Category: Payments

Mobile Payment via BPay

BPAY, Australia’s leading bill payments scheme, said it looks forward to offering the first service on Australia’s New Payments Platform (NPP).

Currently known within the NPP project as the “Initial Convenience Service” (ICS), this payment service will let consumers immediately transfer funds to and from their bank accounts via their mobile phone, tablet, or via the internet.

“The introduction of ICS will accelerate the move away from cheques and cash towards digital payments,” said BPAY Group Chief Executive John Banfield.

The ICS will be launched in 2017 and will allow consumers to easily send payments in real-time to someone’s mobile phone number or email address, include more information with payments and allow Government departments and businesses to include documentation with payments.
The ICS is the first service to use the NPP which is being developed by NPP Australia Limited (NPPA) and its 12 Participant Financial Institutions and is the industry response to the Reserve Bank of Australia’s strategic objectives on payments innovation.

“The ICS will act as a catalyst for further innovation in electronic payments from all Australian financial institutions. This will benefit consumers and businesses alike,” Mr Banfield said.

“The ICS has the full support of the industry and will be critical in the success of the NPP,” added Mr Banfield.

Earlier today, NPPA announced that BPAY had won a competitive process to build the ICS. The ICS is the first of many expected overlay services to use NPP.

NPP is new infrastructure for Australia’s low-value payments. It will provide Australian businesses and consumers with a fast, versatile, data-rich payments system for making their everyday payments. The NPP is being developed collaboratively by authorised deposit-taking institutions.

BPAY is owned by Australia’s four major banks, with more than 150 financial institutions now offering the BPAY bill payments service. In FY2014/15, BPAY handled over 368 million payments worth approximately $325 billion.

Amex Holders First To Use Apple Pay In Australia

As reported  by the tech blog 9to5Mac, Apple has just announced that its mobile payments service, Apple Pay, will be available to American Express users in Australia and Canada in 2015 and Spain, Singapore and Hong Kong in 2016.

Apple chief Tim Cook said that Apple Pay would be made available only to “eligible American Express customers in these regions”, represent a reduced roll out compared with users in the UK or the US.  The Australian deployment will bring the total number of Apple Pay markets to four.

Apple Pay’s mobile payment and digital wallet offering allows users to make payments with their iOS devices, including Apple Watch. At its US launch Apple said more than 1 million credit cards had been registered on Apple Pay in its first three days of availability.

Payments In Australia, The Evolving Landscape

Tony Richards, Head of Payments Policy, RBA, spoke at the APCA Australian Payments 2015 Conference today. He gave an update on current payment initiatives in Australia, including NPP, payments coordination, and the interchange regime. He also mentioned the outcomes from the FSI.

The first is the initiatives that came out of the 2012 conclusions of the Reserve Bank’s Strategic Review of Innovation in the Payments System. The background to the Review was a growing amount of evidence that the services provided to end-users of the Australian payments system were falling behind the services available to end-users in some other countries.

The most prominent outcome of the Review was that the Bank asked the payments industry to consider ways of filling the gaps in the payments system that had been identified in the Review. As you know, the industry – coordinated by APCA – proposed a project, which has been developed over the past three years, to build some new industry infrastructure which will be called the New Payments Platform (NPP). The NPP will deliver real-time, data-rich payments to end-users on a 24/7 basis. It will also be a platform for all sorts of other innovative services, many of which we cannot yet imagine.

The Bank has been heavily involved in this project. It is one of the 12 financial institutions that have agreed to fund the build of the NPP and to connect to it when it goes live. The Bank is also developing a new service, the Fast Settlement Service (FSS), which will provide real-time settlement of NPP transactions. My colleagues in Payments Settlements Department are making good progress on the FSS.

Paul Lahiff, the Chair of NPP Australia Ltd, will be speaking to you in more detail about the status of the NPP, but I can tell you that the Payments System Board (the Board), having encouraged this project, has been taking a close interest in it and has been pleased by the excellent collaboration in the industry.

Another initiative coming out of the Strategic Review of Innovation was that the Bank called for the establishment of an enhanced industry coordination body. The intention was that this should take a more strategic view than existing industry governance bodies and have membership from a wider range of institutions than had traditionally been the case for APCA. It was also to have high-level representation, with individuals who are more able to commit their organisations to courses of action agreed by the group.

The rationale for this focus on industry governance was that the identified gaps in the services offered to end-users partly reflected difficulties in getting the industry to work together to develop the cooperative elements of payment systems. The development of common rules, standards, communications networks and other infrastructure sometimes requires collaborative innovation, where institutions have to work together. There was a concern that this had previously proved difficult in Australia.

I’m happy to say that there has been good progress here. The Australian Payments Council held its first meeting in late 2014 and – as you will have heard in the first session today – has recently been consulting on an Australian Payments Plan, seeking views on long-term trends, systemic challenges and desirable characteristics for the payments system.

