APPLE PAY STRIKES THE UK · ANALYSIS: Apple Pay UK • INTERVIEW: Inge Van Dijk •REPORT: Social media in financial services MOBILE PAYMENTS: The road ahead July 2015. Issu. e

•ANALYSIS: Apple Pay UK

•INTERVIEW: Inge Van Dijk

•REPORT: Social media in financial services

•MOBILE PAYMENTS: The road ahead

July 2015 Issue 337 www.electronicpaymentsinternational.com

APPLE PAY STRIKES THE UK

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EDITORS LETTERElectronic Payments International

Now Apple Pay UK is upon us, it is

time to dispel a few myths

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CONTENTSNEWS

2: Meet EPI’s new Editorial Advisory Board

4: News comment: Expansion into Nigeria causing ‘a lot of opportunity’ for BitX

5: News comment: Barclays continue as a ‘trailblazer’ with Zapp partnership

FEATURE

6: APPLE PAY

Experts from across the financial industry examine the launch of Apple Pay in the United Kingdom. Will it be a success? Will it fail? Will it do much of anything at all? Anna Milne writes

12: SOCIAL MEDIA

Banks are still trying to crack to social media code. While huge brands, such as Red Bull and Apple, have online interaction down to an art form, financial institutions are lagging behind. Can the situation change? Franchesa Hashemi writes

INTERVIEW

16: ING: FASTER PAYMENTS

ING is digitally forward-thinking. Anna Milne speaks to Inge Van Dijk, director of faster payments, about the European push towards real time payments and when and if banks should make it a priority

I stopped counting at 100. I’m refer-ring to the number of emails received in the past week or so ahead of and following the UK launch of Apple

Pay. I’ve rarely known the like. Much of the

PR activity has been breathless to the point of hysterical with a fair amount of industry ignorance thrown in.

Myths and old wives’ talesI will resist the temptation to name and shame some of the callers who seemed to be under the impression that other firms operat-ing in this space will be cowed or feel threat-ened by Apple.

That has to be Myth Number 1: the real-ity is that Samsung and the telcos will wel-come Apple’s phenomenal marketing and PR buzz and the publicity attracted by the Apple launch.

It is fair to say that public awareness of the benefits of mobile payments technology and NFC-enabled contactless has just been given a huge boost.

Myth Number 2 has to relate to security. Nice try, Daily Mail, but anyone and every-one that knows a little about the Apple offer-ing will recognise that the Apple’s solution trumps conventional chip and PIN on this front.

Myth Number 3 has to be the suggestion that retailers will choose between Apple Pay and say, Zapp. It is not an either or situa-tion – the retailers will offer multiple pay-ment methods, as they do today and most will continue to do so. Zapp’s service has an advantage of using the consumers’ existing bank apps.

The Zapp service is a completely open pay-ment method. Customers do not have to use any particular smartphone device. It is an open initiative that any bank or retailer can join, including Apple.

Myth Number 4 I would suggest is that Apple has suddenly shaken up and trans-formed the payments industry.

It is not going to do to credit cards what the iPod did for how we consumed music. Apple does not have anything approaching a market leading share of the UK smartphone market; it is not going to turn the payments sector on its head.

Myth Number 5 is that no other service provider can compete with Apple’s market-ing buzz.

Apple’s entry into the market is a posi-tive for all concerned – see Myth Number 1. Zapp’s partner banks and retailers are more than capable of promoting Pay by Bank to their customer base and tapping into the growing public awareness of NFC contactless.

The opportunityWhat is not in dispute is that the Apple Pay launch is most propitious. The September increase in the payment limit to £30 provides a further boost to contactless; the 331% rise in contactless in 2014 may well be bettered this year.

Customers ultimately will decide if Apple (and others) really have nailed it with a great user experience. <

Douglas [email protected]

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ADVISORY PANEL Electronic Payments InternationalNEW

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Name: Rich BialekTitle: CEO Global Technology Partners

Rich Bialek is CEO of Global Technology Partners (GTP), a Tulsa, Oklahoma USA based prepaid processor serving the African markets. Immediately prior to joining GTP Rich was head of prepaid products for Visa CEMEA, based in Dubai UAE, where he was responsi-ble for prepaid market and product development. Rich’s extensive experience in the payment industry includes senior-level positions manag-ing payment businesses at Nei-man Marcus, GE Capital and Ameritech. Rich also managed

consumer credit products for Visa International prior to the for-mation of Visa Inc. and held the post of senior vice president in charge of strategic research and Intelligence for Visa International.

Rich earned a BA in Economics from Harvard College and was a Harvard College National Scholar and Boyden Scholar. He earned his MBA from the Harvard Business School and was a Harvard University National Fellow.

Name: Francesco BurelliTitle: Partner at Innovalue Management Advisors

Francesco has over 19 years of experience in the areas of strat-egy, M&A, regulatory impact assessments and performance improvement. Digital banking, cards, payments and transac-tion banking expert, Francesco works with financial institu-tions, investors, merchant and corporate treasuries, NGOs and government agencies on a global basis.

Previously he held senior roles with other advisory firms and before that he was at Mid-land Bank, later HSBC.

Fellow at the Institute of Financial Services (UK), Francesco was awarded as Industry Consultant of the Year 2014 by the ATM Industry Association (ATMIA).

