Accenture Payments Innovation Findings

8/9/2019 Accenture Payments Innovation Findings

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A Review of theInternational Landscape

of Innovation in

Payments and Insights

for UK Payments

Summary FindingsAn Accenture report commissionedby the Payment Systems Regulator


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In this report Accenture has scanned worldwide innovations inpayments for the UK Payment Systems Regulator. We reviewedover 100 payments innovations from simple consumer apps tomajor infrastructure changes, and payments policy initiatives.We identify their motives, key features, interactions and thepolicies used. We have reviewed each innovation to identify itsimpact and relevance for UK payments.

Foreword


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Summary findingsInnovation in payments is occurring around the world.Small companies, banks, card companies, payment serviceproviders (PSP), and non-financial institutions such asretailers are all innovating in payments. At stores, online,on mobiles and through the middleware systems andbackend infrastructures that connect payers to PSPs topayees we see substantial innovation taking place.

Starting with a definition what is innovation?We define payments innovation as

something new it need not be radical but something that is new, differentand which delivers on an incentive forthe innovator and a benefit for users.We have reviewed over 100 paymentinnovations for this report from a wideselection of countries and companies.

We identified two broad categories ofpayments innovation infrastructure andend-user. The two are interdependentbut the majority of innovation (over 60percent of cases reviewed) occurs onthe end-user side. These might include,for example, contactless payments,e-wallets or peer-to-peer mobile paymenttechnologies. Infrastructure, or wholesaleinnovation, occurs on core paymentand cards systems, be it at the country,regional or global level. Innovations tothese systems are comparatively slow andsparse but can enable innovations thatimpact the end-user.

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Summary statistics

In this study, statistics are displayedbased on analysis of 100+ case studies

in payments innovation from around theworld. These are used in two ways:

1. Value chain

A value chain has been created for eachcase study, highlighting which element(s)of the value chain are impacted by thatcase study in innovation. These valueshave been aggregated across 100+case studies to create an innovationheatmap which shows where innovationin payments is occurring. For example,a dark red box on the heatmap for

individuals within the sender categoryindicates that an individual user featuresin more than 70% of cases reviewed (seeFigure 1).

2. Taxonomy

The innovation taxonomy includes 10+categories for classifying features ofinnovations including actors leading theinnovation (Figure 2), incentives (Figure 3),benefits delivered (Figure 4) and barriersto innovation (Figure 5). Each case study

was categorised within this framework for example, a single lead actor wasidentified for each case study, a singlemain incentive, and so on. Data gatheredin the innovation taxonomy was thenaggregated to identify trends across theselection of 100+ case studies.

Where is innovationhappening?We have reviewed the most recentdevelopments in payments innovationworldwide and selected cases based onthe impact of the innovation where itwas delivered and its relevance to UKpayments. In addition, some cases wereincluded in this study upon specificrequest from the PSR.1

As part of the study we defined aPayments Innovation Methodology whichincludes:

Value chain a framework defining

users, payment services providers,devices, channels and processes in thepayments and cards ecosystems

Taxonomy a list of categories whichinform the classification of featuresof innovation including by lead actor,incentives, benefits, and barriers

Prioritisation a method tobenchmark, rank and prioritiseexamples of payments innovation

The value chain identifies where

innovation occurs across participants,channels and devices within thepayments ecosystem. Our analysisacross 100+ innovations thereforesummarises where, specifically, we seepayments innovation occurring i.e.,where innovation is most intense.We defined a range of thresholds foreach dimension of the value chain todemonstrate how frequently it featuresin our list of cases. Figure 1 summarisesthe findings.2


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ProcessingAcquiring ChannelChannel

Device

ReceiverSender

Device

Issuing

Payer Payment service provider Payee

ar

c

pan

s

Processes

Corporates

Financialinstitution

Publicadministration

Individuals

Computer

POS

Internet

Branch

Other

Mobile/Smartphone

Telephone

Cheques

3-party card schemes and other Payment instititions

E-money institutions

Post institution, central bank, public authorities

InterbankInfrastructures

Cardassociations

Card issuers

Third partyproviders

Internetpaymentproviders

Credit transfer

Direct debit

Credit card

Debit card

POS

Internet

Branch

Other

Computer

Mobile/Smartphone

Telephone

ATM

Other telconetworks

(incl. SMS)

Card

Virtual currencies

Banks(direct and

indirect part.) Banks(direct and

indirect part.)Merchantacquirers

ATM

Other telconetworks

(incl. SMS)

