Payments – Page 17 – Digital Finance Analytics (DFA) Blog

US Lesson On Mobile Payments

Interesting interview from eMarketer, showing how customer centricity transforms mobile payments.

Panera Bread, the fast casual bakery-café with more than 1,900 locations in North America, was among the first wave of brick-and-mortar merchants to accept in-store and in-app payments with the Apple Pay mobile wallet in 2014. Blaine Hurst, Panera Bread’s chief transformation and growth officer, spoke with eMarketer’s Bryan Yeager about the adoption of Apple Pay and other mobile payments among the company’s customers.

eMarketer: Slightly more than a year has passed since Apple Pay launched. What does adoption look like among Panera Bread’s customers?

Blaine Hurst: I am very pleased with the in-app usage, which is in the 20% range [of total in-app transactions]. For in-store, we assumed that for people to change their habits you have to have a much better experience. We’ve paid with mag stripe-based cards for a long time and this is a better experience. Is it enough better to get me to stop using mag stripe cards and overcome that built-in reluctance to change?

It is difficult to get the consumer to change behavior without a material improvement in the experience.

eMarketer: Do you see traction with customers using Apple Pay in your app translating to greater in-store mobile payment usage?

Hurst: We do. When we launched with Apple Pay we saw there was a spike in both methods. Anything that creates new habits or requires us to create new habits, that habit then begins to spread in everything we do. I don’t think that happens overnight because consumers are so used to swiping mag cards, but I believe it will occur.

I don’t know how long it will take, but I think proximity payments where I don’t even have to take my phone out or my wallet, smartwatches, the impact of chip-and-pin cards—the combination of those things will begin to drive adoption of mobile-related payments.

Part of it is the merchants have to get on board. But with many merchants re-terminalizing to accept chip-and-pin anyway, it’s relatively easy to do [mobile payments] at the same time. That’s my No. 1 objective: If customers want to pay with their phone or their watch or chip-and-pin, I want them to be able to pay.

I’m open to any and all comers because this is about Panera Bread adapting to the consumer rather than the company trying to force the consumer in terms of how they pay.

eMarketer: What is Panera’s approach to training front-line staff like cashiers to help mitigate issues with customers using proximity mobile payments?

Hurst: We build it in as part of our overall training program and then whenever there is a new release like Google just did [with Android Pay], we then go back through and update the training. When we rolled out Apple Pay last year, we pushed pretty hard to make sure the cafés were ready for it because we assumed that we would go from few transactions to quite a few transactions. Not huge percentages, but when you start from zero, you’re going to see a pretty big [increase]. We do 8 million transactions a week, so even a small percentage [using mobile payments] is a lot.

eMarketer: How does loyalty and rewards factor into Panera Bread’s approach to mobile payments?

Hurst: Let’s just say we have been working with Apple on some of the loyalty integration since it began. And we are working with both our point-of-sale vendor and Verifone on that integration. We’re not announcing when and where it might be available, but I do believe the ability to include loyalty information as part of the transaction is very important to our guests, and I think it is one more step.

Today, Panera has almost 50% of our transactions where the consumer gives us their rewards number. Clearly, we do that in-app and we see about 70% of those transactions with the loyalty identifier. So we will continue to do that. We have a well-accepted, perhaps industry-leading program, with 20 million consumers signed up.

RBA Consults on Changes to Card Payment Systems

In March, the Reserve Bank commenced a review of the regulatory framework for card payments. As part of this process, the Bank released an Issues Paper that noted some developments in the payments system that raised concerns given the Bank’s mandate to promote competition and efficiency in the payments system. Bank staff have since consulted extensively with stakeholders on these matters.

At its meeting of 20 November, the Payments System Board agreed to consult on changes to the standards for card payment systems. The Bank has today released a Consultation Paper containing amended draft standards. A summary of the proposed reforms is provided below and in some Q&A on the Bank’s website. Stakeholders are invited to make submissions on the draft standards by 3 February.

