2015 semi mems forum-12-emerging trends in digital payment-mckinsey-20150902

8/20/2019 2015 SEMI MEMS Forum-12-Emerging Trends in Digital Payment-McKinsey-20150902

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Digital Disruption in Payments –

Innovation at the Speed of Digital


2/21

1SOURCE: Press search

“Payments is a

huge business […]

We’ve created an

entirely new

payment process”

– Tim Cook,

CEO Apple,

Sep 2014

“We are on a

collision course

with the Googles

and the Apples of

the world. Wouldyou ever pick a

fight with those

types of

companies? No,

but we are on that

course”

– Dave McKay,

CEO RBC; Mar

2015

“We particularly

are excited about

our payments

business in total.

We are going to bevery aggressive in

growing this

business, and we

will be

disappointed if we

don’t announce

some exciting andpotentially market-

changing

ventures.”

– Jamie Dimon,

CEO JPMorgan

Chase, Apr 2015

“Two decades ago,

Bill Gates

described banks

as “dinosaurs” that

would bebypassed by

innovative

technology. Yet

since then banks

have survived

challenges […].”

– Wall Street

Journal,

Jan 2015

“The Problem With

Apple Pay And

Samsung Pay Isn't

The Tech, It's The

Banks […] Thechatter around

mobile payments

has transformed

into arguably the

biggest story in

tech. And it's not

necessarily apositive story.”

– Huffington Post,

Mar 2015

Payments has become the stage of a battle by press release


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2SOURCE: McKinsey Panorama Fintech Database

Distribution of Fintech activity …% # of startupsand inno-

vations as %

of database

total1

1 350+ commercially most well-known cases registered in the database, might not be fully representative

2 Includes small-, and medium enterprises3 Including Large corporates, Public Entities and Non-banking financial institutions4 Includes Investment Banking, Sales and Trading, Securities services, retail investment, mutual funds and asset management factory

4%

2%

13%

3%

2%

12%

8%

1%

14%

24%

11%

5%

Payments has become is the epicentre of Fintech innovation…


4/213

… And represents a strategic part of a bank’s customer franchise

1 Illustration for annual income on direct bank customers based on ING Direct analysis

SOURCE: ING Direct investor presentations

ESTIMATES

Annual income per digital customer 1 Income sources per digital customer 1

Indexed

Customerswith

payment

account

Y0 Y+1 Y+2 Y+3

140 120

100 X 1.6 X 2.5 X 2.7

220 295

105

285

Indexed, Y+3

85

135

32

53

65

105

Customers without

payment account

515

285

Customers with

payment account

X 2.7

Mortgages

Payment account

Investment products

Savings

Customers

without

payment

account


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Major disruptions are reshaping the Payments Ecosystem

Description

Next wave of regu-latory intervention

▪ Issuance o f new rules and regulat ions is

accelerating, in particular in form of economic regulationand new rules on data privacy, security and data access

Payment network

infrastructures are

being enhanced

▪ Over 22 markets around the world (incl. UK) areupgrading nat ional payments inf rast ructures to be

faster and more flexible, a.o. enabling micro-lending,

real-time P2P

Costly battle for

liquidity continuing

▪ While the battle for liquidity has been easing since thecrisis, the low interest rate envi ronm ent is reducing

cross-subsid izat ion from account balances

Payments security will

remain at the forefront,

more than ever before

▪ Acc elerat ing threat of cyberattacks is fueling demandfor more secure, real time solutions▪ EMV, encry pt ion , and token izat ion are moving to the

top of executive’s agenda

Technology-enabled

evolution in user

behaviors

▪ Improved convenience, efficiency and value unlockedthrough technology, e.g.

– Integration of “Payments” into the consider-evaluate-buy-bond value chain for consumers

– Omnichannel & c loud-based so lu t ions with

broader service offer for merchants – Digi t izat ion of the AR/AP value chain for e-

invoicing and data-rich solutions for B2B

Induced changes for

banks

Margin pressure on

core Paymentsservices

A

Increased

competition, both

from the banking and

non-banking space

B

Emergence of new

business and

operating models

C

New systems and

solutions, calling for

investments in

innovation and

technology

D

SOURCE: McKinsey Global Payments Practice

MARGIN PRESSURE ON CORE PAYMENTS SERVICES


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-24

-24

-9

-3

-15

▪ Interchange fee (IF)caps in place across

Europe since Jan. ’15

(0.3% for credit, 0.2%

for debit); a ~60%

drop vs. current levels

▪ Equivalent orgreater drop in

Merchant ServiceCharges (MSC)

