easily hail a cab and pay for it through the Uber app, something that London black cabs have not been too pleased about, expect more “Uber-like” innovations wherever there are pain points to be found.

New ways to pay: Pingit, Pay-em or Zapp-em?

paymThis April the Payments Council launched an important service called Paym. This allows convenient transfer of money between participating UK bank account holders. Earlier, Barclays supported Pingit, since 2012 as a great new way to send money in minutes using a phone, but Paym is integrated into customers’ existing mobile banking or payment apps as an additional way to pay, making it possible to send and receive payments using just a mobile number.

Customers register their phone number and the account they want payments made into with their bank or building society and people can then pay directly into the account using just a mobile number – no sort codes or account numbers are needed.

How Paym works

To send a payment, you select the mobile number to pay from your list of contacts, along with an amount and a reference. Behind the scenes the sender’s bank accesses the Paym database to confirm that the recipient is registered with the service and to retrieve their bank or building society account details.

The app helps to confirm details and receive immediate confirmation. The real magic behind this is managed by the Faster Payments Service or by the LINK network, whether or not the recipient phone is on or within coverage. In most cases the payment reaches the recipient account almost immediately and they see it in recent transactions on their account.

How Zapp proposes to work

zappZapp, announced early in 2014 now claims partnerships with major merchants including Asda, Sainsbury, House of Frasers and more. People will be able to pay for goods and services using Zapp, authorising the transaction from their mobile banking app. The payment will be made directly from their bank account, with the use of tokens to offer better security.

What is most interesting really is the effect this will have in enabling payments to small businesses. Shaving off pennies on each transaction can bring welcome relief to a number of traders and servicemen who can expect to take payments using their mobile phones.

A perfect storm brewing

If you are a provider, this is no time to be complacent. Consumers are set to “select and forget” their means of payment and many will make their choice in 2015. Merchants too are selecting their partners just now.

With Paym, banks continue to compete through P2P services that bear their own brand and can be differentiated in some ways. Zapp, on the cards for (delayed) launch in early 2015 will further put the banks in the driving seat as far as payments go.

Weve, a joint initiative of mobile operators in the UK was to roll out Pouch but has already announced it would close the wallet this year. With the HCE initiative announced by the card schemes in February this year, mobile operators no longer dictate terms with regard to NFC services, and in the UK also have the larger consideration of M&A on their minds, with the proposed acquisition of EE by BT on the cards.

applepayWith Apple Pay, already in use in the US and preparing to enter the UK market, I think we may expect a mega-battle on the cards for 2015. Google Wallet, Amazon and others are already highly active in the market.

Besides, we have not even begun to discuss the wider digital money picture. This includes a host of innovation from newly funded players including not just Fintech startups but well-funded Alipay, richer by $25 billion with the largest IPO having come through this year, and WorldRemit and Transferwise, expanding rapidly in remittances.

UK then is the place to watch. Shift Thought continues to do in-depth research on this market. Our detailed interviews with leading UK providers will shortly be published. Do drop me a line at contact@shiftthought.com if you have further questions.

Photo Credits: Promotional material from Barclaycard, Apple Pay, Zapp and Paym

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Researchers claim potentially serious flaw in Visa contactless payments cards in the UK

 

This morning a BBC report showed researcher claims of a potentially very serious vulnerability in Visa contactless payments. It is still not clear enough to what extent this could open the door for fraudsters around the world to use the flaw but from what was presented it seems this could be an expensive problem, most unwelcome at this time.

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Contactless payments cards allow people to make purchases below a certain value by just touching the card against a Point of Sale (POS) terminal. People do not need to enter a PIN except when prompted, after a certain number of transactions.Visa and MasterCard have been active in rolling out these cards across the UK, and indeed world-wide this trend has progressed strongly this year.

 

Spend on contactless cards in the UK is expected to rise to £6.4 million a week in 2014, up from £3.2 million in 2013. UK is a leader in contactless payments world-wide, making the latest discovery a point for people around the world to consider and take into account in their own projects and testing involving contactless payments.

