Cards and payments - REPORT
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REPORT Cards and payments Are banks ready to meet the challenges of an uncertain future? June 2014
Cards and payments
Contents
Introduction ...................................................................................................................3
Cards and Payments Advisory Council Members ...............................................................4
Regional issues ..............................................................................................................6
Cards and payments in Turkey .........................................................................................8
Cards and payments systems: two case studies ................................................................10
Case study 1 ......................................................................................................10
Case study 2 ......................................................................................................11
Mobile peer-to-peer (P2P) payments in Denmark ..............................................................13
Highlights and headaches in cards and payments ............................................................15
Mobile banking and payments ......................................................................................18
Digital wallets ..............................................................................................................22
Contactless payments ...................................................................................................25
Regulations .................................................................................................................28
Interchange .................................................................................................................29
Aggregators, new entrants and access to information .......................................................31
Other issues ................................................................................................................34
Conclusions .................................................................................................................37
About us .....................................................................................................................39
2Introduction
This is the first annual report of the Efma Cards and Payments Advisory Council,
which was formed in spring 2013. It covers three meetings of the Council, held over
a period of 12 months. The Council provides a forum at which senior executives from
the retail banking sector can meet together and exchange information and ideas on a
wide range of topics relating to cards and payments.
The Advisory Council is designed to encourage the sharing of best practices and
views in a non-threatening and confidential environment. As a ‘think tank’, it seeks to
provide guidance, news, views and support to its members as they seek to address
the challenges and opportunities that are arising in the cards and payments sector.
The three meetings held so far have involved much energetic discussion on a varied
array of stimulating topics relating to the cards and payments arena. As well as
looking at the issues facing particular countries - and focusing on specific activities
in two of these in particular - the Council has also debated some pressing issues that
affect most if not all retail banks.
These have included the use of cards as payment instruments; the growing emergence
of mobile banking and mobile payments; the development of contactless solutions
(involving both cards and mobiles); and the potential uses and opportunities afforded
by digital wallets.
The Council has also explored some of the specific difficulties facing banks. These
include a continuing stream of sometimes oppressive regulations; the difficulties and
challenges posed by deteriorating interchange rates; and the very real threat of
competition from new entrants from outside the banking industry.
The Cards and Payments Council will continue to provide a dynamic forum for
debating these and other important issues and for sharing news, ideas and best
practices between its members in the months and years ahead.
The Efma Cards and Payments Advisory Council
3Cards and payments
Cards and Payments Advisory Council members
Efma would like to thank the following Cards and Payments Advisory Council members for their
participation in this report:
Marc Alaurent Francisco Javier Celaya Mingot
Directeur Paiements Consumer Finance and Payments Systems Director
LaSer, France Bankia, Spain
Meriç Apatay Béatrice Delanau
Vice President, Product Management, Head of Card Marketing
Credit Cards Department La Banque Postale, France
Akbank, Turkey
Arnaud Dubois Coutant
Mikel Arriaran Directeur Département Entreprises du Groupe
Technological and Operative Developments, Groupama Banque, France
Cards and Payments, Laboral Kutxa, Spain
Olle Durelius
David Baranyai Head of Business Area Payments, Retail Sweden
Head of Sales SEB, Sweden
ING Biztosito Rt, Hungary
Bülent Ersöz
Tom Beernaert Payment System Director (Issuing & Acquiring)
Manager Cards, Products and Operations TEB, Turkey
Payments, Accounts, Cards & Savings
ING Belgium, Belgium Edoardo Fontana Rava
Responsabile Marketing Prodotti
Axel Beune Banca Mediolanum, Italy
Senior Product and Innovation Manager
ABN AMRO Bank, Netherlands Stefania Gentile
Head of Transactional Products
Carlo Bovero for Private Customers
Head of Customer Banking Solutions Intesa Sanpaolo, Italy
BNP Paribas, France
Ferenc Joó
Claude Brun Vice President, Retail CRM and Marketing Leader
Managing Director, Payment Systems Raiffeisen Bank International, Austria
Crédit Mutuel Centre Est Europe, France
Serkan Uùraü
Jan-Olof Brunila Kaygalak, Head of Card Payments Department
Deputy Director - Group Cards Isbank, Turkey
Swedbank, Sweden
Frank Kirchner
Soner Canko Director Product Management Cards
Chief Executive Officer Targobank Germany, Germany
BKM (Bankalarası Kart Merkezi), Turkey
4Davor Krsul Jan Staal Rasmussen
Senior Expert Card Business, Group Retail Banking First Vice President, Head of Cards
Hypo Alpe Adria Bank International, Austria and Business Products
Nykredit, Denmark
Laurent Le Moal
Vice President and General Manager Luis Rocha Dos Reis
PayPal CEMEA Senior Vice President Cards,
PayPal, France Consumer Finance and Acquiring
Banco Espírito Santo, Portugal
Rita Lourenço
General Manager - Head of Cards & Payments Vincenzo Romano
Millennium bcp, Portugal Payment Systems Manager
Credito Emiliano, Italy
Philippe Marquetty
Directeur des Instruments de Paiement István Szabó
Société Générale, France Head of Card & Electronic Channels Directorate
Erste Bank Hungary, Hungary
Alenka MejaĀ Krassnig
Head of Card Management Luka Tomaskovic
Nova Ljubljanska Banka, Slovenia Director, Cards and Transactional Banking and
Consumer Finance Products
Maguy Mercier Zagrebaþka Banka, Croatia
Responsable de la Monétique,
Stratégie des Moyens de Paiement Laura Torre
BPCE, France Payments System Manager
Banca Carige, Italy
Joan Morla Tomas
Card Area Director David Wirth
La Caixa, Spain Head of Issuing and Acquiring
PostFinance, Switzerland
Gérard Nebouy
Directeur Général Narinda You
Visa Europe (France), France Director of Strategy and Interbank Relation,
Secretary General Payments Department
Vassilios Parlavantzas Crédit Agricole - Cedicam, France
Director of Consumer Lending and Cards
Piraeus Bank, Greece
Neven Raic
Group Head Retail Banking
Hypo Alpe-Adria Bank, Austria
5Cards and payments
Regional issues
An Eastern European bank said that the cards and payments issue that it is most concerned about
is the threat of regulation. Most of the government banks in the area are very aggressive and have
an enormous impact on retailers. It is also looking at campaign management and the connection
between payment and the CRM system.