The draft standards include changes to the regulation of surcharges on card payments and interchange payments in card systems. In preparing the draft changes to the surcharging standard, Reserve Bank staff have consulted with staff from the Treasury and the Australian Competition and Consumer Commission (ACCC) regarding the Government’s plans to ban excessive surcharging and give enforcement powers to the ACCC. The Government has today announced draft legislation that will insert a ban on surcharging in excess of merchant costs into the Competition and Consumer Act (2010).

Changes to the Bank’s Surcharging Standard

Merchants incur costs when they accept a payment from a customer, and different payment methods can have very different payment costs; cards that provide significant rewards to consumers are typically significantly more expensive for merchants. When merchants have the right to surcharge on more expensive payment methods they are able to provide price signals to consumers and encourage the use of less expensive payment methods. By helping to hold down payment costs, the right to surcharge helps to hold down the price of goods and services charged to all consumers and reduces the extent of subsidisation between those who pay with cheaper payment methods and those who use more expensive methods.

It is important, however that merchants do not impose surcharges in excess of their actual payment costs. The Bank has had concerns about excessive surcharging in some sectors for some time. Accordingly, and consistent with the Government’s draft legislation, the Board is proposing to change the Bank’s surcharging standard with the aim of ensuring that customers cannot be surcharged any more than the cost of accepting cards. The proposed standard preserves the right of merchants to surcharge for more expensive payment methods but includes changes to enhance transparency and improve enforcement in cases where merchants are surcharging excessively.

The draft standard envisages the following framework for surcharging of card payments:

Card schemes will not be permitted to make rules that prevent merchants from recovering part or all of the costs of accepting card payments.
However, card acceptance costs will be defined more narrowly than in the Bank’s current guidance note, as the merchant service fee and other fees paid to the merchant’s bank (or other payment service provider).
Statements provided by banks to merchants will be required to contain easy-to-understand information on the average cost of acceptance for each payment method, which will constitute the maximum permissible surcharge if the merchant chooses to surcharge.
These statements will express acceptance costs in percentage terms, except where a merchant’s cost of acceptance for a particular payment method is fixed across all transaction values. This should ensure that merchants – including in the airline industry – who wish to surcharge will typically do so in percentage terms rather than as a fixed dollar amount.

Reserve Bank staff will continue to consult with the ACCC and will be working with banks, other payment service providers and the merchant community to develop templates for providing information on payment costs to merchants. The Bank expects that the more specific definition of the cost of acceptance and the transparency measures that are being proposed will result in enhanced enforcement of the surcharging framework in cases where merchants may be surcharging excessively.

Changes to the Bank’s Interchange Standards

Interchange fees are fees set by card schemes such as MasterCard, Visa and eftpos that require payments from the merchant’s bank to the cardholder’s bank on every transaction. While there may be a useful role for interchange fees when a card network is first established, the case for significant interchange fees in mature card systems is much less clear. Where merchants do not feel able to decline cards, the incentive is for schemes to raise interchange rates to induce banks to issue their cards and for banks to then use these fees to pay rewards to consumers to take and use the cards. Evidence from a range of countries suggests that competition between well-established payment card networks can lead to the perverse result of increasing the price of payment services to merchants (and higher retail prices for consumers).

Accordingly, in 2003 the Bank introduced benchmarks intended to prevent the significant upward pressure on interchange rates seen in many markets. Contrary to predictions by the international schemes at the time of the initial regulations, the Australian cards market has continued to grow very strongly since then and innovation has thrived. The Bank’s reforms have been supported by the leading Australian consumer and merchant organisations. Following the Bank’s reforms, a number of other jurisdictions have also regulated interchange fees.

The Bank’s Issues Paper drew attention to a number of issues related to interchange fees:

the decline in transparency for some end users of the card systems, which is partly because interchange fees have become increasingly complicated and the range of interchange fee categories has widened
the question of whether there is scope for average interchange fees to fall further, consistent with falls in overall resource costs in the card systems and as was contemplated in both the conclusions to the Bank’s 2007–08 Review of Card Payment System Reforms and the Final Report of the Financial System Inquiry
the possibility that the growth of companion card arrangements may indicate that the current regulatory system is not fully competitively neutral.

Following consultation on these issues with a wide range of stakeholders, the Board is proposing some changes to the Bank’s interchange standards that will improve competition and efficiency in the card payments market and in the broader payments system.