 

Today, a demonstration on BBC showed a mobile based contactless payment card meant to block transactions higher than £20 actually allowed an amount of $ 999999.99 to be put through as it was in a foreign currency. The claim was that the flaw is with Visa contactless cards, and not just payment via mobile phones, although the demonstration was of a mobile initiated transaction. Prof AAD Van Moorsel of Newcastle University made a statement about the research and vulnerabilities they found.

 

Due to the widespread roll out of these cards in the UK, it is possible that people have these cards without being aware of it. There are 48 million contactless cards in the UK today.

 

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Visa Europe responded to the BBC on this to say the research does not take into account the multiple safeguards put into place and in practice it would be difficult to complete such a transaction. Of course, the amount would go through only if the account had the money. They were already updating their system anyway to make this kind of attack difficult.

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This could be a potentially very big issue, but found by researchers before it was exploited by criminals.  BBC states that so far in the UK contactless card fraud was only £51,000  in the first half of 2014, but then most people have not actually begun to use the contactless functionality on the  cards.

This is an unfortunate setback at a time when contactless payments was at last set to take off. In the UK, with new rules having come into effect in July 2014, contactless cards were to be the mainstay of payments on London buses where cash is no longer accepted.

 

The question this raises for me is to what extent this flaw may be present in other cases of  contactless payments in Europe and world-wide. The reports so far do not make it conclusively clear at what level this flaw exists – whether only for dematerialised cards on mobile phones or for all Visa contactless payments cards.

 


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How Apple play affects The Digital Money Game

Now that Apple Pay is here, how does it affect the projects in your pipeline? Which should you drop, where should you invest more and who should you look to partner next? We are at the cusp of the creation of a new ecosystem. But will Apple Pay fare better than Google Wallet did when it first launched in May 2011? There is a feeling of Déjà vu and Let’s Wait and See. For Apple as well, Apple Watch was No. 1 – payments was No. 2.

So is this going to ignite NFC payments? How will things change? The short answer is I don’t think anyone knows yet. We’ll what are the mobile operators thinking now – we all know Verizon was not a cheer leader for the Google Wallet. What is PayPal thinking? What if Walmart does not come around?

Why is this important?

applepay

The major factor for any new payment service is adoption. So far adoption of NFC has been a 10-year war between the banks and the mobile operators and has struggled to gain traction.

Then in 2011 we had the entry of the Google wallet, and each of the card schemes with their own wallets. Still consumers and merchants failed to adopt. While contactless cards have gradually crept into use, paying by phone continues to prove elusive, for a variety of reasons, with one of the main ones claimed to be lack of handsets, customer security concerns and business model.

Apple has 800 million customers as “card on file”. Additionally the API will be available to developers. Merchant support has already been announced: Integration with Uber, a food app from Panera, Major League Baseball's app to order tickets from your phone, and Open Table to pay your bill from your iPhone 6 or iPhone 6 Plus. Apple API to be offered in iOS 8 to allow app developers to integrate Apple Pay into their applications.

Apple has a following, so is not dependant on mobile operators to push their phones, however operator subsidies that could be as high as $500 help make them affordable. The rapid adoption of smartphones across the world has changed the balance of power. Certainly in the US, Apple is Top Dog as a smartphone manufacturer, with 42.1% OEM market share as of June 2014 according to comScore reports.

However while in the US and Europe Samsung and Apple dominate, the share of both providers has been dropping in emerging markets where we see a fragmentation emerging. In urban China, Xiaomi with its affordable RedMi model continues to go from strength to strength, securing a 27% share of smartphone sales in the second quarter of 2014, compared with 21.1% for Samsung. And payments by watch + iPhone cannot be a top priority for the masses in emerging markets.

Too little too late?

So far Apple was a late starter where contactless payments are concerned. Like a swan, the movement seemed to be more “under-water”, as news of patents obtained for motion based payments got out in January 2013. Apple obtained a US Patent for a digital wallet and virtual currency. It described a system of managing credits via mobile device. Mobile users would be able to receive credits or coupons stored in their account. Check out Patently Apple for the whole background.

