| EurOpE’S E-pAYmENtS HuB
E-PAYMENTS
State-oF-the-art inFraStructure
In a globally connected world, advanced digital infrastructures are critical. Luxembourg anticipated the future needs of a high tech financial centre in the 1990s and began a programme of continuous investment. The aim was to create a modern infrastructure with a focus on network stability. A leading character behind this initiative was Jean-Paul Zens, Director of the Media and Communications department of the Ministry of State in Luxembourg. “We are located at the heart of Europe between the main European data traffic exchange centers, so we knew we could take advantage of this and develop a low latency network to destinations such as London, Frankfurt, paris and Amsterdam. In Luxembourg we are always innovating and looking for the next opportunity. When we decided to build the satellite sector 25 years ago, we invested heavily and SES is now one of the largest global players in this sector. We set out to repeat that success by developing our It infrastructure and connecting Luxembourg to the world.”
Luxembourg offers abundant bandwidth with redundant fiber access paths at a competitive connectivity price. There is a wide choice of opera-tors, including almost all Tier-1 operators. The extensive data center parks, host the highest density of Tier IV datacenters in the world, in combi-nation with low and stable energy prices and a focus on green energy sources. The perfect combination with which to attract e-commerce and e-payment companies to locate in Luxembourg points out Jean Diederich, Partner at Kurt Salmon.
“We have a great deal to offer in Luxembourg: a high value added financial center and a state-of-the-art digital infrastructure which has attracted all the major players. most of the companies, like Amazon and paypal that developed early on in Luxembourg are all major actors worldwide. We are now seeing more and more companies, like Yapital or mangopay, moving their headquarters to Luxembourg.”
euroPe’S e-PaymentS huB | P. 6
Dossier
E-PAYMENTS
europe’s
e-payments hub
Luxembourg has a long-standing
experience in e-commerce and
is the European home to
head-quarters of leading companies
such as Skype, Amazon and PayPal.
E-payment companies have
mainly been attracted in large
numbers to Luxembourg to
support global e-commerce
brands. State-of-the-art IT
infrastructure, highly-skilled
professionals in financial and IT
services, responsive authorities,
competitive and stable taxation as
well as the innovative international
character of the Luxembourg
financial centre make the country
an ideal hub for electronic
payment activity in the EU's single
market. Acting as an international
trust centre, Luxembourg has a
strong reputation for service
availability, security and data
protection.
data Protection
Luxembourg is known for its culture of confidentiality and trust that it has developed over the years thanks to its financial sector. Protecting data is essential in an electronic business. For example, sensitive data requires physical, electronic and legal protection. With this in mind, the government supported the creation of the Interdisciplinary Centre for Security and Trust (SnT) at the University of Luxembourg, as Zens explains. “Compared to the uS or Asia, Europe is mainly lagging behind in terms of skills: Highly educated and specialised people are needed in order to develop new ideas, new applications and create new businesses. Luxembourg is addressing this issue by developing national skills through interdisciplinary research at SNt and phD education in Security, reliability and trust. Our National research Fund is also supporting information security and high performance telecommunica-tion networks which figure among the core priorities”.
legal Security
Luxembourg has also worked to establish a clear regulatory framework in order to provide legal security and predictability, while simultaneously avoid-ing unnecessary administrative burdens. The government has been pro-active in adapting the legal framework to the needs of new technologies in order for Luxembourg to gain and maintain a competitive advantage.
“E-commerce is a young, dynamic and innovative sector, which bears a lot of potential. We are willing to actively support this sector, however, we are also trying to avoid over-regulation. We are sensitive to the sector´s needs and we are able to react rapidly when required”, points out Zens.
SuPPorting new innovation
The Luxembourg government is actively supporting the ICT community and the development of FinTech. It sees itself as a pole of excellence in offering innovative products like virtual currencies, e-payment and mobile payment.
