memorandum - 3rd annual qed conference – the …...memorandum - 3rd annual qed conference – the...

Memorandum

According to Ms Oakes, friction between

competition and harmonisation alsoneeds to be addressed, and she asked

how a level playing field can be created

as well as network economics in acompetitive environment. She remarked

that after SEPA, the Payment ServicesDirective (PSD2) is now on the agenda. A

new focus on Instant Payments for the

Euro highlights the fact that speeding uppayment processes can also accelerate

the potential for fraud and othermalpractices, so it’s even more important

to harmonise standards and ensure

interoperability. She concluded by askinghow we can create a vision to determine

the direction that payments should take,in an era of unprecedented technological

development.

Ms Oakes opened the conference by saying

that this is an exciting stage in the

development of payment products and

services, with the digital agenda taking off

and financial technologies exploding. She said

that the EU Digital Single Market strategy is

looking at e-‐commerce across the entire

European Economic Area (EEA), and

payments is just one of the aspects of the

digital market. She suggested that competing

priorities need to be examined from a public

policy and regulatory perspective on the

concept of freedom for individuals and

businesses, and the security needed to make

this freedom possible.

Liz Oakes Director, Management Consulting, KPMG

2Memorandum - 3rd Annual QED Conference – The Future of EU Payments |

Panel 1 – Regulating EU payments

The recent interchange fee regulation was

necessary to address dysfunctions in core

markets and encourage the industry to adapt

to digitisation. Mr Salles said that new

trends and developments are constantlythrowing up new challenges and

opportunities, and one such technologythat is moving rapidly concerns mobile

and instant payments. In this area he

hopes that standards will be applied bythe end of 2016 for practical

implementation in 2017. He thereforeconsiders the next two years as critical,

as in this period PSD2 will be enforced

and will greatly impact the market andconsumers. Mr Salles mentioned the

importance of the green paper on retailfinancial services that was released in

December 2015, and on which he

welcomes feedback. He finished bysaying that regulators must be ready to

face all the new challenges in the area ofpayments in a pragmatic and open way.

Olivier SallesHead of Unit D3 - Retail Financial Services and Payments, DG FISMA, European Commission

Mr Salles said that until recently, legislation in

card payments focused on protecting

consumers and setting rules for licensing

(PSD1), fighting potential abusers (EU

Regulation 924), or setting standards across

borders (SEPA). The appearance of new

technologies, challenges and players, as well

as new supply-‐demand relations, has changed

the focus somewhat. Legislation has to

intervene and is potentially the only way

forward to address these changes. For

example, PSD2 which was adopted in mid-‐

January, is to a large extent the response to

the challenge brought about by the arrival of

new players.

3 | Memorandum - 3rd Annual QED Conference – The Future of EU Payments

Mr Ainsworth described key implications

for legislators and politicians. He said thatinnovation needs certainty for investments

in payments, and the regulatory focus

should be on the consumer not theproduct. He stressed the importance of

trust, safety and security, and stated thatthere is a need for a sandbox approach

aligned to consistency to achieve a level

playing field. Also important is to thinkglobal and think standards rather than

solutions. His final point addressed theimportance of designing-in accessibility,

the inclusion of everybody, and offering

choice, so as not to leave people behindin the digital revolution.

Mr Ainsworth spoke about the possible

direction of payments over the next ten years

and shared a video on a contactless mobile

payment method implemented by Barclays in

the UK. He described some key payment

trends such as e-‐wallets, biometrics and

alternative currencies, and the four evolving

trends: form factor, channel, payment

journey and revenue model. He said that

shaped by seven key global megatrends,

changes in these characteristics will shape

consumer payments. He summarised these

changes as multi-‐source data, a buyer

payments layer, the sharing economy,

purchasing replacing paying, and just buyers

and sellers: the common theme being smart

and invisible data.

Alan Ainsworth Director, Government Relations, Barclays


Presenting what he considers to be a

fundamental point about PSD2, Mr Schardt

said that it will revolutionise the European

payments market and bring security into the

payments market. It opens up the EU

payments market to new operators, thereby

fostering innovation and fair competition. He

considers therefore that PSD2 is an

opportunity rather than a threat for banks. It

will give them a valuable opportunity to

survive as consumer banks and offer new

services in the digital market.

Georg SchardtManaging Director, SOFORT

On the topic of Payment Initiation

Services (PIS), Mr Schardt considers thatit gives banks the opportunity to become

powerful actors in European e-commerce

and strengthen their customer relations.An example is PayPal which is now active

in 80 countries and which provides loansand a payment card. He said that e-

commerce is evolving extremely quickly

and banks cannot afford to wait; it’s theirduty to develop and deliver secure

systems that small merchants andentrepreneurs can use to set up a small

business, conduct cross-border business

and build up the internal market. MrSchardt said that the last available

infrastructure in the digital environment ispayments, and is an area in need of

efficient regulatory standards.


