CASH THE COMEBACK KING - Also featured: Data Lakes & European Instant Payments - Payments Cards & Mobile
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May / June 2019
CASH
THE COMEBACK KING
Also featured: Data Lakes & European Instant Payments
+ global stories in the industry for the last 60 days
www.paymentscardsandmobile.com/subscribe
PAYMENTS INDUSTRY INTELLIGENCE
Payments CARDS & MOBILE
Well, who would have thought it? It’s the Money May / June 2019
Volume 11, Issue 3
2020 issue, an issue which is typically jammed
full of insights and statistics about digital
Production Team
payments around the globe, and yet here I sit
Alexander Rolfe
writing about the resurgence of cash! Editor-in-chief and publisher
Tel (+44) 1263 711 800
alex@paymentscm.com
I have always said in various presentations and lectures that despite what we see
around the world in developing nations as they leapfrog technology and use more James Wood
digital transactions and those transactions grow at mind bending rates, that getting Editor
james@paymentscm.com
from zero to ninety percent of transactions is the easy part. Getting from ninety
percent to ninety-nine percent digital transactions is very difficult and the final one Wendy Sanders
percent would never happen. Head of Business Development
Tel (+44) 1263 711 801
wendy@paymentscm.com
And so, as the backlash begins and some countries ban cashless stores and others,
at a governmental level, consider the very serious ramifications of a cashless society, Gemma Rolfe
General Manager
PCM has taken a look at the global cash scene. This may seem extraordinarily Tel (+44) 1263 711 800
un-politically correct in a payments magazine, but that's the point really. Cash is gemma@paymentscm.com
necessary and it's here to stay. Find out why in the cover feature.
Gemma Haywood
Subscriptions and General
Returning very quickly to solid payments ground, we also investigate the growing Tel (+44) 1263 711 800
phenomenon of data Lakes. Data lakes are gaining explosive traction with payments gemma@paymentscm.com
businesses in Europe and North America. Proponents say they offer a more flexible, Adam Unsworth
scaleable and cheaper data storage solution than traditional data warehousing, Head of Design & Digital
alongside the improved analytics capacity the payments industry craves. However, Tel (+44) 7932905744
adam@paymentscm.com
these same advantages may contribute to making them more risky than traditional
data solutions. Printing
Micropress Printers
Finally, and we really are on firm footing here, we take a look at Europe-wide real-time
payments. The ECB recently launched its new TIPS settlement system, aiming to
enable instant payments across the continent and increase Europe’s competitiveness Editorial Advisory Board
relative to US and Chinese payment systems. But will Europe’s new arrangements John Berns
cannibalise the continent’s card business – and are they too late to stop next- Managing Partner, Accourt
generation digital P2P systems coming out of China and the US?
Sylvie Boucheron-Saunier
SVP Financial Institutions, North America
So, there we are, it's another busy issue and PCM looks forward to seeing you in & Europe, ACI
Amsterdam at the Money 2020 show. Also, keep an eye out for our forthcoming
Chris Harris
European Fraud Report.
VP Sales Performance & Global Accounts
at Ingenico Group
Alexander Rolfe,
Siobhan Moore
AlexRolfe Partner, Global Head Cards and
Payments at Locke Lord LLP
Fiona Wilkinson
Editor-in-chief and publisher, PCM Board Member
Payments Cards & Mobile
All rights reserved. No part of the publication may be reproduced or transmitted in any form without the
publisher’s prior consent. While every care is taken to provide accurate information, the publisher cannot
accept liability for errors or omissions, no matter how caused. Payments Cards and Mobile
The Stable, Hall Yard, Kelling
© PaymentsCM LLP 2019 Holt, NR25 7EW, United Kingdom
Payment Cards and Mobile™ is owned and published by PaymentsCM LLP ISSN 1759-829X +44 1263 711800 / paymentscm.com
contents
06 - 07 PAYMENTS NEWS 26 - RISK & REGULATION LETS ALL CALM DOWN ABOUT FACEBOOK
AND PAYMENTS
NEWS IN BRIEF So, Facebook is creating its own
FRAUD & FRICTION: IS THE PAYMENTS
All the latest news from the past 60 days. cryptocurrency. The move is partly to counter
MARKET READY FOR SCA?
the threat from up and coming messaging
With Card Not Present (CNP) fraud on the
08 - 11 CARD NOTES rise across the Single Euro Payments Area
rivals Telegram and Signal, with the effort to
build its own cryptocurrency starting last year
(SEPA) in recent years, the payments industry
CITI CALLS ON BANKS TO FACE THE after Telegram raised an eye-popping $1.7
has responded with a number of innovations
billion to fund its cryptocurrency project.
DIGITAL CHALLENGE designed to contain CNP fraud. Recent
A new report from Citibank GPS, “Bank data from the ECB suggests that these
X” calls on major financial institutions interventions have largely been successful, HOT DEBATE ABOUT APPLE'S DIGITAL
to reinvent themselves and save their with CNP fraud growing at a lower rate than CREDIT CARD
businesses from disintermediation by digital In early April, Apple launched the world’s first
CNP transactions in the SEPA.
challenger banks. digital credit card in partnership with Goldman
Sachs and Mastercard. Industry opinion on
28-29 ISSUING & ACQUIRING
3RD PARTY PROVIDERS CONSTITUTE the strategic and operational benefits of this
MAJOR CYBER-RISK FOR FIS move is sharply divided, with some branding
VISA AND MASTERCARD AGREE TO END
BitSight and the Centre for Financial the launch a masterstroke, and others seeing
ANTITRUST INVESTIGATION
Professionals (CeFPro) have published the it as an example of Apple’s grasp exceeding
Visa and Mastercard have offered to cut
results of a global study into Cyber-Security its reach.
interchange fees on payments made by
in financial services. tourists using cards issued outside the
SAUDI ARABIA'S SAMA TO LAUNCH FASTER
European Union to limit fines and end an EU
PAYMENTS SYSTEM
MASTERCARD SETS OUT ITS antitrust investigation. The European Union
The Saudi Arabian Monetary Authority
DIGITAL ID VISION has reportedly accepted the offer.
