Future of Payments

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October 2015

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Technology

Business Technology · October 2015

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Future of payments

Opening shots Shane Richmond

A

S A TECHNOLOGY writer you get used to a certain pattern: Apple announces something, then critics line up to point out that someone else did it first. Thanks to social media, the gap between the two stages is now mere seconds. It was demonstrated last month when Apple announced its iPad Pro, which was instantly branded a copy of Microsoft’s Surface tablets. The same happened with the original iPad, the iPhone, the iPod and plenty of other products.

More often than not, Apple goes on to make these products more successful than the pioneering gadgets that came before. Depending on your view of Apple, that could be because the company is better at design, spends more money on marketing, or that the media just loves it. It might be all of those. The answer isn’t important here. My question is: in light of the above, what are we to make of Apple Pay? Launched in the US a year ago this month and in the UK over the summer, the service still hasn’t expanded to any other countries. In the States it accounts for around 1 per cent of physical store transactions.

That, according to David S Evans, of payments consultancy Market Platform Dynamics, is a “microscopic” amount.

As with many of its products, Apple did not pioneer mobile payments, but plenty of observers expected the firm to make the technology mainstream, as it has done with other products.

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THE ESSENTIALS

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Personal technology will revolutionise payments – but not overnight We hear a lot about the fintech revolution and how it will change the way people manage, invest and spend money, but if the world’s most valuable tech firm can’t change the way consumers pay in stores then who can? In reality it’s probably too early to say. In changing such an established consumer behaviour as in-store payments, a year is no time at all. Thad Peterson, an analyst with Aite, told Bloomberg: “It’s going to grow reasonably slowly for the next three to five years, and then we are going to see a ‘hockey stick’ [adoption graph].”

In Britain, Apple didn’t have the “big four” banks at launch, and Barclays still isn’t supporting the service until next year. The delay was probably due to negotiating the transaction fees that the banks pay Apple. The Financial Times has reported that Apple has had to give UK banks a lower rate than those in the US. Meanwhile, some retailers have been slow to support Apple Pay because of links to rival Twitter: @ payment services. And, of course, the only shanerichmond

consumers who can use it are those with Apple products. For those in the payments industry, the lesson is just how many players a new payment service has to satisfy. A start-up or a firm without Apple’s cash reserves and global brand will find it even harder to gain a foothold. Any would-be payment platform needs to convince banks and retailers that it has a service worth supporting.

Then it needs a co-ordinated effort to educate consumers. Remember the seemingly neverending campaign to prepare us all for the shift to chip-and-PIN? Ultimately, chip-and-PIN was coming, whether we were ready or not. A move to mobile payments will take more than that because nobody is obliged to use it.

The situation is reminiscent of the early days of e-commerce, in the late 1990s and early 2000s.

We seemed to be forever on the brink of an e-commerce boom but in the end the shift to online shopping was quiet and slow. Personal technology will revolutionise payments but not overnight.

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UK fintech start-up ringing the contactless changes A LONDON fintech start-up, Kerv, has raised more than its target of £77k on Kickstarter to mass produce the world’s first contactless payment ring.

Wearers of the ring can make instant contactless payments of £30 or lower without needing a card, PIN or paired smartphone.

The ring can be used on any contactless payment terminal around the world. It is

Changes to European law are intended to make the EU’s payments infrastructure safer, faster and cheaper

potentially ideal for situations where it is difficult to carry a wallet such as jogging, cycling or surfing. The ring is also waterproof and will not be damaged if it gets wet.

Kerv works through a secure NFC contactless payment chip which is activated when brought close to a contactless reader.

The card reader treats Kerv in exactly the same way as it would a contactless payment card, reading the encrypted data on the chip

EU calls for upgrade on costly payments infrastructure

By Joanne Frearson

THE EUROPEAN Parliament has approved a draft law of the Payment Services Directive (PSD2), which will reduce costs, improve the security of payments and facilitate the emergence of new players and innovative new mobile and internet payment methods.

The PSD2 will help cut the cost of paying bills by prohibiting surcharging or charging extra for paying with a card whether they are used in shops or online.

MEP Antonio Tajani says: “The EU payment services market remains fragmented and expensive, costing €130 billion, or over 1 per cent of EU GDP, a year. The EU economy cannot afford these costs if it wants to be globally competitive.”

Payments will also be made safer through the PSD2 by third-party payment providers being required to ensure safe authentication of the user, reducing the risk of fraud. A service provider that fails to act to prevent such a fraud after a notification of a loss, or does not require strong customer

The inner geek

Moz & Bradders

and authorising the transaction. Money can be loaded onto the ring online or through a prepaid card. An automatic top-up can also be set up.

Kerv also offers instant sharing of emergency, medical or contact details at the tap of an NFC-enabled phone, plus one-touch access via compatible NFC locks and security systems. The crowdfunding campaign closes on October 26.

authentication when necessary, could be deemed liable for its client’s losses and ordered to remedy the financial damage.

Consumer rights w ill be enhanced by the introduction and unconditional “no questions asked” refund right for direct debits in euros.

Commissioner Jonathan Hill, responsible for financial stability, financial services and capital markets union, says: “European consumers want to know that their payments are safe when they shop or make a payment online. The new Payment Services Directive will ensure that electronic payments in Europe become mor e s e c u r e a nd mor e convenient for European shoppers. This legislation is a step towards a digital single market – it will benefit consumers and businesses, and help the economy grow.”

The rules will also encourage new players to enter the marketplace. Banks will not be allowed to block third-party service providers’ access to an account unless they have substantiated security reasons which have been reported to the supervisory authorities.

Commissioner Margrethe Vestager, responsible for competition policy, says: “We have already used EU competition rules to ensure that new and innovative players can compete for digital payment services alongside banks and other traditional providers.

“The vote by the Parliament builds on this by providing a legislative framework to facilitate the entry of such new players and ensure they provide secure and efficient payment services.

“The new directive will greatly benefit European consumers by making it easier

to shop online and enabling new services to enter the market to manage their accounts, for example to keep track of their spending on different accounts.”

Following the vote, the directive will be formally adopted by the EU Council of Ministers in the near future.

It will then be published in the Official Journal of the EU. From that date, member states will have two years to introduce the necessary changes in their national laws in order to comply with the new rules.

The draft law was approved by 578 votes to 29, with 52 abstentions.

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What next for digital payments?