The Bank is proposing to modify the credit card interchange standard so that issuance of American Express companion cards will be subject to the same interchange fee regulation that applies to the MasterCard and Visa systems. In particular, interchange fees will be defined to also include fees paid by schemes to card-issuing banks as incentives to issue cards. In addition, both companion card issuance and traditional ‘four-party’ card issuance will be subject to rules on ‘other net payments’ to issuers, so as to prevent any circumvention of the interchange standards.

The Bank is not proposing to replace the current system of weighted-average interchange benchmarks with hard caps. The weighted-average benchmark for credit cards will remain at 0.50 per cent. However, the Bank is proposing to reduce the weighted-average benchmark for debit cards from 12 cents to 8 cents, consistent with the fall in average transaction values since the debit benchmark was introduced.

The weighted-average benchmarks will be supplemented by caps on any individual interchange fee within a scheme’s schedule. It is proposed that no credit card interchange fee will be able to exceed 0.80 per cent and no debit interchange fee will be able to exceed 15 cents if levied as a fixed amount or 0.20 per cent if levied as a percentage amount. These changes are expected to significantly reduce the extent to which small and medium-sized merchants are disadvantaged relative to a group of preferred merchants in the MasterCard and Visa interchange systems.

There are some other proposed changes to the system of benchmarks including a shift from three-yearly compliance to quarterly compliance. In addition, it is proposed that all transactions at Australian merchants will be included in calculations for observance of the benchmarks, with transactions on foreign-issued cards treated equivalently to transactions on domestic cards. Transactions on prepaid cards will be included with debit cards in the observance of the debit benchmark.

Next Steps

The Board seeks views on the draft surcharging and interchange standards as well as on other issues discussed in the Consultation Paper. The Consultation Paper also seeks industry views on appropriate implementation dates for any revised standards. Formal written submissions on these issues are requested by 3 February 2016.

Given the complexity of issues involving interchange fees and companion cards, it is unlikely that the Board will take any formal decision on changes to the interchange standards before its May 2016 meeting. In the case of surcharging, depending on consultation responses, it is possible that the Board may be in a position to make an earlier decision on changes to its standards.

Cash No Longer King for Australian Shoppers

According to the Galaxy research commissioned by MasterCard, Australians of all ages continue to embrace contactless payments, with 66% preferring to use tap and go for small transactions under a $100 instead of entering their PIN, and 64% favoring it as a payment method over cash. The study was conducted online during October 2015 using a sample of 1,005 Australians aged between 18-64 years old, who have a credit or debit card.

Results from the survey showed that speed and convenience continue to generate increased adoption of the technology by Aussies (77%), and safety benefits available through contactless cards are also contributing to its growing popularity over cash; the majority of Australians (82%) believe they are more likely to be reimbursed for unauthorised contactless payments made with a stolen credit or debit card than they are likely to get stolen cash back.

First introduced into Australia in 2007, contactless payments have been one of the fastest-adopted payment technologies globally, and despite recent reports, MasterCard data in addition to industry data, reveals no increase in fraud specifically relating to contactless payments. Australian Card Data* has found that fraud relating to contactless payments makes up less than 2% of all total card fraud. This is despite huge growth in the category, where contactless MasterCard transactions have grown 148% based on card data compiled by MasterCard and Visa showing that number of Contactless MasterCard transactions grew 148% between July 2013 and 2014.

MasterCard SVP and Country Manager, Andrew Cartwright said “This research indicates not only a shift in the preferred methods in which consumers like to pay, but also suggests that they are beginning to understand and trust the safety benefits associated with paying by card. As contactless payments continue to rise, cash is increasingly become unnecessary real estate in wallets.

“I’ll take a card any day of the week – it is safer than cash. With a card I’m protected against unauthorised purchases, whereas, if my wallet is stolen, the cash is as good as gone”, said Cartwright.

Shoppers in West Australia have the highest preference for contactless payments in the country (72%), followed by shoppers in NSW (67%), VIC and TAS (66%).

Apple Pay Users Replace Credit, Debit Cards with Mobile Payments

From eMarketer.