Back in June 2013 Apple released its first mobile commerce platform, called the iCloud Keychain: consumers could an store a variety of information, such as passwords and financial details for use across several Apple devices (Mac, iPhone or iPad) to log into websites or make purchases online. The platform did not support NFC and existed as an application rather than a physical device.

Earlier in June 2012, the Apple bar-code-based Passbook mobile wallet was launched, as a basic mobile wallet without payment functions, using barcodes to store and represent multiple boarding passes, store cards, and movie tickets. It had location-enabled alerts, and real-time updates and it displayed passes based on a specific time or location. When consumers walk into a participating shop the loyalty card appears and can be scanned to pay or check balance. It was expected that this could evolve into a mobile payment service by linking the Passbook to customer credit cards and iTunes accounts.

Effect on the Digital Money Game

Contactless payments that Apple Pay now propose to offer comes as a reinforcement

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How Apple Play affects The Digital Money Game

 

Apple has made their play: iPhone 6, iPhone6 Plus, Apple Pay and a wearable Apple Watch. Now that Apple Pay is here, how does this potentially affect retail transactions, e-commerce in general, and the projects in your pipeline.

 

We are at the cusp of the creation of a new ecosystem. But will Apple Pay fare better than Google Wallet did when it first launched in May 2011? There is a feeling of Déjà vu and Let’s Wait and See but also a sense of optimism and expectation of improved retail experience. In the near term iPhone 6 and iPhone6 Plus will be the real winners for Apple revenue, but in the long term Apple Pay will play an increasingly important role in generating revenue from previously untapped sources. As far as the role of Apple Watch itself is concerned, it’s revenue impact in the near term is uncertain but could become more significant as developers bring out apps and its role evolves.

Let us take a look at Apple Pay, as a prerequisite for starting to answer the myriad questions - Is this going to ignite mobile payments? Will it make digital payments more secure? How do the opportunities now stack up? How are the mobile operators likely to react? We all know Verizon, AT&T and T-Mobile were not cheer leaders for the Google Wallet. Softcard (rebranded from ISIS) is readying its own offer. What is PayPal thinking and how does this fit with the Braintree One-Tap announcements? How will Walmart react, and where does this fit with respect to MCX?

 

So why is this important?

The major factor for any new payment service is adoption. Offline retail payments have been sought to be addressed through a variety of methods from PayPal, Google and others, and so far by Apple using iBeacon functionality, BLE and other technologies. So far adoption of NFC has been a 10-year war between the banks and the mobile operators and has struggled to gain traction. It was important for the industry to know Apple’s position with respect to NFC as a standard for mobile payments.

We would all agree that in the current retail and e-commerce arenas one of the most pressing needs is security. The Apple announcement certainly seems to go a long way in addressing this need. For example the combination of its biometric sensors in its devices with the contactless transmission of one-time card number combined with the fact that Apple creates a device-only account number that they store in the secure element, provides a basic foundation for enhanced security. Furthermore as far as customer perspective is concerned, the fact that one can find the phone more easily and take action if it is lost goes a long way towards addressing concerns.

 

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Back in 2011 we had the entry of the Google wallet, and each of the card schemes announced their own wallets as well. Still consumers and merchants failed to adopt. While contactless cards gradually crept into use, paying at retail POS by phone continued to prove elusive, for a variety of reasons. For the longest time, one of the main reasons was claimed to be lack of handsets. However, customer security concerns and more importantly business model were arguably even greater challenges.

And what about adoption?

One of the major challenges in creating a successful service is the ability to bring a large customer base on board rapidly. At the retail level this translates to satisfying consumers both on convenience and trust. In this respect Apple has 800 million customers from their iTune stores as ‘card on file’. However there is a separate step involved to get consumers to start to use Apple Pay for contactless payments as it launches shortly in the US.

This is where the convenience and trust come into play and is something for which we’ll need to wait and watch.