(SAMA), represented by Saudi Payments,
Mastercard has published its strategy for a
has entered into an agreement with Vocalink
global, consumer-led future in digital ID. The NEW COURT RULING PUTS MASTERCARD
& IBM to develop the new faster payments
result of an eighteen-month consultation BACK IN DOCK FOR £14 BILLION
with governments, security experts and system planned for launch at the end of 2020.
The UK Court of Appeals has overturned a
consumers around the world, Mastercard’s formerly favourable Mastercard interchange
paper describes the challenges facing fee ruling. The £14 billion lawsuit against
30-31 MOBILE PAYMENTS
the payments industry, governments and Mastercard for imposing charges on UK
security experts as the world moves towards MOBILE WALLET TRENDS ANNUAL REPORT
consumers looks set to proceed after the
a globally-enabled, multi-environment secure 2019
court reversed its earlier decision by the
digital ID. GATE (Global Acceptance Transaction Engine)
Competition Appeals Tribunal to block it.
COVER STORY P14-16
CASH
the comeback king
4 payments cards & mobile magazine - may / june 2019 www.paymentscm.com
contents
has released its Mobile Wallet Trends Annual 32-33 - E-COMMERCE 37 PRODUCTS & CONTRACTS
Report, highlighting trends in both mobile
wallet and mobile payment usage across CARD PAYMENTS RISE TO 24 PERCENT OF CITIGROUP LAUNCHING A B2C PAYMENTS
global markets. TOTAL E-COMMERCE PLATFORM
Card payments online are growing at double Citigroup recently announced that it is
PAYPAL FREE TO CONCLUDE IZETTLE
digit rates and will continue to increase developing a consumer-payments platform
TAKEOVER
significantly faster than card spending at (B2C payments), in a move to enter the rapidly
The UK’s competition regulator, which had
physical outlets to account for nearly a quarter growing digital payments industry.
been looking into this merger, has dropped its
of all card expenditure by 2023.
opposition to PayPal’s $2.2 billion takeover of
THE FUTURE OF KYC? WHAT'S SO COOL
iZettle, after finding that the enlarged payments
E-COMMERCE PAYMENTS IN UAE SET TO ABOUT KY3P
group would still face “significant competition”
REACH $12.6 BILLION BY 2022 A group of 12 regional and digital financial
from rivals such as Worldpay and Square.
E-commerce payments in the Gulf states, which institutions have joined together as investors
have grown rapidly in recent years, are set to grow and members in KY3P, to manage third-party
WHATSAPP TO LAUNCH WALLET FOR
at a compound annual growth rate (CAGR) of 19.1 risk and optimise the processes by which
CRYPTOCURRENCIES
percent from AED 31.5 billion ($8.6 billion) in 2018 financial institutions assess and monitor
WhatsApp is rumoured to be developing a
to AED 46.3 billion ($12.6 billion) in 2022. inherent risk.
cryptocurrency wallet service, created by
Wuabit, that allows users to make payments
GERMAN E-COMMERCE MARKET SET TO HIT THALES COMPLETES €4.8 BILLION
via Bitcoin along with other major
€57.8 BILLION TAKEOVER OF GEMALTO
digital currencies.
The German e-commerce market is predicted French electronics group Thales has
to increase by 9 percent this year, meaning completed its previously announced €4.8
VISA LAUNCHES NEW API PLATFORM
the online retail industry could be worth €57.8 billion ($5.4 billion) takeover of Gemalto,
VISA NEXT
billion at the end of 2019. boosting Thales’ presence in the booming
Visa has introduced a new API platform called
security services market.
Visa Next. The platform, with beta application
programming interfaces (APIs) and
35 - CONTACTLESS
105 ORGANISATIONS ANNOUNCE NEW
development tools for issuers and processors,
WHY JCPENNEY STOPPED APPLE PAY BLOCKCHAIN ASSOCIATION INATBA
was launched to help build and beta test new
Last week it was reported that major US 105 organisations representing the full
payment products.
retailer JCPenney had stopped support for distributed ledger technology (DLT) ecosystem,
Apple Pay. including a number of big names from
INSTAGRAM LAUNCHES CHECKOUT ON
the financial services sector, announced
INSTAGRAM
COINBASE SET TO LAUNCH BITCOIN DEBIT CARD their commitment to a new platform, the
Instagram has launched a new shopping
Coinbase, a small cryptocurrency exchange, is International Association of Trusted Blockchain
function called Checkout on Instagram.
launching Coinbase Card, a Visa bitcoin debit Applications (INATBA).
The additional functionality, only currently
card in the UK, letting users pay with bitcoin,
available in the US with 20 big brands, means
you can purchase directly through the app
ethereum and litecoin. 38 CONFERENCES
without being boosted off to another site. Upcoming conferences in the payments world
FEATURE P20-22 FEATURE P24-25
DATA LAKES TIPPING POINT
www.paymentscm.com payments cards & mobile magazine - may / june 2019 5
news in brief global payments news from the last 60 days
UK SUPERMARKET chain Sainsbury's will trial 3C PAYMENT and UnionPay have announced CANADA’S FIVE largest banks have officially
its first mobile “scan and go” outlet in London. a partnership to expand UnionPay card launched a blockchain-based digital
The till-free store will build on Sainsbury’s acceptance in Europe. UnionPay has seen identity network designed by Toronto-
SmartShop Scan App. Customers scan their its transaction volumes in Europe increase based SecureKey Technologies, Inc. Dubbed
groceries as they go round the store, pay in significantly over the last twelve months, the Verified.Me, the service will be available via
the app and scan a QR code before leaving. result of a long term strategy to increase the a web portal and a mobile app. It promises
This reassures them they have paid, with no number of European merchants accepting consumers a way to control their personal
need to queue at a till. Already live in eight UnionPay cards. The strategy is designed to information: who it gets shared with, what
convenience stores across London, this is meet the requirements of growing numbers they use it for, and what they can do with it.
the first time Sainsbury's has extended the of Chinese tourists visiting Europe, as well as It also provides access to financial services
programme to go cash and card-free, with European consumers with UnionPay cards. in a way that makes it easy to prove you are
the outlet completely refurbished to remove UnionPay has prioritised a number of key who you say you are. Leading banks CIBC,
the checkout area and tills. The company sectors including hotel and catering, travel Desjardins, RBC, Scotiabank, and TD are
says the store will have a helpdesk to support and transport and retail, as well as supporting supporting the blockchain-powered app. The
anyone who wishes to pay with cash or cards, small and medium-sized enterprises (SMEs) in Bank of Montreal (BMO) and the National Bank
adding that 82 percent of transactions in accepting UnionPay payments. of Canada will launch the service soon. Banks
this outlet are already cashless. Group chief play a key role in the identity authentication
digital officer, Clodagh Moriarty, commented: service, requiring that users sign-on with
“We’ll be iterating continuously based on their online banking credentials. Built on the
customer feedback before we decide if, how IBM Blockchain Platform, the app’s multi-
and where we make this experience more factor verification system also makes use of
widely available.” biometrics and wireless carrier information
about personal handsets.