“technology can be an enabler for the financial sector: transactions can be made more secure, financial analysis can be facilitated and compliance obligations can be automatised. It’s not enough to be just good at technolo-gy. that is a must have. What we can offer in Luxembourg is a trusted centre for finance. It’s the combination that creates the winning momentum.” Diederich is working with key players in the Luxembourg e-payments sector who are developing their businesses. He sees future growth patterns in this area and beyond.
“this is the beginning of a new era in finance and this is a big opportunity for Luxembourg. Every bank, corporate and e-commerce company has to posi-tion itself. the advantage is not only the expertise in the financial technology. We are very attractive for cross-border commerce in the Euro area because out of Luxembourg you can directly access the Eu market. If you are a French company and you want to sell in Germany, you have to fight your way through the jungle. With Luxembourg as a base, access is much easier.” gm
Jean-Paul
Zens
Jean-Paul Zens is Director of the Media and Communications department of the Ministry of State in Luxembourg. He is also a Member of the Board of Directors of SES ASTRA and Entreprise des Postes et Telecommunications, Luxembourg.
euroPe’S e-PaymentS huB | P. 7
Jean
diederich
Jean Diederich is Partner at Kurt Salmon, a global management consultancy in Luxembourg. He has a deep know-how of European Digital Agenda
strate-gies, the European Single Payments Market and works with businesses to get the most out of digital technologies.
| EStABLISHING YOur E-pAYmENt BuSINESS IN LuxEmBOurG
Dossier
E-PAYMENTS
estabLishing your
e-payment business in
Luxembourg
Yapital is the first European
mobile payment provider offering
a cashless cross-channel payment
solution. The European business
was founded in 2011 as a
wholly-owned subsidiary of the German
Otto Group. Yapital Financial AG is
licensed as an e-money institution
in Luxembourg, with its
headquar-ters in Luxembourg.
Founder and CEO of Yapital,
Nils Winkler, is a renowned expert
in developing new business
seg-ments and models for e-payment
systems across Europe and the
US. He took time out of his busy
schedule to talk to LFF about
why his business moved to
Luxembourg and where he sees
the future of the dynamic
electronic payments industry.
lFF: could you PleaSe BrieFly deScriBe yaPital’S core
BuSineSS and technological innovation?
nw: Yapital is the first real cross-channel payment solution in Europe and as such it is unique on the market. As smartphone usage continues to rise, consumers expect everything easier and faster than ever before. However, different sales channels often offer different payment methods. In-store, you might pay cash, while when shopping online you are better equipped with a credit card and then of course there is also the option of using your debit card. To use various payment methods can cause consumers to lose track
of their expenses and can also be very inconvenient. That’s why we are not m-payment, not e-payment and also not a card scheme. We are all of it. With Yapital you pay with your smartphone, by simply scanning a QR code. That works in-store on a terminal, online on a computer screen or at home on an invoice. Add various additional features such as storing your loyalty card or handling your coupons and this is what we call ‘Paying the Yapital Way’.
E-PAYMENTS
lFF: what were the key argumentS For eStaBliShing
yaPital in luxemBourg?
nw: For a business like ours the IT infrastructure is very important. We need very quick transaction times for our merchants across Europe, any latency is bad for us. In Luxembourg we found an environment where we get the most in regards of reliability and speed. We also saw that here is the biggest cluster in high-level data facilities, which you don’t find anywhere else in Europe. As well, getting a new license for a bank is by no means an easy task but as Luxembourg offers a framework where similar companies doing innovative financial services, the regulatory people did know what we were talking about and we could reach our goal within six months. This was lightning speed compared to other markets.
So in Luxembourg we have a fantastic ICT cluster, a phenomenal IT infrastructure, we have a regulatory framework based on very modern law and we have a work force here that knows things like the ones that we are doing. So all the ingredients are there. Plus it is a serious place and it is in the heart of Europe. Put that all together and there’s no alternative.
lFF: where iS luxemBourg in the value chain?
nw: We are running our services a hundred per cent out of our Luxem-bourg data center facilities and in those data centers we have various layers of fire walls and security systems in which we can trust. I think it is evident, that we highly appreciate the environment the Grand Duchy offers.
lFF: luxemBourg iS Said to react quickly when it
comeS to imPlementing euroPean directiveS
into national law. what role doeS regulation
Play in your Sector and doeS luxemBourg
Provide a comPetitive regulatory Framework?
nw: We are more than satisfied with the legal framework in Luxem-bourg. To establish a completely new payment method, strict legal rules regarding data security and anti-money laundering as well as comprehensive regulatory requirements set for banking institutions are really important. A huge part of our business is about setting up a secure and reliable environment for partners and customers. At the same time, law in Luxembourg is modern and reacts quickly to the needs of new businesses like e-money institutions.