The first meeting between the Board and the Council occurred in August. The Board is looking forward to seeing the progress that the Council makes on its payments plan. The Council may be a useful vehicle for the payments industry, including the Bank, to think about some of our legacy payment systems, in particular the future of the cheque system.

Fraud, digital identity and cyber security are other areas where there could be real benefits to industry collaboration. Of course, they are not just issues for the payments system. Cyber security and digital identity were referred to in the Government’s response to the Financial System Inquiry (FSI) Report and are issues that touch the entire financial system and, indeed, the broader economy.

The second issue I would like to cover is the Bank’s ongoing Review of Card Payments Regulation.

In its March 2014 submission to the FSI, the Bank indicated that it would be reviewing some aspects of the regulatory framework for card payments. The Final Report of the FSI, which was released in December 2014, endorsed the broad nature of the Bank’s reforms over the past decade or more but noted a few areas where the Inquiry believed the existing framework could be improved. The Bank released an Issues Paper in March 2015, inviting submissions on a broad range of issues in card payments regulation, including those raised in the FSI Report. I will touch on four of these issues.

The first is the growing lack of transparency of payment costs to many merchants. While interchange fees on credit and debit cards are currently subject to benchmarks that must be observed every three years, there has been a tendency for the two large international four-party schemes to promote new, high-interchange, high-rewards cards. At the same time, they have introduced lower interchange rates for ‘strategic’ or other preferred merchants. These merchants get the same low interchange rate – for credit cards, as low as 20 basis points – on all their transactions, even if a super-premium, high-rewards card is presented. But smaller merchants and others who do not benefit from strategic rates pay interchange rates of up to 200 basis points on their transactions. Furthermore, when presented with a card, such merchants may have no way of knowing if it is a card with a 30 basis point interchange rate or a 200 basis point rate. So the issues that we have raised are the growing lack of transparency of payment costs for many merchants and the growing wedge in average payment costs between preferred and nonpreferred merchants.

Second, the Bank is consulting on whether it would be desirable to lower the interchange benchmarks or to make other changes to the system, such as to have more frequent compliance. One issue here is that the behaviour of schemes and issuers under the current three-yearly compliance system is seeing average interchange rates rising significantly above the benchmark in between compliance dates.

The third issue is whether it would be desirable to extend the coverage of the regulatory framework for interchange payments. This is especially relevant in the case of companion cards – in particular, bank-issued American Express cards, which have issuer fees and other payments that are equivalent in many respects to interchange payments.

The final major issue for the Review is concerns over excessive surcharging in some industries. There is a balance to be struck here between ensuring that merchants have the right to surcharge for expensive payment methods, including some cards, and ensuring that they do not surcharge excessively. Excessive surcharging is not a widespread problem, but I think we can all point to a few cases where there are genuine concerns. The Board is keen to take action here.

The Board discussed the Review in its August meeting and will be discussing it again at its November meeting. In preparation for discussions about possible changes in the regulatory framework, the Board has recently taken a decision to designate five payment systems: the American Express companion card system, the Debit MasterCard system and the eftpos, MasterCard and Visa prepaid card systems. Designation does not impose regulation nor does it commit the Bank to a regulatory course of action; rather it is the first of a number of steps the Bank must take to exercise any of its regulatory powers.

Any proposals to apply regulation to designated systems through standards or access regimes are subject to requirements for detailed consultation. Designation of these five systems will allow a more holistic consideration of the issues – including issues such as the regulatory treatment of companion cards and prepaid cards – as the Bank continues with review of the regulatory framework and considers the case for changes to the framework.

As you know, there has been a lot of discussion of the issues that the Review is focusing on. Banks, payment schemes, consumer organisations and merchants have been able to express views in four different contexts: the original FSI call for submissions, submissions on the FSI’s interim report, the Government’s call for comments on the FSI Final Report, and responses to the Bank’s Issues Paper. And in turn, the industry will have seen the Bank’s views in at least three different vehicles: the Bank’s two submissions to the FSI in 2014 and its Issues Paper from March this year.

We have received over 40 submissions in response to the Issues Paper, with all non-confidential submissions published on our website. The Bank also hosted an industry roundtable in June and has held around 40 meetings with stakeholders.

Overall, there appear to be some areas where there is common ground across most stakeholders. For example, there is fairly wide acceptance that the widening of the international schemes’ interchange fee schedules has created issues in terms of the rising cost of card payments to nonpreferred merchants and the declining transparency of the cost of card payments to them. There is also general agreement that it would be good to deal with instances of excessive surcharging.

However, there are other areas where there are real differences in the views expressed by different stakeholders. These include issues such as whether companion card arrangements should be subject to regulation and whether there might be a case for a reduction in the interchange fee benchmarks.

It will be up to the Board to weigh up the arguments on some of these contentious issues, balancing the interests of consumers, businesses, financial institutions and card schemes. As always, its consideration will be based on its mandate to promote competition and efficiency in the payments system. And let me stress again that if the Board decides to propose changes to the regulatory framework, the Bank will, as usual, undertake a thorough consultation process on any draft standards.