He is quoted frequently on industry publications and a regular speaker at industry events.

Name: Robert CourtneidgeTitle: Global head of cards and payment at Locke Lord LLP

Robert works closely with The Payments Services Regulator, HM Treasury and the Financial Conduct Association and other compliance and industry bodies to ensure compliance for his clients. He places special emphasis on working with high tech industries and products in the financial services industry, embracing new technological and legislative/regula-tory developments.

He was placed No. 1 in the Payments 2015 Power 10 rankings and was one of a select few in the industry to be included

on the list for four consecutive years.Robert is known for his knowledge and experience in the e-mon-

ey area and has advised financial institutions worldwide.

Name: Chris DaviesTitle: Managing director at Global Payments

Chris Davies, President Europe, Manag-ing Director UK, (responsible for all Global Payments’ businesses in the UK, Malta, Russia, Central & Eastern Europe).

He is a board member for Comercia, Global Payments Malta, Global Pay-ments Europe and Realex Payments, a recent acquisition of Global Payments in Ireland. He’s also on the board for UK Card Association and a former board member of Visa UK. He is chairman of the board for Global Payments’ Russian

subsidiary, United Card Service and a board member of Equifax Russia, in which Global Payments holds a minority stake.

Prior to his current role Chris spent almost 36 years at HSBC Bank and its UK forerunner Midland Bank.

Name: Nick DayTitle: CEO Small World Financial Services

Nick Day is the CEO of Small World Financial Services, a technology busi-ness providing cross-border payment services worldwide. Nick founded Small World FS in 2005, with the aim of con-solidating this large and traditional mar-ket, and to bring fast, low cost interna-tional payments to a global market.

Prior to starting Small World, Nick spent five years leading high-growth

Say hello to our new Advisory BoardWith the relaunch of our magazine and website, Electronic Payments International has gathered a group of payments experts to contribute their insight to our publication. Ranging from payments to technology to regulation, this highly regarded panel will share their respective analyses over coming months

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businesses within the European financial services industry, using his vast experience in retail banking and payments from previous roles within RBS and Lloyds TSB.

Nick is an experienced financial services executive and entrepre-neur, with significant international experience of building busi-nesses across Europe and North America, and is an expert on matters of operational strategy, corporate development, venture capital, financial services and entrepreneurship.

Name: Stuart LaceyTitle: CEO Trunomi

Stuart Lacey is CEO and founder of Trunomi, a fintech business that is fundamentally changing the way in which customer information is collected, man-aged and shared. Trunomi's technology can deliver financial services providers gains in oper-ational efficiency and improve-ments in customer interaction - whilst reducing costs, inefficien-cies duplication and regulatory risk.

With over 20 years of leader-ship experience in the C-Suite of global financial and technology markets, he has a keen eye for growing successful teams.

Stuart is a multiple award-winning Member and of the Young Presidents Organization; the Young Entrepreneur’s Council and The Institute of Directors; as well as a graduate of McGill University and the inventor of a num-ber of industry defining patents.

Name: David ParkerTitle: CEO Polymath Consulting

David is the founder and CEO of Poly-math Consulting. Polymath Consulting has now delivered over 50 projects for clients in prepaid cards and emerging payments.

The company's current work includes projects in the Middle East, USA, Asia, Africa and Europe.

David has an in-depth knowledge of payments and payment cards and is known for his work with prepaid cards, mobile money/mobile wallets and M-pos. Parker has previously worked for compa-

nies such as The Gaming Bourse, The Pepper Corporation and Saatchi & Saatchi (Saudi Arabia).

Name: Carlos SanchezTitle: CEO ipagoo

Carlos is in charge of Financial Services at Orwell Group, which he co-founded, and in this capacity created ipagoo, a dis-ruptive new model for the retail banking industry.

Carlos has held board and executive positions in banking and finance, includ-ing at Dexia Group and more recently

Goldman Sachs, where he was Executive Director, acting as Finan-cial Advisor for the European corporate market in investments with a focus on fixed income and money market instruments.

Carlos is a member of the Payment Systems Regulator Panel of the UK and a member of the Steering Committee of the World Class Payments project of Payments UK (previously the Payments Council). Carlos holds an MSc in Telematics, a BsC in Engineer-ing and completed his MBA at IMD, Lausanne. Carlos is fluent in Spanish, English, French, Italian and Portuguese.

Name: Rich Wagner:Title: CEO Advanced Payment Solutions

Innovative and entre-preneu r ia l s en ior executive with 30 years of successful payment experience i n U. S . and U.K . f inancia l serv ices , i n c l u d i n g a t Barclaycard and Visa.

Rich has launched and managed high g row t h f i na nc ia l services businesses internationally with the greatest and most recent success so far being the founder

and CEO of APS, which in 10 years has become a leading digital banking and payments company in the UK.

Rich sits on the advisory board of the Emerging Payments Asso-ciation and was selected in 2014 to represent the entire electronic money industry at the Euro Retail Payments Board under the remit of the European Central Bank to help shape the future European payment regulations including non-bank access to the payment networks.

Name: James WhittleTitle: Director of industry policy at Payments UK

Responsible for setting industry policy and strat-egy and representing the UK payments in Europe and globally. Working with a wide range of stakeholders to share payments knowledge and expertise, James also leads the International Organisation for Stand-ardisation (ISO) on ISO 20022. He also works closely with SWIFT and other industry standards bodies across the world.