S

ince we were hunter-gatherers, we have been going to markets. The trade of goods and services has been part of everyday life for centuries and for the most part, the means by which we did this was largely the same: money or an equivalent item of value was generally accepted as payment for these goods and services. However, in the last 50 years, this has changed dramatically.

The digital shift has started and it represents the biggest change in payments and the biggest opportunity since the introduction of plastic payment cards. The technology and business model are in place to create new omni-channel consumer experiences that evolve as connected devices provide more opportunities for engagement – and commerce – before, during and after a purchase.

Today, there are 3.2 billion internet users versus only one million 10 years ago.

That’s 40 per cent of the world’s population.

Meanwhile, smartphone users are expected to increase to 2.6 billion worldwide by 2018 and, according to Juniper research, mobile phone and tablet users will make 195 billion mobile commerce transactions annually by 2019. In fact, we’ll see more change in the world of payments in the next five years than we’ve seen in the last five decades. Some 38 per cent of card payment volumes are expected to be digital by 2020 and, while today contactless cards drive

38 per cent of card payment volume is expected to be digital by 2020

most of the contactless volume, we expect mobile contactless to grow from less than 1 per cent in 2015 to 28 per cent by 2020.

People are not getting rid of one device to use another – they want all of their devices (and the associated experiences) to come together. Consumers will shop and pay in whatever way best fits their needs and lifestyles, on every device they have, with a

simple tap, click or touch at the register, in the aisle, within an app, at home, on the go – or anywhere else. While digital wallets are mainly used for browser-based transactions, the percentage of in-app transactions will dramatically increase, reaching at par – 50/50 – with wallet/ browser-based transactions by 2020.

With this, of course, comes pressures

How to reap the rewards of an omni-channel future

T

he global payments industry today is all about choice.

Consumers are demanding faster, simpler and more secure ways to pay. They want to go mobile, online and contactless, using multiple channels and devices to complete a single shopping journey. Retailers are under pressure to provide a seamless experience for shoppers whatever the channel.

Advances in technology and rising consumer expectations are driving a revolution in payments. Shoppers are using multiple channels, but they want a uniform experience across them all.

We now expect to have the freedom to browse for products at home or on a train, for example, then order the items online and pay for them, and later collect them from the store at a time which suits our busy schedules. Similarly, we may decide to take an item which we had originally bought online back to a shop to save us time and hassle.

This increasing complexity in payments presents many challenges for retailers.

Some 63 per cent of shoppers now use multiple

channels when making orders over £100, with 67 per cent starting their shopping on one device only to finish the journey on another.

Retailers must adapt their offering to cater for these changes if they are to be successful. They are increasingly aware that payments are strategic, and understand the importance of getting their approach right to improve their performance and competitive position. For example, the CEO of one of Worldpay’s largest UK grocery customers has started to create a global payments strategy, and has asked us to participate in the exercise and advise on a range of technology-led solutions.

The changing face of shopping One of the main trends in shopping is that payments are moving away from the till, thanks to mobile Point of Sale (mPOS) machines. Worldpay Total and Worldpay Total Mobile aim to help businesses to adapt to this by giving consumers the chance to pay how and where they want to, within the store itself. By offering payments across multiple sales channels, businesses are also better positioned to drive revenues

while improving customer engagement and loyalty. In the sports and hospitality industries, for example, this could mean shortening queues during busy matches or allowing spectators to pay for drinks without leaving their seats.

Towards an omni-channel future By 2018, nearly half of all payments made globally will be on a mobile device. Businesses will need to streamline their payment processes accordingly to take advantage of this opportunity.

But doing so, and keeping pace with this trend, will add complexity for businesses. Products such as Worldpay Total aim to take that complexity away.

IMRG stats suggest the UK’s e-commerce industry is on course to jump 12 per cent this year to reach £116billion, while more than half of purchases are now influenced by digital information.

What’s more, omni-channel shoppers spend anything between 50 and 300 per cent more than single channel shoppers. I believe this is is a huge opportunity for successful businesses.

Ron Kalifa (left) is vice chairman of Worldpay www.worldpay.com

– on the technology industry to keep pace with these developments, and retailers to adapt to what is ultimately both a change in consumer behaviour and demands. But the shift to digital payments opens a new range of possibilities, from increased security and control to more convenience and scale.

MasterCard, with solutions such as its brand-agnostic MasterPass™ wallet, tokenisation standards and payment expertise, provides retailers with a way to address consumers’ concerns regarding security risks related to new devices and technologies, while meeting their needs for a more seamless shopping experience.

Other initiatives like Apple Pay, Samsung Pay, Android Pay and cloudbased payments are important when it comes to driving acceleration of mobile payments, which will drastically enhance the consumer experience without compromising on safety.

The future of payments is ripe with opportunity, but now is the time to act as the future of payments is already here, being experienced by consumers and retailers every day. What is more, amid all the hype around the next big innovation, there has to be an understanding that it’s actually about individuals and their ageold relationship with commerce, then connecting them to what’s next to bring to life safer and richer experiences.

Twitter: @MasterCardEU

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The latest research from Lloyds Bank shows many people believe they won’t need cash in the near future as they increasingly turn to cards, contactless payments and other new technologies

34%

expect to be using a mobile device on a dayto-day basis to make payments by 2020

22%

think they will be regularly using their fingerprint to pay for goods and services by 2025

43%

Agree that contactless payments are the future

25%

think that in five years’ time they will no longer need cash to pay for goods or services

47%

don’t feel that mobile will ever be a main method of paying for goods and services

By Joanne Frearson

SANTANDER InnoVentures has invested in digital currency transfer firm Ripple through its $100million Venture Capital fund in a bid to ramp up its focus on the payment industry.

Ripple’s technology enables banks to clear and settle transactions in real time and cuts out the need for an intermediary like a bank. Normally payments go through a clearing bank before it arrives at the person or company being paid. This settlement process can be expensive and slow, with the average time taken being two days.

But with distributed ledger technology there is no need for central authorities to certify ownership and clear transactions. Instead, each transaction is openly verified by a community of network users. Chris Larsen (inset), CEO and co-founder of Ripple, says: “We’re focused on modernising payments infrastructure to compress costs for banks and their customers. It is hard to believe, but outmoded payment infrastructure forces banks and their corporate customers to prefund foreign accounts for international payments, but then provides few assurances that cross-border transactions will actually settle.