BuSineSS in luxemBourg | P. 9
nils
winkLer,
Founder and CEO, Yapital
lFF: the e-commerce Sector iS quite young
comPared to the traditional Banking Sector.
do you See thiS aS a chance to ShaPe the Sector
or aS a diSadvantage?
nw: For us, it is more about meeting and working with the tradition. At Yapital, we are completely open to collaborations with traditional banks to create win-win situations. An effective collaboration makes registering for Yapital much easier for the customer who then can connect Yapital with their existing bank account with just a few clicks. This account is automatically used as a funding source for Yapital transactions.
That way traditional banks can stay number one for their customers when it comes to financial transactions. Banking institutions face the challenge of finding their place in the payment-processing sector where new players are emerging. A cooperation holds the chance to expand the bank’s classic offering for existing and new customers with a modern, innovative payment system that is easy to use and doesn’t require large investments. Last but not least, Yapital can benefit from the bank’s customers to address them directly in their familiar environment.
lFF: do retail interBank SyStemS need to adaPt to
e-commerce or will there alwayS Be a market
For Both concePtS?
nw: As e-commerce and other mobile services become more and more important in our daily life there is definitely an emerging need for new financial services.
Consumers already buy their tickets online, do their banking online, and most of their social life happens via services on the smartphone or the Internet. People are used to do anything anywhere and at any time. Mobile commerce enables merchants to serve exactly these demands of their customers – shopping wherever they are, and buying whatever they want. That’s why there is also a pressing need for new concepts when it comes to paying in a multichannel world. It just makes more sense to use a single payment method across all channels. This puts the consumer in the driver’s seat, offering more control and convenience than cash or credit and debit cards. The most important element for modern financial services is the usability for consumers. Shouldn’t consumers just have to pay and go instead of thinking about which payment method they should use? This way the pain point, ‘paying’, gets much weaker. The consumer will thank merchants for it by buying more.
lFF: how do you enSure data Security and what
role do luxemBourg’S State-oF-the-art data
centerS Play in thiS regard?
nw: Yapital uses Secure Sockets Layer (SSL) for secure data transmission via Internet, plus tokenisation, a process which uses substitute values in place of the original data. No sensitive client data ever leaves the backend. It is maintained within our high-security data centers in Luxembourg.
lFF: in your oPinion, what Payment SyStem will
dominate in the Future?
Paying with your smartphone is definitely the most convenient method in today’s multichannel world, because you always carry it with you. Yapital enables you to pay in any situation in daily life. A real everywhere payment. Of course cards are attractive as well, but it’s easy to quickly lose track of your expenses espe-cially when multiple credit and debit cards are involved. Another example: When paying in the supermarket, department store or anywhere else where you could use a loyalty card, what do you do? First you take out your wallet and search for your loyalty card, hand it to the cashier, get it back and then hand over the credit or debit card. With Yapital all this is done with one simple scan and click. Sounds good, doesn’t it? gm
LuxembourgforFinance
did the recent nSa Scandal have
an imPact on your BuSineSS? were
clientS concerned aBout the
SaFety oF online tranSactionS?