James has worked across a number of func-tions within Payments

UK, including senior roles in industry standards, government engagement and regulation.

Previously he worked within the retail sector, developing solu-tions for cross border trade and supply chain efficiency.

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Expansion into Nigeria causing ‘a lot of opportunity’ for BitX

B i t c o i n e x c h a n g e B i t X , headquartered in Singapore, has just entered the Nigerian market. Werner van Rooyen, head of business development and growth at BitX, explains what opportunities this move represents.

BitX, currently supporting Malaysia, Indonesia, Kenya, and South Africa, has expanded its bitcoin wallet, exchange and API services to Nigeria.

This allows Nigerian consum-ers the ability to buy and sell bitcoin instantly using the BitX Android or iOS apps, as well as using the API to develop their own Bitcoin products and ser-vices.

Speaking to EPI, Van Rooyen said: "Nigeria is Africa's largest consumer market with a lot of healthy growth and an economi-cally active middle-class and we've had an enormous amount of interest from local business and consumers to enter the mar-ket. There's a lot of opportunity for us to enable people to trans-act online for the first time, to do so cheaper and faster than with other methods, facilitate small payments and also to help reduce online fraud."

While Bitcoin is still a fairly new development in the finan-cial world, BitX already has a system in place to measure its success in Nigeria.

Van Rooyen said: "We tend to measure success in both a qualitative and quantitative way; the former around build-ing communities and increas-ing general awareness, interest, and knowledge of Bitcoin (not only for consumers, but other stakeholders like regulators, investors and businesses). The latter will be measured in terms of how many people actively transact using Bitcoin."

As well as the sheer size of the Nigerian market supporting it, Van Rooyen believes that their

range of products will also allow BitX to attract more consumers than other Bitcoin exchanges. He hopes to attract more than just the 'younger, tech-savvy early adopters'.

He says: "Our target market is perhaps larger than for most other Bitcoin companies. We have the leading bitcoin smart-wallet application where con-sumers can buy, sell, store and spend their bitcoins. We have a modern trading platform where individuals and professional traders can trade between Nige-rian naira and bitcoin. Lastly, our powerful API allows local businesses and developers to integrate bitcoin into their prod-ucts and services."

BitX has no plans of slowing down. While it supports only five countries, transactions can be made all across the globe.

Van Rooyen concludes: "There are plans to expand into other African countries and new regions. The timing and specific countries will depend to some extent on the local demand for our products and services, but we tend to have pretty good vis-ibility on this given our custom-ers can already use our mobile smartwallet for Bitcoin-only transactions in any country in the world."

RESEARCH

UK trumps top in contactless payment

More than a billion contactless transactions have been made across Europe over the last year, worth €12.6bn ($13.85), according to a Visa report pub-lished on Monday 6 July 2015.

UK consumers are using touch-to-pay technology most, with a staggering 52.6 million transactions - totalling €330m

-accounted for in March 2015 alone. Following closely behind, however, Visa Europe reported that in Poland there were 49.7 million contactless payments and the Czech Republic 13.9 million.

Europe's total contactless payment expenditure for March 2015 hit a record-breaking

€1.6bn, which is a three-fold increase compared to the same period in 2014.

Yet, while the UK sees a £20 contactless expenditure limit, Poland and the Czech Republic do not have the same restriction.

Visa Europe's report shows that card holders are likely to use contactless technology for higher value purchases given the opportunity, however, a PIN number is required.

Visa Europe's executive direc-tor of core products, Sandra Alzetta, said:

"Across the continent, 131 mil-lion Visa contactless cards are carried in the pockets and purses of consumers and used regularly at over 2.6 million contactless terminals.

Emphasising the popular-ity, Alzetta went on to add that

"British consumers are by far the biggest adopters" of contactless technology and have more than double the amount of cards issued than France.

Currently there are 49.6 million contactless cards in circulation in the UK, a 37% increase compared to the twelve months leading to March 2015. France sees 20.3 million, then Poland (14.5), and Spain (11.5), according to Visa Europe's report. However Spain leads the contactless terminal statis-tic (593,000), with the UK sec-ond (410,000) and France third (405,000).

Alzetta went on to state the uptake of contactless will "only increase in future as we experi-ence the next generation of digi-tal payments, where the simplic-ity and convenience is extended to mobile and wearable NFC technology."

There are presently 240 European banks issuing Visa's contactless payment card yet the company has stated its intention to make the technology avail-able to all Visa card holders by 2020.

However the UK's adoption of contactless is tinged with London-centricity. This is due to commuters using the electronic service on Transport for London vehicles, with more than 100

million journeys paid for in this way since its inception.

London is currently the only city in the UK to accept contactless payment for trans-port. However, there are plans to launch similar systems in Manchester and other major UK regions.

STRATEGY

Itemize and Fraedom team up

Itemize, a data extraction man-agement provider, and Fraedom, a developer in corporate spend-ing solutions, have announced a partnership that offers an automatic receipt management system to UK and global enter-prises.

Fraedom's clients can now use their mobile device to pho-tograph their expense's receipt, which is then scanned by the Itemize app using an almost instantaneous extraction tech-nology.