Card

Cheques

Corporates/Merchants

Financialinstitution

Publicadministration

Individuals

Paymentinitiation

Authorisation Repair and

cancellationPayment

processing Reconciliation

Reportingadministration

Key: Banking vs. Non-Banking Domain

Bankingdomain

Non-bankingdomain

Heatmap Key: Impact of innovation

ModerateLowVery low High

Billing andpost-sales

Settlement

Figure 1: Payments innovation value chain and heatmap

A view of the value chain

Payment user C2B and C2C segments account for>95% of innovations

Many of these are enabled by newtechnologies focused on end-userinnovations in some cases howeverinfrastructure innovations are enablingdownstream end-user innovations suchas faster payment schemes enablingreal-time services (Swish)

PSP >40% of innovations have beenlaunched by non banks such as paymentinstitutions and e-money institutions

Mobile payment operators and internetgateways are the most active innovatorsseeking to take advantage of e-commercegrowth and the adoption of smartphones


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Device 60% of innovations involve mobilephones and 18% are cross channelsolutions enabling payments using bothsmartphones and computers

Payment system 17% of innovations involve interbankinfrastructures with initiatives launchedto process payments in real-time (10%),to adopt international standards (4%) andto support processing of online paymentsby banks (3%)

Channel >55% of innovations are internet-basedand c. 25% occur at point-of-sale theseinnovations lower processing costs (e.g.Square) and are focused on reducing

use of cash /cheques /cards (e.g. NFCinitiatives in Canada and Spain)

Process >70% of cases impact paymentinitiation, authorisation; c. 50% areprocessing and settlement innovations

A second tier of cases (>40%, e.g. Boku,Klarna) bring improvements to the endusers billing experience through a newpayment option, with others providingnew reporting and analytics services (e.g.Squares B2B data service)


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Types of innovationThere are two broad categories of payments innovation end-user and infrastructure.

Within these categories we have identified five types of payments innovation:

1. Card payments:innovations thatpresent a new way to use or acceptcards from users for card presenttransactions (e.g. contactless cards,mobile point-of-sale solutions suchas Square)

4. Electronic invoicing andbilling payment: innovations that

improve the billing experience (e.g.Klarna, Cheque imaging in Singapore)

2. Internet payments

This covers four areas:

Online banking e-payments (e.g.iDEAL, MyBank, and POLi)

Overlay services (e.g. SOFORTBanking)

E-money (e.g. PayPal, Click&Buy,Skrill)

Internet payment gateways: Adyen,Ogone, Skrill Global Collect

5. Improvements in infrastructure

This covers three areas:

Real-time payments processing(e.g. Bankgirot)

Vision for a cashless system(e.g. Nigeria cashlite, Sweden)

Adoption of international standards(e.g. adoption of ISO20022 with SIC4,SEPA, Japan)

3. Mobile payments

This covers three areas:

Mobile payments using traditionalbank accounts (e.g. Swish, IKO)

Mobile payments using a mobilephone bill collection process (e.g.Boku, GCASH)

Mobile payments using prepaidaccounts (e.g. PayPal, Belgacom-BNPP, MCX)

End-user innovation Infrastructure innovation


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Who innovates?Innovators range from small start-ups such as Traxpay, Klarna and Jumioto established companies such as

ExxonMobil diversifying into payments,to banks such as Royal Bank of Canadaand to non-financial institutions includingretailers such as Starbucks and telcossuch as NTT Docomo in Japan.

We have reviewed the most recentdevelopments in payments innovationworldwide and selected cases basedon impact and relevance to the UK.3Of these innovations, more than 35%were launched by credit institutions (acategory which includes banks) either inthe interbank or cards areas. Paymentinstitutions - a category which includesthird party providers, internet servicesproviders or acquirers accounted for26% of innovations and telcos accountedfor 9%. Governments and other publicbodies, whilst not necessarily innovatingthemselves, can facilitate and drivechange. In this way, governments arefacilitating one fifth of cases scanned.We noted that many of these innovationswere new payment systems, highlighting

the important role of governments inthese innovations.

What are the incentivesfor innovation?Innovation typically occurs because thereis a commercial incentive for the actorsleading the innovation. Our worldwidescan has identified five commonincentives for innovation:

Increased revenues through newservice offerings (42% of cases).Innovations which deliver new revenuestreams, often driven by the emergenceof new business models and valuepropositions led by non-bank paymentinstitutions, third parties and start-ups.Klarna for example, a new a pay on

delivery service, has been launchedto take advantage of growinge-commerce in Europe

Increased revenues through servicedifferentiation (23% of cases).Innovations within existing revenuestreams deliver an improved customerexperience or drive cross-selling,often driven by banks. With iDEAL forinstance an online banking e-paymentssolution banks offer an alternativepayment online method without requiringconsumers to share sensitive data withthird parties