VISA AND FIS are to launch a DLT-based
platform for international corporate payments.
Back in 2016, Visa revealed that it had teamed
up with Chain to develop Visa B2B Connect,
improving B2B payments with a system that
promises near real-time notification and THE UK’S free-to-use ATM network is on
finality of payment aligned with an immutable course to be "decimated" in the coming
PAYPAL IS to invest half billion dollars system of record over a permissioned private months unless urgent action is taken to
in Uber as part of the ride-share app’s blockchain. Now the card giant is ready to protect access to cash, according to new
IPO. PayPal CEO Dan Schulman said the start taking on the likes of Swift and Ripple research from Which? New figures obtained
investment would extend the company's by pushing the platform to banks. FIS is by the consumer champion show fees of at
existing partnership with Uber in the US and integrating its technology with Visa B2B least 95p per withdrawal were imposed on
Australia to other global markets and "explore Connect to enable mutual bank clients to 1,700 non-bank operated machines between
future commercial payment collaborations, send B2B payments directly to and from January and March 2019, with 1,250 of these
including the development of Uber’s digital participating banks, removing the friction conversions taking place in March alone.
wallet.” PayPal has been investing heavily in associated with multiple intermediaries. To Most of the ATMs affected are operated
other high-growth marketplaces, including encourage uptake, FIS has built a custom by Cardtronics - the UK’s largest cashpoint
Latin America's MercadoLibre, as it bids to integration module which cuts the need for operator - which is likely to convert a further
embed itself as the top-of-wallet provider for banks to carry out tech updates to their thousand machines to charge fees in the
commerce transactions. Schulman added: systems before using the Visa platform. coming months. Notemachine, another major
"This is another significant milestone on our provider, is considering converting up to
journey to be a platform partner of choice, 4,000 machines in its 7,000-strong network
helping to enable global commerce by to charge fees due to changes in how Britain’s
connecting the world’s leading marketplaces biggest network of ATMs is funded. Gareth
and payment networks." Shaw, Head of Money at Which?, commented:
“A regulator is desperately needed to get a grip
on these rapid changes and ensure those still
reliant on cash aren’t shut out from accessing
the funds they need for their daily lives."
6 payments cards & mobile magazine - may / june 2019 www.paymentscm.com
news in brief
MASTERCARD HAS agreed to buy Transactis, LONDON-BASED Checkout has raised $230
a platform that helps businesses deliver bills million in Series A funding, valuing the firm
and receive payments. 44 percent of the 15 at approximately $2 billion. The investment
billion bills that Americans pay every year round was co-led by Insight Partners and
are still made by paper cheque or cash. And DST Global, with other participants including
people who pay bills online do so in different GIC, the Singaporean sovereign-wealth
ways, via banking applications or merchant fund; Blossom Capital; Endeavor Catalyst,
sites. Last year Mastercard set out to address and others. This first institutional round for
the issue, launching APIs that offer banks’ the company is one of the biggest Series
customers the ability to manage and pay A rounds ever for a European company.
bills such as utilities and rent through apps. Checkout helps businesses such as Samsung,
What’s the answer to the SME
Now the payments giant is strengthening Adidas, Deliveroo and Virgin to accept a range
lending conundrum?
its position with Transactis, which provides of payment types across their online stores
a flexible digital service that helps even around the world. According to the Wall Mishal Ruparel, GM, Europe of financial
the smallest businesses support online bill Street Journal, Checkout’s European business utility, Banking Circle, looks at the
payments. The company, which currently generated $46.8 million in gross revenue and challenges facing SMEs and how the
payments community can provide a
counts several banks among its investors, $6.7 million in profit in 2017. Checkout also
solution.
claims to deliver its technology to millions of fits with the ongoing boom in online shopping
businesses through a network of banks and and the growing number of businesses using SMEs make up 99.9% of private
other service providers. Terms of the deal online payments. Last year, investors poured businesses and employ 60% of the
were not disclosed. more than $22 billion into payments start-ups, UK workforce – that’s an astounding
16.1 million people. By 2025, SMEs will
400 percent more than in 2017 according to
contribute £241bn to the UK economy.
data from Dow Jones VentureSource.
But recent Banking Circle research has
revealed that over half of UK SMEs have
been unable to access the cash they
need in order to grow.
ROYAL BANK of Scotland (RBS) is launching
Some of the difficulties SMEs faced in
a merchant acquiring service, NatWest
getting hold of the cash they needed
THUNES, a Singapore-based cross-border Tyl, for small to medium-sized businesses include poor rates, high fees, slow
payments network for emerging economies, (SMBs). The moves sees RBS head back facilitation and length of loan available.
has raised $10 million in a Series A funding into the payments business, putting it in A quarter (24.6%) said that without
additional funding they would have to
round led by GGV Capital. Previously called direct competition with its former subsidiary
let employees go. 13.3% expected that
TransferTo, Thunes specialises in four Worldpay. EU regulators forced RBS to sell
the business would not survive without
payment areas: P2P remittance processing, its payments business, which was renamed access to extra finance.
corporate mass payouts, B2B payments, and Worldpay, as a condition of its nearly £50
digital payment services. The firm has built billion taxpayer bailout during the financial This is a real danger to the economy,
when SMEs employ such a huge number
up a network that reaches over 80 countries crisis. “Developing our own merchant acquiring
of people. But it’s not game over for the
with more than 9,000 interconnected payout and payments proposition is an important
SME. The good news is that payment
partners and completes more than 300,000 step forward,” said Alison Rose, head of providers working with Banking Circle
transactions a day. It recently signed a commercial and private banking, RBS. The can change this reality.