Nils
winkLer
It was more the other way round. Custom-ers were relieved that we are based in Europe because this means that their personal data is processed under the strict observance of European legal standards and is secured on servers in Luxembourg. The hype about the security of personal data stored somewhere on the Internet, was focused on US companies. The whole scandal helped us to be perceived as even more secure and reliable.
| FrOm StArt-up tO mOBILE pAYmENt NEtWOrk
When it was launched in 2012, the Digicash m-payment model was very new and unique in Europe. Why? It was not the technology but the approach that was so disruptive as Jonathan Prince explains. “All the technology existed but the main innovation was bringing together the different players into an ecosystem. We thought then and now, that it was probably the best solution to get the banks to join and partner with us. We provide the technical solution and are initiators of that approach. the banks already have a trusted link with the consumers and the marketing power and strength. “
For Digicash, Luxembourg´s superior technical infrastructure was key to their decision to launch their mobile payment solution in the country. Luxembourg boasts one of the most modern data centre parks in Europe with low latency connections to all of the major European Internet hubs. It is in one of these data centres that Digicash stores its data.
“In terms of technical infrastructure it was very developed here in Luxem-bourg. the digital infrastructure, the connections, the fibre is so advanced, you can find everything here. there is active advisory support from the government and for start-ups you have a techno port where you can benefit from free meeting rooms and It facilities.”
E-PAYMENTS
Dossier
E-PAYMENTS
from start-up
to mobiLe payment
network
Digicash is a mobile payment
solution, which transforms your
smartphone into a mobile
payment tool. It enables banks
to be at the heart of the mobile
payment revolution.
Starting as an R&D project in 2010
co-funded by the Luxembourg
Government, Digicash has become
Luxembourg’s bank-led mobile
payment network enabling the retail
bank's clients to make payments via
an App installed on a smartphone.
Funds are transferred from payers to
merchants/billers via SEPA Credit
Transfer (SCT), avoiding pre-paid or
e-money-related limitations and
consumer adoption hurdles. Beyond
its Luxembourg operations, the
company is a pioneering provider
of high-end mobile technology for
banks and the payment industry.
LFF spoke with entrepreneur and
co-founder of Digicash Payments,
Jonathan Prince.
Digicash applied for a payment institution license from the Luxembourg regulator, the CSSF, which followed the rules laid down by the European Payment Services Directive legal framework and transposed the law to the new Digicash model.
“the CSSF was very responsive and helpful because our model is quite different from what you usually have. We could ask questions and they would give proper answers and do that within an acceptable framework and time-line. We were very well supported by them and obtained our license in less than six months. In other countries it can take up to 18 months."
The license enabled Digicash to sign a pioneering deal with the largest local retail bank in Luxembourg. BCEE became the first Luxembourg retail bank to adopt Digicash, enabling its clients to make payments in shops, pay invoices and shop online. The company is now working with the leading domestic banks in Luxembourg, giving them access to 90% of the primary account holders in Luxembourg. Its success in developing the model and capturing the market in Luxembourg is now being used as a springboard to expand in Europe.
“the Luxembourg label is a great brand for us to capitalise on and we have a very attractive proposition based on the success we have achieved in our home market. We have been able to make contacts across Europe with banks, financial institutions and payment service providers and we are now in advanced discussions with some of them across Europe.”
Digicash is one of a growing number of start-ups that are moving to Luxembourg to take advantage of the ICT cluster to foster new and sustainable business opportunities. The cluster offers a platform for networking, collaboration and exchange of experience which is unique in Europe.
“It´s very exciting to be an entrepreneur in this area at the moment and to be able to do it from Luxembourg where you are part of the ICt cluster, with proximity with the decision makers, the banks, and the merchants. this is combined with political stability, and an encouraging and stable tax regime. Luxembourg was the perfect place to build the future of our company.” As for the future, Prince predicts that by 2020, 50% of all transactions will be mobile and children under five years old will never be in contact with a plastic card.
“It might be through a watch, or glasses: we don’t know. What we do know is that the consumer's payments ID and triggers will be virtual and inde-pendent of a specific device or medium, i.e. cards or cash. this evolution has already started and gets huge attraction.” gm
Jonathan
prince
Co-founder, Digicash Payments
| INNOvAtING tHrOuGH LAW AND rEGuLAtION
lFF: what iS driving regulation oF the e-PaymentS
Sector in euroPe?