Finally, as you will know, the Government released its response to the FSI yesterday. Its response referred to the Bank’s review and noted that it was looking forward to the Board completing its work on the issues of interchange fees and surcharging. The Government also indicated that it will ban excessive surcharging and give the ACCC enforcement power in this area. I would expect that once the Board has provided greater clarity on what constitutes excessive surcharging, we will work closely with Treasury and the ACCC on legislation. I expect that we will end up with a framework where the Board has decided on a narrower definition of costs of acceptance and allowable surcharges and where the Bank will be able to count on help from the ACCC in the enforcement of the new framework.

RBA Designation of Payment Systems

More of the payments systems in Australia will potentially subject to regulatory intervention, because following a resolution of the Payments System Board, the Reserve Bank has designated the American Express companion card system, the Debit MasterCard system and the eftpos, MasterCard and Visa prepaid card systems under the Payment Systems (Regulation) Act 1998.

The Board determined that it was in the public interest to designate these systems, having regard to the desirability of payment systems being efficient and competitive.

Designation does not impose regulation; rather it is the first of a number of steps the Bank must take to exercise any of its regulatory powers. Any proposals to apply regulation to designated systems through standards or access regimes are subject to requirements for detailed consultation.

Designation of these five systems will allow a more holistic consideration of the issues as the Bank undertakes the current review of the regulatory framework for card payments and considers the case for changes to that framework. The Board expects to discuss these issues at its November meeting.

This may lead the way to reconsidering the level of interchange fees between the transacting parties, especially where the payment systems are closed rather than open.

In its March 2014 submission to the Financial System Inquiry (FSI), the Bank indicated that it would be reviewing aspects of the regulatory framework for card payments, including the issuance of companion cards, interchange fee arrangements in card systems and surcharging practices. The Final Report of the FSI endorsed the broad nature of the Bank’s reforms over the past decade or more but noted a few areas where the Inquiry believed the existing regulatory framework could be improved.

The Bank released an Issues Paper in March 2015, inviting submissions on a broad range of issues in card payments regulation, including those raised in the FSI Report. The Bank received over 40 submissions, with non-confidential submissions published on its website. It hosted an industry roundtable in June and has held around 40 meetings with stakeholders. Consistent with the Board’s instructions in August, Reserve Bank staff conducted liaison with the relevant schemes in September ahead of the decision to designate.

Means of payments and SMEs – where are we heading?

Speech by Mr Yves Mersch, Member of the Executive Board of the European Central Bank.

No economy can prosper without healthy, competitive and flourishing small and medium-sized enterprises (SMEs). They are the foundation on which the European economy is built and constitute more than 99% of all firms in the euro area. They employ more than two-thirds of the workforce and generate around 60% of value added. According to recent research, SMEs accounted for around 85% of total employment growth between 2002 and 2010 and have much higher employment growth rates than large enterprises.

The financial crisis hit the financing of SMEs particularly hard. This explains why, in recent years, the ECB and the European Commission have strongly emphasised measures that support both bank and non-bank financing of the European SME sector. These measures and policy initiatives include strengthening bank financing by facilitating longer-term financing and promoting healthier balance sheets. They also aim to diversify into non-bank financing via more efficient securitisation, better transparency and more efficient wholesale infrastructure.1 This is why the ECB strongly supports the European Commission’s initiative to establish a European capital markets union, which will allow businesses to enjoy a greater range of funding choices and help reduce the link between a firm’s location and its funding costs.

However, there are other policies that have received less public attention in relation to the competitiveness of the European SME sector, one of the most important being integration and innovation in the retail payments market, particularly for payments in euro. This is what I will focus on tonight.

2. Past achievements

Over the past years the public and private sectors have worked together to create the Single Euro Payments Area (SEPA). Regulatory measures and market developments have combined to remove the distinction between domestic and cross-border payments in euro. Retail payments have become much faster, cheaper and more secure. Instead of taking three to five days, euro credit transfers and direct debits are now executed within one business day, not only at the domestic level but also across borders. Fees for cross-border euro transactions decreased to the same level as those for domestic transactions. Last, but certainly not least, payments in general have become more secure due to stronger regulatory attention and requirements.

However, work still remains to further develop an integrated, innovative and competitive market for euro retail payments. To this end, the ECB established the Euro Retail Payments Board (ERPB) at the end of 2013. In this high-level strategic body the demand and supply sides of payment services are given equal importance. SMEs, as a key demand-side stakeholder group, are represented by UEAPME and Mr Cohen-Hadad. I am convinced that, with this collaborative governance structure, we can be both efficient and output driven.

3. What will the future bring?

Let me turn now to the future. How will the work of the Euro Retail Payments Board benefit SMEs?

First, the ECB and ERPB are monitoring the completion of SEPA migration, which is due next year, with the phasing out of national niche credit transfers and direct debits and other waivers. Furthermore, full migration to SEPA credit transfers and SEPA direct debits by non-euro area countries is being monitored. This final stage of the long process of adapting common standards for basic payment services will deliver on the promise to be able to use one single account for euro payments throughout the EU.