deal with Western Union to expand payout move is likely to be welcomed by regulators,
Banking Circle can handle non-core
capabilities to mobile wallets and also works who are reviewing competition issues in
banking functions such as payments,
with PayPal, MPesa in Kenya and Asian the sector. The Payment Systems Regulator
FX and loans on behalf of other financial
ride-hailing giant Grab. The new funding will has raised concerns that incumbents have institutions, removing the financial
speed up growth across Africa, Asia and been taking advantage of their dominance burden and risk and leaving them free
Latin America. Peter De Caluwe, executive to overcharge small businesses. As well as to focus on the all-important customer
relationship. Banking Circle does not
chairman, Thunes, says: "This funding allows basic payments services, Tyl aims to provide
compete with the bank or FinTech but
us to accelerate our company mission and we data analytics to help customers measure and
supports it in delivering the best service
are all excited for the year ahead." improve their performance. It is the latest in possible.
a series of new technology-driven initiatives
designed to strengthen RBS’s business To listen to Mishal Ruparel’s recent
webinar on this subject, visit
banking offering, following a new digital
www.paymentscardsandmobile.com
loans service called Esme and a standalone
business bank called Mettle.
www.paymentscm.com payments cards & mobile magazine - may / june 2019 7
card notes GLOBAL
CITI CALLS ON BANKS TO FACE THE DIGITAL CHALLENGE
A new report from Citibank GPS, “Bank X”, incumbents and offering a digital-only version been able to benefit from somewhat relaxed
calls on major financial institutions to reinvent of the incumbent’s services regulation designed to foster competition in
themselves and save their businesses from - Big Tech challengers, created in partnership banking, or “regulatory sandboxes.” Coupled
disintermediation by digital challenger banks. with firms like Google and Amazon, or in with delivery in partnership with major digital
The authors expect competition from digital China Baidu, Alibaba and Tencent. These platforms, challengers have been able to scale
challengers to lower revenues for traditional challengers leverage their tech partners’ vast rapidly to pose a threat to incumbent banks.
banks by between 10 and 30 percent, led networks and marketing power to acquire new Armed with their founders’ experience of
by reductions in payments revenues in the customers rapidly. banking and backed by data-driven insights,
first instance, as mobile-only wallet and P2P Citibank believe that mobile money stored in digital banks have built service models that
solutions erode bank margins in the issuing digital wallets is fast becoming an alternative focus on the pain points customers experience
and acquiring segments. Meanwhile, digital to traditional banking and payments services, when dealing with traditional banks. Digital
challengers are able to function at 30-50 percent especially in emerging and “frontier”, or high- challengers offer new products to serve unmet
of the cost base of traditional banks as they are risk markets. needs, more competitive prices, and more
unencumbered by legacy systems, and typically As a result, Citi envisage a base case with personalised services. They are also typically
use more technology and fewer people to deliver revenue reductions of between 10 and 30 more open to partnering with third parties to
similar or better services to customers. percent for incumbent banks by 2030. Although deliver services, and can operate at lower cost.
Following the Great Financial Crisis (GFC), technology improvements will allow headcount The solution for incumbent banks, according
incumbent banks turned their attention to be reduced by somewhere between 23 to Citibank, is nothing less than complete
to reducing costs and improving their use and 45 percent over the same period, these transformation. Traditional banks should be
of capital as revenue growth slowed. New reductions will not be sufficient to offset the thinking about turning themselves into fully
regulatory demands and business models – significant losses banks are likely to face. Citi digital financial institutions. Key elements of
such as internet banking – have siphoned funds expects digital disruption to start in payments, this transformation process will be partnering
away from technology investment since 2007. then widen out to other financial products. with technology companies to create effective
Meanwhile, Return on Tangible Equity (RoTE) has The tipping point will come when banks’ core joint ventures for customer service delivery and
declined from mid-teen levels prior to the GFC to businesses of savings and loans are affected. moving into new and disruptive technologies.
single-digit returns for European banks, with US Noting that modern banking is all about scale Above all, traditional banks should move
banks faring somewhat better thanks to recent and customer trust, Citi say there is still time for away from outdated software and hardware
tax cuts. incumbent banks to act given that they currently infrastructures which are inefficient and
While these painful changes were happening, hold customer relationships and have built expensive to maintain, and adopt many of the
digital challengers emerged. These banks up trust over decades. However, underserved technologies used by digital challengers that
offered more personalised services and a fully customer segments (SMEs in the UK, the threaten their business.
digital experience. Citibank identify three kinds emerging Asian middle class, migrant workers Traditional banks who act quickly and
of digital challenger as follows: globally) are now turning to digital challengers to effectively to reduce costs and counteract
- Standalone challenger banks: primarily meet their needs. Meanwhile, incumbent banks anticipated revenue losses could manage to
fintech companies that use technology and are grappling with out-of-date legacy technology maintain or improve their profitability and Return
data insights to offer better convenience and systems and, in many markets, increasingly on Tangible Equity (RoTE); in the worst-case
pricing through internet delivery; burdensome regulation. scenario, Citi see the profitability and investor
- Incumbent-led challengers, launched In some markets such as the UK and to an returns for traditional banks reducing to near-
with investment and shared services from extent the Nordic region, digital challengers have zero levels by 2030.
FIGURE 1 - BANKING SECTOR PAIN POINTS TARGETED BY FIGURE 2 - STRENGTHS AND WEAKNESSES OF CHALLENGER BANKS
CHALLENGER BANKS
Strengths Weaknesses
Ease of use and accessibility with new products to serve unmet needs
Better and completely digital customer experience Unproven track record (with the exception of
challenger bank operated by incumbent banks)
Greater transparency around products and competitive pricing
New technology stack and absence of legacy High customer acquisition cost in a saturated
system reduces cost to serve retail banking market
Personalized banking experiences with specialist proposition focused on a niche Interests of tech giants to open digital banks have Lower physical distribution cost could
product, sector or client group the potential to completely redraw the retail banking be offset by higher interest expenses
landscape
An open ecosystem that is agile, easily scalable and reduces time to market via New digital channels and ease of account opening / Potential need to tap into the ATM network to
greater collaborations with third-parties around technical solutions servicing meet the cash withdrawal needs of customers
Ability to tap into customers who are not physically High entry barrier and often lack of any regulatory
Better operational efficiencies with lower costs able to visit branches. arbitrage.