J-Ls: Regulation in e-payments is rapidly developing and is becoming more and more sophisticated. The European Union developed new rules under the Directive on Payment Services (PSD) an electronic money (e-money) in 2007 and 2009 which were enacted in Luxembourg in 2009 and 2011. The directives provide the legal foundation for the creation of an EU-wide single market for payments. The aim is to make cross-border payments as easy, efficient and secure as “national” payments within a Member State.
lFF: what iS the diFFerence Between the eu and the
reSt oF world in termS oF regulation?
J-Ls: The big advantage in the EU is that if you establish for example in Luxembourg, you can passport your activities to the whole of the EU, so you don’t need to establish in 28 different countries. It allows you to serve the whole European market out of one hub, where peo-ple are knowledgeable on electronic money and where there is an abundance of experience in this area.
lFF: how iS it aBle to Provide Such a comPetitive
regulatory Framework?
J-Ls: We are highly responsive to relevant European legislation. In Luxembourg European legislation – namely, directives – are transposed immediately into national law. This means there is no red tape that is being added - no additional bureaucracy - and when there are options offered in the directives, Luxembourg always chooses the option that is favourable to business.
Luxembourg’s great advantage is experience and predictability. One thing you can be sure of in Luxembourg is that legislation is not going to change from one day to the next.
E-PAYMENTS
Dossier
E-PAYMENTS
innovating
through Law
and reguLation
Legal innovation is key to the
con-tinuing success of the Luxembourg
e-payments hub. Jean-Louis Schiltz
is a partner at Schiltz & Schiltz and
Professor of Internet and
Telecom-munications Law at the University
of Luxembourg. The Faculty of Law
is pioneering in this field, where its
cutting edge research and high
qual-ity teaching leads the way in Europe.
As Communications Minister from
2004 to 2009, Schiltz played an
instrumental role in developing
the ICT and e-commerce sector in
Luxembourg. He advises e-payment
companies who have set up their
headquarters in Luxembourg.
lFF: how iS luxemBourg aBle to innovate through
itS legal and regulatory Framework?
J-Ls: We are constantly innovating through law and regulation. We are for example looking very closely at new technology models and then try to apply the old legal principles in combination with the more recent e-payment directives in the most efficient manner. Innovation in the future will not only be through technology, but
also through law and regulation, that’s why at the University of Luxembourg we are educating students in internet and telecommu-nications law.
lFF: how imPortant iS legal Security to the Future
develoPment oF the luxemBourg e-PaymentS
huB and the Sector worldwide?
J-Ls: Data is everything and across the world there will be increasing pressure on banks and e-payments companies from regulators to take greater care of the data of companies and citizens. Globally, nobody knows yet how to deliver on this but in Luxembourg, we are taking initiatives to create more legal security in the regulatory field. Last year, we took one initiative to introduce an article into the
commercial legal code 567 where we allow a company which has put its data into one of our data centers to withdraw its data in the case of bankruptcy, before the liquidator takes over the assets and sells them.
The fiscal treatment of data is another key area which we are exploring. Luxembourg is innovating in this area as well to keep its first mover advantage.
LuxembourgforFinance
what will Be the Big challenge
and oPPortunity in the Future
For the e-PaymentS and e-money
Sector in luxemBourg?
Jean-Louis
schiLtZ
In my opinion, there will be a number of additional actors in the e-payments and e-money world. The interesting question is who is going to survive and who is going to win the lion´s share of the market. The other question relates to the role of virtual money in the future and how legislation will play a role in the more or less wide adoption of virtual currencies. Luxembourg is very open to virtual currencies, and the regulator has clearly stated that virtual money is considered to be money, although not legal tender. That means that it will be regulated in Luxembourg and we are now seeing companies active in the virtual currency world exploring the possibility of setting up their European headquarters here. I do not think virtual currencies are going to replace legal tender currencies but they will co-exist in the future. Ten years from now, we will all have electronic wallets, with legal tender currencies, virtual currencies and multiple payment cards in a virtual repository which we will use in parallel. The trend we have seen in telecommunications, where most of us use mobile phones and Skype in parallel will be replicated when it comes to money, legal tender and virtual currencies.