Key data from the receipt, including merchant name, total value, and tax amount, is paired with Fraedom's online account of the transaction.

The process shows up on the client's company account, thus eradicating cash payments and paperwork.

Global partnerships at Item-ize - expense management David Parker, listed the partnership's focus on 'simplicity' as a defin-ing feature:"The difference between our

receipt management system and that of, for example, Examplify, is the algorithms which com-pletely removed the middle man from this process."Our software does not rely on

outdated and manual extraction techniques. It is a fast and user-orientated experience that frees up time for busy people to get on with their jobs.

Itemize and Fraedom's receipt payment processes minimises manual user data entry, for the client, software developer and individual involved in making the payment.

The Itemize app is available on iPhone and android devices,

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ROUND UPElectronic Payments International

with receipt recognition process taking a total of 15 and 25 sec-onds, respectively, to complete.

Fradeom have more than 134,000 clients benefiting from its receipt data extraction sys-tem, ranging from large corpo-rates companies in Indonesia and New Zealand to public sec-tor organisations in the US and UK.

Kyle Ferguson, CEO of Frae-dom, added: "[In terms of] finance it increases receipt com-pliance and tax reclaim, saving the company time and money."This agreement takes us one

step closer to our vision of pro-viding our customers with a touch-less transaction experi-ence."

Apple rumour mills keeps on churnin’

Apple has ordered 85 - 90 mil-lion iPhone 6S units from its manufacturers, a record break-ing figure. This is in comparison to the 70 million iPhone 6 hand-sets from last year.

The company may not only be hedging its sales figures on the success of two new iPhones but also the adoption of Apple Pay.

The approximate 90 mil-lion handsets order is believed to accommodate two different iPhone models, one with a 4.7-inch display and the other a 5.5-inch display. These are the same screen sizes as the previous mod-els: the iPhone 6 and 6 Plus.

It could be argued that 90 million handsets is an oversight. Yet Apple managed to surpass its own prediction for earnings in the last quarter of 2014, mak-ing $74.6bn instead of $66.5bn.

The last iPhone was launch during a holiday, and it is to be expected that iPhone 6 and 6Plus will be available after Christmas (31 December 2015).

Leaked images of the new iPhone were analysed by Apple experts at 9to5mac.com, who said: "[The images show] updat-ed NFC, 16 GB base storage,

fewer chips, and subtle design tweaks".

The iPhone 6S is also expected to have an updated Force Touch system, a better camera, a differ-ent colour range, and includes a Qualcomm LTE chip for double speed data updates.

Force Touch is said to dif-ferentiate between a light tap and deep press, a feature which already exists on new Mac-Books and Apple Watches.

Sales figures for Apple's first large screen iPhone, the iPhone 6, for the first fiscal term ended September 2014 hit 135.6 mil-lion, according to the Wall Street Journal. This is a 43% increase from the previous year.

The iPhone 6s will be shown to the public for the first time in September 2015.

PRODUCTS

MasterCard launches global digital payment platform Masterpass in Hong Kong

MasterCard has launched digital payment platform MasterPass for the first time in Hong Kong, which allows consumers to securely store their MasterCard and other branded card infor-mation all in one place - along with their shipping and billing addresses.

Consumers will no longer have to enter their payment and shipping information with every purchase. They can con-veniently access the payment details in their mobile wallet during checkout. Apart from that, MasterPass also fosters consumer loyalty to merchants as it allows their loyalty card to be automatically passed to mer-chants when making a purchase."These days, online shoppers

have become more sophisticated and choose carefully. We believe offering a secure payment solu-tion through a reputable plat-form is the key to success. We are excited to launch our own branded digital wallet, DBS MasterPass, in Hong Kong - giving customers more control over the way they shop and pay," said DBS Bank's executive direc-

tor of cards and unsecured lend-ing, Ken Chew.

Mobile wallets are fast becoming a trend in the Asia-Pacific region, with banks deter-mined to remain competitive as they partner with card compa-nies and mobile network provid-ers to develop their own mobile wallets."We understand that to move

nimbly, we need to partner financial technology companies in niche areas," says global head of retail products Kartik Mani at Standard Chartered, which recently

collaborated with mobile operator Indosat to launch their Straight2Bank wallet in Indone-sia. See related story.

Similarly, MasterCard is targeting a wide reach by part-nering with Bank of East Asia, China Construction Bank (Asia), Dah Sing Bank and DBS Bank to launch branded MasterPass digital wallets.

MasterPass is now available to over 40 million consumers across Asia/Pacific. In addition to Hong Kong, Taiwan made its MasterPass debut last October - while the solution is also availa-ble in Australia, Canada, China, Italy, New Zealand, Singapore, the United Kingdom, the United States and many other countries around the world.

COMMENT: STRATEGY

Barclays continue as ‘trailblazers’ with Zapp

Developed by VocaLink, Zapp has gained the support of many banks: HSBC, First Direct, Nationwide, and Santander, all of whom are also supporting Apple Pay. The latest to join them is Barclays, which was slow to support Apple Pay.

Zapp allows users to pay for purchases direct from their online bank account via a bank's own mobile application. Corporate and consumer users of Barclays Pingit mobile money transfer service will be the first bank app live with Zapp when it launches in October.