Source: Citi GPS: Global Perspectives & Solutions
8 payments cards & mobile magazine - may / june 2019 www.paymentscm.com
A COLLABORATIVE ECOSYSTEM IS VITAL FOR
SME FINANCIAL INCLUSION
In today’s instant, connected, global market, Some lenders are ahead of the curve, already into virtuous circles – of provision, availability
speed is critical to get ahead, deliver innovative providing dedicated solutions to better-serve and use – will require a more collaborative and
solutions at the right time and to remain companies where traditional banks have been creative approach, to build a mutually supportive
competitive. However, financial solutions do unable to help. But fear of the unknown could ecosystem in which SMEs can thrive and
not currently always serve the new, energetic be holding back SMEs from capitalising on the improve their contribution to the economy. And
SMEs of the global economy well. new solutions coming onto the market. It was the significance of financial inclusion should not
Financial exclusion is an increasing concern recently reported that 51% of SMEs would still be underestimated.
for businesses. Companies of all sizes, but approach a traditional bank in the first instance, The Enterprise Europe Network recently
especially the smaller, younger firms, can be if they needed additional funding . The figure reported that 65% of small businesses expect to
held back from meeting their full potential has, in fact increased since the previous survey a increase their turnover and 85% expect to create
by difficulties with payments and cashflow. year earlier when 45% said they would approach or preserve jobs in the next year. However, these
Transfers can be too slow and expensive, and a bank first. ambitious companies need financial services
without access to additional funds many SMEs But there is light at the end of the tunnel. The providers equally committed to innovation
struggle and potentially fail. survey, which involved 2,000 SMEs, also showed and growth. Despite the EU recognising the
There are more than 24 million SMEs in an annual increase in the number of SMEs importance of financial inclusion and bringing in
Europe, making up more than 99% of the considering using an alternative lender – up to policies and programmes to help deliver better
region’s businesses, and accounting for 35% in 2019, from 30% in 2018. access to SME finance, many SMEs are yet to
two thirds of employment. As such, SMEs A recent Banking Circle survey of more than reap the benefits.
represent a significant opportunity, and their 500 SMEs revealed that without access to We are now at a point for change, which, I
collapse would cause significant damage to the additional funding, 24.6% would have to cut believe can be built on collaborative models and
economy. That’s why we recently commissioned employee numbers and 13.3% believe the solutions that can fit this diverse and disparate
Magna Carta Communications to carry out business would fail. Therefore, this loyalty to market. In turn, this should help build a larger
independent research into financial exclusion traditional banks - despite SMEs confirming marketplace from which providers old and
for SMEs, to uncover the views and experiences their lack of satisfaction with the service new can benefit. We have seen evidence that
of businesses, FinTechs and banks today. delivered and costs incurred - could cause small there are significant gains to be made by all
And to identify the opportunities that exist businesses to fail. participants. But rather than relying on top-down
for those organisations supporting the sector directives from state institutions, this needs to
– banks, PSPs, FinTechs and other financial BARRIERS TO BETTER PROVISION be led by forward-thinking participants, who can
services institutions. With Europe’s SMEs covering every industry, find and build accessible and inclusive solutions
The research confirmed that there is no with varying business models, distribution and from the bottom up.
one-size-fits-all solution to creating financial ambitions, no two firms are alike. This creates a The full report, Financial Inclusion for Europe’s
inclusion, because there is no single cause barrier to providing effective and viable financial SMEs: Building a circle of trust, will be published at
affecting all excluded companies. solutions at scale. So SMEs are left out in the cold. Money20/20 Europe. Visit www.bankingcircle.com
There are plenty of ambitious, but still to register for a copy available from 3rd June 2019.
THE CURRENT LANDSCAPE underserved, businesses with specific needs that
SMEs make up over 99% of all of Europe’s could be met by an open, joined-up ecosystem. ABOUT ANDERS LA COUR
businesses, and account for two thirds of all There are also plenty of potential providers of Co-founder and Chief Executive Officer of
employment. They contribute more than half innovative ‘point’ solutions. But there remains a Banking Circle, Anders la Cour is a hands-
of all business turnover and generate more lack of connection between the two, apart from on leader driving innovation to facilitate
than half of all value added in the non-financial individual, often ad hoc collaborations. more inclusive, efficient and cost-effective
business sector - worth €4,030 billion in 2016. The current offering, or lack thereof, is banking, lending, payments and FX. He was
These businesses clearly represent a significant perpetuating the difficulties for SMEs and in also instrumental in arranging the $300 million
opportunity, yet many find themselves turn their higher-risk status from the point of acquisition of Banking Circle by EQT VIII and EQT
financially excluded. view of the banks. To transform vicious circles Ventures in 2018.
1
http://www.altfi.com/article/5204
2
https://enterprise-europe-bw.de/fileadmin/user_upload/Baden-Wuertemberg/Seiten/Publikationen/EEN_Report_SME_growth_forecast.PDF
card notes GLOBAL
THIRD-PARTY PROVIDERS CONSTITUTE MAJOR CYBER-RISK
BitSight and the Centre for Financial Disconnected nodes of cyber security and cyber-risk management,
Professionals (CeFPro) have published the concerns remain about the cost of monitoring
results of a global study into cyber-security The growing profile of cyber-risk in financial and reporting programmes, as well as the time
in financial services. Polling more than 125 services firms is not, however, being matched required to make these programmes a success.
senior professionals in financial services from by most financial firms’ actions. Although the BitSight make four key recommendations
North America, the UK, Europe and Asia, the study found that more than eighty percent of for the future:
report found that only one in five (22 percent) companies now place responsibility for cyber- • Standardise third-party cyber risk
of financial services companies continuously risk in the boardroom, less than 45 percent of management as part of firm-wide risk
monitor the digital security arrangements companies actually report regularly on cyber management strategies. This should include
of their suppliers, and fewer than half (44 security to their board. Furthermore, one in five a single process for all suppliers, and an
percent) regularly report to their boards about of the executives surveyed believe that their established communications procedure for
cyber-risks from their suppliers. board does not understand the cyber-risks escalating any anomalies or concerns found
Despite this poor monitoring performance, facing the organisation. in third party suppliers.