Second, the ERPB has called for the launch of a pan-European instant credit transfer scheme in euro. Instant payments are retail payments where the funds sent by the payer are irrevocably credited to the beneficiary’s account within seconds of the payment being initiated. Payment service providers are already working on an instant SEPA credit transfer scheme. I expect that instant payment services in euro will be made widely available to European consumers and small businesses by 2018.

The experiences of other markets – particularly the United Kingdom – show that SMEs greatly benefit from faster payment execution. Receiving and making credit transfers instantly will free up cash flow and ease working capital needs. It can also replace card, cheque or cash payments in business situations where goods or services are only delivered against immediate and irrevocable payment and where accepting or making payments with these traditional payment instruments is cumbersome.

Third, electronic invoicing has long been on the agenda of European policy-makers. The ERPB could investigate how a pan-European electronic invoicing landscape could be enriched with more efficient links to payment services. By replacing paper invoices with electronic ones and creating a seamless link between the invoicing process and payment initiation, significant resources can be freed up and used for other purposes. This requires pan-European standards and networks to ensure that as many billers and payers as possible are reached. All this will be discussed at the next meeting of the ERPB in November with a view to the direction to take.

Fourth, as many SMEs are small merchants accepting hundreds or thousands of payments every day at physical points of sale or online from consumers, the work of the ERPB in consumer card and mobile payments is particularly relevant, as this represents a rapidly growing share of the payment mix. The ERPB could focus on two areas here: i) person-to-person mobile payments enabling the convenient initiation of payments to another mobile phone user (be they consumer or merchant); and ii) contactless payments where a fast payment can be made by simply holding the mobile device or card above a merchant’s terminal.

Finally, the ERPB also oversees work on traditional technical card standardisation. Such technical standardisation will greatly contribute to a competitive card acquiring industry. In the longer term, this will lead to significantly lower costs for handling card terminals and accepting cards, especially for small merchants.

All of these initiatives aim to contribute to a more efficient and competitive landscape for euro payment services. It is vital to maintain their momentum because they come at a time when the digitalisation of communication and information technology is triggering fundamental structural changes in banking and finance. The traditional retail payments business of banks faces strong competition from financial technology (“FinTech”) companies. These are not only small start-ups but also large international enterprises. The so-called GAFAs; namely Google, Apple, Facebook and Amazon, are all offering payment services or considering doing so. While the new players bring further competition to the market, which is welcome, it is important that there is a level playing field for competition that ensures compliance with regulatory requirements and appropriate customer protection.

4. Concluding remarks

Although the contribution of retail payments integration to the competitiveness of SMEs has received less public attention than other related measures, SMEs have significantly benefitted from the creation of the Single Euro Payments Area, as well as from the ERPB initiatives that will deepen the integration achieved by SEPA and exploit the innovative potential of digitalisation.

However, there is no room for complacency. When building the retail payments infrastructure of tomorrow, we certainly need the supply side, but we also want the demand side to shape the products according to its needs. The Euro Retail Payments Board offers a unique opportunity for all stakeholders to articulate their concrete expectations and requirements. I therefore invite you to represent SMEs in the ERPB with the same enthusiasm, energy and vigour as when Etienne Marcel – the eponymous Provost of Merchants under Jean II le Bon – stood up for the small tradesmen of Paris in the 1300s.

Rise of cryptocurrencies like bitcoin begs question: what is money?

From The Conversation.

When you begin to delve into the question of what money really is, you must be prepared for some metaphysics. Money, currencies and other such media of exchange differ markedly in their backgrounds and means of operation, and have changed quite recently into forms that are barely understandable.

For centuries, minted coins not only represented the value and trust of banks, their depositors and eventually nation-states, but also were deemed valuable because they were made from precious metals like gold and silver. These metals are difficult to move around in large quantities, and so banknotes were invented as early as the seventh century in China and brought to Europe in the 13th century. Unlike coins, banknotes were not treated as valuable in themselves since they were simply printed on otherwise worthless paper. Rather, they served as a form of promissory note or IOU that could be presented to the banks that issued them in exchange for their face value in precious metal, coins or bullion.

In the 20th century, most central banks and governments stopped backing up their currencies with precious metals, and yet banknotes maintain fluctuating values, with some in high demand as media for exchange both domestically and internationally. Dollars and euros are highly regarded and preferred currencies for international commerce, as well as for stocking private bank accounts.

Now we have bitcoins and other digital currencies that exist entirely in blocks of zeros and ones and are even “mined” by machines running algorithms. And earlier this month, bitcoins and their ilk were officially deemed commodities by the Commodity Futures Trading Commission, which will now regulate them.

So as the greenbacks and quarters in our pockets slowly disappear, replaced by strings of digits stored on our smartphones, and money takes another step away from being tied to anything of value, a philosophical question comes to mind: does money still exist? And if so, what gives it its value?

