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We expect (and welcome!) a big push in mobile payments for 2017

Thursday 15 December 2016 | 10:42 AM CET

Alessandro Longoni, PaymentGenesInstant payments complement the PSD2 scope quite well, as they pave the way for new payment products to be developed

What is PaymentGenes’ mission in the payments industry in a few words? What makes it different from other similar companies?

PaymentGenes is a consulting and recruitment firm founded by industry specialists. We aim to offer advice for both merchants and payment institutions regarding payment related topics, from what is the most efficient/effective way to process online payments for merchants, to what sort of products are needed to be developed for the future at payment institutions, banks and FinTech companies.

Merchants that are willing to enter new markets or new channels often face difficulties when selecting the right partner and the right products. At the same time, Payment Service Providers can make the most of the future market changes that both regulation and technical developments bring, if guided by expert parties. This is where PaymentGenes comes in. On the recruitment side of our business, we provide our clients with the best possible matches in a short timeframe. Helping companies with different projects enables us to familiarise ourselves quickly and efficiently with them in order to match the best people to expand their teams. This also allows us to familiarise ourselves with each clients’ culture and needs, ultimately saving time and effort in creating world-class teams.

Based on our experience in the industry, we decided to look at what we expect for next year in payments, and summarised it in three major points that we believe will create a strong impact in our industry. 2017 will definitely be an interesting year for the European payment players, with regulatory and technical developments that will finally allow consumers to reap the most benefits of this industry developments.

Will mobile payments finally become a reality?

Mobile payments have been promised for more than 15 years now. From the success stories of Mpesa, DoCoMo and the likes, it seemed as if mobile payments will become our main way of spending our money in the digital world.

Unfortunately, however, that promise has not yet been realised. Mobile payments have been a hype for a number of years, and if you haven’t kept track of the Juniper reports in the past, you would be surprised to look back at their predictions and how close to reality they came to be (spoiler alert: not very close, unfortunately). 2017 will be the tenth anniversary of the iPhone. Ten years later, the most popular mobile phone in the Western world is finally able to carry out payments at the POS terminal, thanks to the NFC chip that Apple has developed over the last couple of years.

However, while Apple installed the chip, it decided not to allow any external party to use it for payment transactions, effectively forcing everyone to use Apple Pay, if available in their country. Apple Pay, while a promising innovation for the consumer on paper, has a very difficult business model for issuers. This is why we are witnessing a slow growth pace in Europe. Android owners, on the other hand, are free to use whatever payment application they want, as Google enabled Host Card Emulation and let developers build their own payment applications. This allows for much easier business models to be created, and more and more banks and card issuers now offer Virtual Cards (debit or credit), which act just like your regular plastic card when put in front of the POS terminal.

We expect (and welcome!) a big push in mobile payments for 2017. The main contenders (Apple Pay, Samsung Pay, Android HCE options) are all quite active, and the user base is reasonably large. The European POS terminals are mostly ready for contactless transactions, and so we expect 2017 to be the year of Mobile Payments.

How is PSD2 re-defining the market landscape for EU payments?

Following the vote to adopt the new Directive in late 2015, the European Commission highlighted the key points of the new legislation, which guided its development: Making payments throughout Europe safer and more secure, and enabling innovation by allowing new payment services to enter the market. While this sounds like the perfect promise to European consumers, the banks and payment institutions must be ready to comply with the laws, when implemented by January 2018.

Even though a two-year period does not sound like a major hurdle, the technical standards that will guide this “open market” are not available yet. EBA, the body appointed to write them, is currently struggling with finding a good balance between drafting strong guidance and considering industry’s opinions. EBA has recently announced that the original publication date for the first standards to be delayed by one month, to February 2017.

2017 will be an interesting year for PSD2: Member States have the opportunity to implement the directive with room to play with different provisions (Directives guide the formulation of Member Laws, and leave “room for interpretation”), therefore different Member States can “compete” with each other, writing more inviting laws for companies to be attracted to that state. For example, the Directive definition of payment and payment instrument are broad.

Even more interesting, a number of EU countries stated that they will not comply to all of the Directive’s guidelines. The UK, Slovakia and Estonia clearly took a stance saying they will not implement the Strong Customer Authentication guidelines. Other countries said they will comply “partially” to such measures, with the main argument being that “players will have to make substantial changes to their processes and products”.

This is a good example of what kind of differences we can come to expect by local implementations of the laws, and therefore of the business requirements that could be found in different Member States.

How will money transfer become instantaneous?

Among the market changes that will make 2017 exciting is one that gets less attention than PSD2. This one will create a big impact on the way consumers (and corporates!) will pay in the future. The Sepa Instant Credit Transfer (SCT Inst) scheme is set to be launched in November 2017, which will allow consumers to send payments of up to 15,000 Euros, with the receiver being credited “in a matter of seconds”, within 10s of the payment initiation.

This type of credit transfer is not new to the market. In the UK, the Faster Payments scheme is widely used and appreciated, so it makes sense for merchants and corporates to expect a similar scheme for the wider European market. One of the main benefits of such a scheme would be not only towards merchants, but also for consumer to consumer payments. Currently there are many “wallets” that fill the gap for an immediate confirmation that the funds will be credited, and even some B2C schemes being stretched as far as allowing C2C payments, such as iDeal in The Netherlands.

Instant payments also complement the PSD2 scope quite well. While money transfer is part of our everyday life nowadays, the funds are usually settled at a later moment than the transaction confirmation. This creates efficiencies for inter-bank settlement, but for consumers and merchants especially, it creates cash flow problems that are long due for a revision.

While the PSD2 focuses on increasing the security of payment instruments, SCT Inst focuses on making the transfer effectively immediate. In an ideal world, where the funds arrive at the same moment as the confirmation, the need for alternative payment methods other than bank transfers, will be very limited.

About PaymentGenes

PaymentGenes is a consulting and recruitment firm founded by industry specialists. We offer advice for both merchants and payment institutions regarding payment related topics, in addition to matching leading payments firms with payments professionals and creating world-class payments teams.

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