80 percent of firms surveyed said they would Although some of the organisations surveyed • Continuous monitoring. Financial services
refuse to work with a supplier if they knew that undertake risk audits for their suppliers’ systems, companies should use an agreed set
supplier had had cyber-security challenges, many are concerned about the accuracy and of criteria and engage with suppliers to
and 97 percent of those surveyed said the quality of these audits. Respondents said continuously monitor their performance
cyber-security performance of their suppliers that assessments were seen as costly and against these metrics. Given the rapidly-
was a “critical”, or, “important” issue. time-consuming, and produced results which changing nature of IT systems in the digital
were difficult to translate into clear actions. era, a simple “Yes or No” decision when
Taking cyber-risk on board Worse, the study revealed that a majority of engaging a supplier is no longer sufficient.
organisations did not continuously monitor • Board reporting. Communication and
The good news from this study is, firstly, their suppliers, and did not understand where reporting strategies are clearly failing to
that companies are increasingly interested responsibility for cyber-risk lay in the supplier report issues at the most senior level in
in collaborating across the financial services organisation. Budgets are also a concern: companies. Financial services firms are also
sector to combat cyber risk; and secondly, that three-quarters of those surveyed said that failing to report on supplier’s risk profiles
responsibility for cyber-risk is increasingly their budget for implementing cyber-security with any regularity. The report recommends
given to “C” suite executives in companies, checks and monitoring on suppliers was set to a thorough, main board review of supplier
rather than lower-level IT and risk managers. either stay the same, or only increase slightly, in cyber-risk profiles once a year as a minimum.
A combination of high-profile data breaches the next year. • Monitor fourth party risks. As organisations
such as those suffered by British Airways in become increasingly connected, simply
2017 or India’s Adahaar digital Solving cyber security in monitoring your suppliers’ cyber-risk profiles
ID service in 2018, coupled financial services may not be enough. BitSight recommend
with growing regulator y that fourth parties, that is, suppliers to your
pressure from data protection A key concern for respondents is the investment supplier, should also be regularly reviewed.
legislation like the EU’s GDPR, required to make cyber-risk monitoring for This can be achieved by gaining oversight
has driven cyber-risk right to the suppliers and third parties a success. Although into your supplier’s risk management and
top of most organisation’s agendas. almost all respondents recognise the importance cyber-security monitoring systems.
FIGURE 1 - KEY TPRM CONCERNS FIGURE 2 - GROWING AWARENESS OF THIRD-PARTY CYBER RISK
What issues related to the vendor cyber assessment process are you concerned about? Who has primary accountability for third-party cyber risk in your organization? (Multiple choice)
Rank on a scale of 1-5, with 5 being of “higher concern”
CISO 34%
Speed of assessment process 3.68
CIO 20%
Cost of on-site assessments 3.09
CHIEF RISK OFFICER 23%
Scope of assessment process (not being
3.70
able to review more vendors) CHIEF COMPLIANCE OFFICER 13%
Quality/accuracy of data we receive 4.15 CEO 9%
Actionability of data we receive HEAD OF VENDOR/THIRD-PARTY/SUPPLIER RISK 9%
3.85
from vendors/third parties
CHIEF PROCUREMENT OFFICER 4%
Timeliness of the data we receive
3.70
from vendors/third parties
BOARD 3%
Unclear responsibility internally 3.30 CHIEF FINANCE OFFICER 1%
6%
0 1 2 3 4 5 OTHER Source: BitSight CEFPRO Report
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MASTERCARD SETS OUT ITS DIGITAL ID VISION
Mastercard has published its strategy for a the population), costing individuals and digital ID system are of paramount importance.
global, consumer-led future in digital ID. The businesses a combined $16.8 billion. In Their blueprint for digital ID starts from the
result of an eighteen-month consultation with the same period, data breaches in the US premiss that individuals have the basic right
governments, security experts and consumers increased by 44.7 percent, with the majority to control their own identity and data in the
around the world, Mastercard’s paper describes of these breaches resulting in further fraud online and physical environments. Following
the challenges facing the payments industry, which cost another $6 billion. on from this right, the company has established
governments and security experts as the world - Social and financial inclusion. The UN ten principles which any successful digital ID
moves towards a globally-enabled, multi- estimates that more than 1 billion people scheme should follow (see graphic below.)
environment secure digital ID. world-wide have no access to proof of identity,
The average consumer in the digital age can and that these people are overwhelmingly How it works
have up to 150 accounts to manage, taking among the poorest in the world. Without
in to account utilities, telecom, banking and access to identity, these disadvantaged The key features of a future digital ID system
online services. At present, all of these services people cannot access social, healthcare will be based on roles, beginning with the
have disparate approaches to passwords and and financial services. And as the internet end user at the heart of the system. Users
authentication. Despite the wide range of continues to grow in importance, this “digital will be required to gain the confidence of
approaches on offer, identity fraud continues to divide” could widen further. relying parties by using ID services provided
increase, especially in the online environment. - User focus. People cannot continue to by verification providers. The system will also
As the Internet of Things (IoT) becomes a maintain growing numbers of passwords include a commercial transactional element
reality, the number of interactions which require and authentication systems as the number of as part of an app provided in partnership
ID will only increase: estimates suggest that services areas – from commercial services, to with a bank, mobile operator or similar
within a few years there could be more than 50 entertainment, healthcare, taxes and financial commercial concern. The role of the digital
billion connected devices, each one a potential services – requiring digital identification identity service at the centre of this system is
vulnerability for their owners. continues to grow. Any solution must take to give all participants confidence and trust
While some countries have developed their into account the rights of individuals to data that other parties identities are verified.
own national digital ID schemes, there is at privacy and data protection. Mastercard expects that this kind of system
present no solution that will work across - Organisations. Any solution must respect infrastructure will help to simplify the process
countries and geographical regions. organisations which originate these services, of ID in the digital and physical worlds,
and make sure that digital ID does not create reducing friction and the cost of providing
Social and Financial Inclusion: more friction, increase the risk of fraud, and and confirming identity for all parties, as well
The (Digital) Key reduce access to services for individuals. as making life easier for end consumers. It’s
interesting to note that, with its combination
Mastercard’s study identifies four key areas Digital ID Principles of a commercial function and a digital ID in
of focus for any successful global digital ID a single app, Mastercard’s proposed system
strategy as follows: Envisioning a service which is simple, smart is markedly similar to the combination of
- Data breaches and identity theft. In 2017 and secure, Mastercard underline that ease social media, digital ID and P2P payments
alone, the US suffered 16.7 million cases of use, minimising the requirement for data found in WeChat, AliPay and UnionPay Mobile
of online identity fraud (4.5 percent of exchange and maximising the security of any in China.