Additionally the Apple API will be available to developers and this is an exciting space to watch. We saw how millions of apps became available for the iPad and iPhone – now Apple Watch is here, and although tethered to the iPhones for the present, it presents a new frontier of innovation. For the present the watch offers an opportunity to integrate a variety of health and fitness related services – something I think we will hear a lot more about shortly.

Merchant support has already been announced: McDonalds, Integration with Uber, a food app from Panera, Major League Baseball's app to order tickets from your phone, and Open Table to pay your bill from your iPhone 6 or iPhone 6 Plus. Apple API is to be offered in iOS 8 to allow app developers to integrate Apple Pay into their applications.

 

So how will mobile operators react?

Apple has a following, and is not overly dependent on mobile operators to push their phones, however operator subsidies that could be as high as $500 considerably help make them affordable. The rapid adoption of smartphones across the world has changed the balance of power. Certainly in the US, Apple is Top Dog as a smartphone manufacturer, with 42.1% OEM market share as of June 2014 according to comScore reports.

Some news is in already as to how mobile operators view this. Softcard (formerly ISIS) have made a statement that they see Apple’s support to NFC as a significant step that sets the stage for rapid scale adoption of mobile commerce.

However while in the US and Europe Samsung and Apple dominate, the share of both providers has been dropping in emerging markets where we see an emerging fragmentation. In urban China, Xiaomi with its affordable RedMi model continues to go from strength to strength, securing a 27% share of smartphone sales in the important China market in the second quarter of 2014, compared with 21.1% for Samsung. And payments by watch + iPhone cannot be a top priority for the masses in emerging markets, although urban, higher income Chinese consumers do seem to be quite interested. 

 

What about the others?

As we describe in great detail in our book, payments has become a hotly contested space. Another fairly late entrant is Amazon.  Just take a look at the Amazon Fire Phone, the first smartphone designed by Amazon. Amazon has vowed to create a whole new shopping experience and until December 31, 2014 the fire phone comes with 800 Amazon Coins to spend on apps, games and more as well as 10% discounted purchase for more Coins. They also offer other benefits including a year of Prime Benefits (Video, Delivery, Books and more).

Such bundles of value are what the customer is increasingly coming to expect, and the whole Apple offer will need to evolve to meet the competition.

 

Too little, too late?

Without doubt, Apple is a late starter where contactless payments are concerned. Like a swan, the movement seemed to be more ‘under-water’, as news of patents obtained for motion based payments got out back in January 2013. For instance, Apple obtained a US Patent for a digital wallet and virtual currency. It described a system of managing credits via a mobile device. Mobile users would be able to receive credits or coupons stored in their accounts. Check out Patently Apple for the background on Apple patents for payments.

Yet, little happened until now.

  • Back in June 2013 Apple released its first mobile commerce platform, called the iCloud Keychain: consumers could store passwords and financial details for use across several Apple devices and they could log into websites or make purchases online. But the platform did not support NFC and existed as an application rather than a physical device.
  • Earlier in June 2012, the Apple bar-code-based Passbook mobile wallet was launched, as a basic mobile wallet without payment functions, using barcodes to store and represent multiple boarding passes, store cards, and movie tickets. It had location-enabled alerts, and real-time updates and it displayed passes based on a specific time or location. When consumers walk into a participating shop the loyalty card appears and can be scanned to pay or check balance. It was expected that this could evolve into a mobile payment service by linking the Passbook to customer credit cards and iTunes accounts.

Effect of Apple Play on the Digital Money Game

The contactless payments that Apple Pay now propose to offer come as a reinforcement to the Digital Money Game of some players, but a threat to others.

And it is no longer enough to offer just mobile payments. To gain adoption, Apple must be able to offer a range of ways to pay, across the web and other channels including TV, now being hotly talked about in emerging markets. And they must get the interoperability story right, and rapidly prove the concept beyond the US market.

 

Read all about this, and work out your own strategy with our recently published, highly acclaimed book, The Digital Money Game. Also, if you would like to discuss immediate ramifications on your projects just drop me a line at coak@shiftthought.com.

 

LIDMGCover

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