law and regulation | P. 15
Jean-Louis schiLtZ,
partner, Schiltz & Schiltz
| SECurItY IN tHE DIGItAL AGE
lFF: why do we need reSearch aBout Security?
bo: Security in ICT means being optimally protected against system failures and attacks aimed at manipulating or stealing data. But security is not only about computer systems anymore. Virtually all aspects of society (communications, financial services, energy, transportation etc.) depend on ICT systems and are potentially vulnerable to attacks or failures. Because these could lead to high economic losses and to a loss of trust, security is a top priority. There is a constant race between attackers and those who provide security. At SnT, we are researching into fundamental concepts of how to continually improve security standards and security technologies, to ensure businesses and the public sector are always one step ahead of the attackers.
E-PAYMENTS
Dossier
E-PAYMENTS
security in
the digitaL age
Security has become enormously
important for information and
com-munication technology (ICT) in the
financial sector. The financial sector,
indeed economics altogether, is all
digital in this age. At the University
of Luxembourg´s Interdisciplinary
Centre for Security, Reliability and
Trust (SnT), there is a growing
inter-est in this matter in businesses and
the public sector, and the centre is
working intensively on this issue
with their Luxembourg partners.
LFF spoke with Professor Bjorn
Ottersten, Director of Luxembourg
University’s Centre for Security,
Reliability and Trust (SnT), and
“Digital Champion of Luxembourg”.
Security in the digital age | P. 16
© Sn t/ sc ie nc e re la tio ns
lFF: how do reSearch and FindingS SuPPort
luxemBourg’S digital economy and
develoP-ment into an e-commerce and e-PaydeveloP-ment huB?
bo: SnT’s mission is to make a visible contribution to the scientific and economic diversification and development of Luxembourg. We conduct research with a medium and long term perspective leading to innovations in Luxembourg’s technology companies, for example in the fields of e-commerce or e-payment. A key role in this process is SnT's Partnership Program: A venue for exchange and collaboration, here SnT brings together university scientists with non-university-affiliated researchers as well as partners from industry and the public sector. The shared focus is on basic science research to address the challenges faced by today's technology companies. The perspective taken by the Centre is one of tracing the future course of technological advancement, delineating current boundaries, and identifying long-term research topics. A key to SnT's success is that the Centre has taken an interdiscipli-nary approach to research topics ranging from technology to business to law. This way, together with our partners, the Centre is helping establish Luxembourg as a European centre for excellence and innovation in the field of safe, reliable and trustworthy ICT systems and services like e-payment.
lFF: where doeS the Snt Fit into the luxemBourg
e-Payment huB?
bo: SnT has gained highly competent partners for joint research on the topic of e-payment, like CETREL, Luxembourg’s leading bank card processor. As much as 60% of our software development costs go towards testing new or upgraded programmes. But - the programmes are much too big and complex to allow any one person to work meticulously through the programme code, line by line. SnT is addressing this issue with formal mathematical methods, modelling, and automated testing. The first step is to find those places in the programmes that are truly important and where errors may have crept in. SnT researchers are therefore modelling the programmes’ responses to changes in outside influences. Such methods are of great importance to Luxembourg as a financial centre. That is why SnT entered into a strategic partnership with CETREL, a globally leading provider of cashless transaction technology and IT services for the financial sector. In the real world, before software can be used for a new type of
transaction, CETREL has to first identify and eliminate potential weak links. To do this, test runs are conducted on a full business day’s worth of transactions, which requires a great deal of effort. SnT wants to reduce the number of necessary transactions significantly through automated testing. Formal mathematical methods, modelling, and testing thus minimize effort and maximize efficiency while ensuring at least the same degree of reliability and security – so that customers can rest assured that their credit card payments will never be declined because of some programme crashing. gm
Security in the digital age | P. 17
Professor Bjorn
ottersten
Director, SnT © Sn t/ sc ie nc e re la tio ns © Sn t/ sc ie nc e re la tio ns