MASTERCARD PRINCIPLES OF DIGITAL IDENTITY
Inclusion Ownership Simplicity Consent
Everyone has a right An individual’s digital Identity data and An individual’s
to a digital identity identity should not transactions that identity data will
be used or shared involve an individual’s be used only for
Individuals own without their explicit digital identity should legitimate, fair, and
their identity and consent, or as be held with the non-discriminatory
personal data permitted by law highest standards of purposes
security and integrity
Individuals have the
An individual’s use Individuals should
right to understand Individuals should
of their digital have a choice of
how their digital have the right to
identity should be trusted digital identity
identity data is used access, correct, and
simple and intuitive providers and the
and shared delete their identity right to opt out or to
An individual has data and the right change providers
the right to keep to recourse if their
their digital identity rights are violated
Transparency Security and Integrity Data Rights Fair Use Choice
information private
Source: Mastercard - Restoring Trust in a Digital World
12 payments cards & mobile magazine - may / june 2019 www.paymentscm.comCASH THE COMEBACK KING by James Wood, PCM Editor Despite legislative moves to enable the digital economy and a ten-year media blitz about the coming cashless society, cash in circulation (CIC) in the world’s economies keeps growing. What’s more, some governments are now expressing concerns about the socio-economic implications of a world without paper money. So are notes and coins set to make the greatest comeback since Lazarus? PCM Editor James Wood finds out what’s on the cards for cash… Just a few years ago, major media outlets like curb corruption and combat organised crime. are the only two out of 47 global economies Wired and The New Yorker were publishing What’s more, everyone just knew the future of surveyed to see a decline in the amount of articles headlined, “It’s Official: Cash is money was digital, because the world’s media physical cash in circulation. Dying”, and, “We live in a Cashless World.” told them so. Admittedly, some of the markets surveyed Observing the rapid decline in cash usage It must have come as no small surprise, then, experienced special circumstances, such as on the part of developed economies, major when the US Federal Reserve of San Francisco India after its demonetisation initiative. In emerging markets such as Nigeria (2012) published figures in late 2017 demonstrating late 2016, the Reserve Bank of India withdrew and India (2016) launched demonetisation that the amount of physical dollar bills 500- and 1,000- Rupee notes from circulation initiatives designed to reduce the risks posed circulating in the American economy had to reduce the high number of counterfeit by fraudulent banknotes and speed up the actually been increasing faster than the rate notes circulating and fight the country’s velocity of money in their economies via of inflation in recent years. large black economy. As this constituted 86 electronic payment systems. In fact, according to data from the US Federal percent of India’s cash stock at the time, the Cash, the argument ran, was expensive Reserve and the IMF, the only two markets in economic shock experienced was intense, to handle and slow to move. By switching which CIC had decreased in the three years and the Reserve Bank promptly pumped to electronic payments, emerging and prior to 2016 were Norway and Sweden. The 23.8 billion smaller-denomination bank developed markets could bring oversight to World Cash Report 2018 from G4S confirms notes into circulation with a value of 5.540 their significant “grey”, or informal, economies, this trend, noting that these Nordic countries billion Rupees. 14 payments cards & mobile magazine - may / june 2019 www.paymentscm.com
cover feature
Following this initiative, the expected uptick
FIGURE 1 - US FEDERAL RESERVE REPORT
in electronic payments did not, however,
materialise: although digital transactions
spiked in December 2016, they have since
tailed off, with an overall increase in electronic
payments of just 2.2 percent in the two years
between July 2016 and July 2018. Worse, from
the Indian government’s perspective, is that
counterfeit notes have begun to re-appear
CIC expanding faster than GDP
in the new, smaller denominations – and
CIC declining
evidence suggests that the “black” economy
No comparable data
remains undiminished, whilst cash-based
sectors such as agriculture and real estate
Source: US Federal Reserve
have suffered.
Culture beats strategy course, with cash being used in 45 percent held as personal stocks of cash. Hoarding
(Netherlands) and 34 percent (UK) of all is also in evidence in India, with household
Despite the Indian government’s best transactions. In a late 2018 report, UK Finance cash stocks at record highs following the
efforts, the amount of cash being used by stated that they expect cash to fall to 16 attempted demonetisation initiative of 2016-
Indians has actually increased since the percent of payments by 2027. In making this 2018 according to Quartz, an Indian financial
2016 demonetisation initiative. One factor prediction, though, the industry body also media outlet.
behind the global resurgence of cash is noted that there would still be more than four In the case of major currencies like the US
some countries’ cultural affinity for the hard billion cash transactions in the UK each year – Dollar in particular, and to a lesser extent the
stuff. Among major economies, Japan and meaning that the infrastructure to handle and Euro and Pound Sterling, there is also the
Germany have cultural and historical reasons process cash will have to be maintained at a phenomenon of substitution for domestic
for preferring cash: in 2018, Germans used cost of nearly £5 billion per year. currencies in very poor or war-ravaged
cash for 74 percent of all transactions by states. Zimbabwe offers the most well-
volume, and 48 percent by value. More money, more problems known example of this, where hyperinflation
In Sweden, by contrast, just 16 percent caused the national currency to be replaced
of transactions are undertaken using cash, There are two simple, and not necessarily by the US Dollar in the informal economy. This
reflecting a long and comfortable relationship welcome, reasons behind the recent increase replacement was later formalised with the
with electronic payments in that country. in cash in circulation – though these reasons introduction of Zimbabwean “Bond Notes” in
Sweden was one of the first markets to are by themselves not sufficient to explain 2016, which are pegged to the US dollar and
introduce a national app, Swish, for smart all of the growth witnessed in global cash can’t be exchanged outside the country.
phone payments in 2012 – and remains one stocks. The first is that criminals prefer the
of only three markets in the world, along with anonymity of cash, or as one senior anti- Cash in your rights
Denmark and Norway, where a majority of money laundering (AML) analyst from a major
the country’s population regularly use smart financial institution puts it, “Cash works for In noting cash’s global resurgence, it’s
phone apps for payments. criminals because it’s much tougher to trace.” important to state that digital and electronic
Between these extremes, markets such as That said, a switch to digital payments can payments are growing rapidly world-wide, and
the Netherlands and the UK chart a middle hardly be said to remove the risk of fraud, that the use of cash – as opposed to it being
which continues to rise even as the world held or saved – has been decreasing. Both of
moves away from cash. these trends are expected to continue over
FIGURE 2 - PAYMENT VOLUMES CASH Hoarding also explains some of the increase the next ten to fifteen years, although cash
VS. DEBIT CARDS (MILLIONS) 2007
TO 2017 ACTUALS, 2018 TO 2027 in cash stocks. In Romania, there has been a still accounts for more than 50 percent of all
FORECAST steady increase in the number of cards and in transactions in three-quarters of the world’s
25,000
Cash Debit card
card usage – as well as a nascent movement economies, according to the G4S study.