Users make purchases with Apple Pay frequently

In the year since Apple Pay launched, users have come to embrace it. In fact, many have completely replaced their use of contactless credit and debit cards in favor of Apple’s payment method.

Phoenix Marketing International surveyed 3,000 general purpose credit card or debit card owners ages 18 and older online each quarter from Q1 to Q3, totaling 9,000 respondents. In September, 79% of US Apple Pay users said they had completely replaced their use of contactless plastic credit and debit cards, up from 51% just three months earlier.

The percentage of US Apple Pay users who had mostly or partially replaced using a contactless plastic credit card or debit card with Apple Pay decreased quarter over quarter, likely due to more Apple Pay users moving to complete replacement.

Consumers are growing comfortable making mobile payments like Apple Pay. By 2016, nearly one in five smartphone users will use mobile proximity payments, eMarketer estimates. And, since Apple Pay’s launch last year, consumers are more at ease with making in-store and in-app purchases, and they’re frequently doing so.

June 2015 research from Auriemma Consulting Group (ACG) found that 34% of Apple Pay users made an in-store purchase more than three times a week using Apple Pay. Additionally, 28% of respondents said they made an in-app purchase using Apple Pay more than three times a week.

PayPal joins eftpos and plans to connect to the Hub in 2016

eftpos today announced that PayPal had become the latest payments company to join the eftpos membership, with plans to connect directly to the company’s new real time, centralised payments infrastructure, the eftpos Hub, in 2016.

eftpos Managing Director, Mr Bruce Mansfield, said PayPal was a popular payment option for Australian consumers and merchants and was a welcome addition to the eftpos Membership.

Mr Mansfield said eftpos had recently upgraded its infrastructure for Online payments and would work with PayPal and other Members to ensure that eftpos would be available to consumers and merchants as a payment option for online transactions. PayPal is only the fourth new eftpos Member to join since the inception of eftpos as a payment system in 2009, following ING Direct, Tyro and Adyen.

“We are very pleased that PayPal has decided to join eftpos and directly access the real-time processing capabilities of the eftpos Hub infrastructure and other benefits of being a Member,” Mr Mansfield said. “PayPal plays an important role in Australian Online payments and eftpos should be available as a payments choice for PayPal users. “eftpos is happy to work with PayPal to make eftpos payments available to more Australian consumers and merchants on new platforms.”

The eftpos Hub is a robust, reliable, secure and scalable centralised infrastructure that aims to provide the industry with cost effective, real time payments processing, as well as an enhanced capability to implement new products and services.

Since being launched in September 2014, the Hub is already processing almost 3 million eftpos CHQ and SAV transactions a day. Ms Libby Roy, Vice President and Managing Director of PayPal Australia said, “eftpos is an established and important part of the payments landscape in Australia with a strong consumer base. We’re very happy to be working together to enable eftpos payments through the PayPal network. “Our membership of eftpos takes us one step closer to giving consumers the ability to use any funding mechanism through PayPal to transact securely and conveniently online and via mobile devices.”

eftpos is the most widely-used card system in Australia, accounting for more than 2.3 billion CHQ and SAV transactions in 2015 worth more than $140 billion.

The Disruptive Power of Digital Currencies

The BIS Committee on Payments and Market Infrastructures just published a report on Digital currencies. New digital platforms have the potential to disrupt traditional payment mechanisms. Much of the innovation is emerging from non-bank sectors and in a devolved, decentralised, peer-to-peer mode, without connection to sovereign currencies or authority. So how should central banks respond?

One option is to consider using the technology itself to issue digital currencies. In a sense, central banks already issue “digital currency” in that reserve balances now only exist in electronic form and are liabilities of the central bank. The question is whether such digital liabilities should be issued using new technology and be made more widely available than at present. This raises a wide range of questions, including the impact on the payments system, the privacy of transactions, the impact on private sector innovation, the impact on deposits held at commercial banks, the impact on financial stability of making a risk-free digital asset more widely available, the impact on the transmission of monetary policy, the technology which would be deployed in such a system and the extent to which it could be decentralised, and what type of entities would exist in such a system and how they should be regulated. Within the central bank community, the Bank of Canada and the Bank of England have begun research into a number of these topics.