expected

▪ Further pressureforeseen through

opening for cross-

border acquiring

Debit fees (%) for average transaction of EUR 50 CAGR

%

Evolution of interchange feesRecent context

0.070.180.180.19

0.070.420.420.44

0.070.680.87

1.40

2015E12082004

0.070.190.180.10

0.070.410.47

1.50

IF cap at 0.2% or 7 cents, whichever is lower

Interchange fees have been decreasing across Europe


MARGIN PRESSURE ON CORE PAYMENTS SERVICES

A

INCREASED COMPETITION BOTH FROM THE BANKING AND NON BANKING SPACE


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A wide variety of players could shape the competitive landscape in

payments going forward


INCREASED COMPETITION, BOTH FROM THE BANKING AND NON-BANKING SPACE

B

Strategic objectives

Digital

payment

specialists

▪ Aim to capture high revenue use-cases first and expand to highervolume (in-store) environments

▪ Launch sequential new product delivering ‘merchant value creation’ tospecific sectors

Tech

giants

▪ Aim to collect customer data to enhance advertising and create newcommerce options

▪ Launch new customer experience solutions leveraging partners toreach scale and credibility

Banks

▪ Aim to generate transaction and liquidity revenues and to protect

customer relationship▪ Launch sector solutions or stand-alone lead product for customeracquisition

Networks

and

processors

▪ Aim to increase and retain volume of payments to generate transactionrevenues and scale

▪ Launch sector solutions through partnerships and seek for value chainexpansion

Telco▪ Aim to reduce customer churn and find alternative revenue models▪ Launch sector solutions or partner with networks to launch bank-like

payment products

▪ Aim to increase in-store traffic, generate new sales opportunities andoptimize costs (i.e., avoid transaction fees)

▪ Launch innovative shopping solutions leveraging low cost paymentproducts and customer log-in

Retailers

EMERGENCE OF NEW BUSINESS AND OPERATING MODELS


8/21

7

Apple Pay announcement is not quite ‘revolutionary’, but it is a

significant Payments development on several fronts …


C

Product enhancements

▪ iPhone now comes in two different sizes matchingofferings from Samsung▪ iWatch has seamless integration with phone and

cloud

▪ Apple Pay leveraged cloud, NFC and thumbprintsecurity to offer the most secure mobile

payments solution

Payment platform

▪ NFC enabled device▪ Secure element that “bonds” the card to the phone▪ Tokenization (EMVCo spec)

▪ 6 tokens resident in phone and tied to partnernetworks▪ Wearable tap and go w/ TouchID on phone and

watch

▪ In-app, one-click payment with iTunes




9/21

8

Online payment has become the norm, feeding an internet finance

ecosystem in China

5

19

76

Cash ondelivery

Online

banking

3rd-party

payment

What payment method do you usually use?

% of CE online shoppers, N=236

RMB10 tn

RMB9 tn

RMB60 bn

Internet

finance

3rd-party

payment

P2Plending

Market share of online 3rd party payment

% TX valueOthers

Tenpay

50 Alipay

20

20China Unionpay11


C



10/21

9

Alibaba’s financial ecosystem centers around

its ecommerce platform

May

2003

Apr

2008

B2C platform

New

brand in

2012

C2C

platform

Feb

2008

Alipay

launched

Mobile

payment

B2B platform

Inter-

national

China

June

2007

Data based SMElending service

with banks

June

1999

3rd party

payment

platform

Aug

2003

June

2010

Micro lendingcompanies

Sep

2012

Guaranteecompanies

▪ ShangchengFinancing

Guarantee

(Chongqing)▪ Provide

guarantee

service to

SMEs

Nov

2011

Trade financeservice

July

2014

UnsecuredSME lending

with banks

▪ SME loansby banks

based on

online

transaction

histories

Feb

2013

Online P&C

insurance company

▪ Products targetingat Taobao/Tmall

sellers

June

2013

Alipay launched

Money Market

Fund Product

Yue’Bao

▪ Cooperated with

Tiaohong

Fund first,

later

acquired it

▪ Two banks▪ "e-Daitong“

with CCB“▪ Yirongtong”

with ICBC

▪ Yidatong(Trade

finance

service)▪ Outsourced

import/export

service for

SMEs

▪ Zhejiang(2010)

▪ Chongqing(2011)

Jan

2015

Establishpersonal and

business credit

management

▪ Ali Sesamecredit

management

to build

financial credit

services

Ali Ant group

launched equity

crowdfunding

platform

▪ Provide equitycrowdfunding

for startups,

especially in

ecommerce

domains

May

2015


C



11/21

10

▪ Alibaba▪ Taobao▪ Tmall

E-

Commerce

platforms

Payments

Financing

Wealth

manage-

ment

Building on success of ecommerce, Alibaba grew first into payment,

then financing and wealth management

Product Description

▪ Microfinance ▪ Microfinancing service to SME

▪ Guarantee ▪ Enhance credit for Alibaba microfinance's securitization

products

▪ Insurance online shops ▪ ~50 insurance companies set up flagship stores inTaobao.com