Achieving governmental goals (21%of cases).Innovations which stem fromgovernment as an initiator or facilitator but which are not necessarily deliveredby governments such as faster paymentsystems, electronic billing or nationaldigital wallet solutions. This includes, forexample, SADAD, the electronic invoicepresentment and payment system in

Saudi Arabia

Lower cost of payment processing(11% of cases).Innovations whichreduce the cost of processing a payment,such as cheque imaging or retailer-ledinnovations. MCX is a consortium ofUS retailers building a private paymentscheme seeking lower cost of paymentprocessing by avoiding the cost ofinterchange fees to accept card payments

Lower cost of cash handling (3% ofcases).Innovations which reduce thecost of cash handling, such as NFC orBluetooth low energy innovations atpoint-of-sale and peer to peer mobile

payment services which displace the useof cash. Contactless payments, includingcontactless cards but also NFC-enabledmobile payments at point-of-sale, migratelow value payments from cash to non-cash forms. Examples include thoselaunched in Canada following the issuingof guidelines for NFC payments by theCanadian Bankers Association

Figure 3: Incentives for paymentsinnovation; top innovations outside

the UK% of cases with category listed as primaryincentive for launching innovation

42%

23%

21%

11%

3%

Increased revenues through new services

Increased revenues through

service differentiation

Achieving governmental goals

Lower cost of payment processing

Lower cost of cash handling

Figure 2: Actors leading paymentsinnovation; top innovations outsidethe UK% of cases within category listedas primary actor leading launch ofinnovation

36%9%

26%

3%7%

20%

Central bank/public entity*

Payment institution

Telco

E-moneyinstitutions

Retailer

Credit institution

*central bank/public entity is not a lead innovator, butan agent which facilitates and drives change amongstother participants.


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Ease of use/frictionless payments(combined 19% of cases).This describesa benefit which delivers a shorter timeand/or fewer, simpler steps to completinga transaction (e.g. at point of initiation).

For example, new features to mobile appswhich leverage social media, email or SMSwhich prevent the payer from having toremember long, detailed passwords

Protection against fraud and default(8% of cases).This includes a range ofservices that ensure greater protectionof personal information and identity,ranging from wallets which secure cardcredentials in the cloud to behaviouralbiometrics which recognise users based

on how they interact with their onlinebanking module, strengthening thecustomer authentication process

Benefits for Payee

Lower cost of payment processing(19% of cases).These include casesthat reduce the cost to the corporateor merchant of processing a payment,such as direct to account authorisationservices or electronic billing and invoicing

Improved liquidity management (18%of cases).These include innovations thathelp businesses manage liquidity better,such as trade services which facilitatereal-time document management or core

innovations to payment systems

Lower cost of cash handling (15%of cases).These include innovationsthat displace the use of cash and whichprovide benefits for both merchantsand banks

Improved sales (8% of cases).Thisincludes cases that deliver an improvementin conversion rates, improved cross-selling,or reaching new customer segments

Who benefits frominnovation?The benefits derived from innovationsapply to those sending a payment thepayers and those receiving a payment the payee. These are not necessarilythose participants driving or leadinginnovations, but they are the end-users impacted by them and include inthe majority of cases individuals andcorporates or merchants. The benefitsdescribed here influence the incentivesalready discussed, since larger end-userbenefits will positively influence demandfor payment innovations.

Benefits for Payer

New payment option (43% of cases).These include new payment methods forthe individual, such as mobile wallets,direct account authorisation services orpay on delivery options

Faster payment processing (combined21% of cases).This describes animprovement for an individual or businessfacilitated by real-time payment systemsand overlay services that have emerged

Figure 4: Benefits faced by payer/payee; top innovations outside the UK% of cases with category listed as primary benefit

100%Payer Payee

Where payer/payee is corporate/merchant

Where payer/payee is individual

9%

18%

8%

8%

Ease of useEnhanced data privacy

Faster payment processing

Lower costs

New payment option

Higher sales fromhigher conversion

Improved liquiditymanagement

Improved sales

Improved services

Lower cost of cash handling

Protection against default

43%

2%

Ease of use

Enhanced dataprivacy

New paymentoption

15%

Faster paymentprocessing

Wideracceptanceby other payees

Greater control

Lower cost ofcash handling

6% Faster paymentprocessing5%

Lower costs

New paymentoption

8%Protectionagainst fraudand default

17%

Ease of use

1%

19% Lower cost ofpayment processing

15%

6%

6%

6%

3%1%


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What are the commonbarriers to innovation?At the height of the dot.com bubble therewere more than 100 start-ups promisingto revolutionise the way consumers payand transfer money. Today, there arefew survivors, PayPal being chief amongthem. In our research we identified asingle primary barrier to innovation foreach case study that was overcome bythe innovators. Typically these barriersoccur in one of two areas: first, barrierswhich prevent PSPs from launchinginnovations, and second, barriers whichprevent solutions from being adopted byeither payers or payees.

