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New payment forms and rulesThe stakes for marketeers
in the financial services industry
Simon Lelieveldt
Financial services landscape: changing (fast)
Applicable rules
Nature of technology
Internationalisation Nature of competition
Outside EU New technologies
Niche focused
European market for financial services
Nature of demand
Economic growthInterest rate
Increase of scale
Infrastructure(central banks)
Unbundling
Payments as the working laboratory
•Drivers of change• Technology• Regulation
•Customer demand
•Conclusions
•Challenges for marketeers
Technology - trends
• From proprietary technology, to open infrastructures and lower cost
• Traditional competitive technological advantage becomes a handicap for the existing financial institutions
• Locking in customers is no longer an option
• Building payments as modular building blocks using an API-infrastructure and tokenisation
• Further innovation: public ledgers / blockchain
Composing the payment product…Payment
type
Pay Before
Pay Now
Pay Later
Mode
Internet
IVR/ASR
SMS / MMS
BLE
HCE
NFC
Devices
PersonalComputer
Landlinetelephone
Tablet
Token
Smartphone
POS-terminal payment card
Context
Banking-securities-savings-payments
Digital content
Internet-payments
UnmannedPOS-payments(vending/parking)
POS-paymentsin merchant shop
Virtual currency players
Authent
TAN / PIN
Card-PIN
Calling LineIdentification
SWIM
UserID/password
Biometrics
Paymentsupplier
Bank
E-money Institution
Payment Service Provider
Billing serviceProviders (ISP, Telco)
Third Party Payment Service Provider
Brands & Networks
Bitcoin and the blockchain
Bitcoin• Value, attached to solved puzzle of complicated calculation• Made by users themselves• Registered in a public blockchain that everyone can
verify/validate
Blockchain• Currently, numerous applications of blockchain / ledger concepts• Playing around with private / public records and business cases• The Internet of things… smart contracts
What really matters….
Bank
E-money Institution
Payment Service Provider
Billing serviceProviders (ISP, Telco)
Third Party Payment Service Provider
Brands , Retailers &Networks
UserContext
ID & Authentication
Fullfillment
Payment SupplierUser context requires
proper identificationand authentication
(or reputation) as the main building blocks
So where is the competition ?
• We expect that the main competition will come from non-banks who play a role in eCommerce and mobile payments (Paypal, Google, Apple, payment processors, etc.)
Source: Finextra Survey, May 2015
Big data…. and the mental divide
Technology – wrap up
• From legacy systems to APIs that slice up the value chain
• New channels (mobile) create the omni-channel challenge
• Importance of authentication and identity
• Using public ledgers and reputation to shape credibility
• Towards an internet of things, with smart contracts
• Big data with big consequences and big differences
Regulation…
Internet store bol.com
Eventim, Theatres& ticketmaster
All bookshops in Netherlands
Max 100-150 euro, valid for 18 months,No redeemability
Max 150 euro, unlimited validity, redeemable
Max 150 euro, unlimited validity, redeemable
Prepayment of services
Limited Network Electronic Money
Regulation…
Challenge: How can regulated financial service providers achieve a similarservice level (ease of use) as non-financial retailers that providesimilar services?
How can regulatory hurdles turn into appreciated assurance?
EU-Regulations for payments
• EU regulations shaping the market:
• Settlement Finality Directive (1998/2009)
• Electronic Money Directive (2001-2009)
• Consumer protection rules (1987-2014)
• SEPA and the Payment Services Directive (2009-2014)
• Anti-Money Laundering Rules (2005-2014)
• Competition Cases and regulation (1988-2014)
• MIF Regulation (2015/751)
Gamechanger - 1
Multilateral Interchange Fee Regulation (2015/751)
• Limits retailers fees for debit/credit-card transactions
• Reduces interbanc fee compensation in the cards domain
• Requires bank (industry) to rethink their business model and packaging of services
Similar regulatory interventions exist for other business lines.
Gamechanger - 2
Revision of Payment Services Directive (2015/751)Requires banks to• open up their accounts systems • to allow payment initiation service providers • to execute one-off payment transactions • on behalf of the banks’ own customers
• Entry into force/implementation by the end of 2017• EBA Draft regulatory standard for interfacing
Gamechanger - 2
Revision of Payment Services Directive (2015/751)Requires banks to• open up their accounts systems • to allow payment initiation service providers • to execute one-off payment transactions on behalf of the banks’
own customers
• Entry into force/implementation by the end of 2017• EBA Draft regulatory standard for interfacing
The payment initiation service providers do not necessarily enter into contractual relation with the account servicing payment service providers and, regardless of business model used by the payment initiation service providers, the account servicing payment service providers shall make it possible for payment initiation service providers to rely on the authentication procedures provided by the account servicing payments service providers to initiate a specific payment on behalf of the payer.
Impact of PSD on business models
For our bank rethinking our retail banking customer relationship and business/revenue model is the most important issue:
Source: Finextra Survey, May 2015
But an opportunity as well…
PSD offers banks the opportunity to become a Third Party Processor (TPP) and access accounts of their customers held at other banks
Source: Finextra Survey, May 2015
Customer demand
Customer demand
•Payments are a hygiene factor• It’s about avoiding the hassle / discomfort• It’s never about the payment• It’s always about the world outside the payment
•Payments habits remain local• Culture and technology still pave a local usage path
Customer demand
•Non-financial service providers set the service standard• Banks have a hard time maintaining an optimal service
experience, particularly for the younger generations
•Customers are less likely to:• Stay with their bank• Refer others• Buy additional products
Source: World Retail Banking Report, EFMA/CAP Gemini, 2015
Customer demand: instant and omnichannel
• All over the world, instant payment projects are starting up to ensure 24/7 payment and settlement• Central banks set up back-end infrastructure
• Market develops interfaces / protocol / standard
• Consumers unlikely to accept an incomplete view of themselves by their financial institution • Get the view of your institution as experienced by the customer
• Requires omnichannel approach in servicing, marketing and brand experience
All is not lost for financial institutions…
• 84% of customers trust the app from their bank, versus 5% from social network providers and other new market entrants
Source: IPSOS/ING Survey, April 2015
Conclusion #1
Although many Fintech companies stumble on the learning curve, the remaining challengers pose
serious challenges to the financial services industry
Conclusion #2
Regulation will additionally force financial institutions to open up and rethink business
models amidst a crowded regulatory agenda.
Conclusion #3
Despite the trusted position of financial institutions, time is running out quickly.
The relevance and urgency of a seamless and excellent customer service is very high.
Challenges for marketeers #1
Ensure a service and brand experience that cancompete with niche-entrants and non-regulated
(web-)retailers
Help the customer overcome regulatory hurdles with ease
Challenges for marketeers #2
Be aware of the mental divide where ‘classic’
providers of financial services are held to a
different privacy-standard than ‘new entrants’
Challenges for marketeers #3
While todays focus is on identity/profile,
the next challenge may be
to turn profiles into reputations
(and digital tokens)
A final thought…
What if Bitcoin wouldn’t be about moving money
towards a digital customer-owned blockchain but
about moving all customer data there?