The digital transformation of Europe’s non-bank payment sector is set to deliver instant, frictionless and ‘invisible’ transactions.
These were some of the key messages to emerge from a unique panel debate that saw five of Europe’s top payments industry executives come together to discuss current and future challenges and opportunities for the payments sector.
The senior executives debate, in the form of a fireside chat, was a central focus of the European Payment Institutions Federation’s (EPIF) day long annual 2018 workshop held late last month in Brussels.
Entitled “European Payments: Driving the Next Technology Revolution”, the workshop was particularly timely coinciding with the formal coming into operation of the instant payment zone in the Eurozone and the European Central Bank’s (ECB) launch of its settlement engine for retail payments (TIPS).
Moderating the senior executives debate, current EPIF chair and vice president of European Government Affairs at American Express Elie Beyrouthy said that in such a fast moving industry as payment services, responding to consumer needs was paramount.
He posed the question; “How is the Payments industry adapting to consumer needs and what particular solutions do consumers seem to be favouring? That’s the million-dollar question.”
Thomas Haarman, Country Manager for Germany at Elavon, said responding to both consumer needs and to new technological innovation differed across EU member states as customer requirements were not always the same.
“It’s not just ok to say there’s one requirement which covers everything and everyone. The Germans are different to the UK who are different to the Irish or the Polish, the environments are different.”
“How is the Payments industry adapting to consumer needs and what particular solutions do consumers seem to be favouring? That’s the million-dollar question” EPIF chair and vice president of European Government Affairs at American Express Elie Beyrouthy
He explained that currently, in Germany, only twenty per cent of transactions are card payment related, with eighty percent of transactions still done using cash.
Meanwhile in Europe’s Nordic region, digital payments are almost universal. So the consumer need, or customer requirement, in Germany for major e-commerce payments is still invoice. “That may come as a surprise, but it is a clear requirement and merchants need to deliver what consumers want when it comes to payments.”
Ruwan De Soyza, Deputy Group General Counsel at payment processing giants Worldpay said his company’s three hundred thousand merchant base, “input into us about what they see their consumers wanting and needing. Primarily consumers want instantaneous, frictionless payment and more often than not, that’s means they want invisible payments.”
Consumers, he explained, want to buy something in a safe and protected manner, but they don’t want to have to input their card details or dig something out of their wallet to do it.
“It’s not just ok to say there’s one requirement which covers everything and everyone. The Germans are different to the UK who are different to the Irish or the Polish, the environments are different” Thomas Haarman, Country Manager for Germany at Elavon
The issues of customer convenience versus a high degree of safety and security are at the heart of the ‘frictionless’ debate surrounding European Banking Authority standards on Strong Customer authentication (SCA) requirements for merchants.
“SCA is a good example of something that introduces friction while Uber is a great example of frictionless e-commerce. Consumers want to be able to get out of their cab and walk to their door without having to make a payment but knowing it’s going through, and that they’ve authorised it to happen.”
For Worldpay and for many of EPIF’s 190 other payment institutions and non-bank payment providers, the two-stage identification and authentication aspect of SCA is seen as impeding the growth of frictionless e-commerce and to the development of innovative payment products and mechanisms.
"A lot of customers are asking us, “How do we get around SCA?" Because they’re anticipating 40 percent drop-out rates in customers and consumers because of the requirement for two factor Authentication”.
“SCA is a good example of something that introduces friction while Uber is a great example of frictionless e-commerce" Ruwan De Soyza, Deputy Group General Counsel at Worldpay
“What we are striving to do is to find a manner in which we can provide a secure, safe, fast, SCA compliant methodology without introducing that type of drop-out rate, because that’s what consumers really want".
"They want the trust, they want the safety, but they also want the payment method to be instantaneous and invisible. And that is what our industry is going to have to look at and find.”
Rafael Marquez, Executive Vice President, Consumer & Joint Ventures at American Express suggested that, consumer need was not necessarily linked directly to desire but by the presentation of a product that is more appealing and easier and use.
“Henry Ford used to say that what customers wanted was faster horses, not cars.”
"The challenge, in my opinion, is not what the customer needs, it is how can we generate and produce products that are appealing and that the customers value" Rafael Marquez, Executive Vice President, Consumer & Joint Ventures at American Express
“I didn’t need Facebook, I didn’t need Amazon a while ago, but now I cannot live without it. So, the challenge, in my opinion, is not what the customer needs, it is how can we generate and produce products that are appealing and that the customers value?”
Echoing the previous speakers, Marquez highlighted how the fast pace of technological change and innovation was bringing disruption to the payments industry. “Europe is mostly moving towards contactless payments, but I don’t know if that is going to be the final point of arrival or not.”
The use of Near Field Communication (NFC) technology - that allows two devices, such as a phone and payments terminal to talk to each other when they’re close together - for commerce is expected to drive the uptake of card-less transactions.
On the issue of regulation Paysafecard CEO, Udo Mueller highlighted how much the technological revolution had impacted on the financial sector: “So, 20 years ago, there was let’s say for us, one banking regulation. Now there are a lot of different regulations from GDPR, AML, EMD1, EMD2, PSD2 and so on.”
"I am very thankful and happy for a forum like this, providing an opportunity where business, regulators and consumers, can discuss and find balanced approaches for fostering innovation” Paysafecard CEO, Udo Mueller
For Mueller it’s clear that the payments industry needs to respect and follow EU regulations while regulators should respect and accept new technologies and new ideas into their regulations.
“Therefore I am very thankful and happy for a forum like this, providing an opportunity where business, regulators and consumers, can discuss and find balanced approaches for fostering innovation.”
Giulio Montemagno the CEO of Amazon Pay Europe said it was no secret that the Payments industry was concerned about the challenges and implementation that SCA will present.
“There is concern in the industry on whether the industry itself will be ready to comply with all these rules by September 2019. He went on to add, “We all recognise that it is a very, very, difficult job,” but he warned, regulators need to understand what is going on today and set up rules that are good for the next ten or fifteen years.
“There are pieces of regulations that really create the wide incentives for companies to continue to innovate and create competition" Giulio Montemagno,CEO of Amazon Pay Europe
However he also highlighted that regulation when it “opens up possibilities” can foster competition and serve consumer needs.
“There are pieces of regulations that really create the wide incentives for companies to continue to innovate and create competition."
"So, the TIPS initiative, I think is a fantastic example of this because it really opens up many possibilities for the industry as for the end consumers and merchants. We’re very positive and very optimistic about the development of PSD2 because again, it fosters and innovation, increases competition.”
In closing Elie Beyrouthy told the packed audience that the senior executives had made all of us in the room “very optimistic about the future”