Overall, the report considers the possible implications of interest to central banks arising from these innovations. First, many of the risks that are relevant for e-money and other electronic payment instruments are also relevant for digital currencies as assets being used as a means of payment. Second, the development of distributed ledger technology is an innovation with potentially broad applications. Wider use of distributed ledgers by new entrants or incumbents could have implications extending beyond payments, including their possible adoption by some financial market infrastructures (FMIs), and more broadly by other networks in the financial system and the economy as a whole. Because of these considerations, it is recommended that central banks continue monitoring and analysing the implications of these developments, both in digital currencies and distributed ledger technology. DFA questions whether this “watch and monitor” response is a sufficient strategy.

Central banks typically take an interest in retail payments as part of their role in maintaining the stability and efficiency of the financial system and preserving confidence in their currencies. Innovations in retail payments can have important implications for safety and efficiency; accordingly, many central banks monitor these developments. The emergence of what are frequently referred to as “digital currencies” was noted in recent reports by the Committee on Payments and Market Infrastructures (CPMI) on innovations and non-banks in retail payments. A subgroup was formed within the CPMI Working Group on Retail Payments to undertake an analysis of such “currencies” and to prepare a report for the Committee.

The subgroup has identified three key aspects relating to the development of digital currencies. The first is the assets (such as bitcoins) featured in many digital currency schemes. These assets typically have some monetary characteristics (such as being used as a means of payment), but are not typically issued in or connected to a sovereign currency, are not a liability of any entity and are not backed by any authority. Furthermore, they have zero intrinsic value and, as a result, they derive value only from the belief that they might be exchanged for other goods or services, or a certain amount of sovereign currency, at a later point in time. The second key aspect is the way in which these digital currencies are transferred, typically via a built-in distributed ledger. This aspect can be viewed as the genuinely innovative element within digital currency schemes. The third aspect is the variety of third-party institutions, almost exclusively non-banks, which have been active in developing and operating digital currency and distributed ledger mechanisms. These three aspects characterise the types of digital currencies discussed in this report.

A range of factors are potentially relevant for the development and use of digital currencies and distributed ledgers. Similar to retail payment systems or payment instruments, network effects are important for digital currencies, and there are a range of features and issues that are likely to influence the extent to which these network effects may be realised. It has also been considered whether there may be gaps in traditional payment services that are or might be addressed by digital currency schemes. One potential source of advantage, for example, is that a digital currency has a global reach by design. Moreover, distributed ledgers may offer lower costs to end users compared with existing centralised arrangements for at least some types of transactions. Also relevant to the emergence of digital currency schemes are issues of security and trust, as regards the asset, the distributed ledger, and the entities offering intermediation services related to digital currencies.

Digital currencies and distributed ledgers are an innovation that could have a range of impacts on many areas, especially on payment systems and services. These impacts could include the disruption of existing business models and systems, as well as the emergence of new financial, economic and social interactions and linkages. Even if the current digital currency schemes do not persist, it is likely that other schemes based on the same underlying procedures and distributed ledger technology will continue to emerge and develop.

The asset aspect of digital currencies has some similarities with previous analysis carried out in other contexts (eg there is analytical work from the late 1990s on the development of e-money that could compete with central bank and commercial bank money). However, unlike traditional e-money, digital currencies are not a liability of an individual or institution, nor are they backed by an authority. Furthermore, they have zero intrinsic value and, as a result, they derive value only from the belief that they might be exchanged for other goods or services, or a certain amount of sovereign currency, at a later point in time. Accordingly, holders of digital currency may face substantially greater costs and losses associated with price and liquidity risk than holders of sovereign currency.

The genuinely innovative element seems to be the distributed ledger, especially in combination with digital currencies that are not tied to money denominated in any sovereign currency. The main innovation lies in the possibility of making peer-to-peer payments in a decentralised network in the absence of trust between the parties or in any other third party. Digital currencies and distributed ledgers are closely tied together in most schemes today, but this close integration is not strictly necessary, at least from a theoretical point of view.

This report describes a range of issues that affect digital currencies based on distributed ledgers. Some of these issues may work to limit the growth of these schemes, which could remain a niche product even in the long term. However, the arrangements also offer some interesting features from both demand side and supply side perspectives. These features may drive the development of the schemes and even lead to widespread acceptance if risks and other barriers are adequately addressed.