▪ Products include auto insurance, accident and health, etc

▪ Mutual fund online shops ▪ 1st batch of 10+ mutual fund companies will launch in thetrial period

▪ Alipay ▪ Payment service

▪ Credit payment ▪ Credit payment

▪ Zhongan.com ▪ Online P&C insurance company, a JV with Tencent,PingAn, etc.;

▪ Yu’ebao ▪ A monetary fund

▪ Dingcunbao(Term deposit)

▪ term deposit product on Taobao allowing direct depositon the Alipay financial management page

▪ Yidatong (Tradefinance service)

▪ Outsourced import and export clearencing serviceprovider for SMEs


C



12/21

11

Alipay expediting mobile development and

exploring innovations

Alipay

Wallet

Super

Payment

▪ Smartphone as POS: APP installed in merchant smartmobile device or offline POS terminal at earphone port

▪ Facilitate money collection by approved merchants into adesignated Alipay account

▪ QR code/bar code payment: payment info acquired viabar code reader or mobile app

▪ Voice payment ("Dang Mian Fu") payment info readthrough a ultra-sound signal sent by smart phone, available

on some vending machines in Beijing & Shanghai

Alipay's ongoing innovations in mobile and finance


C



13/21

12

Offline

Payments

Strong

promotion

campaign

Cheaper

for

merchants

10% discount (Max:RMB5) per first

spending everyday above RMB2

Get 10% off

for the first spending

Barcode-based payment

at cashier

Promotion campaign – 10% off ▪ Merchant scan the consumer’s Alipaybarcode/QR code to direct transfer balance

from consumer’s alipay account to merchant to

fulfill the payment

▪ Enabled the smartphone based cardlesspayment

▪ Promotion campaign for barcode payment inconvenience stores, covering 15,000 stores

under 20 brands in 21 cities

▪ Cash benefits in convenience stores to driveuser adoption

– Get 10% off (Max:RMB5) for the first

spending everyday above RMB2 – Get RMB 5 if spending over 5

▪ During promotion: free of charge for amountsunder CNY 20,000, 0.6% for above CNY 20,000

▪ After promotion is ~0.6% of transaction value(compared to 0.78% for POS machine)

AliPay’s merchant offline payments

AliPay introducing barcode payments through a strong

campaign at convenience stores to penetrate into offline

payment


C



14/21

13

P2P transfers

Account Balance

Payee account #

Transfer amount

Voice msg

Next step

Withdraw Deposit

Shanghai

Your return has beaten:

cumulative

return

7-day

annualized rate

Absolute return

in past 7 days

Absolute return

in past 30 days

Lucky

pocket

Flying

pocket

Wish u

prosperity

May wealth

come

Yuebao

Transfer to Alipay Account

Daily updated peer &performance comparison

motivates users to check

balance daily

▪ % of users you have beaten (interms of absolute return) in the

same city

▪ Yesterday return

▪ Cumulative absolute return

▪ 7-day annualized rate of return(performance indicator for

monetary market fund)

▪ Absolute return in past 30 days

▪ Absolute return in past 7 days

P2P Transfers

▪ Users can send messages(text & voice) and emoticons

along with P2P transfers

‘Gamified’ user experience incentivised usage of Alipay’s P2P

payments and investment products

C



15/21

14

Alipay: Emerging International ambition

▪ International customers whobuy goods and services fromlocal Chinese merchants

▪ Clients of Escrow can enjoy Alipay-like “Guarantee

Payment” service so as to solve

the trust issue between Chinese

merchants and them

▪ Work with Boarderfree to enableleading retailers and brands (ie Macy'sand Neiman Marcus) in providing