Utilising Pingit makes Zapp's 'Pay by Bank' app the UK's first total market mobile payment service, available to any con-sumer with a bank account or smartphone.

Peter Keenan, chief executive at Zapp, is very enthusiastic about this new collaboration between the two.

He said: "It goes without say-ing that Barclays has been one of the most innovative banks in the payments space. I very much see them as trailblazers in digital and the digital pay-ments space, do for Barclays to essentially join our ecosystem is a bit vote of confidence in what we're doing. They very much see what we're doing as the future and they like the opportunities in will bring their retail and cor-porate customers."

While many have already sup-ported Zapp, not only banks, but retailers such as Sainsbury's and Asda, Barclays is one that is pushing Zapp further into the market.

Keenan said: "We've already announced quite a large consor-tium of banks that have commit-ted to getting behind Zapp, but Barclays coming to that takes overall support to just over 50% of all UK current accounts when we launch and the other banks go live. That's a significant mile-stone to get over this early in the genesis of the company."

While currently Zapp remains an online solution only, Keenan does not see this as a limitation, but a differentiating factor at the moment.

He concluded: "We do online and m-commerce purchases- this is the one difference between us and Apple Pay, which doesn't have an e-commerce (buying in browser or desktop) solution. We will be the first ubiquitous mobile-based e-commerce solu-tion out there. Our m-commerce solution is, we believe, by far a better solution and we have an in-app solution as well."In addition, our in-store solu-

tion launches at the end of Q1 2016 and we will have NFC-based technology on that." <

COMMENT: APPLE PAY

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Apple Pay has launched in the UK, making this market the second inter-national region to receive the service after its debut in the US in late 2014,

alongside the roll out of the iPhone 6.In terms of vendor compatibility, the UK

is far more prepared at launch than its US counterparts. Contactless payments are already becoming more mainstream as the vast majority of the UK’s major retailers have NFC terminals installed, and Apple Pay is compatible with any terminal that already accepts contactless payments.

Apple Pay acts as a mobile wallet and comes in after rival wallet services, such as Google Wallet, have had limited adoption rates. However, Apple Pay’s UK entrance is likely to spur adoption of competitors as well. According to Ars Technica, Google Wallet registered a 50% increase in transac-tion volume in the two months following the announcement of Apple Pay US. The number of new Google Wallet users also doubled dur-ing the same period.

Some US retailers have used Apple Pay as an incentive to upgrade their point of sale (POS) terminals to EMV/contactless, away from mag stripe yet uptake remains slow among non-Apple partners and it has been difficult for consumers to rely on Apple Pay as a wallet replacement solution.

Given the total UK iOS market share of 36.8%, as of end May 2015, according to Kantar, it is unlikely that Apple Pay will be a significant disruptor to the payments indus-try at launch as users will have to own one of the latest models of iPhone, iPad or Apple Watch to use the service.

Launch SupportApple Pay is supported by all major UK banks, bar Barclays. The latter has announced it will support in due course. Barclays is currently pushing its bPay contactless payment tech-nology, which includes a wristband, key fob (into which you insert an NFC chip) and a mobile phone NFC sticker.

Transport for London (TfL) is a key launch partner. The London transport network has been a great vehicle for contactless payments through its Oyster prepaid cards and more

recently, its acceptance of contactless debit and credit cards. Interestingly, US Apple Pay users have already been using it on the net-work, as TfL’s Shashi Verma confirmed at a MasterCard workshop in June.

Apple Pay does not disrupt the four-party scheme model and, at least in the short term, is expected to be beneficial for card networks, banks, acquirers, POS vendors, and even its direct competitors. See table p11.

Apple Pay comes at a cost for card issuers- 0.15% per credit card and $0.005 per debit card transaction in the US. These figures are as yet unclear for the UK market. Yet issuers are willing to absorb the extra cost due to expections of decreased card fraud and an overall increase in card transaction volume.

How it worksUsers store existing credit and debit cards on their Apple devices via the iOS Passbook app. Card details can be entered manually or by uploading a photo using the device’s camera.

Once a card has been authenticated, its details are not stored on Apple’s servers. Instead of the user’s actual credit or debit card numbers being stored on the device, a unique 16 digit Device Account Number (DAN) is assigned, encrypted and securely stored in the Secure Element (SE), a dedi-cated chip in iPhone, iPad and Apple Watch.

The DAN is issued for each card by a token service provider such as Visa, MasterCard or American Express, to emu-late the actual card.

TokenisationPayment is made using tokenisation. These tokens can only be recognised by authorised parties such as card networks, and conform to EMVCo’s tokenisation guidelines. When a transaction is initiated, the SE also gen-erates a one-time dynamic security code to authenticate the payment, which substitutes the Card Verification Value (CVV) and ensures that the transaction is carried out through a genuine device.

Aside from restricting skimming, the tokenisation feature also prevents card details being shared with merchants, which

substantially mitigates the risk of fraud such as identity theft and data breach.

Security Moreover, iPhone and iPad transactions are verified by Touch ID, and Apple Watch trans-actions are authenticated by skin contact and password entry. These biometric protection features reduce fraud risk resulting from lost or stolen devices.

Once the payment has been accepted, the device vibrates to acknowledge that the sale has been completed. Apple Pay’s robust encryption and data protection allows card issuers to assume fraud liability.