Barriers faced by PSPs

Barriers which reduce the incentiveto innovate:

Need to incentivise industrycollaboration (37% of cases).Wherethere is a barrier to collective actionwhere collaboration is required to reducecost, spread risk through investmentsharing or to ensure suff icient demand bypooling resources

Network effects in a two sided market(35% of cases).Where there are twodistinct user groups payer and payee that provide each other with networkbenefits. Where a product needs to be

easily adopted by payers whilst at thesame time creating sufficient demand todrive scale of adoption and recover costof investment

Lack of standards and interoperability(11% of cases).Where standardsare required to ensure the efficienttransmission of payment communications,as with NFC at point-of-sale, which maylimit the adoption of services suchas Giropay for in-store and mobileenabled purchases

Presence of legal issues (11% ofcases).Lack of a legal framework whichstates the rights, responsibilities andliability regimes of all players involved ina payments ecosystem or which leavessufficient legal uncertainty as to presentan obstacle to innovation. For example,some innovators we have researchedhave innovative propositions in similiarcountries (e.g. US and Australia) that arenot rolled out in the UK

A fifth barrier, lack of access topayments infrastructure, features ina relatively low percentage of cases inthis study. This should not be seen asindicating that this is a rare barrier toinnovation. In the sample reviewed a highpercentage of innovations were deliveredby participants who did not have accessto payments infrastructures.

Figure 5: Barriers faced by PSP;top innovations outside the UK% of cases with category listed asprimary barrier

11%

2%4%

37%

35%

11%

Need to incentivise industry collaboration

Network effects in two sided markets

Lack of standards and interoperability

Presence of legal issues

Lack of access to payments infrastructure

High cost of investment to set up an

alternative infrastructure


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Barriers which result from low Payerand Payee adoption levels

Our research showed that there were fourmain factors which restricted adoption

levels by payers and payees, creating abarrier for innovators:

Lack of trust in branding or in a newscheme (33% of cases for payers, 30%for payees).Where pricing or charges areunclear for the payer or where there is ahigh frequency of fraud for the payee

Lack of customer protection (25% ofcases for payers, 16% for payees).Wherethere is a lack of a clear liability regime,settlement rules or payment guarantee.

For example, where e-merchants arereluctant to accept direct authorisationservices such as iDEAL if mandates byaffiliated internet payments providers arenot transparent

Lack of security of IT infrastructure(38% of cases for payers, 13% forpayees).Where there are concernsabout weak data privacy and securityof personal information, or service

interruptions which may affect a payeesbusiness

High cost of membership (5% ofcases for payers) or implementation(41% of cases for payees).Wheremembership costs for payers or costs ofimplementation for payees are too high,as in the case of renewal of point-of-saleterminals

Figure 6: Barriers faced by payer/payee;top innovations outside the UK% of cases with category listed asprimary barrier

100%Payer

16%

30%

13%

41%

Payee

High cost of implementation

Lack of securityLack of trust

Lack of customer protection

High cost of membership

25%

33%

38%

5%


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What policy tools areused by regulators toenable innovation in

other countries?Through our research of 100+ worldwidepayments innovations we identified a setof policy tools used by other governments,central banks and regulators to enableinnovation. These have been synthesisedto produce a toolkit of the common toolsused and range from formal (changingregulations) to informal (dialogue andmoral suasion).

Policy tools used by othergovernments to enable innovation

Changing regulations Setting standards/interoperability

ensuring the integrity, security and wideradoption of new payments technologies(e.g. migration to ISO20022 with SEPA)

Setting deadlines driving thedevelopment of services by settingdeadlines (e.g. SEPA end date regulation)

Setting new legal frameworkvalidating new business models inpayments (e.g. PSD2, e-money directive)

Issuing licenses issuing licenses for

the launch of a new technology or serviceto drive faster adoption (e.g. Nigeriamobile payments license competition,e-wallet in Philippines)

Controlling pricing controllingpricing to reduce uncertainty andincrease investment (e.g. interchange capregulation)

Dialogue and moral suasion Setting vision setting goals that drivea behaviour or desired outcome (e.g. NFC

standards in Canada, real-time paymentssystem in Sweden)

Advocacy engaging in discussionwith other regulatory and/or industrybodies to influence policy (e.g. Nordiccollaborations on shared infrastructure)