The emergence of distributed ledger technology could present a hypothetical challenge to central banks, not through replacing a central bank with some other kind of central body but mainly because it reduces the functions of a central body and, in an extreme case, may obviate the need for a central body entirely for certain functions. For example, settlement might no longer require a central ledger held by a central body if banks (or other entities) could agree on changes to a common ledger in a way that does not require a central record-keeper and allows each bank to hold a copy of the (distributed) common ledger. Similarly, in some extreme scenarios, the role of a central body that issues a sovereign currency could be diminished by protocols for issuing non-sovereign currencies that are not the liability of any central institution.

There are different ways in which these systems might develop: either in isolation, as an alternative to existing payment systems and schemes, or in combination with existing systems or providers. These approaches would have different implications, but both could have significant effects on retail payment services and potentially on FMIs. There could also be potential effects on monetary policy or financial stability. However, for any of these implications to materialise, a substantial increase in the use of digital currencies and/or distributed ledgers would need to take place. Central banks could consider – as a potential policy response to these developments – investigating the potential uses of distributed ledgers in payment systems or other types of FMIs.

How the payments industry is being disrupted

A good overview of the disruption underway in payments from McKinsey.

Global payments revenues have been growing at rates in excess of expectations. Once again, Asia—and China in particular—is the primary engine propelling the global numbers, but all regions, even those where revenues have recently been in decline, are contributing to the surge. Payments growth is currently a truly global phenomenon.

Looking ahead, however, we expect global payments revenues will begin to reflect the flip side of Asia’s prominence as a growth driver. The expected macroeconomic slowdown in Asia–Pacific, in other words, is dampening expectations for payments growth overall. However, the turnaround in other markets will make up for some of this decline. We forecast that this rebalancing between emerging and developed markets will lead to tempered but still healthy revenue growth of 6 percent annually through 2019.

Our most recent research reveals several additional trends of note. In 2014, as in 2013, growth resulted primarily from volume rather than margin growth ($105 billion versus $30 billion). Liquidity-related revenues (those linked to outstanding transaction-account balances) were again the largest revenue-growth contributor (53 percent). But transaction-related revenues (those directly linked to payments transactions) climbed more strongly in Europe, the Middle East, and Africa (EMEA), as well as in North America, contributing more to revenues than they have in any year since 2008.

We expect the contribution of transaction-related revenues to continue rising through 2019, growing at a compound annual growth rate (CAGR) of 7 percent (compared with 5 percent for liquidity revenues) and contributing more to global payments-revenue growth for the period ($360 billion compared with $220 billion). Weakening macroeconomic fundamentals, primarily in Asia–Pacific, will mostly affect worldwide liquidity revenues; transaction-related revenues, more driven by payments-specific trends and the ongoing migration of paper to digital, will continue to grow at historical rates. Further, the digital revolution in customer behavior and the intensifying competition will likely revive the “war on cash,” giving further impetus to transaction-related revenues. Still, with CAGRs of 9 percent in EMEA and 7 percent in North America, liquidity revenues should continue to grow as interbank rates recover from historically low levels.

We also anticipate a rebalancing of revenue growth. During the past five years, payments revenues grew at a CAGR of 18 percent for Asia–Pacific and Latin America combined, comparing favorably with flat revenues in EMEA and North America. During the next five years, however, these growth rates will be 6.5 percent and 6 percent, respectively.

Setting aside changes in macroeconomic fundamentals that are difficult to predict, we foresee four potential disruptions that will alter the payments landscape in the coming years:

Nonbank digital entrants will transform the customer experience, reshaping the payments and broader financial-services landscape. The payments industry has recently seen the entry of diverse nonbank digital players, both technology giants and start-ups, that are presenting increased competition for banks. While start-ups have generally not been a major threat to the banking industry in the past, we believe things will be different this time due to the nature of the attackers, the prominence of smartphones as a channel, and rapidly evolving customer expectations. To maintain their customer relationships and stay relevant, banks will need to respond to these changes with new strategies, capabilities, and operating models.

