Cross-Industry View on Open (Payment) Systems

(1)

Classification: Status:

Cross-Industry View on

Open (Payment) Systems

Tomorrow’s Transactions Forum

Michael Salmony London, 19th_{March 2014} external final

Michael Salmony

Personal Background

Computer Science

PhD in Computer + Networks = New Media

International Business

Transformation of Industries through Technology

Banking

New Services / New Processes

Payments

(2)

IBM Experience

Salmony - Cross-Industry View on Open (Payment) Systems | London, 19th March 2014 3

Hosts, Communication Controllers, Establishment

Controllers, SNA, Token Ring, 3270 Terminals

Lesson Learned

Open systems are good !

Benefit to IT economy

Benefit to IBM

(3)

Deutsche Telekom‘s Experience

Resisted liberalisation tooth & claw

Now have 50% of a HUGELY bigger market

(4)

General Lessons Learned

Open systems are good !

Benefit to telco/music/… economy

Most benefit to incumbent

(if he gets it right)

Maybe he has to be forced into his luck

(regulator, jailbreak, …)

Will Banks Benefit ?

PSD2: Access to Account for Third

Parties !

Benefit to payment/banking/economy ?

Most benefit to banks ?

(5)

We already have Third Parties in Payments

Paypal is an Overlay Service

− Uses bank infrastructure (ACH, network, debit, security, …) – without paying

− Provides serious convenience and added value over pure bank services

− World-wide service (pay anyone in any currency with my local account/card)

− Regulated (Luxemburg)

Rise of new Overlay Services

− Also use bank infrastructures, most without paying, mostly without contracts

− Add serious convenience and added value to merchants and users

− Typically national, beginning European-wide service

− Mostly not regulated

POLi, mazooma, Payment Network AG/

Sofortüberweisung/DIRECTeBanking,

T-Pay OnlineÜberweisung, PinTanGo, eBank2Pay, Citadel,

Przelew, mazooma, yodlee, Trustly, eBank2Pay,

UseMyServices, UseMyBank/UseMyFunds …

An overlay

of overlays!

Banks are being disintermediated in Online

Voucher

Debit Card DD

Cash

e-purse

CT

Bank Account

web/m banking

Credit Card Biometrics

OBeP

Bank - VAS

Mobile Prepaid/Bill

Voucher

PayPal

Click&Buy

Non-Bank - VAS

Platforms

Zynga credits

Bank - basic

payment instruments mPayPal/Bump Boku Buxter

888/WoW

Facebook credits

App Store

Sofort

Non-bank - Overlay

Non-bank – Overlay

of overlay

UseMyFunds

Application

(6)

Banks are being disintermediated in Online

Voucher

Debit Card DD

Cash

e-purse

CT

Bank Account

web/m banking

Credit Card Biometrics

OBeP

Bank - VAS

Mobile Prepaid/Bill

Voucher

PayPal

Click&Buy

Non-Bank - VAS

Platforms

Zynga credits

Bank - basic

payment instruments mPayPal/Bump Boku Buxter

888/WoW

Facebook credits

App Store

Sofort

Non-bank - Overlay

Non-bank – Overlay

of overlay

UseMyFunds

Application

Landslide Shift in Payments Revenue

(N.B. all payments – not just online)

How can banks reverse this trend ?

European Payment Strategy Report – May 2013

“payments not initiated through a bank current account. In-wallet or wallet-to-wallet transactions without bank involvment“

(7)

PayPal in Germany – recent Evolution

2011

2012

2013

(8)

Paypal in Perspective – after 15 years

Only with banks will true

volume be achieved ?

(9)

Some Bank Answers

Clone PayPal e.g. V.me

Or: OBeP Online-banking based payment

iDeal, giropay, eps, post finance, Przelew, EBA MyBank, …

currently few & at best

national

successes

Or: local, (sub-)national solutions

PayLib, Pingit, ...

Or: pan-European e-Payment Framework

EPC work for 7 years

Stopped by DG COMP in June 2012

Payment as a Platform

Apple

iPhone

app

…

C

o

n

tr

o

ll

e

d

a

c

e

s

/

p

ro

c

e

s

app

Standard

interface

Bank

account

Standard

interface

Data Mining service Net-worth service Personal Finance Mgmt Google services

…

Identity Service Facebook services Twitter services In-Game services

…

European Taxi App

(10)

Possible Standard Interface to Bank Account

CAPS = Controlled Access to Payment Services

CAPS i/f

Paypal – has been showing how it‘s done (again)

for years: Open Innovation

Opened up to Developer Community

provide API, tools, community (PP Innovate 2010 – the only developer

conference dedicated to payments), …

leverage PP assets: merchants, customers, fraud prevention, brand, …

Result

Initiative to all developers to embed their apps directly on PP website

Tools to allow design of apps across platforms: Android, iPhone, etc.