Monitoring Monitor monitor, observe, scan; allowthe industry to drive innovation (e.g. Bokucarrier billing service, Kaching mobilesolution by CBA in Australia)

Inspections verifying that emergingbusiness models do not put customers,payments ecosystems and financialstability at risk (e.g. AML/KYC checks)

Producing reports and paymentsstatistics tracking payment

developments (e.g. Kenya Central Banktracking mobile payments access and newservices after M-PESA)

Imposing sanctions Setting penalties controllingbehaviour through penalties and chargesfor non-compliance with rules (e.g.European Commission threats of fines to

Visa and MasterCard for interchange fees)


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1. Consider end-user and infrastructure.A consideration of both end-user andinfrastructure innovation can maximisebenefits from the development ofinnovative offerings. The majority ofinnovation occurs on the end-user side; inrare cases, a balance does exist betweeninfrastructure and end-user innovationwith NPP in Australia a good example ofreal-time clearing and overlay services.

2. Many different firms innovate.Innovators range from small start-upssuch as Traxpay, Klarna and Jumio toestablished companies diversifying intopayments, to banks such as Royal Bank ofCanada and to non-financial institutionsincluding retailers such as Starbucks andtelcos such as NTT Docomo in Japan.

3. Profits are the primary incentive forinnovation.Increased profits can comefrom additional revenues or reducingcosts, but achieving profitability is

difficult. Innovations without a clearprofit source are unlikely to succeed.MyBank is an example of this problem.It was launched in 2013, with anobscure revenue model, and dilutes cardinterchange revenues among participantsfor online purchases adoption is veryslow, and mainly in countries where cardusage is low, such as Italy.

4. Mass adoption is important. Manyinnovations that exist and are delivering

value are still struggling for mass,ubiquitous adoption. However, there aresome that have high adoption levels,e.g. Square and Starbucks in the US, and

MobilePay in Denmark. We noticed thatactors in countries that are developingvisions have used interventions to correctindustry activity consolidating ratherthan fragmenting the area (e.g. Dubairegulator interventions into mobilepayment systems) to drive mass adoption.Mass adoption requires coordinationamong many stakeholders and a focus ondelivering benefits to payers and payees.

5. Failure is an acceptable outcome ofinnovation and can be a sign of healthycompetition.Barriers to innovationexist however failures are not alwaysa sign of the presence of high barriersto innovation. Failure can be a signof healthy competition. However,expensive, slow failures can be a sign ofan unhealthy climate for innovation andmisallocated resources.

6. A policy toolkit exists to facilitatechange.In this study we identified a set

of policy tools used by other governments,central banks and regulators to enableinnovation. These policy tools rangefrom formal (changing regulations) toinformal (dialogue and moral suasion).The selection of policy tools depended ona number factors, including the type ofinnovation and barriers present. Howeverwe found that innovation that affectedthe core infrastructure required the mostintervention and policy setting froma regulator to drive change. Less was

required for end user applicationsthat derived from existing systems,where monitoring was important forgeneral compliance.

Key lessons from

worldwide innovationsIn our research we identified a high volume and variety ofpayments innovations which launched, thrived and deliveredvalue to participants of payments systems. The followingresearch findings are relevant to the UK:


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Copyright 2014 AccentureAll rights reserved.

Accenture, its logo, and

High Performance Delivered

are trademarks of Accenture

To find out more about howbanks and other companies areinnovating in payments aroundthe world, please contact:

Jeremy LightAccenture EALA Payments Lead

[email protected]

Michael EagletonAccenture UK Payments [email protected]

Chris HilsonAccenture Payments [email protected]

Luca GagliardiAccenture [email protected]

About Accenture

Accenture is a global managementconsulting, technology services andoutsourcing company, with more than293,000 people serving clients inmore than 120 countries. Combiningunparalleled experience, comprehensivecapabilities across all industries and

business functions, and extensiveresearch on the worlds most successfulcompanies, Accenture collaborates withclients to help them become high-performance businesses and governments.The company generated net revenues ofUS$28.6 billion for the fiscal year endedAug. 31, 2013. Its home page iswww.accenture.com.

DisclaimerThis document has been prepared solely

for the benefit of the PSR in relianceupon instructions given by the PSR.The document cannot be relied on byany third party, whose circumstancesor requirements may be different.Accordingly, no liability of any kind isaccepted, whatsoever or howsoevercaused, to any third party arising fromreliance in any way on any part of thisdocument. Each recipient is entirelyresponsible for the consequences of its use,including any actions taken or not taken by

the recipient based on this document.

Documents

Accenture Payments Innovation Findings