Modernization of domestic payments infrastructures is under way. The industry is currently going through a wave of infrastructure modernization that is required to compete effectively with nonbank innovators and address evolving customer needs. More than 15 countries have modernized their payments infrastructures in the past few years, and many others are in the planning stage. Because infrastructure upgrades are costly at both the system and bank levels, banks need to find ways to build products and services on top of the infrastructure that provide value to end users and accelerate the war on cash, in order to recover these investments as quickly as possible.

Cross-border payments inefficiencies are opening doors for new players. The entry of nonbank players and new infrastructure demands are not limited to domestic payments: they will also affect cross-border payments. To date, banks have done little to improve the back-end systems and processes involved in cross-border payments. As a result, cross-border payments remain expensive for customers, who also face numerous pain points (for example, lack of transparency and tracking, as well as slow processing times). However, as nonbank players increasingly encroach on the traditional cross-border turf of banks—moving from consumer-to-consumer to business-to-business cross-border payments—they will force many banks to rethink their long-standing approaches to cross-border payments.

Digitization in retail banking has important implications for transaction bankers. The digital revolution will extend well beyond consumer payments and retail banking, causing significant changes in transaction banking. As customers grow accustomed to faster and more convenient payments on the retail side, they will soon demand similar conveniences and service levels in transaction banking. Having witnessed the impact of nonbanks in consumer banking, transaction bankers are becoming more aware of the nonbank threat in their own backyard and of the potentially major downside of failing to invest in digital infrastructures and services.

Overall, we expect to see the payments industry continue to grow at a moderated yet healthy rate during the next five years. But amid that growth, there will be a rebalancing of revenue sources, and, more important, powerful disruptive forces will begin to reshape the global payments landscape.

Apple Pay Now In Australia, For Some

As expected Apple Pay has now officially launched in Australia, but only for some because here, Apple has teamed up with American Express and the online payments provider eWAY.

To use the system, first consumers will need an American Express card – direct from Amex, not from a bank who re brands the Amex card. Then consumers will need an Apple device with fingerprint recognition, or an Apple watch.

Assuming the default payment details in the consumers iTunes account is an Amex, or by using the iPhone camera to take a photograph of the Amex card, Apple Pay can be set up.

In store, the device can then pay wave, using the id confirmation built into the phone, or consumers can purchase via an app, using the Touch ID, simplifying the purchase process.

The merchant end is handled by eWAY. According to the web site:

Apple Pay will be available to all eWAY merchants when it is launched in Australia. All eWAY accounts come ready with American Express, so you’ll need to check you’ve selected American Express in MyeWAY. The two ways to accept Apple Pay are in-person or in-app.if you’re an eWAY merchant with an app, your eWAY account will allow your customers to check out with a single touch using Apple Pay. Checkout is simple and there is no need to manually fill out lengthy account forms or repeatedly type in shipping and billing information.

Customers love shopping in-app, and if you already have an app ready or you’re wanting to develop one and take Apple Pay, you’re on your way to massive sales.

Make your checkout simple with Apple Pay
Your customers won’t need to retype shipping or billing information
Increase conversions with faster checkout
Credit card details are kept private and not shared with the merchant for security
Make your app more innovative and seamless

Shopping in apps with Apple Pay can be as simple as the touch of a finger, so iPhone and iPad® users can pay for physical goods and services, including clothing, electronics, beauty products, tickets and more.

In Australia, Apple Pay users will receive all the benefits of protecting personal information, transaction data, and credit and debit card information with the industry-leading security Apple Pay brings. The actual numbers of the credit card are not stored on the device. To protect you, a unique Device Account Number is assigned, encrypted and securely stored in the Secure Element on the Apple device, and each transaction is authorised with a one-time unique dynamic security code.

As the merchant, you don’t receive your customer’s actual credit or debit card numbers, so you aren’t handling actual credit or debit card numbers in your systems when they pay with Apple Pay.

CBA Expands Digital Wallet

CBA has announced that the CommBank app Tap & Pay now supports both MasterCard and American Express credit card payments, adding to the existing debit card functionality and giving more Australians the ability to further embrace the digital wallet and manage their money on-the-go.