“The world of distributed financial technology is fast moving towards a new ‘internet

Why don’t you currently use mobile to make payments?

44% said they do not think it is secure or safe 18% don’t have the right phone 17% don’t know anything about mobile payments 16% also said they don’t know how to use the technology The gender divide 46% of women are more likely to think they will always need to have cash compared with 40% of men Wearable payment tech 27% think they will make payments using wearable tech in ten years’ time and 7% think they will make payments using a microchip embedded in their body by 2025

Santander investing in speedier payments of value’, where value can be exchanged much like information today on the web.”

Ripple’s technology allows banks to transact directly with one another, eliminating processing fees, reducing operational and risk-based costs and, most significantly, compressing the opportunity cost of prefunding accounts.

Santander has a growing interest in the payments industry – part of its aims for its Venture Capital fund is to invest in fintech companies focused on e-commerce and payments. A recent report by Santander claimed distributed ledger technology could reduce banks’ infrastructure costs attributable to cross-border payments securities trading and regulatory compliance by between $15-20billion per year by 2022.

The bank believes it is only a matter of time before distributed ledgers become a trusted alternative for managing large volumes of transactions. Many financial institutions are showing interest in distributed ledger system, including stock exchanges and central banks, while the UK government sees the technology as a means to underpin digital currencies.

The system operates on a peer-to-peer basis, and as transactions are near-certain to be correctly executed, it eliminates the need for supervision and IT infrastructure and their associated costs.

A distributed ledger also allows effective monitoring and auditing by participants, supervisors and regulators, as it creates a publicly accessible historical record of all transactions.

Mariano Belinky, managing partner of Santander InnoVentures, says: “Santander has long been an advocate for modernising banking

infrastructure. In our recent Fintech 2.0 report, we highlighted the $20billion opportunity available to the financial services industry, and many of the scenarios where distributed ledger technology will have a positive impact.

“We believe Ripple possesses the talent, technology, and momentum to address many of these scenarios, and we are actively exploring where and how best to apply Ripple technology inside the bank. Ripple and Santander share a common vision of the future of the industry, and we intend to jointly advocate it in the community.”

Santander’s investment in Ripple Series A takes the total round to $32million. Other investors in Ripple’s Series A round include IDG Capital Partners, the venture arms of CME Group and global data storage company Seagate Technology, Jerry Yang’s AME Cloud Ventures and ChinaRock Capital Management.

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Pitch perfect for online sales

Events such as the New York Governors Ball music festival (main image) and (inset, from top) London Comic Con, TED Talks and Tough Mudder, have all used Eventbrite as a ticketing solution. Inset, opposite: Kevin Hartz

Joanne Frearson talks to Kevin Hartz, CEO of Eventbrite, about how online marketplaces are revolutionising the events sector

O

NLINE marketplaces have radically transformed the way people buy goods and services. They have helped businesses increase their customer reach and have given more choice to consumers.

More and more consumers are buying things online.

By 2018 online retail sales will have risen to 21.5 per cent from 12.7 per cent in 2012, according to figures from the Centre for Retail Research.

One company which has been particularly successful in this area is Eventbrite, a global online marketplace for live experiences co-founded in 2006 by Kevin and Julia Hartz and Renaud Visage.

Eventbrite allows people to create, share and find events – and from music festivals to marathons,

conferences to hackathons, ticket sales for event organisers have crossed the $2billion mark. Around four million tickets are processed each month. Events are hosted in 187 countries, and early investors in the service include heavyweight angels such as Bebo founder Michael Birch.

Being an online marketplace, payments are a critical piece of Eventbrite’s day-to -day business. “The online marketplace has created lots of efficiencies for business,” CEO of Eventbrite Kevin Hartz tells me. “We are in this third wave of payments, which is making it easier for merchants to get online and collect money.”

Hartz explains that the first wave of e-commerce began in the 90s, when companies had to build their payment systems from scratch. The second wave started to simplify the process, allowing businesses to collect money through electronic transfers, while the third wave has enabled people to make payments using smartphones.

“This kind of democratisation of payments has allowed many new businesses to perform and grow by enabling them to focus on many other components

of the product, versus being tied down in the details of the payments,” says Hartz.

“If you were working on building a marketplace a decade ago, your time spent on payments would be much higher than it is today. This allows Eventbrite to focus more on other features and functionality to better serve customers in both the attendee and organiser side of the equation.”

The arrival of mobile payments has made it more convenient for people to buy goods and services.

Consumers no longer have to be in a shop to make a payment when they can be made anywhere.

“Mobile payments have certainly diminished geographic constraint. There is the new kind of contextual element to transacting, where you do not have to wait until you get home to transact,” he says.

“In our case, we see people bypassing the lines of the box office and purchasing on their phones. It certainly brings an ‘always-on’ element to it.”

Although people are keen to make payments through their mobiles, Hartz explains they have been slow to buy goods and services through apps. But he expects

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this will likely change over time as payments systems develop. He says: “At many of our events, more than half of payments that are transacted online are on mobiles, but they are transacted through mobile web versus our native app.”

According to Hartz, the main area to focus on when it comes to payments is fraud. Security is the number one concern of people when they make purchases online.

Figures from Financial Fraud Action UK show fraud losses on payment cards, online and telephone banking and cheques totalled £325.3million between January and June 2015, up from £307.7million during the same period in 2014.

Hartz says: “That has been the Achilles heel of the business. At many companies such as Eventbrite, it becomes a competitive barrier. We have been able to build special teams in house to detect fraud.

“That is an area that the large players are trying to address, but fraud comes in many shapes and sizes. Fraud is a cat-and-mouse game, and the fraudsters

are looking for new areas to exploit and new platforms with new mediums.

“There is this hope that, over time, fraud would abate but, as you see by all the news and security breaches and so on, it is becoming more important than ever. It is not just simply about losing money, which can be a devastating financial lost to a company, but it is also about reputational risk.

“We have seen with some of the retailers and e-retailers out there that fraud can undermine and very much destroy the consumer confidence and brand of the business.

There are a number of best practices that technology companies can follow, to ensure there are no breaches of their general systems that can expose data or other private information.

“We are still in the early stages of payments.

There are quite a few complexities to navigate.”