If a user’s device is stolen, all payments can be suspended via use of the Find My iPhone app, which can be accessed remotely from a PC or Mac. As card details are not stored on the device, there is no need for a user to cancel their cards.

Fraud riskThe Apple Pay payment mechanism is such that consumers’ details cannot be stolen by hacking into a payment terminal. However, there have been concerns over fraudsters using the Passbook app and an iPhone’s camera to authenticate stolen cards. Cherian Abraham, mobile commerce and payments expert and industry consultant who works with banks and retailers on mobile payments strategies, said that it is not “an anomaly” to see fraud accounting for about 6% of Apple Pay transactions, compared to about 0.1% of transactions using a plastic card. See Fraud risk box overleaf.

Will high value transactions be accepted?In the UK, contactless card payments are subject to a £20 transaction limit. However, depending on the retailer’s POS software, higher value transactions could be accepted, providing stronger authentication is submit-ted. The biometric verification in Apple Pay satisfies this stipulation. Currently, very few retailers have such sophisticated software; those that do are using Apple Pay to capi-talise on this facility, such as Pret and Bills restaurant.

A Visa spokesperson said “while there

Will Apple Pay-ve the way for mobile?The launch of Apple Pay in the first market outside the states has been hotly anticipated by the payments industry (and the odd Apple aficionado). Anna Milne, EPI’s advisory board and other industry experts examine the potential to evolve the mobile payments industry in the UK market, in comparison to the US

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may not be many places that accept high value payments when Apple Pay launches, we expect the expansion of shops, cafés and restaurants that accept these transac-tions to happen over time.”

UK Advantages• Contactless (EMV system) infrastruc-

ture already in place at many retail outlets;

• Compatibility with transport net-works, especially London’s;

• Improved security over Chip and Pin.

UK Challenges• Confusion over acceptance only at

partner outlets- this is not the case, it is accepted everywhere with a contactless POS;

• Few consumers with compatible Apple device;

• Little incentive to use Apple Pay if contactless is already widespread;

• Lack of merchant incentive due to non-retention of customer details.

US Advantages• Significant security improvements

over mag-stripe technology, creating incentive for merchants to upgrade terminals and adopt Apple Pay at the same time;

• Significant iOS market share.

US Challenges• Vendors reluctant to upgrade termi-

nals due to questionable ROI;• Competition from CurrentC – a

coalition of US retailers including Wal-Mart, Gap and 7-eleven - offer-ing a mobile wallet service, however, its dependence on QR codes will like-ly be a disadvantage in comparison;

• Lack of merchant incentive due to non-retention of customer details.

UK Reception- TrustForrester’s Technographics data from Q1 2015 states that 27% of UK online con-sumers owning an iPhone would trust Apple to provide a mobile digital wallet but they are still more likely to trust PayPal (43%), a bank (41%), a credit card network (40%), and Amazon (32%).

However, consumers cannot trust what they do not yet know. Once Apple Pay per-meates consumer consciousness, trust is likely to increase.

US ReceptionThe US adoption of Apple Pay has achieved only limited amounts of success. A Reuters survey from the National Retail Federa-

tion’s list of the top 100 US retailers found that a quarter accept Apple Pay, nearly two thirds of the chains said they would not be accepting Apple Pay in 2015 and only four companies said that they have plans to join the programme “in the next year”.

Adoption by US consumers has also been relatively slow. According to a Trustev sur-vey of 1000 US-based owners of modern iPhones (models 6 or 6+):

• 79% of iPhone 6 or 6+ users have never used Apple Pay at all;

• 21% of users have tried the service once or more.

Among the people who have tried it out, Apple Pay is not used very often. Within that 21% who have tried it:

• 80% still use cards or cash for the vast majority of payments, using Apple Pay three times per week or less; the bulk of these (62% out of the 80%) use Apple Pay either not at all or once in a typical week;

• 30% of people have stopped using it altogether: they now use it “never” in

an average week;• Only 2.1% of people are “super-users”

who use it 10 times or more a week.

Conversely, a 2014 InfoScout survey of 170,000 US iPhone 6/6 Plus-owners who shopped at retail stores accepting Apple Pay during Black Friday weekend 2014, indi-cates 73.5% of respondents found Apple Pay easier to use than card payments, illus-trating Apple Pay’s potential. See table p8.

Apple’s iPhone sales reached a record vol-ume in the quarter during which the iPhone 6 was launched, at the same time as Apple Pay. The following quarter, Q1 2015, Apple announced the second best iPhone sales ever, with sales of the iPhone 6 and 6 Plus amounting to 61.2 million units.

According to Apple's press release, the growth was fuelled by record second quar-ter sales of iPhone and Mac, and all-time record performance of the App Store.

By comparison, during the first quarter of iPhone 5s sales, the company shifted 44 million. The financial quarter of the 6 and 6Plus release, as well as Apple Pay, 74.5 mil-lion iPhones were sold.<

Fraud risk lessons UK banks can learnMary Ann Miller, senior director and fraud executive advisor at NICE Actimize, who previously had directorships and executive roles in fraud strategy at USAA, eBay/PayPal, and Lloyds Banking Group explains the fraud situation in the US around Apple Pay

On launch and the fraud risksThe question is how prepared the banks are for increased levels and new types of fraud – new technology always brings new risks.