Another Eastern European bank said that it is currently focusing on cards management. The main
challenge is profitability as the market is relatively small, which causes problems with innovations.
However, the bank is deploying a whole point of sale (PoS) network with contactless readers and
will soon start issuing contactless cards. Profitability is even harder in the area that it covers, as debit
cards aren’t profitable at all.
A bank that was born from a financial advisor network and has no branches has developed direct
solutions combined with financial advisor services. It has grown quite rapidly over the last few years
and is also launching a test of NFC with Vodafone.
Meanwhile, a Central European bank reported that its main focus has been on issuing, as the market
on the acquiring side has been closed until recently. However, that is now changing. The main issue
is what the consequences will be if people can step in on the acquiring side. Another issue is the
new evolutionary model: what will happen with mobile and what will the impact be on customer and
business models? The bank is also looking at if and when it would be appropriate to collaborate with
partners, such as other banks, MNOs or telcos.
A Western European bank said that it has started deploying contactless cards and is also involved
in a limited deployment of mobile payments to see how these will develop. The mobile payments
are SIM-based but the delegate said that he would prefer them as iOS, as this is cloud-based.
However, the issue is that of the bank as a trusted and safe environment, in which the bank’s ID can
be deployed much more across all payment products. If this is done well, the bank can identify the
customer, whether in a simple or online environment. The bank needs to use this for its own benefit.
A Western European group said that it is focusing on the consumer retail business, particularly
consumer loans and credit. The main emphasis for credit cards is revolving credit. The bank wants to
increase its portfolio - for example, by cross-selling into its sales finance business. It is also one of the
first banks in its area to issue contactless cards.
In the UK, a new development in the cards and payments sector is Zapp, a bank-to-bank payment
system. It acts like a peer-to-peer system - individuals can use the bank account to purchase goods
and services and pay bills using a mobile, online, PoS etc. So instead of using a wallet or a credit
card, the customer pays directly from their bank account.
A Nordic bank then reported that it is working with card schemes to enhance its business. In some
European countries, it is increasingly considering the payment cards business as a public utility
business that is provided free of charge. The bank is even introducing a ban on making a profit. It is
discouraging cash usage and encouraging electronic transactions. There is also an inter-bank service
called Swipp, supported by various banks, for transferring money in real time between current
accounts in different banks just by knowing the payee’s phone number. The bank decided not to issue
any contactless cards as it would take too long to ask the merchants to purchase new terminals.
A second Nordic bank said that its main concerns included the need to cross-sell products from the
bank to its mortgage customers. Another issue is interchange and making the national scheme more
profitable for the bank.
6A Southern European financial institution announced that it is facing ongoing issues of profitability
and sustainability. A member said that he didn’t see companies such as PayPal as a threat, but he
did see a challenge coming from newcomers like Google. However, his bank has been able to
gain more confidence from its customers. It is prohibited from making money from customers but
will invest in generating new sources of revenue and will provide added value for its stakeholders.
He commented that the SEPA group doesn’t know what the bank is dealing with and just keeps
damaging its activities.
The bank is also concerned about innovation, as it doesn’t know where to invest. It started
developing a contactless experience two years ago and started upgrading all of the PoS terminals,
trusting in the success of NFC. However, NFC has developed more slowly than expected. The bank
also has a type of corporate wallet, which is being developed in partnership with a telco. It is ready
to invest but is unsure of the right strategy, as there are several alternatives.
A Council member commented that the Commission and his government are talking about how
to prevent card fees from banks. Another important issue for banks is how to change consumer
behaviour, to stop them from using cash instead of cards.
A Central European banker said that he didn’t see any light at the end of the tunnel for banks. He
explained that countries are experiencing a negative growth or only slightly positive growth rates.
He didn’t see loan demands or deposits flowing in and margins are still decreasing. In cards, the
growth rates are also stagnating. As an added pressure, local decision-makers are developing new
regulations overnight that are against the banks and are eroding their profits.
“ What the council said:
European banks have a different vision from their American counterparts. They
believe that trust is important and fraud prevention is critical. However, in the
US, fraud is just the cost of doing business. It’s acceptable and they don’t care
about it in the same way – and the level of fraud there is very high.
In the Netherlands, there is iDeal (which is the equivalent to MyBank and
has some parallels with the UK Zapp concept), a four-corner model for online,
real-time bank transfers within the online retailer.
Our vision for the future is that in ten years we can say goodbye to cash.
There is a recurring theme about where to invest innovation and watching the
market - and all of the merchants are also watching the market.
We don’t have economies of scale, so we have a trade-off between innovation
that creates value and profitability.
We are waiting for a standard for NFC. The confusion is high and it’s
possible that waiting too long is dangerous. But it’s difficult to risk a big
investment at the moment.
7Cards and payments
Cards and payments in Turkey
A guest speaker from Turkey talked to the Council about regulation, co-operation and innovation in
the country. From an innovation point of view, as Turkey is not a member of the EU, it’s happy that
there is no SEPA! However, the Turkish regulator takes EU directives as a reference point, so the basis
of the country’s regulations are still coming from the EU.