Hartz also sees regulation as another area which is challenging

Future of payments

to the payments industry. He explains that people can buy goods and services around the world, but rules and regulation vary between countries. Each country has their own rules when it comes to personal data, taxation and money laundering. If a company does not follow the regulations of the country in which the payment occurs they could be in breach of laws.

“Companies need to ensure they are abiding by money-laundering regulations, taxation issues such as VAT and the Payment Card Industry compliance,” Hartz says.

Even though it is still early days in the payment industry, it has developed tremendously since the first wave of e-commerce in the 90s, when companies were building systems from scratch. The creation of online marketplaces and buying goods and services through your mobile has been a critical part of the payment industry’s development. And as payment systems evolve and the industry tackles challenges such as regulation, it is likely things will become even simpler and more seamless for companies and consumers when purchasing goods and services.

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Contact on the pitch, contactless off it…

How the RFU is using new technology to improve the experience for rugby fans at Twickenham. Joanne Frearson reports

T

HE EYES of the rugby world will be focused on Twickenham this weekend as the Rugby World Cup gets serious. This afternoon, 82,000 spectators are expected to watch Australia take on Scotland in the last quarter-final match. Yesterday, another capacity crowd saw South Africa play Wales.

Next weekend, both semi-finals will be held at Twickenham, one of the largest rugby union venues in the world, with the final also being staged there the following weekend. With five pool matches already having being played at the famous rugby stadium, that means well over 800,000 rugby fans will have been through the turnstiles over the eight weeks of the third-biggest sporting event of the year. The action has been impressive as the best players in the world bid to walk off with the biggest prize in their sport but, off the pitch, people have been working equally hard to make sure fans enjoy themselves from the minute they enter the stadium until it’s time to leave.

In anticipation of the Rugby World Cup, the RFU, which owns the stadium, has been investing heavily in improving the technology to make sure fans feel part of the live event – to give them a great omni-channel experience. To help achieve this, it has introduced contactless and mobile payments across all of Twickenham’s different retail outlets.

Sophie Goldschmidt, chief commercial officer at the RFU, tells me: “We have tried to upgrade the technology across the stadium, with the primary focus being improving the fan experience. We feel technology can enable us to do that.

“We have introduced quite a lot of changes over the last 18 months as we wanted to get ready for the Rugby World Cup. We have invested £76million in upgrading the stadium in various ways, and the technology aspects have been a really important part of that.

“We see fan engagement as one of the key elements of a modern sports

venue. It is the ultimate experience to be there and watch the sport in person, live. Anything that can improve that experience of fans is worth investing in.

Contactless and mobile payments in particular do that by enhancing service and reducing the queuing time.”

According to Goldschmidt, reducing queue times has been an extremely positive experience for fans.

“People want to purchase things as part of the experience of going to Twickenham and watching a live match, but they want the process to be as simple as possible,” she says. “We know on match day how important it is for people to be able to purchase things, whether it is going to the shop, buying beer, food or soft drinks. Anything that speeds up and makes it more efficient is really important.

“On average a cash payment takes about 15 seconds to transact, with a PIN transaction or using a card it takes five to eight seconds and with offline contactless it can be as quick as two seconds, some of which we have been using in the boxes. That is significant from our perspective.”

Figures show contactless and mobile payments are making a difference. Before their introduction about 8 per cent of takings at the bars were coming through card transactions – now pre-Rugby World Cup sales using these systems are up more than 33 per cent. Goldschmidt anticipates that by the end of the Rugby World Cup the number of sales using contactless and mobile payments will be close to 50 per cent.

Sales through iPads have been especially high in the corporate hospitality areas. The RFU uses iPads to show people its products which they can directly buy through the device. Since their introduction in 2014, sales through iPads have risen by 34 per cent.

C on t a c t l e s s a n d m o b i l e payments also have another advantage and are helping the RFU track stock levels and reduce sales errors. Goldschmidt explains:

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Main image: Last Saturday’s clash between Wales and Australia at Twickenham and (top right) Welsh fans before the game; Inset opposite: The RFU’s Sophie Goldschmidt is spearheading contactless payments in the stadium during the tournament

“Before contactless payments were introduced there were significant match day variances when reporting the numbers. With cash takings there is human error – in the craziness of match day the accuracy was not the same. Incredibly, now where we have been using contactless we have only had £130 variance across millions of pounds, so that has been significant.

“It has definitely made us more efficient. While this has not been reported as an issue, having to bring less cash means there will be less theft. Over time we will be seeing a reduction in the amount of staffing, especially around managing the cash in the tills. That will give us savings over time.”

For the RFU, improving the fan experience through technology is a continual process – it is looking at introducing further payment innovations and is presently piloting Apple Pay. Goldschmidt says: “That is something we are rolling out as we speak. Tests were happening pre-World Cup, and it will be rolled out during the Six Nations. We are also looking at the other Android and Samsung applications coming to the market. Ideally we want to be able to work across every different platforms and software.”

The RFU is also looking to increase the spend limit on Apple Pay. As the iPhone 6 has fingerprint security, retailers have the option of being able to waive the normal £30 contactless limit. When fans come to Twickenham, Goldschmidt explains they often come early and stay afterwards. People spend a lot of money throughout the day and do not want to be restricted by a £30 contactless limit.

She also expects the use of wearable payment technology will increase.

“Wearable technology will be a huge thing going forward,” says Goldschmidt. “There is more to be done in that area.” The RFU has introduced other technologies which help link the different areas in the stadium. Goldschmidt says: “To make this all work we have also implemented IPTV. We have 700 new Samsung screens across the stadiums, which help us communicate more effectively with our fans.

“It is making sure they have a smooth transition from one area to another, linking all of the different technologies we have in the stadium. It is really that full 360-degree immersive experience.”

What Goldschmidt sees as underpinning these technologies is the CRM systems in which the RFU has invested. “Our CRM system is not just about commercialising all the data – it is about the quality of the experience and driving the participation as well,” she says. “The more people use contactless the closer we get to them, and the more information we have we can be more effective in how we are communicating with them.”

Feedback the RFU has received since introducing these new technologies has been positive, and there has been an increase in customer engagement and use of digital and social channels since their implementation.

“We are the first in the UK to introduce as much as we have,” Goldschmidt says. “We are really proud of that, but this is only the beginning and it is changing by the month. We will continue to do whatever we can to improve the fan experience. That is the most important thing for us.”

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If your money doesn’t do what you want, can you get it back?