The Guardian explains bitcoin.

What’s value without value?

Money is a “fungible” item, which means that exchange of any one portion for a portion of equal value is not a “taking” of property. That is, you don’t own a particular US$100 bill. You own the value it represents.

This is how banks have long worked, since when you deposit your money, you are not entitled to receive the same coins or bills back as you deposited. This is also how “fractional reserve” banking began (in which banks do not keep all the curency on deposit “within” the bank, just some fraction of it) and was not regarded somehow as theft. People took their money to a bank, they were given a note of deposit, which entitled them to withdraw the same amount plus some interest, but they were not entitled to the same coins or bills that they deposited.

The money on deposit in a bank is not all physically in the bank (excepting that which is in safety deposit boxes) and has not been really since banking was invented. When you deposit a sum, you no longer own the paper or other medium of exchange used for the deposit, legally. What you own is a debt and obligation by the bank to return the equivalent amount of money with interest.

John Searle has described things like money as “some special sort” of social objects. That is, X (coins, bills, strings of digits) work as Y (money) in context C (an economy, coffee shop, bank, etc). In the case of money, anything can conceivably take on the Y role even without an X (think a barter economy). Where metals, then bills and now bits in computer memory take the role of X, money might well be a “free-standing” Y, meaning it could exist without anything to represent it except the web of intentional states (the debts and obligations) that make more familiar forms of money function. It’s only physical manifestation might be a note in a ledger.

Without precious metal standards backing national currencies, and in the age of digital transactions, money is decreasingly tied to banknotes, just as its ties to metals have faded. Digital ledgers track exchanges and accounts, with digital strings in computer memories representing the trust and value we once attached to more solid things like coins, bills and notes, in more ephemeral digitally encoded, instantly accessible forms attached to cellphones, computers and chip cards.

A brave new world

New types of cryptocurrencies (where cryptography protects its integrity) like bitcoin and others take the concept one step further, distributing the banking to all its users, tying the transactions and ledgers to no particular party but to all users at once. This is similar to mirrored bank servers, but bitcoin is mirrored among all bitcoin owners.

A bitcoin is as ownable as dollars are when they are deposited in a bank. Skipping the stage of physical, fungible currencies, bitcoins exist by virtue of their representations in a ledger in cyberspace. The information encoded in a massively distributed and constantly updated blockchain is incapable of the exclusivity required for owning objects in the traditional sense. But the same is true of the information that tracks most of the money in the world. Money in nearly every denomination exists and flows in a similar state, represented by digital bits.

Bitcoins nonetheless lack some of the institutional guarantees that other types of money has due to nations and their laws.

Trading on trust

Depositors to banks are protected in their debts by states, generally, and through contracts with their banks. State insurance and the contractual guarantee that a bank will pay back what has been put into them mean that there is some force behind our trust in the continued existence of a person’s wealth while digitally stored in a bank’s servers. The blockchain exists on many servers at once, spread across the universe of bitcoin owners.

Without government insurance or contractual guarantees, only mutual trust maintains the value and integrity of the system. What bitcoin owners own is the debt, just as those who own money in banks own debts that are recorded in bits. They do not own the bits that comprise the information representing that debt, nor the information itself, they own the social object – the money – that those bits represent.

Bank ledgers exist. They are tangible, even though digital, and they record the debts owed among parties. While cyberspace is ephemeral, it is still real and physically based. Digital bank ledgers now track money without the necessity for physical transfers of currencies.

Bitcoins too exist as digital records of obligations, physically encoded on servers of those who hold them, propagated and distributed for transparency and security, encrypted for privacy. Bitcoins are as real as money in banks. What’s most fascinating about these new digital cryptocurrencies is how much they reveal about the surreal nature of currencies and wealth in our digitized economy.

If bitcoins are as real as any other money, how real can money be?

Author: David Koepsell, Adjunct Associate Professor, University at Buffalo, The State University of New York

 

The Future of Cash – a UK Perspective

The Bank of England says those claiming “the death of cash” is imminent, are mistaken. They do so in a pre-released an article from its Quarterly Bulletin 2015 Q3 – How has cash usage evolved in recent decades? What might drive demand in the future?

The issuance of banknotes is probably the most recognisable function of the Bank of England. Banknotes are a form of physical money that people use as a store of value and as a medium of exchange when buying or selling goods and services. The Bank of England seeks to ensure that demand for its banknotes is met, and that the public retains confidence in those banknotes.

The payments landscape has changed considerably in recent decades. People can now make payments using debit and credit cards (including contactless technology), internet banking, mobile ‘wallets’, and smartphone apps.

Yet despite these developments, cash continues to be important in the United Kingdom, with demand for Bank of England notes growing faster than nominal GDP.

BOE-CashThere is now the equivalent of around £1,000 in banknotes in circulation for each person in the United Kingdom.