From an operations point of view, outsourcing is a trend for the future, with the aim of increasing
efficiency. But in the Turkish markets, especially in payments, banks tend to keep their operations
in-house. Another difference from Europe is the co-operation within the Turkish payments industry.
If any single player produces an innovation or an infrastructural change, it doesn’t really work. The
banks have therefore decided to co-operate together to achieve some changes in the infrastructure.
Chip and PIN is one example, and another is debit conversion. There is also a new project that is the
result of this ‘co-petition’.
Turkey has a population of 75 million, over half of whom are under 30. The younger generation
uses the Internet and mobiles, so these technologies enable the banks to address this segment. From
a payments perspective, the Turkish market has over two million PoS devices. Turkey is a credit card
country, with 55 million credit cards. There are over 90 million debit cards but the purchase volume
is just 9% of that of the credit card volume. In the last ten years, the speaker’s bank has increased
the volume of debit card users at the point of sale. Most debit card usage comes through the ATM for
cash, which banks don’t like. The speaker said that his bank doesn’t like cash or ATMs!
The bank has been making progress with several innovations, including contactless payments,
NFC, biometrics and mobile payments. The contactless initiative started in 2005, when the bank
launched contactless cards to automate toll and bridge payments. Afterwards, it launched Visa and
MasterCard contactless cards. It also has contactless on watch and key chains. In 2008, taxis started
to accepted contactless payments. So far, the bank has over ten million contactless cards (credit and
debit) and more than 60,000 contactless acceptance PoS devices. A total of 15 out of 29 banks
issue and accept contactless cards in Turkey.
In 2013, the bank made a radical change to its processes of contactless acceptance. It said that
all transactions would start with a contactless touch at the PoS. Some big retailers made the switch
and the bank increased its contactless volumes dramatically. Retailers, consumers and banks are
all happy with the change. There are now national standards for banks and for merchants. Any
transaction over €20 can be contactless.
Another form of contactless is NFC. The bank has been involved with NFC for five or six years. There
are now ten banks with the technology. However, there are fewer than 2,000 NFC-enabled PoS
devices in the country as there is still a big question mark over the technology.
Turning to e-commerce, volumes in the Turkish market are increasing quite heavily. The bank therefore
decided to invest in a national digital wallet two years ago. It has provided a fast, secure and
convenient online payment and has also added peer-to-peer payments on credit, debit and prepaid
card functions.
In terms of mobile, Turkish banks have various initiatives and products. There are functions such as
money being sent by voice, mobile and ATM and Internet integrations. Ultimately, there has to be
national integration as well. There are also QR code payments and very creative uses of mobile in
terms of peer-to-peer and e-commerce payments.
From the customer’s perspective, life isn’t easy. They will choose the easiest bank to use, so each
bank has to find a way to take advantage of any trends. The speaker said that the digital wallet
8is an example of where his bank created an opportunity from a trend. If banks don’t do this, other
companies will. The bank has also introduced biometric technologies – not only using finger vein but
hand vein technology as well. For example, if a customer doesn’t have their card, they can just touch
the screen, show their finger, and key in the PIN.
A member commented that this was substituting the card with a PIN – he would prefer to do it the
other way round. However, the speaker replied that there are some security regulations in Turkey
and the customer has to have two different verification methods. The bank believes that it’s better to
replace the card as it’s static information, so it’s better to key in a PIN.
In Turkey, if an organisation issues a card, it has to be a member of BKM. The speaker highlighted
two innovation stories:
1. BKM Express. This is a joint venture between BKM, banks and merchants, with a market share
of over 95%. Over 75 merchants are involved, reflecting an e-commerce market share of over
28%. That has given the venture the drive to increase the number of merchants.
2. Transportation. Every country has its own payment methodology for transport, which puts
pressure on the banks - people have to buy different cards in different cities. The speaker said that
his bank’s contactless cards aren’t accepted at terminals. The industry has now set up a pilot case
in a pilot city and is investing in an ideal scenario to provide proof of concept to the government,
the media, cardholders etc. It’s in the fifth largest city in Turkey, with high-tech devices that accept
MasterCard, Visa contactless cards etc. The commercial launch will begin and the industry will
try to bring all cities in Turkey into the same infrastructure and acceptance level. Transportation is
seen as key in the war against cash. If a card or mobile is accepted, banks will be winning the
war against cash.
PoS terminals in Turkey
In Turkey, the mobile PoS and the cash register are being combined in the same device. There are
300,000 merchants affected and 50,000 already have the new devices. By the end of 2015, all of
the merchants in Turkey should be using them. So, instead of having multiple terminals for different
cards, they are all being brought together into one type of terminal.
With this new functionality, the transaction comes to the bank and at the same time goes to the Inland
Revenue as well. The aim is to fight against the grey economy. It’s quite challenging for banks as the
old acquiring businesses are changing. Most of the new devices will support contactless. One of the
weaknesses of contactless in Turkey is that only 10% of the devices support this at the moment.
The government in Turkey is introducing new laws relating to capital requirements. Credit cards are
now under pressure and debit cards are becoming more crucial. Credit is going down and debit is
going up. Commercial cards are a key agenda item for Turkey. Last year, they grew by 50%.