Keil Hubert

A

BRIBE is a terrible thing to waste. After all, to get your money’s worth out of a good bribe, you have to spend an awful lot of money. And when a big spender doesn’t get what they paid for, I imagine that it must be quite upsetting.

That’s important, because we get up to a lot of bribery here in the USA every time that we hold an election.

We call our bribes “campaign contributions”, but that’s a bit of a euphemism. It’s influence money.

The US Federal Election commission reported that the current crop of contenders has a combined war chest of more than $125million… and we’re still over a year away from the actual election. In the 2012 presidential election, more than $1.3billion got spent. That’s enough to buy a Daring-class guided missile destroyer and still have enough left over to host a extravagant national election.

Giving your preferred candidate a few quid is relatively meaningless in the grand scheme; our politicians are bought and sold with sums that stagger a working person. A few very wealthy donors can completely warp an election, effectively rendering normal citizens’ efforts inconsequential. We know that the rest of the world thinks we’re a bit mad for this. We do appreciate how damaging it is to the integrity of our vaunted democratic process.

That being said, something seems to have changed recently.

In September, Rick Perry, the former governor of Texas, decided to drop out of the race after his research showed that he couldn’t secure his party’s nomination. Shortly thereafter, we learned that one of Perry’s biggest Political Action Committee contributors wanted his money back. Reports suggested that the donor wanted to reinvest his cash with a more viable candidate while his influence was most influential.

I find this interesting because it suggests that there’s a new expectation in play: above a certain

threshold, money spent that hasn’t achieved its desired results should be immediately re-engaged so that its warping effect isn’t wasted.

I doubt that this would apply to a measly $5 contribution, but $5million is clearly in-range. So… what about a $5,000 payment?

Or $500? I’d wager that the line is drawn a lot lower than the politicians expect. Americans are willing to sue over much smaller financial slights, such as failed Kickstarter projects.

Now that the topic is on the table, someone’s going to have to figure out how to make it work.

That means creating a payment and money-management system that satisfies donors’ demands for efficacy. With that, I can see a whole new financial services niche opening up for a clever institution that facilitates placing political contributions with very specific strings attached, that are then handled with lightning reflexes: IF a candidate does (or fails to do) X, Y, or Z, THEN that donation gets automatically re-routed to the next candidate on the list in a similar way to stock trading algorithms.

This isn’t just free market capitalism – it could become its own meta-market, featuring transaction fees for every change, its own futures market, and smartphone apps that let investors watch swarms of similar contributions scurry from candidate to candidate like schools of startled fish. All facilitated by clever machine logic that parses social media for candidates’ gaffes and the changing mood of the always-fickle electorate.

That’s the secret heart of the American political process – scads of cash will flow through the political process, but only the cynical process facilitators will actually make any money. The voters get grand spectacle, despair, indigestion, and (eventually) a new president who’s always remarkably similar (once in office) to the one he or she replaced.

Business Technology · October 2015

10

Future of payments

AN INDEPENDENT REPORT FROM LYONSDOWN, DISTRIBUTED WITH THE SUNDAY TELEGRAPH

Find us online: business-technology.co.uk | Join us on LinkedIn: Business Technology UK

| Follow us on Twitter: @biztechreport

Leave your bank for a true partner to manage currency risk Track 200 list of high-growth businesses.

World First is a true expert, and savings compared with using a bank can be significant. There’s no secret to the pricing model; it’s simply that the margins taken

by World First are smaller than banks so it can offer a better rate. It also focuses on technologies that bring genuine benefits to the customer and, in 2011, set an unofficial world record of six minutes 49 seconds for the fastest international transfer – a record we now believe we can get to under a minute.

N

othing focuses the mind on currency risk like a bit of volatility – and 2015 has certainly seen its fair share. This has been a year punctuated by the interminable problems for Greece, a dramatic UK election result, the Fed’s “yes-no” interest rate rise dilemma and, more recently, a profound economic slowdown in China.

In short, it’s been a bit of a rollercoaster.

The upshot is that if you’re a UK business purchasing in US dollars you will be paying about 6 per cent more than a year ago, while those buying from the Eurozone will be about 6 per cent better off. Of course, that’s assuming that your FX provider is giving you a truly competitive exchange rate…

A trusted partner

Loss of faith in banks While many businesses – and individuals – still use a bank to make cross-currency payments, the truth is that they rarely offer the best exchange rates. Many will also charge for the privilege of moving your money, often while expecting customers to “selfserve” using an online platform with little personal support. When it comes to FX, few people – and even fewer small businesses – feel that banks really work for them.

This realisation came to two friends, Jonathan Quin and Nick Robinson, who

spotted the need for a fair, genuinely customer-first model for clients. Even before the global financial crisis or the advent of fintech as we know it now, they understood how – and why – people were losing faith with traditional banking models.

A global expert Their vision was to combine a truly

customer-first approach with the best new technologies and old-fashioned customer service and, in 2004, they launched World First. A little more than 10 years later, it is an established leader with six offices around the world, 75,000 happy customers, a knight of the realm as chair – former deputy governor of the Bank of England, Sir David Clementi – and a place on The Sunday Times’ International

As the range of products has expanded – from on-the-spot trades to bespoke and complex hedging strategies – so too has its reach and influence. Today, World First is helping a growing number of international partners provide global payments services to their clients or even helping them pay their staff around the world in local currencies at the touch of a button. Household names such as News International in the UK, Le Figaro in France, and Panasonic have all put their trust in World First to help them deliver value. With currency markets showing little sign of settling down, do you have a trusted FX partner on your team?

020 3468 2263 corporate@worldfirst.com

Business Technology · October 2015

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Future of payments

Like us: www.facebook.com/biztechreport | Contact us at info@lyonsdown.co.uk

Inspector Dogberry The Inspector is a securityconscious hound – especially when it comes to buying stuff – and whenever he is out and about visiting new restaurants to feast on the finest gravy, he wants to know his payments are secure.

At the moment, the Inspector is using contactless and Chip and PIN to pay for goods and services, but hopes to also be soon using voice biometrics.

He recently discovered that in the Netherlands, customers of ING Netherlands could buy goods and services using a voice-activated payment system through its mobile banking app. The app, powered by voice recognition software developers

Nuance, is a smart alternative to PINs and passwords. Called Inge, the app is a version of Nuance’s own Nina, and offers customers a conversational-type banking experience controlled through the sound of their voice.