The growth in demand for banknotes has been driven by three different markets:

  • The evidence available indicates that no more than half of Bank of England notes in circulation are likely to be held for use within the domestic economy for legitimate purposes. This includes cash used for transactions and for ‘hoarding’.
  • The remainder is likely to be held overseas or for use in the shadow economy. However, given the untraceable nature of cash, it is not possible to determine precisely how much is held in each market.

The future rate of growth in demand for cash is uncertain and will depend on a number of factors including alternative payment technologies, retailer and financial institution preferences, government intervention, and socio-economic developments. Finally — and probably most importantly — it will depend on the public’s attitude towards cash. Over the next few years, consumers are likely to use cash for a smaller proportion of the payments they make. Even so, given consumer preferences and the wider uses of cash, overall demand is likely to remain resilient. Cash is not likely to die out any time soon.

As such, the Bank continues to work with the cash industry, and to invest in banknotes. The next few years will see the launch of new banknotes for the £5, £10, and £20 denominations. The new notes will be made of a polymer substrate — a cleaner and more durable material — and will incorporate leading-edge security features that will strengthen their resilience against the threat of counterfeiting.

They also released a short video on the topic.

New report examines payment aspects of financial inclusion

The Committee on Payments and Market Infrastructures (CPMI) and the World Bank Group today issued a consultative report on Payment aspects of financial inclusion. The report examines demand and supply-side factors affecting financial inclusion in the context of payment systems and services, and suggests measures to address these issues.

Financial inclusion efforts – from a payment perspective – should aim at achieving a number of objectives. Ideally, all individuals and businesses should have access to and be able to use at least one transaction account operated by a regulated payment service provider, to: (i) perform most, if not all, of their payment needs; (ii) safely store some value; and (iii) serve as a gateway to other financial services.

Benoît Cœuré, member of the Executive Board of the European Central Bank (ECB) and CPMI Chairman, says that, “With this report, the Committee on Payments and Market Infrastructures and the World Bank Group make an important contribution to improving financial inclusion. Financial inclusion efforts are beneficial not only for those that have no access to financial services, but also for the national payments infrastructure and, ultimately, the economy.”

Gloria M. Grandolini, Senior Director, Finance and Markets Global Practice of the World Bank Group, comments that, “This report will help us better understand how payment systems and services promote access to and effective usage of financial services. It provides an essential tool to meeting our ambitious goal of universal financial access for working-age adults by 2020.”

The report outlines seven guiding principles designed to assist countries that want to advance financial inclusion in their markets through payments: (i) commitment from public and private sector organisations; (ii) a robust legal and regulatory framework underpinning financial inclusion; (iii) safe, efficient and widely reachable financial and ICT infrastructures; (iv) transaction accounts and payment product offerings that effectively meet a broad range of transaction needs; (v) availability of a broad network of access points and interoperable access channels; (vi) effective financial literacy efforts; and (vii) the leveraging of large-volume and recurrent payment streams, including remittances, to advance financial inclusion objectives.

In summary, The CPMI-World Bank Group Task Force on the Payment Aspects of Financial Inclusion (PAFI) started its work in April 2014. The task force was mandated to examine demand and supply side factors affecting financial inclusion in the context of payment systems and services, and to suggest measures that could be taken to address these issues. This report is premised on two key points: (i) efficient, accessible, and safe retail payment systems and services are critical for greater financial inclusion; and (ii) a transaction account is an essential financial service in its own right and can also serve as a gateway to other financial services. For the purposes of this report, transaction accounts are defined as accounts (including e-money accounts) held with banks or other authorised and/or regulated payment service providers (PSPs), which can be used to make and receive payments and to store value.

The report is structured into five chapters. The first chapter provides an introduction and general overview, including a description of the PAFI Task Force and its mandate, a brief discussion of transaction accounts, and the barriers to the access and usage of such accounts. The second chapter gives an overview of the retail payments landscape from a financial inclusion perspective. The third chapter forms the core analytical portion of the report and outlines a framework for enabling access and usage of payment services by the financially excluded. Each component of this framework is discussed in detail in the report.

The fourth chapter of the report describes the key policy objectives when looking at financial inclusion from a payments perspective, and formulates a number of suggestions in the form of guiding principles and key actions for consideration. In this context, financial inclusion efforts undertaken from a payments angle should be aimed at achieving a number of objectives. Ideally, all individuals and micro- and some small-sized businesses – which are more likely to lack some of the basic financial services or be financially excluded than larger businesses – should be able to have access to and use at least one transaction account operated by a regulated payment service provider:
(i) to perform most, if not all, of their payment needs;
(ii) to safely store some value; and
(iii) to serve as a gateway to other financial services.