9Cards and payments
Cards and payments systems: two case studies
Two Turkish banks gave presentations of their cards and payments strategy:
Case study 1
The first bank has 36 different types of cards is worth: the specialists give the exact figure
to cater for different customer segments. The relating to the weight of the gold. This helps to
bank has a wide range of segments, from incentivise people to take their gold deposits
the youngest customers (12 years old) and to the banking system.
upwards, and every type of card: affinity
cards, business cards etc., as well as a very Now, to ease the workflow, customers no longer
strong loyalty card programme that it has need to visit on certain days. The bank has an
established with merchants. It has about agreement with the jewellery store - customers
200,000 merchants and customers can collect bring in their gold and this is registered on the
points and redeem them. system, using the prepaid card. The amount
goes automatically into the customer’s gold
The bank has 15 million cards: nine million deposit account. Every month, 20 kg of gold is
are debit and six million are credit cards. The deposited in the bank system: 90% comes to the
volume generated by debit and credit cards branch network and 10% via the gold card.
is similar. However, for purchase transactions,
the debit cardholders prefer cash withdrawals, The second innovation is a QR code purchasing
whereas credit cardholders prefer to use their system. This is a new platform in the mobile
cards at PoS terminals, with 93% of them payments arena. It’s a way for the customer
preferring to use cards at merchant locations. to make a purchase transaction via iPhone
The bank’s dream is to push debit cardholders or Android phones, just using QR code
into using their cards at PoS terminals. technology. Within two or three months, the
bank has already had 48,000 customers. The
For credit cards, there are some 33 million programme can be easily installed onto the
transactions per month. There are cash customer’s mobile. The bank is now planning
advance transactions and cash withdrawals. to make it interoperable. The customer decides
The bank started to offer instalments for which cards to use with the QR code system.
cash withdrawal: the customer can pay the
bank back via instalments, using their credit The third innovation is the use of biometrics
card. Cards are at the heart of its banking at the point-of-sale. The bank has just two
business - customers can make many different or three biometric PoS terminals. If people
transactions, tax payments etc. forget their PIN or have a lot of cards, they
can use the finger vein machines that have
The bank is also involved in some innovations been combined with PoS machines. Some
involving four or five new card products. 70,000 customers have registered their finger
The first is a prepaid card that is especially veins. This system can also be used for cash
designed for collecting gold deposits withdrawal. Half of the bank’s ATMs have
from customers. The gold reserve of the finger vein machines. Together with the PoS
nation, much of it kept by people under terminal, they cost about €1,200 each.
their mattresses, is between 2,000 and
3,000 tons! The government is therefore The fourth development is an agreement
incentivising banks to collect the gold reserves with a PoS company, designed for customers
of households. When a customer goes to who don’t want to use their cards for online
one of the bank’s branches on certain days, transactions. Instead, they can pay the courier,
jewellery specialists are there. The customers using their card in a chip and PIN transaction
bring in their gold and they are told what this on a PoS terminal. The amount goes to the
continued...
10Internet company and the commission goes they automatically receive a discount. They can
to the courier. Some 250 merchants can now make the transaction just by giving the card to
make collections using this PoS terminal. the attendant (as there are no self-service pumps
in Turkey). The machine at the pump recognises
The final innovation is a co-branded card that the customer’s number and decides which
customers can use at a petrol station – and discount to apply.
Case study 2
The second Turkish bank then gave details of The next element is a retention programme.
its approach to cards and payments. The bank Retention is a big problem that Turkish banks
has an extensive distribution network with nearly are facing at the moment. The bank therefore
4,000 ATMs and 300,000 PoS machines. has a proactive approach to this issue. When
Although it has a huge branch network, its focus it sees a likelihood of attrition, it is proactive
is on alternative delivery channels. A third of - it doesn’t wait for the consumer to cancel
its customers don’t use branches and social their cards but makes them offers. A second
networks are very important to the bank. approach is the use of win-back offers. The
bank has about 40 different proposals and as
The bank’s credit card business is currently a result its win-back ratio is nearly 62%.
showing the highest growth in the market,
and it is the highest fee-generating bank in The bank is also engaged in limit
terms of payment systems. The bank achieves management based on profitability. The
this by having different types of products; a limit set is mostly run by risk people. For the
sales-focused approach; segmented CRM previous two years, it was run by marketing
management; strong retention programmes; people. Another innovation is the provision
limit management based on profitability; and of an extra limit for customers based on
a drive to penetrate potential growth areas. instalment transactions. This extra limit amount
is now 11% of the whole portfolio.
The bank aims to penetrate different segments
by repackaging products for them (such as The bank is also penetrating potential areas
a cards for the younger generation). In total, to gain market share. It has one of the fastest
it sells nearly two million cards per year. It growing commercial card programmes in
increased the sales rate by 25% between 2011 the Turkish market. It makes pre-approved
and 2012. The main reason was the card sales commercial card limits and delivers them via
incentive that the bank runs in the branches. This call centres and IVR. It has also launched new
focuses on sales and process optimisation. It is products and product features.
selling cards on Facebook, and through PoS
machines and ATMs, and is also cross-selling. Finally, the affluent segment has a very
successful affluent card programme, providing
Another important aspect is the use of efficient airmiles that are earnt instantly on any
CRM management. The bank is taking six purchases. This is a very fast and easy system.
main portfolio actions driven by the credit The bank is enlarging the products and
card segments and is running nearly 100 privileges available. The programme is linked
different campaigns per month. It cross-sells to the current account, so card customers with
and as a result has increased the fees and a strong relationship earn more. The miles
commissions ratio by 25%. The bank has a can be used not only for airline tickets but
total of 21 different segments. also at various merchants.
11Cards and payments
“ What the council said:
We prefer to use a PIN at the point of sale, to guarantee the same experience with
a card or a mobile.
Banks in Turkey are encountering regulatory changes on the issuing side. There are
also new regulations on the acquiring side as well.
In terms of innovation in Turkey, there are some interesting marketing initiatives.
12Mobile peer-to-peer (P2P) payments in Denmark
In Denmark, banks work together well. The national bank card scheme is a good example and there is
also a national direct debit scheme that has been widely implemented. A mobile P2P solution also started
as a sector solution two years ago. However, the dialogue went in different directions. Finally, one bank
decided to drop out and went alone. The rest of the sector decided to search together to try and find a
solution. The lone bank launched its P2P solution in spring last year, just after the rest of the sector.