More than 10,000 ING Netherlands customers have so far used the app to check their bank balances, confirm transfers or issue payments. ING is the first bank in the Netherlands to incorporate voice biometrics into a mobile banking app.

Jeroen Losekoot, internet and mobile marketing manager at ING, says: “Thanks in part

A little extra up your sleeve Lyle & Scott has launched a contactless jacket, which enables wearers to make contactless purchases of up to £30 through a secure digital wallet stitched into the sleeve.

The jacket features a Barclays bPay contactless chip in the cuff, and is available to anyone with a UK-registered Visa or MasterCard debit of credit card. Users can conveniently add funds to their digital wallet on the go using a mobile app, or they can set their Twitter: @dogberryTweets

account to top-up automatically when the balance falls below a pre-set level.

Mike Saunders, managing director of Digital Consumer Payments at Barclaycard says: “This collaboration with Lyle & Scott shows the potential of wearable payments and how they can be customised to fit more conveniently and easily into consumers’ everyday lives. The great thing about bPay is its versatility, allowing users to turn almost anything into a contactless way to pay.”

to the inclusion of biometric applications, we are able to make banking faster, smoother and easier for our customers and improve access. This allows them to have greater control over their finances.”

11

By Ciara Long, online reporter

PYMNTS www.pymnts.com B2B news site covering all future of payments topics, providing both expert and community-led insight into topics, including regulations, retail, mobile and social commerce. It also publishes product pitches from both emerging and established companies, and a weekly “Briefing Room” with articles, data points and interactive webinars.

Future Paytech

Talking Payments

www.futurepaytech.com/blog

www.talkingpayments. com/blogs

Providing electronic pay technologies ranging from credit card processing services to mobile wallet technology to more than 100,000 US companies, Future Paytech runs an informative blog alongside its services. Future of payment topics it covers include advice for small businesses on introducing and implementing new pay systems.

This online community provides news and insight for the European payments industry, regular blog updates and news, bringing together banks, acquirers, merchants, vendors and industry bodies to share industry advancements and news. Recent insights are into topics such as voice-identity verification and contactless payments.

Total Payments http://www.totalpayments.org Specialist payments news site Total Payments' offerings consist of mobile and digital payments, fraud, technology and the future of payments.

Blogs and news look at trends and milestones that big industry players are making, as well as examining payment start-ups and analysing overall industry progress and direction.

Venmo (Free – iOS and Android)

Peer-to-peer payment system Venmo allows users to send money free of charge from Venmo accounts, debit cards and major bank accounts.

PayAnywhere (Free – iOS)

A payment app designed specifically for merchants, PayAnywhere offers payment tracking, customised email receipts, as well as a free card reader.

YOUR CHANCE TO LEAD THE DEBATE Fo inform r more atio contac n please t Ju Payne stin +44 (0 on 8349 )20 6488

Now filming! Studio debates on financial services technology and payments at the Business Reporter studios, in partnership with Techuk. Have your say within this high-impact video campaign – contact Justin Payne, campaign director, to find out more. j.payne@business-reporter.co.uk

12 · Business Technology · October 2015

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INSIDE TRACK Collaborative innovation will enable financial institutions to own the future of payments

A

s Bob Dylan sang, “The times, they are a-changin” – and especially across financial services. At Wazoku, we know from our FS clients that disruptive innovation in the payments space has seen the race to win consumer confidence and mindshare for contactless payments in the UK and beyond speed up dramatically. We have seen the launch of Apple Pay and Barclays bPay in the UK, and contactless payment schemes are undoubtedly going to continue to be a big focus, with non-financial service brands such as Apple, Samsung and Google investing in their own touch-to-pay services.

According to MarketsandMarkets, the global market will be worth $9.88billion by 2018. But with a growing number of trusted household tech names getting in on the act, how can financial institutions continue to successfully compete and continue to innovate for their own growth and competitive advantage?

Unlike these new disruptive entrants to finance, traditional banks and payment providers are held back by the friction between the legacy systems which underpin their core foundations and the introduction of innovative technologies. But continued consumer demand for speed

and convenience means they must keep driving forwards, despite the fact that the development of truly disruptive payment innovation is often held back.

Often banks are choosing to adapt – sometimes successfully, collaborating directly with PayPal and Apple Pay – sometimes, indulgently – the tie in between Lyle and Scott and bPay (do we really need contactless cuffs?!). But the commonality between all of these adaptions is their reliance on external technology, which has already hit the mainstream marketplace. For banks and traditional payment providers to own the future of payments and drive genuine innovation, they need to invest directly, collaborate and think more strategically.

Visa Europe has recently taken steps towards this with a new partnership with art and design school Central Saint Martins to develop the future of wearable payments. But the popularity of such expensive, highend wearable payment items will be limited, much like the Apple Watch.

Resources should be spread among futuristic, radical innovations and the rest of the innovation spectrum – from incremental changes to core bread-and-butter services, which can be made with low risk, low cost and in-line with legacy

systems, to differentiated innovation around medium-risk, customer-focused developments around things like mobile payments. Differentiated innovations are often what drive continuous customerfocused competitive advantage. By developing a strategy across the entire spectrum, innovation can become more agile, sustainable and effective.

By embracing the innovation spectrum, innovation is no longer placed at the niche group in an organisation, tucked away in R&D or even with external consultants. Instead, involving the wider business and putting it at the centre of everyday working life, innovations can be uncovered, developed and implemented significantly faster.

There are thousands of experts at your disposal: your staff. Engaging in meaningful discussion around innovation should be step one. Aviva has been successfully doing this for a number of years to develop gamechanging new services which serve genuine customer needs. After all, who else is best placed to tell you what your customers and the wider consumer wants than the very people who deal with them on a daily basis?

Simon Hill (left) is CEO, Wazoku, a leading idea management software provider www.wazoku.com

A perfect storm of payment fraud is brewing

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his year has seen three distinct trends develop which will have a serious impact on fraud.

Any one of these trends on their own would be concerning to fraud experts and payments professionals, but their convergence could be leading to a perfect storm of fraud.

The first trend is EMV adoption in the US – the country is finally moving to chip-encrypted cards.

While this will help slash counterfeit and lost or stolen card fraud in the US, as it has done elsewhere, there can be an expected rise in card-notpresent fraud. Criminals will simply seek out other avenues.