Panel discussion - Regulating EU payments

Ms Oakes wondered what the starting

point would be on harmonising InstantPayments. Will it be right from the very

beginning rather than addressing it later

when a number of different systems mightexist? Mr Schardt said that SOFORT has

developed secure interfaces to more than4000 banks. At the same time, he pointed

out that SEPA is not yet properly

implemented, and some banks have noteven introduced basic customer

authentication procedures. So he thinksthe first direction is to make SEPA work.

He would also like to see the functionality

of a bank account become extended tocreate a wider range of products for the

merchant. Mr Salles said that work onInstant Payments standards has been

coordinated right from the beginning. It

includes all participants and aims toenable a minimum level of harmonisation

in the Eurozone, which he hopes will thenbe extended across the whole of the EU.

6

A member of the audience asked whether

the green paper on retail financialservices is the last chance for the EC to

respond to the needs of the European

community in terms of sovereignty, dataprotection and data privacy, to avoid card

and mobile payments moving to Google,Amazon, PayPal, Facebook etc. Mr

Salles said the green paper is certainly

not the final answer of the EC. It aims toanticipate future evolution and the impact

of digitisation on financial services, so ismuch wider than payments and cards. It

does deal with the issues of data

protection and cybersecurity, and afterconsultation on the green paper all

feedback will be gathered to addressthese issues in a legislative answer.

Memorandum - 3rd Annual QED Conference – The Future of EU Payments |

A discussion followed on the reasons why

US companies such as Google, Amazon,PayPal and Facebook are so huge and

successful, and why no European

equivalents exist. Mr Ainsworth said thatthey are successful in Europe because

they provide what customers want. Thechallenge of European organisations is to

provide the enablers so we can compete

on the same terms as these companies.Another delegate asked how standards

can be put in place to ensure reliable,scalable and secure APIs that other

businesses can rely on the banks to

provide.

The panellists agreed that the challenge

is to get the balance right; to allowbusinesses to access data to provide

services to their customers, while

ensuring that others can’t access thatsame information and use it maliciously,

which needs a solid regulatoryenvironment. It was pointed out by

another delegate that a key principle is

that account holders decide who is gettingyour data, which is anchored in PSD2.

Another delegate commented that anopen API standard is crucial to create a

real open European environment, and

allows consumers to use the paymentmethods that they want to use.


supported by Europol’s European

Cybercrime Centre, 35 airlines and 32countries, and took place at 109 airports.

It resulted in the reporting of 162

suspicious transactions and the detentionof 133 individuals under suspicion of

fraud. Three elements were essential toits success: a sound legal framework,

excellent cooperation, and funding for the

right tools and training. Ms Bauer-Bulstgave details of each of these three

elements and described what is stillmissing in each area. She invited the

financial sector to get more deeply

involved in combatting cybercrime, andrequested delegates and their companies

to communicate their input on where theysee gaps, and to contribute to DG

HOME’s processes to devise new rules

for the combatting of fraud andcounterfeiting of non-cash means of

payment.

Ms Bauer-‐Bulst explained that there is always

a balance to be struck between security and

convenience: perfect security may be

perfectly inconvenient! She listed various

security threats, including new ones such as

carding sites for the trafficking of credit card,

bank account and other personal information

online.

She then described a recent successful

operation: the Global Airline Action Day,which targeted criminals suspected of

fraudulently purchasing plane ticketsonline using stolen or fake credit card

data. It involved law enforcement

agencies from across the world,

Cathrin Bauer-‐BulstTeam Leader, Fight Against Cybercrime, DG HOME, European Commission


Panel 2 – Online payments – Cyber security and data protection

He gave the example of Apple Pay: banks

see the transactions; Apple does not.Moreover, a bank needs to authenticate a

user of Apple Pay prior to that person

enrolling in it. Thus Mr Dechamps isconvinced that banks retain a vital role in

digital payments. He described four keyprinciples to achieve EMV-grade

(Europay, MasterCard and Visa) security

in digital environments, which heconsiders align well with the PSD2

guidelines. These are strong issuer-controlled authentication for wallet

provisioning; cards issued with tokenized

EMV-capable electronic credentials;strong authentication for wallet/device log-

in (including device-based userverification); and signature of transactions

with dynamic data.

“Digital payments are forecast to triple by

2020,” announced Mr Dechamps, “with

particular growth in mobile contactless

transactions, in-‐app payments, and browser

based payments.” Going forward, people will

not only use their card at point-‐of-‐sale, but on

multiple devices, mainly smartphones but

other devices in the future. This leads to a

major security challenge because card details

stored in multiple devices means multiple

points for compromise. He said that two

important aspects are who controls the user

experience at the moment of transaction,

and who sees the data.