The other banks formed an initiative called Swipp. What motivated them to go down this route?
Every customer has an Internet bank, most have mobile banking and everyone has a debit card.
Some banks saw it as a business case to invest and saw some money in it; others saw it as a
defensive approach against PayPal, Google etc.; and yet others saw it as a way to follow the
customer from a business intelligent point of view, enabling the banks to market to them.
The bank that has gone alone won’t initially charge for its service. The multiple bank solution is also
being provided free of charge, so it’s unlikely that the consumer will have to pay for the service. If
fees are charged eventually, it will probably be on a transaction basis. However, mobile banking
solutions are of so much value to the banks in terms of having people using them that the strategic
benefits are higher than those of charging the customer.
Consumers already use mobiles and have an expectation of being able to do payments via mobile.
A small survey conducted in 2013 asked consumers whether they would use mobile payments.
Some 30% said yes. Now, one year after the launch of the two peer-to-peer solutions, 20% of the
population have already downloaded one of the apps.
For the lone bank, it’s a separate app and is card-based; for the others, it’s integrated within the
mobile banks and is an account-to-account solution. When the app is opened, the top will say mobile
banking and the bottom will be Swipp.
Security isn’t a big issue. Customers are very happy to adopt the lone bank’s solution, which offers
a good user experience. As long as they know that there’s a bank behind it, it’s okay. In terms of
Swipp, this is a sector solution with many parties involved, so it’s not always easy to co-ordinate
them. There are different priorities in the data centres etc. Because Swipp was developed by a
coalition of 81 banks and is connected to their mobile banking apps, there are 81 apps that aren’t
identical. This all affected the time to market.
To use Swipp, both the sender and the receiver must be taking part in the solution: their banks must
have Swipp. The solution is based on the banking infrastructure. There is a delay of about two hours for
clearing transactions. From November 2014, there will be real-time clearing - the money will be in the
account within 12 seconds. There are some 240,000 people signed up to the programme so far.
The sector has created a common proxy database. The mobile banking customer logs into it, with
the mobile number, and the money is transferred to the account of the receiver (the mobile number is
linked to the customer’s account). So, there is a bank at both ends of the transaction and a clearing
house in the middle to make sure that the transaction goes through.
One issue that the banks are looking at is the cost per transaction. This is why there aren’t cards
in this environment. There is a cost of five to seven euro cents, so it’s much cheaper than the card
infrastructure. It’s an account-to-account transfer - instead of the account number, the customer is using
the receiver’s telephone number. In the enrolment process, customers have to authenticate themselves
using the Danish national ID system. In other countries that are developing systems, there can be
different authentication issues.
13Cards and payments
So far, there has been no public marketing of Swipp, as not everyone is keen on product marketing.
In the future, the banks will each do different things but there will always be a similar identity
around the Swipp logo, which all of them will use in their own communications with their customers.
Summing up, this is a very cost-effective solution. The banks know their customers and there is a high
degree of security due to the enrolment process.
The lone bank’s solution has also been very successful but is more traditional, based on the existing
card infrastructure. Users don’t have to be customers of the bank. When they enrol, they get a card
number and a phone number. The bank doesn’t know the user and doesn’t know the link between the
phone number and the card number. The service is free of charge. There have been an impressive
1.1 million downloads in the first year and there are now some 33,000 transactions per day, so it
has really been taken up by people – and over half of them aren’t customers of the bank.
Unlike Swipp, there has been a huge amount of marketing around the solution. The app is very
nice, and it’s easy to enrol and use. However, there’s a merchant fee which makes it three or four
times more expensive than the Swipp solution, so it’s been costly for the bank although it has really
boosted its image. In contrast, Swipp has a very low-cost infrastructure.
A member commented that banks still need to earn some money! It’s difficult to drive new revenues.
However, another participant said that there is revenue coming from it - not from the pure P2P
transaction but from the second stage, where the merchant pays. This is the equivalent of interchange.
Another Council member reported that in the Netherlands, banks follow another route. They have
moved into a proximity environment, using a real-time bank-to-bank account infrastructure which
is guaranteed as non-commercial. With P2P, the problem is sometimes the bank-to-bank transfer.
To transfer across a border, a 16-digit IBAN number is needed. This doesn’t really work: a phone
number or something else is better. It also needs to be a co-operative model between banks.
“ What the council said:
P2P could be the last opportunity to create an ecosystem in different countries.
The merchants will only change if the consumer demands it. The only way they’ll do
that is if they get used to P2P. There has to be enough demand for the merchant.
14Highlights and headaches in cards and payments
A banker gave an explanation of how his organisation uses cards as a payment instrument, as ID tokens
and as a marketing tool. Its mission is to enable its clients and society to grow and also to make banking
easy. The bank wants to be online in terms of transactions, selling products and giving easy advice.
The speaker started by looking at cards as payment instruments – the products and processes
involved and the main challenges. His bank is issuing both debit and credit cards. SEPA compliance
has meant opening up both the acquiring and processing sides of the market. The bank has different
types of debit cards, including temporary cards and access cards. In total, it has 2.3 million debit
cards and 565,000 credit cards.
Firstly, because it wants to make banking easy, it looked at whether everything was needed. Cards
help customers to buy goods and services. The bank wants to help them in payments but does it need
such a large number of debit and credit cards? To make it as simple as possible, it decided that only
one debit card is really needed. Although companies such as MasterCard and Visa have told the
bank that it could do segmentation, it doesn’t think that this is needed.
Ultimately, the bank will end up with one debit card and a temporary card for situations when
the debit card doesn’t function. The debit card won’t be personalised but it will be linked to the
customer’s current account and they can start using it immediately. If they lose their debit card or it’s
no longer functioning, they can go to a branch and obtain a card that will help them. The bank has
several credit cards - standard, gold, business and revolving cards. It doesn’t have any co-branded
cards. For credit, the portfolio is about 50/50 MasterCard and Visa.
