Payment Innovation in Europe

CPSS-World Bank Forum on Retail Payments

Miami, 27

February 2012

Francisco Tur HartmannMarket Integration Division

2

Payment inventions took off a decade ago

Source: Bourreau, 2011

3

… but only a few of them surviven

um

ber

time

INVENTION

INNOVATION

4

Why innovation in payments?

As a percentage of the adult population in 2011

Number of Internet Users in Europe is increasing… and so e-commerce

5

And Europe?

155.000.000 32.000.000

EDUARDO SAVERINEDUARDO SAVERIN

27.500.000 11.200.000

Selected financing

2011

Sources: Techcrunch, Venturebeat, Forbes, ft.com; Picture sources: companies' websites

Investors are not only focusing on US-solutions anymore

E-SEPA Survey on payment innovation 2010

Selected results

7

Limitations of surveys on innovation

•

Definition of innovation –

Something that is regarded new in one country may be commonplace in another country: contactless public transport cards, gift cards, online banking

•

Speed of developments–

Due to the high frequency with which new services are launched it is difficult to include all new services

•

Coverage–

Survey was held in Europe, but many innovations are launched in the USA and Asia

•

Time–

An innovation may not be recognised as innovation at the time of the launch but only once its embraced by the users at large (e.g. EBPP, contactless cards)

What an innovation is depends more on customer perception than on technological advancement

8

E-SEPA Surveys on payment innovations

•

ECB, in close cooperation with the national central banks (NCBs), conducted four surveys in 2004, 2005, 2006, and 2010.

•

Objectives were

–

to obtain a better understanding of which payment innovations are developed and deployed in Europe

–

how they work,

–

who provides these services and

–

by whom they are used.

9

Number of innovations reported per category

0

5

10

15

20

25

30

Internet Card Mobile EBPP Security /Infrastructure

10

Number of innovations reported by category and developments phase

25

16

30

2

3

4

0

6

10

8

1

0

2

4

2

0

1

4

3

1

00

5

10

15

20

25

30

35

40

development / pilot early stage growth maturity decline

Internet Card Mobile EBPP Security / Infrastructure

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Share of each type of provider in the various innovations

50%44%

16%

50%

78%

12%

11%

12% 22%

12%

19%

60%

50%

22%

8%

22%

12%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Internet payment Card payment Mobile payment EBPP Security /Infrastructure

Banks EMI PI Non-payment service provider Combination/other

•

Large involvement of banks in internet payments and security/ infrastructure

•

…but banks are also heavily involved in value-added services not related to the payment process itself (EBPP)

•

Mobile payment innovations mainly owned by non-banks

•

Majority of innovations offered by companies which are not licensed as payment service providers

•

…but many of these companies are owned by banks

12

Access device and channels used by innovations

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Computer

Mobile phone

Smartcard

Other

Internet

POS

NFC

Text message/ voice

Other

Acce

s de

vice

Acc

es c

hann

el

•

Around 40% of the innovations that use internet also use another service technology (e.g. e-wallet systems for small payments)

•

Around two-thirds of the POS innovations are NFC-innovations•

Most innovations which use mobile phone as access device use internet as service technology (e.g. online banking applications)

•

With smart phones hardly any difference between computer and mobile phone

•

Most payment innovations built around internet

13

Share of innovations by payment situation

0% 10% 20% 30% 40% 50% 60% 70%

Physical point of sale

Mobile point of sale

Vending point of sale

Online purchase

Mobile purchase

Person-to personpayment

Mail order/telephoneorder

Bill-payment

Pro

xim

ityR

emot

e

•

More than half of the mobile and card payment innovations can be used for online purchases

•

Very few pure mobile payment solutions (e.g. for parking, vending machines)

Many innovations can be used for different payment situations

•

Innovations in remote payments clearly outweigh proximity payments

•

Several innovations can be used for proximity and remote payments (cards)

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Findings

•

Many “innovations” are merely new or improved payment services based on modern, but already existing technologies

•

There is a plethora of payment “innovations”, many of which have a similar functioning or purpose

•

Generally, internet-

and EBPP-related innovations are at a more advanced stage of development and implementation than card-

and mobile related innovations

•

Among the proximity payment innovations NFC are the most prominent

•

Most innovations are designed and developed for the domestic market

•

New technologies blur the borders between the various categories of payments

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Findings

•

There is a need for user-friendly and secure online means of payment to facilitate the growing cross-border e-

commerce.