20,000 to mobile banking. However, the cultural Statistics like these highlight two challenges
15,000 memory of the economic shock that followed facing many governments in the next decade:
10,000 the move from a planned economy to a market firstly, the need to maintain a cash handling
5,000 economy persists some thirty years after the infrastructure, and secondly, the need to
0
fact. As a result, Romania has a very high respect peoples’ right to pay in any way they
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
savings rate, at nearly 20 percent of all earned choose. The second of these issues has been
Source: UK Finance, UK Payment Markets 2018
income in 2018, with much of these savings gaining much prominence of late, with US
www.paymentscm.com payments cards & mobile magazine - may / june 2019 15cover feature
FIGURE 3 - AGE DISTRIBUTION OF free, easy to use and convenient. In any society, savings or a payment instrument, then the
MOBILE PAYMENT USERS VS TOTAL some groups are more comfortable with cash.” problem of how to pay for cash handling
POPULATION 2017 In recognition of consumers’ right to access costs and infrastructure remains. When
Total population
30% Use mobile payments cash, the Government of Norway passed a law in more than half of an economy is run
25% April 2018 to the effect that all banks must have digitally, then transferring, counting and
20% cash reserves for consumers. This followed a handling cash becomes an increasingly
15%
2016 decision by Norway’s largest bank, DNB, to expensive proposition. Although a 2016
10%
no longer offer cash in its branches, on the basis report from the British Retail Consortium
5%
that only six percent of Norwegians use cash for stated that the cost of handling cash was
their everyday expenditure. approximately similar to that of debit
0%
16 -24 25 -34 34 -44 45 -54 54 -64 65+
However, statistics like these only tell part and credit card payments for retailers
Source: UK Finance, UK Payment Markets 2018
of the story. As the Swedish Riksbanks’ 2018 themselves, this ignores the “hidden costs”
Payments Report demonstrates, cash usage is of managing a payments infrastructure,
cities like Boston and Philadelphia introducing heavily segregated by age and income bracket. estimated at around £5 billion. By contrast,
laws preventing stores from being “digital In developing economies, this segregation cash handling costs for 2017 in the US
only”, and enshrining the citizen’s right to pay occurs in a split between urban populations and Canada were estimated at US$96
with cash. This trend was confirmed when and rural economies, where up to 90 percent billion including transpor tation, security
Amazon, Crown Prince of the digital economy, of wages may be paid in cash, as is the case and handling – the same as the entire
recently announced plans for all of its Amazon in Ghana. Ukrainian economy.
Go stores to accept cash alongside card According to Paul van der Knaap of G4S’s According to management consultants
and mobile payments in recognition of Cash Division, countries should now be looking McKinsey, the answer may lie in “hybrid”
the continued importance of cash to the at maintaining cash from the perspectives of arrangements between Central Banks and
US economy. social and financial inclusion, on the one hand, commercial banks. At present, most National
Digital payments are more commonly used and emergency preparedness on the other: “The Central Banks are responsible for printing
by younger, better educated and more affluent Swedish Riksbank has acted as a role model in and issuing cash, with cash handling costs
consumers. Statistics from UK Finance planning a role for cash in the digital economy. managed by retailers and commercial banks.
suggest that cash is most widely used by the Failure to plan for cash as part of your economy’s But it’s likely that future schemes would
unemployed, unskilled manual workers, and future does not address the social and financial seek to pool these costs and share these
retired people living on state pensions; by inclusion issues in your economy at all.” costs as the amount of cash in economies
contrast, mobile payments are most widely Governments, especially those in the reduces, retaining the capacity to handle
used by the 18-34 age bracket and the highly- developed world, appear to be waking up to cash without massively increasing the cost
educated and affluent. the systemic risks of an over-reliance on digital per transaction. Companies like G4S have
payments – including the risk of a terrorist already launched hybrid products such as
In a rich man’s world attack on electronic transfer systems, which G4S Pay, which combine cash handling and
would have the effect of paralysing any economy electronic payments for retailers.
Both the government and population of without the capacity to store and handle its Whatever solution emerges, we are unlikely
Sweden appear to have belatedly awoken currency as cash. to see an end to the use of cash any time
to the social dangers of a cashless society. soon – especially in a world where the threat
A 2016 survey of Swedes showed the first Cashing up from terrorists, fraudsters and catastrophic
increase in negative attitudes to the decline in incidents linked to climate change shows no
cash payments. If cash is here to stay, either as a means of sign of abating.
This negativity stems from an
acknowledgement that there are marginalised FIGURE 4 - INDIAN CASH IN FIGURE 5 - WHICH MEANS OF
and disadvantaged groups in society that still CIRCULATION PAYMENT HAVE YOU USED IN THE
use, and are likely to continue to use, cash for 17.78 PAST MONTH? PER CENT
18
17.97 100 100
payments and savings. These problems are 2014 2016 2018
16
especially pronounced in emerging markets and 80 80
14
in lower-income groups in the West, according 60 60
to Drew Propson, Project Lead for Financial 12
40 40
Inclusion at the World Economic Forum (WEF): 10
8.98 (6 Jan 2017)
“It’s not just about developing markets versus 20 20
8
developed markets: it’s about financial inclusion 4 Nov 2016 16 Feb 2018 0 0
around the world. We’ll see cash continue
Cash Debit card Swish
Source: Bloomberg Source: Central Bank of Sweden
alongside digital payments, in part because it’s
16 payments cards & mobile magazine - may / june 2019 www.paymentscm.comYou can also read