A member asked whether customers could have a card without an account. The banker replied that
they can have a revolving card but this isn’t something that the bank pushes, as it’s becoming more
difficult. The Consumer Credit Directive makes it far more cumbersome to organise things if the
customer doesn’t have a current account.
A member observed that in his country, a lot of different cards have to be issued. Another said that
his bank has a card that can be a credit card, a debit card or a revolving card – it’s all the same
piece of plastic. Yet another said that it was completely the opposite in his bank, with a lot of micro
segments. The user can define what a card looks like with different colours, photos etc. Compared
with non-personalised cards, the volume achieved is 20% higher. The bank uses big data to micro-
segment and create the products. It is also looking at Facebook etc. to see if it can offer customers a
product that is different, with personally targeted discounts.
Looking to the future
The speaker said that the next step for his bank is to try and bring operations online. Before that, it
had simplified. It is now also thinking about mobile. It can be easy to buy something online but it isn’t
easy to see who to offer what. It only makes an offer to customers who it thinks are eligible. The bank
has to check with the national bank to see if they are eligible and it can only do that if it receives a
query from the customer: it’s a complicated process. The mobile app can be downloaded but first it
has to be linked to the customer’s account. It will be linked to online banking and the client can then
make transactions, open a savings account and buy a credit card.
In the future, the bank wants to do more online and to have limit management for the card as well. It can
say where the card can be accepted in e-commerce and outside Europe. All of these changes are taking
more time than expected. To make things easier, the bank needs a simpler process and a change in the
back office. At the moment, most things are batched, but it wants a more flexible and real-time approach.
It doesn’t want to have to tell customers that they need to wait a few days for cards etc. However, with its
current infrastructure, the bank can’t deliver that type of rapid customer experience.
15Cards and payments
It therefore looked at how the bank is organised and whether it should put everything it has on
one platform. However, it doesn’t have the volume or scale to do all of these things internally so it
decided to go externally. It has conducted an exercise to find the best platform to use, although there
aren’t that many packages that are really specialised in terms of cards. It is also exploring the idea
of re-using the core banking application that it has been installing.
It’s a difficult exercise: the bank is looking into what it can do and what can be outsourced. For
example, are web services available for an online banking approach? For the volume involved, the
bank is thinking of managing one supplier. It already has a dual supplier for MasterCard and Visa
schemes. The bank is too small to insource all of its transactions in the country. With SEPA, it has
decided to abandon chip and PIN as this was never successful. It had this for 20 years but has now
adapted everything to become EMV-compliant.
The bank said that keeping contactless alive in its local market required a lot of investment. At the
same time, interchange fees aren’t going up and merchants don’t want to pay more. It will be settled
by next year, but it’s probably too late to influence the decision, although the EC seems to have
thought it through. They take revenues from banks and schemes at the moment – so the banks and
schemes are going to find it more difficult to invest in innovation.
There’s an opportunity for people to enter the payments market and make it more attractive. This
puts the bank in a difficult situation, because its revenues are falling. It is currently working on the
infrastructure layer, organising payments. How is this evolving today? A lot of people are stepping
in, serving customers using various infrastructures. They will be competing with the bank for the same
customers, which will make things very difficult. However, if the bank doesn’t get involved, it won’t
be successful in the future.
In the past, the bank had face-to-face contact with customers. Now fewer and fewer are visiting the
branches. The bank is now talking to customers more and uses their cards to identify them. One
approach could be to link the debit card to the person instead of linking it to the current account. It
might be too late but it would be one way to identify customers.
The bank probably won’t use the electronic identity card that the country’s government is issuing but
it hopes eventually to be able to identify a customer wherever they are. This will be managed with
one card that is linked to the person.
To improve convenience, banks need to move away from card readers but maintain a good level of
security. This might, for instance, involve the use of biometrics and other technologies. Once someone
is identified, the whole discussion on big data can begin – but it’s no use if the bank is working with
someone it can’t identify.
From a marketing perspective, the card today is a very tangible asset. Nearly everyone carries their
debit or credit cards around for most of the day. If a person has their card with them, it means that
they also have their bank with them.
If banks don’t manage payments well, they will disappear from their customers’ minds. Suddenly, they
could think: “Do I really need a bank?” Young people don’t stand still and are unlikely to stay with the
same bank for the rest of their life. Movements will increase: if they don’t feel a link with their bank,
they will go. Having a virtualised wallet on their mobile phone will therefore become important.
16“ What the council said:
Will the growth of mobile and online payments make it harder for young
people to manage their money? It will be easy for young people to go to
a bar and buy a few drinks.
It’s difficult to find a common view of what all customers want.
Brett King said: “The 21st century is all about understanding the customer,
producing the right offer at the right time for the right customer.”
17Cards and payments
Mobile banking and payments
A Council member presented the complete mobile banking journey in his bank, including mobile
payments and innovations. From the start, the bank realised the potential of the mobile channel. It
knew that it had to be more than a consulting channel: it also had to be a sales channel. The bank
is trying to be customer-focused and innovation is a key component of this. The bank’s strategy has
three main threads: mobile banking, mobile payments and mobile commerce.
Mobile banking
A key aspect of mobile banking is the importance of bringing as much value to mobile handsets as
possible. This involves developing payments which occur in the online environment and bringing
them to the mobile phone and the proximity environment. A bank said that it had been involved
with tests with some major retailers of bank-to-bank transfers in the proximity environment. This has
required a lot of testing and co-operation and has raised a lot of issues. However, it is now bringing
more value to the handset, with peer-to-peer payments and a simple code for making a transfer from
one bank to another.