•

Open standards and interoperability are needed for many innovations to take off

•

We need:–

Cross-border Online Banking e-Payment solutions

–

Open standards for contactless

card and mobile payments

–

Open standards for e-invoicing/EBPP

Our results are quite consistent with the CPSS survey!

European developments and challenges

17

European e-commerce is booming…

Nearly

60 %

of internet users in the EU27 shopped

online in 2010 Source: Eurostat

Despite the recent economic crisis,

online retailers saw continued

strong sales

By 2014 European e- commerce is expected

to reach an annual sales volume of

EUR 203bn Source: Forrester

18

…but is still largely taking place within national borders

Only 8%

of online shoppers in the EU buy from another country

Online payment

security

concerns

Source: European Commission

Ongoing/Increasing fragmentation of

payment solutions

19

Reasons of web merchants not to sell abroad

Source: Accenture European E-Commerce survey, 2011

44%

Potentially higher costs due to higher risk

of fraud or non- payments

38%

Fragmentation of payment systems

(i.e. local cards, online banking systems, etc.)

Payments are among the barriers

20

European web merchants request a number of actions

•

Improvement of 3D Secure user experience.•

Harmonize the charge back and dispute “processes of credit cards and more clarity on charge back rules concerning wallet systems.

•

International and interoperable OBeP

solutions based on Credit Transfers.

•

E-mandate: introduction of e-mandate for Direct Debits and improvement of one off direct debit rules.

•

Interoperable pre-paid solutions.•

Cross border cash-on-delivery solutions.

•

Payment methods dedicated to phones and tablets, including e- authentication options for ease of use (less input of data on the

device).•

Use e-authentication solutions to fight fraud and improve the buyer experience for credit transfers, direct debit and credit cards, including for the mobile channel.

•

Clarity on the status of online banking overlay services (security versus competition) and required standards..

21

What do the consumers want?

35%

Immediate payment confirmation

31%

No surcharge

53%

Protection of personal and payment

data

32%

Payment with online banking

Source: De Nederlandsche Bank, 2011

22

E-commerce brings new payment habits

CAGR +107%

CAGR +40%CAGR +70%

CAGR +250%

0

10

20

30

40

50

60

70

80

90

2005 2006 2007 2008 2009 2010

Num

ber o

f ann

ual t

rans

actio

sn (m

illio

ns)

SofortbankingepsgiropayiDEAL

Sources: Currence, giropay, STUZZA; Payment Netw ork AG; CAGR =compound annual grow th rates, base: year of service launch

Services based on online banking show huge growth figures

23

Are banks in the driving seat?

Source: Gartner, 2011

We do not see non-traditional

players as a threat

We see non- traditional players

as a trheat

In-depth interviews of payment executives of European banks in 2Q2010.

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But payments are only the starting point for new entrants

Source: Deloitte, 2011

25

Access to payment accounts

•

Prior information on the availability of funds (for authorisation, guarantees, etc.) is often a key element for business models in payments.

•

Banks have the monopoly of deposits and restrict access to this information. This prevents non-banks from guaranteeing payments, resulting in barriers to entry and the need to cooperate with banks.

•

This could unduly hinder the emergence of safe and efficient alternative payment solutions, even if they are subject to prudential requirements.

•

Should action by public authorities be considered?

Source: European Commission Green Paper and related Q&As

26

Green Paper of the European Commission

Towards an integrated European market for card, internet and mobile payments

Public consultation

until 11 April 2012

http://ec.europa.eu/internal_market/payments/cim/index_en.htm

Towards an integrated European market for card, internet and mobile payments

27

Eurosystem’s

view

Genuine need for payment solutions based on

online bankingBased on

transparent open standards

(ISO20022, BIC, IBAN)Multicurrency

featuresNo unwarranted

barriers should prevent schemes from becoming interoperable

28

Eurosystem’s

view

Sensitive customer data

not to be used in messages outside

payments infrastructure

Sound legal basis of payment

instruments

Data protection standards to be

observed

29

Everything that can be invented has been invented.

Charles H. Duell, commissioner of the US Patent and Trademark Office in 1899

Source: Wikipedia, Picture source: Wikipedia

30

Questions?

Francisco Tur Hartmann