Apple has made a huge effort to embed tokenisation into the payments process, but the biggest risks lie in the practice of card provisioning. Apple Pay has been made so easy to use that now potentially any fraudster can set up new iPhones with stolen personal info and then call the banks to provision the victim’s card to the phone. This has already caused huge losses in the US, where many banks were not fully prepared. Although contactless payment in the UK is more advanced, banks here can still learn from the US’s experiences.

On the £20 payment limitThe key to Apple Pay’s success will be consumer trust – to earn this they must work closely with banks to strengthen processes around financial crime. But with a £20 limit to payments, the message is simply that “this is not yet safe to use” - there are many banks that have had successful mobile wallet launches with much higher limits.

How can UK banks be prepared against the vulnerability around Apple Pay with regard to fraudsters setting up stolen card info on iPhones?Fraud detection and prevention practices and analytic tools need to be implemented as part of the card provisioning process and in the subsequent point of sale transactions. These systems should ensure that risk scoring of these events clearly demonstrates that it is either a customer transaction or a fraudulent transaction. It is then critical to have a system that takes actions to interdict when the risk is elevated. There is also the need to monitor the activities in the call centre if the procedure for provisioning the card to the Apple device involves a process to refer the customer to the call centre.

Can you give some examples on US losses of this kind and how many cases there have been?The US losses reached crisis levels, some banks reported ranges of 6-10% losses. Some banks also reported that many of the losses were from the fraudsters purchasing more Apple devices to keep the fraud cycle going. Banks have now made steps to take corrective action, but not without experiencing customer and risk impact, a rocky start and certainly lessons learned.

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Chris Davies, Global Payments

In some ways it’s more straightforward in the UK than in the US. It is difficult to get a full picture on what the commercial arrangements are going to be between card issuers, who are in effect going to be providing the issuing side of the process, and what the arrange-ments are with merchants. In the US there is a premium to be paid that Apple puts on top of the interchange rate that the issuers get. It’s not clear if this will be the case in the UK yet.

Where Apple really wants to try and improve the consumer experience is with in-app purchases. The mobile payments process usually takes a number of screens, with Apple Pay it’s pretty much a single screen, using Touch ID and the approval goes through. Speed is so important – mobile users typically are on the go and don’t want to go through 3D Secure on their phone. Having that improved shopping experience should make Apple Pay successful in the UK.

Face-to-face, it is just an element of substitution, similar to cards, although early adop-ters will use it and tech-savvy people too, but the real benefit comes with the in-app site.

As retailers become more attuned to mobile and tablet payments and ready their shops to be truly omnichannel, the in-app process will become even more important.

Apple has changed the dynamics in other industries already and it has a real chance of taking some market share here but it will be a longer burn and will depend on how each individual consumer integrates their mobile into their lifestyle. It’s unlikely to take the world by storm like iTunes did.

It’s likely that Apple will tie in loyalty programmes as it’s a very straightforward process for them to add on rewards. This would be the differentiator over low value contactless card payments. Apple already has a strong loyal following but it also has to find ways of getting people to choose Apple Pay. Rich Wagner, APS

Apple Pay strikes me as one of the few operators outside of the card space that has really thought about their payment offering. Of course, Apple is renowned for its deep insights into the mind of its users but it is clear from the decision to partner with the likes of MasterCard and Visa that Apple also recognises its own strengths. Apple has acknowledged that it is not best placed – and maybe not trusted by its customers – to store sensi-tive payment data, so has been smart to align itself with the credibility and exper-tise of the biggest card schemes.

Love them or hate them, Apple’s customer experience is best in class, and in my opinion, it has got to be the best collection of minds to crack the seamless, friction-less payment experience that consumers demand. The UK launch will boost the payments industry as a whole, but how-ever cool the technology, it will take years to reach anything near mainstream adop-tion. However, it’s interesting to note that Apple’s margins will be far lower in the UK than in the US, due to the huge discrepancy in interchange fee rates between the two continents. This reduces the commercial opportunity for Apple Pay in this market, so it will be interesting to see just how much focus it puts on the UK to get this on the ground, compared to Stateside.

Rich Bialek, GTPAs more and more payment transactions take place without a plastic card, Apple and Apple Pay are well positioned to take advantage of the ongoing digitisation of payments. They have the brand, the technology and the business model to be disruptive and successful. The Apple brand is powerful, aspirational and recognised globally. The authentication and overall transaction security is sound. Their ability to insert themselves into the payment value chain and earn a few basis points of revenue on each transaction insures they have a sustainable business model. Combined with the number of iPhones in consumers’ hands today they have the market presence to shape and advance this market.

n APPLE PAY PARTICIPATING UK BANKS/ FINANCIAL INSTITUTIONS

At Launch "Coming Soon"

Nationwide Bank of Scotland

NatWest Halifax

RBS Lloyds

Santander M&S Bank

Coutts TSB

Ulster Bank HSBC

American Express First Direct

Visa

MasterCard

mbna

Source: Apple

n APPLE PAY COMPATIBILITY

Device E-commerce via terminal

iPhone 6 / 6 Plus

Apple Watch (paired with iPhone 5, 5c, 5s, 6 or 6 Plus)

iPad Air 2 / Mini 3

Source: Apple

n CONSUMER SURVEY: APPLE PAY VS. TRADITIONAL CARD PAYMENT METHODS

Better Same Worse

Ease of Use 73.5 23.5 3

Speed at Checkout 67.6 29.4 3

Security 67.6 29.4 3

Convinience 67.6 26.5 5.9

Source: InfoScout

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Francesco Burelli, Innovalue

The industry has been looking at Apple Pay as a game changer. The launch of Android Pay combined with a reasonable penetration of NFC terminals, in particular in London and major towns, are promising building blocks to see NFC mobile-enabled payments taking off. Banks have flocked to sign up and announce their support to Apple Pay both in the US and in the UK.

