1-
A difficult
political and economic environment
The attention being paid to the Card payments market
by the European Commission and national competition authorities, whose aim is
to act increasingly and strongly to disrupt the status quo, is one of the major
factors contributing to the changes the payments industry is going through.
This scrutiny needs to be seen against the background
of the financial crisis, where the regulation of financial services, including
rules impacting payment systems, has become highly politicised. At the same
time, the media and general public have also become drivers of policy. Public
perception is increasingly forcing companies to rethink how to engage in a more
politicised and emotive debate.
The Public authorities at the European Union as well
as Member States levels are clearly and increasingly considering that the
current anti-competitive bottlenecks existing in the Card Payments sector are
preventing the emergence of truly competitive benefiting the general economy,
retailers and consumers at large. They are also increasingly making a
connection between these bottlenecks and Internet and Mobile Commerce an
essential dimension of the future economic growth and competitiveness, noting
in particular that the positions and behaviours of banks and card schemes are
holding back innovation and new payments products such as Mobile Payments.
And as in cue, the woes experienced by European Banks,
the weaknesses of this sector and lack of appetite for innovation and new
product developments although of a varying degree depending of which country is
concerned and with some exceptions we will discuss later in this post, are
clearly not supporting innovation and audacious strategic moves. European policy-makers therefore will have to contend
with two countervailing pressures over the next five years: the need to enforce
new rules across the board in financial services, while stimulating enough
confidence and demand that lending flows back into the economy, in support of
innovation and growth. For the payments industry, there is an opportunity to
set out some of the real economy implications of its business model and regain
some influence over the political and regulatory debate lost in the crisis
years. For participants in the payments sector looking to have a stake in the
future legal framework, these seismic shifts mean that they need to engage in a
regular and structured dialogue on policy and regulatory issues - rather than
purely on commercial considerations with key decision-makers in Europe, on a
sustained basis.
2-
Regulation: A
busy agenda until 2014
The combination of
distrust towards the banking industry, the economic and financial crisis,
consumer resistance to hidden charges, the irresistible emergence of the
digital/mobile convergence ecosystem and the increasingly essential
articulation between the physical and virtual / digital retail distribution
channels are driving the debate on interchange.
In the wake of the Green Paper on Cards,
Internet and Mobile Payments presented and submitted to public consultation in
2012 by the European, the full extent of the possible changes should become
apparent during the summer months of 2013, when the European Commission will
adopt a wide-ranging legislative agenda including a possible Regulation on
Multilateral Interbank/Interchange Fees related to card payments, which will
then be scrutinized for adoption by the 27 Member States and European Parliament.
The legislative agenda will include other provisions on market access,
transparency and possibly on an open, European standard for Mobile Payments.
In parallel, the Commission is
continuing and increasing the pressure on competition law-based investigations,
with on-going scrutiny of Visa and MasterCard expected to lead to some
commitments over debit and credit card rates in the near future.
The legislation implemented in
the United States on Multilateral Interchange Fees (Durbin Amendment in the Dodd/Frank
Act capping credit cards interchange fees), the first recent moves by US
retailers to set up their own innovative payments networks without the banks
and card schemes involvements and concerted European regulatory activity are
creating a new reality.
Moving away from the debate surrounding
interchange fees, the Commission also identified other areas, such as
co-badging, the structural separation between card schemes, processing,
settlement, clearing and interoperability, transparency and technical standards
issues. These are seen as fundamental to solve before the market can become
more fluid and optimal, and innovation flourishes.
The Commission will also publish a
review of the 2009 Payment Services Directive in June 2013 to adapt it to the
new payments ecosystem outlined, alongside a communication on the governance of
the Single European Payment Area. Associated with further actions in the field of banking regulations, open technical standards
and favourable consideration of strategic developments led by mobile operators
and technology providers in the field of mobile payments, the Commission is
clearly willing to implement a highly aggressive enforcement strategy to open
the market to competition and innovation.
Finally, Member States could implement
far- ranging policy actions that either anticipate or complement EU policies.
This was demonstrated by the proposed creation of an economic regulator for the
payments industry in the UK, in charge of implementing utility-style
economic regulation implemented by a new independent regulator (or maybe
extending the remit of an existing economic regulator such as the Office of
Communications or Ofcom) to the payments market as well as sector specific
competition law.
The possible inception of EU/US
Free Trade Area negotiations will without doubt add another pressure for
changes in the Payments industry, with the aim to promote competition, reduce
costs for retailers and consumers alike and foster innovation in particular in
the area of Mobile Payments and Mobile Wallets. It is likely that these pressures
toward some forms of harmonisation of the US and EU Payments legislations
(including the Durbin Amendment in the Dodd/Frank Act) will create additional
incentives for the EU to reform of current fees and card schemes structures.