The guiding principles for achieving these objectives of improved access to and usage of transaction accounts are the following:
• Commitment from public and private sector organisations to broaden financial inclusion is explicit, strong and sustained over time.
• The legal and regulatory framework underpins financial inclusion by effectively addressing all relevant risks and by protecting consumers, while at the same time fostering innovation and competition.
• Robust, safe, efficient and widely reachable financial and ICT infrastructures are effective for the provision of transaction accounts services, and also support the provision of broader financial services.
• The transaction account and payment product offerings effectively meet a broad range of the target population’s transaction needs, at little or no cost.
• The usefulness of transaction accounts is augmented by a broad network of access points that also achieves wide geographical coverage, and by offering a variety of interoperable access channels.
• Individuals gain knowledge, through financial literacy efforts, of the benefits of adopting transaction accounts, how to use those accounts effectively for payment and store-of-value purposes, and how to access other financial services.
• Large-volume and recurrent payment streams, including remittances, are leveraged to advance financial inclusion objectives, namely by increasing the number of transaction accounts and stimulating the frequent usage of these accounts.

Finally, the fifth chapter of the report addresses a number of issues in connection with measuring the effectiveness of financial inclusion efforts in the context of payments and payment services, with a particular emphasis on transaction account adoption and usage.

 

Samsung Pay Ups The Payment Wars

The payment wars continues, with Samsung soon to launch Samsung Pay. A device in their smart phones can interact with almost any payment terminal (not just NFC enabled) so will complete with Apple Pay and other mobile payment systems with a potentially wider merchant base. Samsung Australia is currently working with local financial institutions to customise Samsung Pay with an anticipated launch in 2016.

From The Verge.

Until recently, talking about mobile payments without using words like “confusing” or “mess” meant essentially lying. A confounding mix of banks, carriers, manufacturers, point-of-sale systems, and all the competing interests behind those businesses served to make paying with your phone unreliable. Those problems are finally beginning to fade away thanks to wider adoption and simpler back-end systems, but they’re not gone yet.

Even with Apple Pay, Google Wallet, and the soon-to-be-launched Android Pay, consumers can’t be entirely sure that the little NFC icon they see at registers will guarantee that they can tap to pay. Samsung thinks it has a solution for that last problem, though, and predictably enough it’s called “Samsung Pay.”

It transmits to almost any credit card reader

To fix the problem of ensuring that more stores will take mobile payments, Samsung turned to a clever piece of technology that lets you pay at most any terminal where you can swipe a credit card. The trick comes thanks to a tiny coil that shoots out the same magnetic code that those readers normally get from your credit card. It’s called “Magnetic Secure Transmission,” or MST; it’s built into the Galaxy S6, S6 Edge, S6 Edge+, and Note 5. As with other mobile wallets, Samsung Pay can also let you pay with NFC and it will store loyalty cards and gift cards.

Back in February, Samsung acquired LoopPay, which developed the MST technology, and it wasted little time building it into its phones. LoopPay‘s co-founder, Will Graylin, came over to Samsung with the acquisition. He contends that the threshold at which users will begin to really use mobile payments is 80 percent — that is, 80 percent or more of the stores you visit need to be able to let you pay from your phone. Since Samsung Pay can work with most credit card terminals, Samsung believes that it has a jump start on the competition.

Even though it’s transmitting via a magnet, Samsung Pay seems to be set up to maintain security. It uses tokenization, which means that your actual credit card isn’t sent, instead it uses a temporary one that Visa or Mastercard creates for you. It’s also storing that information in a “trusted execution environment,” which keeps it isolated from any app that might want to access it. Apple Pay also keeps that information in a secure element, but Samsung was quick to point out that Android Pay doesn’t (though it is also tokenized, so the risk is lessened).

To use Samsung Pay, you simply swipe up from the bottom bezel of your phone. It works from the home screen and, in a clever twist, when the phone’s screen is off. A credit card pops up and you unlock it with your fingerprint. At that point, you can either pay with NFC (as with Apple Pay or Android Pay) or hold it up near the spot where you swipe a credit card. Unlike Apple Pay or Android Pay, which can begin their payments process when they detect NFC, Samsung wants its system to be initiated by the user first. That’s why it’s using that swipe-up motion to get it started: it’s easy and works even if the phone is off. (Samsung’s executives weren’t particularly concerned about any confusion that could stem from the fact that the same gesture is used to activate Google Now on other Android phones.)

Swipe up, unlock, tap, done

Samsung trotted a group of reporters over to a Dunkin’ Donuts in New York to show it off and it worked so simply that there’s not a whole lot to say — except that the swipe on the point-of-sale station was a little awkwardly placed. Swipe up, unlock, tap, done.

There are a few places where the MST technology won’t work, namely any credit card reader that requires a physical trigger to activate the card read. That means that ATMs and gas pumps won’t really work with Samsung Pay, but most stores will.

Samsung says that it’s not taking a transaction fee from card issuers, but it is acting as a conduit for some of your transaction information. It sends that along to your phone so you can get receipts, but Graylin says that “we just pass it through” and that Samsung isn’t collecting that data.

Samsung Pay is launching in Korea on August 20th and in the US on September 28th — though a software update which enables it will come sooner. It also says “select US users” will be able to take part in a beta test beginning on August 25th. The service is also planned for the UK, Spain, and China.