In terms of mobile banking, the bank sends over two million SMS messages per month to customers.
For example, if someone is travelling to the UK, it sends a message welcoming them and saying
what they have spent. The bank is also seeking to push messages to customers using its banking
app. Mobile banking is currently the second most popular channel after Internet banking, as it took
over from the ATM recently – and it will probably overtake the Internet one day. At the moment, the
percentage usage is about 60/40 for Internet/mobile. Some 11.5% of the bank’s customers are now
exclusively mobile users and 2.8 million customers out of 12 million customers use mobile.
Another member said that in his country, the percentage it is already 50/50. However, the mobile
is used more to obtain information while transactions are made on the Internet. The speaker replied
that many of his bank’s customers work on their devices and don’t go to the Internet. The trends are
changing, with more services on tablets, which are now included in mobile banking.
Mobile payments
The bank has a good relationship with a telco but wants to take the lead in the mobile payments
arena. It started in 2010 with a small pilot involving 100,000 users. The main issue then involved
the devices: the SIM cards weren’t NFC-enabled. The bank’s mobile payments approach isn’t just
about ‘tap and pay’ - it includes coupons, mobile commerce etc. Once NFC is sorted out, there are
numerous opportunities for banks. They can learn from companies such as PayPal and Google, who
are always looking at new ideas.
The second pilot, which took place in a large town, was a real success. The bank spent a lot of
time and effort in training both merchants and customers and gave handsets to the customers. It has
three models involving MNOs but the actual implementation is very complicated, as each MNO has
their own needs. Some 500 retailers - with a good mix of shops, bars, cafes etc. - took part in the
pilot, which involved mobile contactless payments. The secure element was the SIM card and a Visa
mobile payments card was used.
The results showed that 90% of the customers used the device to make payments. The average
transaction was €31, and 40% of the purchases were over €20. The bank therefore decided that
it should target low-value payments. Some 35% of purchases were €6 or less (coffee and similar
items). From a social aspect, bars weren’t used so much for mobile transactions but supermarkets
were – and with higher value transactions. One reason is that paying in a bar has a social aspect -
people don’t need to make the payment more rapidly, as they are there for the social interaction.
18Finally, merchants involved in the trial enjoyed a 30% increase in the number of transactions and
billing went up by 20%. As an added bonus, 75% of customers were satisfied with the solution.
As a result, the bank has decided to go for full implementation of mobile payments on NFC, which is
a huge task. However, 60% of customers say that they would use the service. The three MNOs with
whom it is working cover 85% of the market but overall it’s a very complicated ecosystem. Each of
the MNOs also has its own wallet.
Meanwhile, four years ago the bank launched the first contactless ATM machine in the world. Most
of its new ATMs are now equipped with contactless readers. These don’t bring in new business or
profit but provide customers with a good experience, with really quick withdrawals. The bank is now
also trying to refurbish some of its old ATMs with contactless readers.
The next task is to try and launch NFC mobile payments in Europe. Once the bank has all of its
wallets launched, it can reduce the withdrawal time even more by tapping the phone onto the
ATM and getting a payment – representing the fastest cash withdrawal in the world. Another future
option might be to have NFC in the cloud rather than on a SIM card. Then, even if the phone has no
battery, the transaction would still work.
In response to a question from a Council member, the speaker said that he could see MNOs moving
towards a more open environment. They realise that they’re not gaining anything by being in a tussle
with banks. If one MNO opens up, others will have to follow suit.
Members then discussed when a bank should ask for a PIN for various low-value transactions. One
bank said it would ask for a PIN after about ten transactions of less than €20. Another said it is needed
if there are over 20 transactions of below €25. Using contactless, safety has to be a key item, as
people say that paying without a PIN is not protected: security is a key concern for everyone.
Concerns over mobile payments
A Council member commented that he is concerned about mobile payments. His bank had launched
a mobile P2P solution last year, which is working well. It is now seeking to go further and is looking
at various models for taking it into the merchant side. As the bank is using an account infrastructure
similar to a faster payment infrastructure, all banks are on board, so the acquirers aren’t needed
anymore. The model could jeopardise some income streams in the cards area, so the bank carried
out analyses of how to do it before it is scaled up any further. However, it aims to have some kind of
solution in 2014.
Another member expressed concern over a decrease in interchange and fraud control. The main
development issue is the mobile – the bank has just launched a private wallet. It uses mostly SMS
authentication, but there is a potential for fraud that could occur through mobile usage. Another
problem is SMS phishing with direct credit online banking.
A delegate responded that there had apparently been extensive phishing in Greece recently but
this was a new phenomenon. However, he thought that very few customers – about two people out
of five million – had answered the SMS. Some countries have an awareness campaign on a bank
by bank basis, or a collaborative approach, or both. One bank said that it uses YouTube videos to
keep people informed. Another added that it has a disclaimer with everything it says to the customer
that stresses that it won’t ask them for personal data. It does this on all communications channels.
However, one participant said that when the phishers see that something doesn’t work, they try
different ways of getting information.
19Cards and payments
One of the weakest markets in terms of mobile payments is Italy, which is the least developed country
in this respect in Europe. However, one bank has closed a deal with PayPal after analysing customer
needs. In conjunction with PayPal, it started a test on NFC and a prepaid card. It is trying to bring
this together with P2P payments and the digital wallet.
At the moment, there’s a lot of confusion in the Italian market and a war between telcos and banks.
This isn’t what the customer needs. It confuses them - they just want something they can use.
There are two important problems in the mobile payments market at the moment:
1. What is the best business model for the payment system? What banks are investing in meeting
customer needs and why? Some banks are investing, but most are watching at the windows, as
there isn’t a current business model for mobile payments. What is a common solution? What is the
wallet? In a recent Efma meeting, ten different solutions were suggested. It’s difficult to try solutions
but it’s crucial, because banks need to find one that meets customer needs.