In the UK, for example, figures from the UK Cards Association show a 58 per cent decrease in card-present fraud in the 10 years since EMV was adopted. But, in the same time period, CNP fraud has risen by 120 per cent. If the US follows the example of the UK, CNP fraud will rocket, with global implications.

Massive data breaches is another worrying trend – 2014 saw more than 1,500 data breaches across the world.

This has placed millions upon millions of card details in the hands of criminals, willing to sell them on for less than a 70p a time.

Thirdly, the world is going mobile – M-commerce could

exceed £495billion by 2017.

Yet Kount’s research shows that more than 40 per cent of merchants cannot detect if a transaction is mobile, even though m-commerce is twice as likely to involve fraud than other platforms.

So we have a situation where CNP fraud is going to rapidly increase, thanks to US EMV adoption and the wide availability of card details on the black market, with merchants not ready to deal with it. Being prepared for this perfect storm must be a priority. How are the security concerns of mobile and contactless payments being addressed?

We recently published the results of an investigation into mobile payment fraud and discovered that 51 per cent of merchants believed mobile to be as risky as other forms of e-commerce. Yet the same survey showed that only 40 per cent of merchants could track fraud by channel.

So we have a paradox where merchants do not believe mobile to be a greater risk, while not fully understanding the risks of mobile in the first instance. It could be that because merchants don’t fully understand the extent of mobile fraud, they are not concerned about it – which is a troubling situation. sales@kount.com

Business Technology · October 2015 · 13

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Tech revolution enables society to bank time and money W

hen it comes to making payments, consumers are looking for a faster and more flexible way to pay. They want the choice and convenience of a range of payment methods, such as being able to pay for things using their mobile device.

Mobiles as well as wearable devices are fast becoming a popular way to pay for goods and services. Paul Horlock, below, head of payments at Nationwide Building Society, says: “There has been an exponential rise in the use of electronic payment mechanisms, and customers want flexibility, which can increasingly be provided through mobile phone options.

“The use of faster payments has the ability to allow consumers to be in realtime control of their money. It’s about making your current account really functional in your pocket.”

Nationwide has a heritage of innovation when it comes to banking. In 1997 it was the first financial services company to offer internet banking, and in 2014 was the first high-street provider to offer customer service 24/7 on social media with its @asknationwide Twitter team.

This year, Nationwide launched a smartwatch banking app for the Apple Watch and, most recently, Apple Pay. It is seeing a big shift in their customers using contactless technology to pay for things – especially travel, such as with Transport for London.

“Customers like the speed of being able to go quickly through the ticket barrier with only the touch of their contactless card or phone,” says Horlock. “There is no need to queue for ticket machines. It is easier for customers.”

Nationwide has also seen an increase in its customers using the latest payment technology and expects as technology evolves, the process of paying for goods and services will get simpler.

Horlock says: “The convenience store or coffee shop is where we see contactless methods being widely adopted. There will no doubt come a time where you can scan your goods while shopping and you’ll be able to pay automatically, making it quicker and easier for shoppers.”

Payment innovation has the potential to reduce costs for retailers which could potentially mean even more savings for customers.

Horlock expects there will also come a time where consumers will be able to schedule payments through their phone.

A person may choose to pay 50 per cent of their bill one day, then the rest at a later date.

Making payment systems more secure through biometrics will be another growth area. In the next five to 10 years, many of us could be paying for our goods and services through facial or heartbeat-recognition technology. Apple already has a fingerprint identification system for its latest phones, and apps are being tested that allow you to identify yourself with the blood flow through your wrist, using sensors placed on the back of the watch to monitor blood pressure and flow.

Horlock says: “It is about making people’s lives easier, giving them time back that they use more valuably. They want to think about what they are going to buy and enjoying their life, rather than having to invest time in thinking about how they will pay.” http://www.nationwide. co.uk/ways-to-pay

Business Zone

14 · Business Technology · October 2015

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The future

Partnering to power ahead in payments T he concept of “openness” – applying to both technology infrastructure and business models – is a relatively new one in payments, but is well established in other industries.

Airbnb, for example, has changed the way people find and book accommodation, while Uber has been a major disruptor in the private transportation sector.

Global connectivity has facilitated new, innovative and more open business models. Companies that embrace open business practices, pairing them with open technical infrastructure, have become market leaders. Salesforce, with a market valuation of nearly $50billion, shares its technology infrastructure with partners, so their CRM solution can be combined with third-party add-ons. Shopify – with 175,000 merchants – is another company whose success is built on an open API that can be leveraged by developers.

It has taken longer for commercial and technological openness to impact payments, but we believe that the era of “open” payments has arrived.

This need for technological openness is reinforced by new European regulations (such as XS2A), which force banks – if permitted by the account holder – to provide account information to third-party apps via API. Robust and well-documented APIs are increasingly important, and banks must innovate to keep their brand in front of consumers.

Commercial openness is desirable because it provides more scope for innovation, greater choice for clients, and builds stronger partnerships. Technology partnerships are also the

key to overcoming restrictive legacy systems. Payment providers are increasingly aware of the limitations of closed systems, which is even more apparent as omni-channel commerce evolves, and as the internet of things becomes intertwined with payments.

Effective partnerships require both commercial and technological openness.

At PAY.ON, an open business model enables us to stay behind the scenes to do the “heavy lifting” for partners using our payment gateway infrastructure as a white label solution. On the technology side, PAY.ON operates a RESTful APIbased platform that is tailored to meet the needs of PSPs, acquirers, banks, and other payment businesses who want

to maximise their growth potential.

Partnerships, of course, are only one aspect of this concept of openness, but a vital one for payment companies looking to become global players. The drive to open up – technologically and commercially – has already transformed other industries, and its impact within payments promises to benefit payment providers, merchants, and ultimately end consumers.

Markus Rinderer (left) is CEO at PAY.ON, a leading white label payment infrastructure provider.

PAY.ON's white paper, Openness is Changing the Future of Payments, addresses these topics in detail: technology.payon.com/ whitepaper-open-payments

In focus Digital loyalty: the new currency

G Video special

The Battle for Business: Weaponise your IT for competitive advantage Keith Tilley, Sungard Availability Services, looks at how IT can help win the customer war. Find out more at http://bit.ly/1LHSHS4

one are the days when a customer would stay with the same bank for 20-plus years, taking out mortgages, loans and making deposits and investments – with today’s commoditisation of bank products and services, customers are quick to move.