cross boarder shopping for Chinese

consumer

▪ Pay by RMB, no international creditcard needed

▪ Work with international dutyfree store, ie Lotte inproviding alipay offline

payment

Global-> China China->Global Global China travelers

C



16/21

15

Sep

2005

Feb

1999Jan

2011

WeChat

payment

based onTen Pay

Aug

2013

License in July

2014; launch in

Q4 2014

WebankFirst internet

based bank

▪ Focus on microloans business

▪ Targeting atindividual

customers and

small business

Incorporate

Taxi App

Jan

2014

▪ Used fororder taxi

▪ CompletePayment

from

QR code scan

payment

Feb

2014

▪ Scan Q-R codeprovided by

merchant to

complete

payment

Ecosystem

based on

WeChat

Go Dutch Wealth Lottery

Order Taxi SpecialsMovie

Tickets

Lucky

MoneyGames

Group

Buying

QQ

Instant

Messenger

Paipai.com

C2C Platform

▪ Most popular IMtools in China

▪ Over 200mnusers

▪ Launched valueadded product

including

emotion, skin

Ten Pay

3 rd party payment

Platform

▪ QQ users canopen shopping

account

automatically

▪ Leverage theexisting

customers of QQ

and Paipai.com

WeChat

Smart phone

based IM and SNS

▪ Over 600mnuser

▪ Most popular IMand SNS in

China

Feb

2015

WeChat

Hongbao

feature

Smart citycollaboration

▪ Work withSichuan

province to

collaborate on

smart city digital

initiatives, as e-

government,

online

healthcare, etcMay

2015

▪ Collaboratewith CCTV for

new year

hongbao

distribution

Tencent building a financial ecosystem around its social

network platformC



17/21

16

Public

account

▪ Enterprises, celebrities or media run public accounts in WeChatwhile users can follow them

Description

Value-

added

services

▪ WeChat users can purchase Tencent’s value-added serviceslike games, emotion packages, with WeChat payment

O2O

(Online-to-

offline)

▪ Q-R code: – Vending machines (collaborate with Gaopeng and Ubox) – Offline merchants

▪ Taxi service (collaborate with Didi3)

Others▪ Other payment services (ie AA

payment, red pocket etc)

E-Commerce

▪ B2C website shopping▪ Weituangou (group buying)▪ Movie ticket booking

Wealthmanage-

ment

▪ Collaborating with China AMC, WeChat has launched aYu’ebao-like product named “Licaitong”

WeChat Payment

1 Launched in Aug 2013

2 As of 2013 Q3, while the largest, Alipay, has a market share of 49%

3 Tencent has strategic investment in Didi taxi

Provide

3rd-party

payment

license

▪ 600 millionusers

▪ #2 3rd partypayment

▪ 200 million users

WeChat

Tenpay

Launch

With a customer base of 600 million, WeChat launches

payment service in version 5.01

C



18/21

17

WeChat payment P2P red packet campaign signed up millions of

users overnight during Chinese New Year

Lucky pocket

Send History More

Step 1: Click “Send”

Lucky pocket

# of redenvelops

Totalamount

Message

Pay Now!

Step 2: Create a lucky

pocket

Bank card 1

Choose a card

Bank card 2

Add new bank card

Continue

Step 3: Choose a bank

card

Please input password

PayCancel

Step 4: Input the

password

Lucky pocket

Sent to fd Post inCircle

Step 6: Share the lucky

pocket with friends

Lucky pocket

Send another

Step 5: Click the right-

top sharing button

▪ Lucky pocket receivers willget random amount ofmoney summing up to the

total amount set by the

sender

From Jan 30 to Feb 8:

▪ ~10 million WeChat

users have beenengaged in the Lucky

Pocket APP

▪ Over 40 million redpockets were

dispatched

C

O OEMERGENCE OF NEW BUSINESS AND OPERATING MODELS

C


19/21

18

Tencent is building the O2O ecosystem around payment to increase

user sickness and transaction frequency

Taxi service

Step 1:

Choose “Didi taxi”

Step 4: Enjoy the service

Step 3: Input your mobile

number and verify

Mobile number

Verification #

Verify

Confirm

Step 6: Successfully

make the payment

Step 2: Input your current

location and destination

From

To

Tips

Call a taxi now

Step 5: Input the amount

and pay using WeChat

Input the payment amount

Confirm

Pay in cash

▪ Collaborate with Diditaxi

– Cover 32 cities – Over 350K drivers▪ subsidizes every

transaction to get mass

market

1 month after

partnership

▪ Transaction # paid byWeChat: 21 mn

▪ Didi taxi users: 40 mn(~20 mn before the

partnership)

C

T h l d i di it l di ti i i d t i f llNEW SYSTEMS AND SOLUTIONS

D


20/21

19

Technology driven digital disruption in industries follows common

patterns – Payments are at the centre!


▪ Point of sale ▪ Friends andcommunity

▪ Device providers(iOS, Android)

▪ Consumerreviews

▪ Distribution

Changed

economics

Physicalgoods and

store

Digital goods

and store

Physical

good,

digital store

Software-as-a-

service

Music

Films

Travel

Software

Banks

Included in

consumer

ecosystem

D

E l Ali i t ‘D Mi F ’DNEW SYSTEMS AND SOLUTIONS

http://www.nordea.dk/22971.html?lnkId=nordea-logo-privathttp://www.nordea.dk/22971.html?lnkId=nordea-logo-privat


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Example: Alipay voice payment ‘Dang Mian Fu’

(Click to play video)

D

2015 semi mems forum-12-emerging trends in digital payment-mckinsey-20150902

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