One solution for laptop, mobile, tablet

Banks have much better assets !

(11)

21

(12)

Stripe: API for Cards

Offers API for merchants to easily accept credit card payments VISA, MC, AmEx

Advantages to merchants:

−don't need merchant accounts,

−no need to worry about PCI compliance

−“prior to stripe, merchants had to work with various third parties including merchant banks, gateways, compliance and recurring payment services, just to begin accepting payments online. By implementing stripe technology, businesses only ever need to work with stripe and are never caught in the hassles between third parties”

−does currency conversion (USD, GBP, EUR) on behalf of clients - allowing e.g. UK merchants to show potential customers pricing in their domestic currency Status: 8/13

−processing $1m a day

−got 40m$ in funding

−going to US, Australia, Germany

(already in Canada, Belgium, Ireland, France, NL) simple flat pricing 2.4% +20p/Tx

Everybody now doing APIs

(13)

Controlled Access to Payment Services (CAPS)

Extended possibility:

… and maybe not only for Payments … ?

Account aggregation services E-Mandate/ signing services Data Mining services, … E-Id, E-Age, E-Authent, … services

Scale of Scary-ness

(14)

Risks

Risk to Banks

Banks have to develop new infrastructure at great

cost

Third Parties benefit

commercially and improve position vs customer

Bank receives

no revenue,

become increasingly

disintermediated, degraded

to

commodity provider

Medium term

reduction of card volumes, card revenues

Risk to Economy

(Unlike IBM, Telecom, Apple …) If infrastructure is hacked/compromised,

all funds/payment endangered

Prerequisites for CAPS

Third parties:

Are

regulated

(PSD)/certified

Are

committed to joint legal framework

with

bank, merchant to ensure liability partitioning,

joined up user communication, dispute resolution, ...

Are

secure

(cf SecuRe Pay), preserve

privacy,

reliably

identified

(no impersonation), …

Are fully under

user control

(allow who to see what)

(15)

Preamble to PSD 2013

YES !! But …

Coverage of

new services and service

providers enabling access to payment

accounts

The current PSD does not cover these

actors insofar as they do not dispose of the

payer’s or payee’s fund at any time.

The

fact that these TPPs are currently

unregulated,

at least in certain Member

States,

has raised security, data

protection and liability concerns,

despite

the potential benefits brought by these

services and service providers.

The proposal

brings

third party service

providers offering notably online banking

based payment initiation services

under

the scope of the PSD.

This should

enhance new low cost e-payment solutions

on the internet while ensuring appropriate

security, data protection and liability

standards. In order to be allowed to

provide payment initiation services, TPPs

would

be required to get licensed

or

registered and

supervised

as payment

institutions. Like other payment service

providers, they will be

subject to

harmonised rights and obligations,

and

in particular

security requirements.

The

envisaged

rules

will in particular address

conditions for access to account

information,

requirements regarding

authentication

and

rectification of

transactions

and a

balanced liability

repartition

Direct to Bank Account !

API

Bank Account

Zynga

Bank

Application

(16)

This will happen !

Market demand/pressure

Regulator

Open systems always win in the

end

How will this move ?

The body for

agreement on

payment services

between banks

and stakeholders

Regulator

Coalition of the willing ?

Euro Retail

Payments Board

(17)

Summary

History of success of Open systems vs closed

It‘s now the banks‘/payments‘ turn

Better to disrupt yourself rather than let others disrupt you

Open standard interface for Controlled Payment (+ Card) Services: CAPS to unleash

creativity of the market with Third Parties

Good for banks, merchants, users:

Ends current practices (passing on private credentials, unrestricted access to accts,

screen scraping/impersonation, unregulated, …)

Links users/merchants directly with bank (no disintermediation, better security, ...)

Prerequisites (regulation/legality/security/control … of access) somewhat given

in new PSD regulation – but many questions/concerns open

Potential to lead to explosion of innovation, competition, new services

Maybe biggest winners will again be the incumbents (banks)

BANKS NEED TO POSITION THEMSELVES

−

It will come,

so shape to your advantage (value chain position, prepare service,

partner, use solution for value added services, lobbying, …)

− should watch (and maybe lead/drive) this

− Follow or embrace ? Coalition of the Willing

www.equens.com [email protected] www.equens.com/newsletter twitter.com/equens www.linkedin.com/company/equens 3 4Salm on y -Cross-In d ust ry View on Op en (Pay men t) Syst e ms | Lon don , 1 9 t h March 2 0 1 4

Thank you

Michael Salmony T +49 172 6 86 71 63 [email protected] Executive Adviser Board of Directors/Strategy