Mobile Payments: The Delay of Instant Gratification

Good article from strategy+business, on the fact that platforms like Apple Pay and Google Wallet will need to ensure a seamless and secure experience for merchants and consumers. It once again highlights the upcoming payment wars.

During the next few years, many competitors, from both financial services and the hardware and software industries, will jockey for control of the sector. Payments for retail purchases through smartphone apps still represent a tiny fraction of transactions for the $2 trillion worth of goods and services that pass through retail establishments and banks each year in the United States; still, by 2018 digital wallet transactions will likely grow to represent about 6 percent of total card transactions — the majority being small-ticket purchases made online or within apps. This figure may sound small, but it’s a significant shift: Few would argue that e-commerce isn’t mainstream, yet Internet sales represented only 6 to 7 percent of all retail sales in the United States in 2014.

Just as people tend to compartmentalize their use of credit cards — one card for daily purchases, another for big purchases, and several for specialty retail — they are likely to use different mobile payment apps for different brands and different types of transactions. But only a few general-purpose branded e-wallets are likely to be left standing when the industry shakes out; that’s the nature of shared platforms. The companies that ultimately control the mobile payments platform may be technology companies or banks or retailer consortiums, or a combination of all three. The winners will be those platforms that offer five critical elements:

1. Merchant acceptance. Apple Pay is accepted at more than 700,000 merchant locations, but that number is less than 10 percent of the 8 million to 10 million merchant locations in the United States. This is significant: Consumers are less likely to use a credit card that’s not accepted everywhere. As a point of contrast to mobile adoption, Visa and MasterCard’s traditional plastic cards are accepted at 99 percent of merchant locations.

2. Interoperability. In its current version, Apple Pay does not support all cards or merchants; some private-label store credit cards and regional debit networks are excluded. Eighty-three percent of the credit-issuing market had agreed to be part of Apple Pay when it launched, but that left almost 20 percent of the market unsupported. Recently, Apple has started to expand its coverage. For example, the company worked out an agreement with Discover in April 2015 that will give Discover customers access to the app beginning the following fall. Further expansion will be critical if Apple is to ensure that any customer is able to make a transaction from his or her bank.

3. Security. For consumers and merchants alike, the fear of a breach is currently the number one obstacle to adopting mobile payments. Retailers have taken to heart the experience of Target, whose profits declined 45 percent after its well-publicized security breach in late 2013. The CEO and CIO were let go, and the company spent $250 million, excluding insurance offsets, to address the issue. Apple advanced the game by “tokenizing” the transaction (removing account information from the data flow) and using fingerprint recognition technology. But until end-to-end encryption is in place to secure the entire transaction, security holes will persist. Financial institutions and merchants will continue to battle global criminal sophisticates.

4. Platform integration. Many single-point mobile innovations exist, but they do not fit together seamlessly. One such app is Milo (acquired by eBay in 2010), which performs online searches for specific products in stores near its users’ location. Another app acquired by eBay in 2010, RedLaser, allows consumers to scan a product’s barcode in a store and immediately uncover the lowest price for that product, online or at nearby retailers. Some major retailers, including Starbucks and Walmart, have their own mobile apps with payment capabilities. At first glance, apps like these may seem to offer little more than convenient electronic credit cards. But an app, compared to a mobile-based website, is a more controllable, customizable handheld environment for the retailer. It enables businesses to better analyze customers even as customers gain more intelligence about products and services. With the people on both sides of the point-of-sale becoming smarter about one another, the behavior of shoppers and retailers is poised to change. As part of this transition, retailer loyalty, reward, and payment programs need to be supported by and integrated into shared mobile payment platforms.

5. Marketing data integration. Historically, for a variety of reasons, merchants have been unable to consistently and correctly link an individual consumer record directly to every payment transaction. Today, the convergence of the mobile phone, the payment transaction, and the online environment enables companies to track individual customers from the initial marketing impression all the way through the purchase. Those providers that leverage their mobile platforms for one-to-one marketing — before, during, and after a retail payment transaction — will have a leg up on the competition. They can achieve the holy grail of consumer marketing: precise marketing ROI calculations for segments of one. For example, a merchant could send a digital coupon via text and allow consumers to opt in, and then send personalized reminders only to those consumers. The merchant could then track coupon usage from mobile payments to determine the conversion rate and the overall marketing ROI.

Such scenarios hold great promise. But realizing them requires the establishment a complex web of institutional relationships. Who will track the data? Who will store the data? How will different institutions coordinate? Which standards will be used? And what emerging business models can monetize the new value creation? Not all the answers are obvious. But it is clear that traditional banks and financial institutions will find their greatest opportunity by leveraging their data. When financial institutions couple internal data with external data sources, they can begin to help merchants grow their business and provide consumers with a more personalized and robust shopping experience. The winners will convert that data into enhanced solutions across the value chain: targeted local and national offers, multifactor authentication, and security alerts.

The payment providers that stitch together merchant acceptance, mobile solution integration, and marketing fueled by data will be well on their way to success. Once that finally happens — and it will — customer relationships and marketing will never be the same.