David DechampsGroup Head Emerging Payments Europe, MasterCard


Regarding instant payments, he defined

these as electronic retail paymentsolutions that are available 24/7/365 and

which result in immediate interbank

clearing of the transaction and crediting ofthe payee’s account. In this area he would

like to see conformity at pan-Europeanlevel instead of many different solutions at

national level. He described work being

done to develop a layered approach, andexplained some aspects of the work that

needs to be done on the clearing andsettlement side. He said that these are

discussions taking place, although he

admits that we are in highly challengingtimes. From an ECB perspective, he very

much hopes that clarity is going to beprovided regarding market integration and

that the work currently taking place will

lead to pan-European instantpayments.

Mr Tur Hartmann focused on the topic of

online payments, which he considers a

positive evolution for e-‐commerce and

today’s changing society. He noted that cards

were initially not built to resist the challenges

of the online world. E-‐wallets are now

appearing, and in some countries Payment

Initiation Services are already present even

before PSD2; all of which indicates that things

are happening, but the field is far from stable.

He considers PSD2 a welcome initiative, as is

PIS, although one of the challenges that Mr

Tur Hartmann sees is potential

fragmentation.

Francisco Tur Hartmann Deputy Head of the Market Integration Division, European Central Bank


Mr Alfing sees many trends and new

technologies approaching, which will change

the European payments landscape and

consumer behaviour, and blur the line

between offline and online in retail. Also for

payments methods is omni channel the new

norm, and the challenge is how to adapt to

these changes. He said that new payment

methods are needed, and gave the example

of credit cards, which were developed for the

offline world and had to be adjusted for the

online world; here the challenge is to make

something new.

Paul AlfingChairman of the e-Payments Committee, Ecommerce Europe

This, according to Mr Alfing, requires a

change in perspective, by consideringwhat the consumer wants as the starting

point and then working towards a

seamless and convenient shoppingexperience. Mr Alfing is aware that a

recurring topic is convenience versussecurity, for which he agrees there is no

easy answer. He considers the

development of biometrics presents agreat opportunity for seamless

shopping/one-click buying. It alsodemands the importance of further

standardisation, as biometrics will have a

huge impact on the online world. Finallyhe stressed that for consumers and

merchants, ease of use remains of criticalimportance, because if a payment system

is not easy to use it simply will not be

used.


Panel discussion - Online payments – Cyber security and data

protection

The Moderator kicked off the discussion

by asking if consumers understand whatto do when things go wrong with digital

payments. Mr Alfing replied that ideally

consumers should not have to understandall the technical implications of a payment

method, but should contact their merchantin case of dispute, who will come up with

a solution. Mr Dechamps added that in his

opinion, consumers have not beenadequately informed as to the high level

of protection that already exists with cardpayments, such as zero liability for

MasterCard cards. Mr Tur Hartmann

pointed out that this level of protection isnot so clear in case of online purchases

through websites (and payment solutions)outside the EU. Furthermore, panellists

noted that in the increasingly global world,

things are becoming even more complex,as they involve purchasing between

continents, which makes it more difficultto contact merchants.

12

Mr Dechamps commented that the mobile

world needs to provide more added value,for example by giving consumers more

control over their transactions. He would

also like to see consumers being providedwith greater flexibility and a wider array of

services in the way they can pay.The Moderator expressed concern about the

large amounts of personal data on their

customers that retailers collect and store. Mr

Alfing pointed out that most merchants only

collect those data that are needed for a

transaction and that data mining is not their

core business. And for certain types of data,

the consumer has to give their consent to the

retailer to collect that information, and are

not then allowed to sell that data onwards.

Memorandum - 3rd Annual QED Conference – The Future of EU Payments |

Ms Bauer-Bulst said that customer

information being exposed is notexclusive to online merchants; there is a

vast amount of data available online on

people that has nothing to do with theirpurchasing behaviour. She said that that

the new General Data ProtectionRegulation will set common standards,

plus the empowerment of data protection

authorities at the national level, as shownby the recent example of the French

CNIL.The only question from the floor was on

the risks associated with virtual

currencies. Ms Bauer-Bulst expressedexcitement about Blockchain technology

especially in terms of authenticationopportunities. However, she sees Bitcoin

heavily used in a criminal context.

For example, all the carding sites are run

on Bitcoin, which is unfortunate as Bitcoinand other currencies present new

opportunities in dealing with payments.

She said that the Commission, as part ofits evaluation and impact assessment

process, is actively looking at how to dealwith the abuse of virtual currencies in

designing a common framework for the

fight against non-cash payment fraud inthe EU. Mr Alfing agreed that Blockchain

technology has great potential for thepayments infrastructure and other

technical solutions. Bitcoin can be an

interesting currency for merchants toreach for specific groups, but Mr Alfing

always advises his members not to keepa bitcoin account but be paid in Euros due

to the high volatility of Bitcoins.


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