Loyalty programmes are one of the few areas where banks can truly differentiate, engage existing customers and attract new ones, increasing retention, customer lifetime value and profitability. The more a bank can personalise its loyalty programmes and give customers compelling offers, the better chance they have

at retaining that customer.

Traditional loyalty programmes such as discounts, points and cashback promotions used to be the only options, but now there is a better way.

Companies like Smart Engine have developed advanced technology that, for the first time, enables banks to evaluate customer data from multiple data sources to provide the highest offer conversion to their customers through personalised

targeting. This breakthrough is called Card Linked Marketing and it is dramatically changing customer loyalty programmes.

With Card Linked Marketing, your customers will see highly relevant ads targeted to them based on their recent purchase behaviour.

Predictive analytics identify the most profitable customer segments for merchant target marketing campaigns.

This type of platform ensures consumer data

will remain private while delivering personalised offers right to a customer’s mobile phone with the highest chance of engagement.

One of Smart Engine’s European customers is a payment processor and acquirer running loyalty platforms on behalf of multiple banks. This particular customer issued 10,000 unique coupons with a 79 per cent activation conversion and a 27 per cent rate of conversion into redemption. +43 1 9195041-0 www.smartengine.solutions

Business Technology · October 2015 · 15

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The debate How are the security concerns of mobile and contactless payments being addressed?

Christian Damour

Markus Rinderer

Bradley Wiskirchen Chief executive Kount

Campaign director Business Reporter

It’s a common misconception that mobile payments are insecure. In fact, they’re just as secure as smartcards and more secure than cash and cheques. This is due to the security technologies that protect these services.

Some, like Apple Pay and Samsung Pay, use hardware and other measures. Others, like Android Pay, use embedded application security and cloud-based measures.

In all cases, there are a multitude of technical specifications, implementation complexities and commercial considerations.

To navigate these successfully, specialist expertise and experience are essential.

Keeping pace can be a challenge. Security technologies such as tokenisation, white box cryptography and code obfuscation are emerging rapidly. Secure areas in smartphone processors known as trusted execution environments are also protecting users’ and applications’ sensitive data.

Specialist consultancy and testing providers are vital here; we help service providers around the world to successfully deploy these technologies quickly. This gives them the confidence to address the security concerns of end users, head on.

Apple Pay, as announced last September, implemented card data tokenisation based on the EMVCo standard. This is a prime example of a device manufacturer “standing on the shoulders” of security measures developed and put in place by the card schemes, and complementing it with their own authentication measures – in the case of Apple Pay, in-built biometric authentication made possible by Touch ID. I believe device manufacturers will play an increasingly important role in mobile security, as card brand becomes subservient to device brand. Device manufacturers will have to build and maintain trust with both merchants and consumers, but bear in mind that you are only as strong as your weakest link. These companies must work with issuing banks and card schemes to ensure effective payment security, because you can be sure that cyber-criminals will exploit any weak link in the chain.

All parties involved need to co-operate effectively, because mobile payments will only have widespread adoption if they are perceived as safe and secure.

A recent survey we conducted would suggest that the security concerns of mobile payments are not being addressed as well as they should be. As mobile payments become more popular, online retailers need to increase their ability to detect the type of device that is transacting with their website.

According to the survey, 83 per cent of online retailers confirmed that they could not detect the type of device making a purchase on their site. If they cannot determine the type of device, mobile or otherwise, they cannot put tools and techniques in place to make mobile payments less risky.

Some 51 per cent of those surveyed assumed mobile payments were just as risky as traditional online payment types. They were wrong. The fact is that mobile payments are twice as likely to be fraudulent. When merchants are blind to the threat associated with mobile payments, they are also helpless to protect themselves or their customers.

Contactless payments at their most basic can seem like a very vulnerable payment method.

You have a card that can be used by anyone with no need for a PIN or any secure authorisation process. If you found one in the street, you could use it anywhere and no one would know it wasn’t yours.

It is a concern, there is no doubt. We are seeing a change, however, and the driving force of this change is biometrics.

Biometrics have long been touted as the new way in which we will protect our cards, our phones, our house locks, our identity…

Today, I can make a contactless payment reliant on my fingerprint scan to authorise with Apple Pay. Samsung Pay and Android Pay will likely work in the same way.

It doesn’t stop there – companies such as Zwipe are producing biometric enhancements for bank cards to authorise contactless payments, which we should start seeing in early 2016.

Biometrics are coming to the rescue, now we just have to keep our prints safe…

Head of marketing – security FIME

christian.damour@fime.com www.fime.com

CEO and founder PAY.ON

+44 (0)844 2939 764 info@skyparlour.com

Justin Payne

020 8349 6488 j.payne@lyonsdown.co.uk

+49 (0) 89 452300 www.payon.com

Spotlight Are banks agile enough to embrace a real-time corporate payments model?

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ase, ubiquity and security seem to be the denominating factors for payments service providers (PSPs) to subscribe to the real-time Faster Payments Scheme. With the introduction of the New Access Model for faster payments, PSPs and non-bank PSPs could look into a broader range of payment methods and improve their offerings for their clients.

Direct Corporate Access (DCA) to faster payments is one of the access options where payments can be submitted directly to the Central Infrastructure by a corporate. While sending bulk files to the service is 24/7, the payment completion is not real-time. And it’s mandatory for corporates using DCA to be sponsored by their banks. The biggest hurdle for DCA has been reachability. While 12 member banks now let corporate customers receive faster payments, only two currently offer DCA. This sort of monopoly has been restrictive for corporates choosing their banking partner, and inhibits a competitive market for businesses wanting to make faster

payments. Corporates are also discouraged by the fact that not all banks currently offer faster payments and the transaction limits widely differ with those that do.

To help corporates streamline their faster payments, the New Access Model aims to offer more functionality to help PSPs provide the needed infrastructure to encourage a greater level of implementation and make this a win-win scenario.

In an effort to drive innovation and increase competition, Payment Systems Regulator (PSR) anticipates a risk-based approach will help PSPs overcome technical barriers and promote direct access to payment systems through an accredited fintech vendor.

The New Access Model aims to have at least three accredited technology suppliers by the end of 2015, possibly to include AccessPay, one of eight companies to have signed up to commence the accreditation programme.

020 3282 7152 www.accesspay.com