With or without commitments, the
changing political agenda in 2014 should keep card fees and innovation in the
field of payments high on the political agenda. With elections for the European
Parliament in May 2014, as well as the selection and composition of a new EU
Commission in Autumn 2014, Brussels will be keen to show citizens how and why
the EU acts in their interests. Tangible deliverables, such as the capping and then elimination of roaming charges by
2014 and lowering interchange are clearly tempting targets and low-hanging
fruits for EU policy-makers, increasingly seeking legitimacy and recognition.
3-
The Payments
Ecosystem
As a new set of policy-makers arrives in Brussels in
2014, it is incumbent on the payments industry to educate stakeholders on the
evolving nature of the industry and its development. We see a much more complex
ecosystem where market players are at the same time cooperating and competing
quite fiercely.
Policy-makers understand the essential
role that payment cards have played in the growth of e-commerce. Cards have,
for many years, been the key instrument allowing customers and users to
purchase, sell, subscribe and trade over the Internet - providing the essential
infrastructure to support the emergence of new services and new market
participants. This transition was further facilitated by the substantial growth
of card payments in Europe, where the “plastic- based” economy developed into
the principal way for consumers to pay for goods or services.
With their widespread and commonly
accepted use in the offline and online world, card payments are currently the
predominant force globally. This unique market position reinforces the close
links between card payments and emerging innovative systems such as mobile
payments, which could underpin new products and services that are drivers of
new economic growth.
Mobile payments have the potential to
contribute to more socially acceptable banking products such as micro-loans,
financing, trading and person-to-person money transfers that can be used more
responsibly by all citizens, including those most impacted by economic and
social challenges. Mobile payments and banking services developed in emerging
markets in Africa and Asia have demonstrated the
viability, attractiveness and success of such business models, particularly for
the so-called ‘unbanked’.
This growing segment could create new
realities for traditional payments market players by moving from the bank
account or card-based payment environment to mobile device-based wallets and
accounts. This will increase the growing importance of mobile operators and
technology companies, combining residual cooperation and increasingly fierce
competition between the players of the global ecosystem.
These new realities resulting from both
commercial, market and societal evolutions such as mobile device penetration
rates, increasing use and role of social media, geo-location and requirements
for localised information whilst
on the move) are opening new segments and
patterns such as Social Local Mobile (SoLoMo) or Research Online, Purchase
Offline (RoPo) that will support a range of innovative new payment options.
The payments ecosystem has now become
increasingly complex with multiple players sometimes cooperating and
increasingly competing in a fast changing sector. Technology companies and
Mobile players (both Mobile Network Operators and Mobile Virtual Network
Operators) are frontally attacking the payment market and competing with banks
and payments technology providers. Mobile players in particular have some real
assets such as their control of their customer bases, their expertise in
dealing with fraud and security issues, their customer relationships management
tools and of course the control over the mobile customer accounts (either
pre-pay or post-paid that could be easily converted into debit/credit
accounts).
Some commentators are reflecting on the
disappointing first results of NFC developments in Europe and the low adoption
rate of existing Mobile Wallets as the evidence that there is a need for
shifting the focus. A number of comments have to be raised regarding some
fundamentals aspects of the mobile payments ecosystem, namely a new vision for
Mobile Wallets and the importance of the retailers and merchants to incentivise
user adoption (including with regard to security).
Mobile Wallets could be one of the
vectors for an integrated ecosystem if market players are able to stop focusing
purely on technology to rather give priority to customers and users experience.
They would also need to develop a truly innovative vision of integrated mobile
wallets: a product based on the Mobile devices Sim Cards/handsets that would be
much more than a simple virtual purse. The relative lack of success of Google
Wallet or ISIS could be an indicator of what is not attractive for users.
The idea of a Mobile Wallet that would
be an integrated “Digital Swiss Knife” assisting the user in a large part of
his/her life as a digital assistant is a far more innovative proposition. In
this instance, the mobile wallet would be used to pay for goods or services,
but also integrate a number of personal Identity elements (e.g. including personal
ID, personal medical information file, students ID, Social benefits ID, etc.),
all payments and store/loyalty cards (with associated added value services
around them), a ticketing device, digital keys, etc.
Finally, the fact that a number of major
retailers in the U.S. and in Europe have now decided to throw their weights –
sometimes together – behind the development of innovative Mobile Payments
systems, often breaking rank with the banking industry – are a positive
indicator that should sustain a much quicker adoption rate by consumers.
The
Payments infrastructures are critical ones and underlying many of our most essential
daily activities, with enormous economic, commercial, social impacts. It is therefore
not surprising that the payments industry is attracting the acute interests of
both policy-makers and market players. Changes are coming in an increasingly
complex ecosystem, some market players will find new competitive opportunities
for new revenue streams and products, other market players will face increasing
challenges and risks. New policy and regulatory agendas will amplify the market
and technology disruptions… We will without any doubt follow-up on these
evolutions….
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