2. How can banks balance the business model with the needs of the user?
A member asked whether many banks at the Council had a joint department that looks after both
mobile banking and mobile payments. A participant replied that his bank had just started and that
it’s important to have just one model for mobile customers. In mobile banking, it’s perhaps important
to have a digital wallet for mobile payment that generates daily transactions for the payment, but it
isn’t so easy. Another delegate said that it is sometime called the mobile ecosystem. Banks perhaps
need one experience for the customer.
A financial institution said that it is putting a lot of effort into prepaid payments, credit payments
and investing in new ID solutions to fight fraud on both mobiles and cards. Another reported that
its mobile payment project has now become a commercial reality. It started with the first pilot of
proximity payments in December 2011, after signing a partnership with the national telco. In
February 2013, it launched a wallet team in conjunction with the telco.
It is now working with two other telcos and launched the first solution in mobile proximity payments
with MasterCard and is also working with Visa. So, the bank’s solution is a multi-telcos and multi-
payments scheme. It has also developed its wallet for mobile payments - not just proximity but also
remote payments.
Mobile commerce
The speaker then detailed how his bank had developed the first MPoS solution. It had approached
a number of providers but this could be very expensive. Another option was for the bank to
produce its own app, which talks between the MPoS terminal and the handset. The bank has to
offer something as they can throw away the terminal. It tried this approach initially by focusing
on smaller merchants, although in the longer term it will have to target bigger merchants. Other
initiatives it has tried include designing a closed ecosystem to sell the merchant’s products; a
reward programme; and a QR-based initiative.
Apps
The bank has over 70 mobile apps, including both banking and non-financial apps, educational
apps etc. There are some 250,000 downloads per month, as the bank has its own App Store as well
as loading them onto Google. In total, it has over 100 million transactions per month. However, even
if a customer checks his account, this is considered as a transaction.
20Why does the bank have so many apps? They include educational apps, apps for Google TV
and smart TV, apps for car insurance, a social app for exhibitions etc. It has an app container
that gives customers more freedom, as they don’t have to log into mobile banking to access the
app. It would like to have all native apps, but can’t afford it. It therefore has some native and
some embedded apps.
Even though Google Glass is not freely available yet, the bank has created two apps for this. The
first enables customers to find the nearest branch. The second is a currency converter. It has also
developed a solution for a smart watch that allows customers to buy, exchange and manage their
stocks. When they tap on the watch, the details are shown on their smartphone screen.
“ What the council said:
We feel close to the customer. There’s also a feeling of security as they
know we are there for them.
In 2008, if we wanted to get 100,000 customers accessing mobile
banking, it would take a year. Now it takes about an hour and a half to
get that number.
If banks are unsure of mobile or online banking, they shouldn’t pursue it.
Sometimes they overdo it and make it too complicated.
There is a lot of confusion in the market at the moment. For mobile, all
solutions are difficult to understand and are very different.
One of the challenges we all have in mobile payments is that there are so
many competing technologies that it’s sometimes difficult to innovate.
21Cards and payments
Digital wallets
Two consultants visited the Council to talk about digital (or mobile) wallets. There are numerous
initiatives designed to encourage people to embrace something new. However, banks have the
benefits of trust and a lot of information and merchant partners. So what would happen if banks
really embraced the wallet? A survey was conducted on what they think of the wallet and how they
can make it friendly. It changes the role of the bank - it becomes almost like a merchant. But how do
banks cope with associated aspects such as big data?
Some 200 banks were surveyed globally. They were split into developed markets (such as the US
and Europe), e-commerce and emerging markets. Most of the banks surveyed said that they fully
understood how wallets fit into the total mobile banking landscape.
A Council member remarked that looking at it from a payments perspective, there are different ways
of integrating cards into a virtual mobile wallet. He thought that it will replace the user’s identity. It
will be far more than just mobile banking: it will have aspects of the person in it. Another member
suggested that mobile wallets might be just another fad which won’t really dominate the payments
sector. This is possible because there are so many different types at the moment.
There are two basic models of wallets. One is a scheme-based wallet that resides in a mobile. The
other is a bank-centric wallet that resides in the secure infrastructure of the bank and is accessible
through any channel. The first type helps to propagate specific mobile or smartphone models, such
as iPhones or Google Android phones. The companies are saying that the wallet should be the
passport feature on the mobile phone and that their wallet should be the one used on the mobile.
PayPal is a cloud-based model, where the wallet is accessible by any device. The company is like
a proxy to the bank, as they have built their success around using credit or debit card details which
have been stored by the user’s credit or debit card in the bank. They have done some interesting
things, but there are two distinct models: a wallet that sits in the handset and one that sits in the
cloud. The third and possibly most threatening development is from MasterCard and Visa – in the
form of MasterPass and V.me. These are the biggest brand disintermediator imaginable.
Those surveyed overwhelmingly said that they prefer a bank-centric wallet. But what are banks doing
about this? Can they add value by making relevant commercial offers? If the bank offers the ability
for customers to transact with a merchant, all that is happening is that the bank is fitting in at the end
of the value chain where payments are facilitated. It only sees the amount transacted.
In the EU, there are some very interesting challenges, with regulators saying that the maximum
interchange is 0.3 on a credit card and 0.2 on a debit card. On commercial offers, that’s very regionally
specific. In the US and UK, the situation is quite interesting. There’s not so much in other markets but for a
bank to survive amongst all of the wallets, it needs to do more than just be a facilitator.
However, there’s a perfect product that banks can take advantage of in the wallet - the bank
account. The problem is that it only stores money. Banks must not only be a custodian of money but
of value (including points, tokens etc.). They are in a far better position to make this a success than
organisations such as Groupon.
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