Customers can now make credit card purchases at the Point of Sale using CommBank app Tap & Pay on all Android handsets with NFC, as well as the CommBank PayTag solution for iPhone users. CommBank is the first Australian bank to roll out American Express payments on all Android devices.

The latest development of the digital wallet reflects rapid customer adoption of contactless payments. Since launching Tap & Pay supporting Debit MasterCard using NFC technology in Android phones in March this year, more than 300,000 cards have been set up on the CommBank app and one million transactions have been processed.

Angus Sullivan, Executive General Manager, Retail Products and Strategy, Commonwealth Bank, said:

“Australia has some of the highest volumes of contactless payments globally and with more than 2.8 million users of the CommBank app each week, we are focused on delivering innovative payment features to our customers.

“This next evolution of the digital wallet places the power of mobile technology in the hands of even more Australians, giving them more convenient access to their finances whenever and wherever they are,” he said.

Delivering value beyond making payments

Tap & Pay is one of many features developed by CommBank to deliver simple and convenient mobile experiences. Others include:

Loyalty feature in the CommBank app allows customers to scan the barcode of their physical loyalty cards and add a digital copy of them to the CommBank app, eliminating the need for a physical wallet.
Cardless Cash in the CommBank app allows customers to make withdrawals at ATMs without the need for a physical card.
Lock, Block & Limit provides a safe and immediate way to lock credit cards for overseas purchases, block ATM cash advances, set spending limits, as well as put a temporary lock on a misplaced card or report a lost/stolen card for replacement.
The CommBank Offers app, currently piloting at Westfield Hornsby, enables customers who have an iPhone 5 or above to opt-in and take advantage of tailored merchant offers that deliver value based on their shopping behaviour and location.

Federal Reserve Announces Sixth Triennial Study to Examine U.S. Payments Usage

The Federal Reserve today announced plans to conduct its sixth triennial study to determine the current aggregate volume and composition of electronic and check payments in the United States. The study builds upon research begun by the Federal Reserve in 2001 to provide the public and the payments industry with estimates and trend information about the evolving nature of the nation’s payments system. A public report containing initial topline estimates is expected to be published in December 2016.

“Over the 15-year life of the study, the survey instruments have been adapted and updated to keep pace with the dynamic change in the U.S. payments system,” said Mary Kepler, senior vice president of the Federal Reserve Bank of Atlanta and the study’s executive sponsor. “Not surprisingly, the 2016 study will incorporate a number of significant enhancements, including an expansion of fraud-related information and an increase in the number of depository and financial institutions sampled. These improvements will strengthen the value of the trend information and insights to be presented with the study’s findings,” Kepler said.

The 2016 Federal Reserve Payments Study consists of three complimentary survey efforts commissioned to estimate the number, dollar value and composition of retail noncash payments in the United States for calendar year 2015. The study will request full-year 2015 payments data for various payment types from respondents to two of the three survey components; the third component involves a random sampling of checks processed in 2015 to determine distribution of party, counterparty and purpose. Results from all three survey components will be used to estimate current trends in the use of payment instruments by U.S. consumers and businesses. Previous studies have revealed significant changes in the U.S. payments system over time, most recently the increasing preference for debit, credit and stored-value cards among consumers and a leveling in growth of other electronic payment types such as the Automated Clearing House network. The Federal Reserve will work with McKinsey & Company and Blueflame Consulting, LLC to conduct this research study.

Additionally, the Federal Reserve plans to supplement its triennial research with two smaller annual research efforts to provide key payments volume and trends estimates in 2017 and 2018. “The industry’s participation and willingness to provide the full scope of the data requested is paramount to our ability to publish the timely and relevant results the industry has come to rely on to help objectively evaluate changes in the nation’s payments landscape,” Kepler said.

More information about Federal Reserve Financial Services can be found at www.frbservices.org. The website also contains links to the five previous Payments Studies.

The Financial Services Policy Committee (FSPC) is responsible for the overall direction of financial services and related support functions for the Federal Reserve Banks, as well as for providing Federal Reserve leadership in dealing with the evolving U.S. payments system. The FSPC is composed of three Reserve Bank presidents and two Reserve Bank first vice presidents.