Nonetheless take up will be slow. This is due to a number of factors. Apple has just over 18% market share globally, based on IDC research, while Apple’s UK smartphone share is just under 40%, based on Statista research. eMarketer research states 55% of UK consum-ers have a smartphone, leading to the estimate that about 22% of the UK population are iPhone users. iPhone 6 owners have been keen to sign up to Apple Pay but the adoption of it must take into account the fact that the UK handset upgrade cycle is 24 months for the most part in UK contracts. Few consumers are willing to pay full price for the sake of being able to use Apple Pay and would rather wait to get the new phone as a contract upgrade.

So, even if we assumed to see a full switch to iPhone 6 by the Christmas season 2015, and we started to see Apple Pay volumes registering on transaction statistics, it is still likely that Apple Pay transaction volumes would be low and will take time to grow.

I would also consider the other UK mobile payment solutions including Barclays’ Pingit and ZAPP. Ultimately the mobile payment space is over-supplied with a significant num-ber of wallets and interfaces competing in a market that I would expect to become pretty fragmented in the medium period.

Take off will happen but slowly and will represent a very, very small share of total transactions for the foreseeable future.

The Competition: Zapp CEO Peter KeenanI think customers now are getting quite attuned to having many different pay-ment options. They will select payment options as to whether they want to collect points, have bonuses such as holiday insurance, or want to use debit card because they are tightly budgeting.

Much as I’d love to have 100% of the market share in mobile payments, that’s rare in any market. Our view is that the market is big enough for the likes of Zapp, and Apple Pay, and others as and when they arrive.

The one great thing Apple has done is to solve the debate around whether it is going to be NFC or not- it has also given the market great confidence that mobile payments as a solution is coming. Now it is just a matter of who the key players are going to be and how quickly it is going to be adopted by consumers. Up to the point of Apple Pay coming people were still debating whether mobile payments were ever going to take off. That debate has gone away. It is absolutely here to stay, so for us it is a net positive.

It goes without saying that Barclays has been one of the most innovative banks in the payments space. I very much see them as trailblazers in digital and the digital payments space, so for Barclays to join our ecosystem is a vote of confidence in what we’re doing. They very much see what we’re doing as the future and they like the opportunities it will bring their retail and corporate customers.

While currently Zapp remains an online solution only, we do not see this as a limitation, rather a differentiating factor at the moment.

Zapp is for online purchases and m-commerce purchases and this is the one difference between us and Apple Pay, which doesn’t have an e-commerce (buying in browser or desk-top) solution. We will be the first ubiquitous mobile-based e-commerce solution out there. Our m-commerce solution is, we believe, by far a better solution and we have an in-app solution as well. In addition, our in-store solution launches at the end of the first quarter next year and we will be using NFC-based technology on that one.

n IOS SMARTPHONE SALES MARKET SHARE (MAY 2015 FIGURES)

0

10

20

30

40

50

20132015

2014

%UKUS

Source: Apple

Carlos Sanchez, ipagoo

Apple Pay is a useful solution but just one more competitor. It will take off in the UK if they convince enough banks and enough retailers to partner.

There’s just too much choice- people will get confused. The industry needs interoperability. You could argue that everything which is based on card virtualisation, be it token or otherwise, is interoperable because everybody can acquire cards but even in that space, the way to exchange information between the seller and the buyer about the pay-ment is not standardised. I think we need an international standards body like ISO looking at the basic things that will enable interoperability without stepping into the competitive space. If you have to convince everyone to use a specific app or a specific device, it’s much more cumbersome and you need much more investment in marketing- you might not even make it, no matter how good you are. Standardisation is one of the things that regulators here are pursuing, standardisation of messaging, but it’s not just at infrastructure level, it should also happen for whatever information is pass-ing the NFC connection, for example, so that we can start thinking along the lines of “my app works with your app”. That’s the way to go.

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n APPLE PAY TWEET MENTIONS PER BANK

NatWest 806

RBS 324

Nationwide 259

Santander 180

Ulster Bank 89

Notes: Based on 26,000 tweet mentions between 14 July 00:01 and 15 July 23.59 2015

Source: Brandwatch

n APPLE PAY USER EXPERIENCE DURING LAUNCH- BASED ON TWEET MENTIONS (OUTSTANDING VOLUME COUNTED AS NEUTRAL)

Outlets Negative Tweets Positive Tweets

TfL 32 47

Pret 18 28

Tesco 27 12

Waitrose 27 6

Boots 8 10

Costa 3 13

Starbucks 6 6

McDonalds 1 10

Subway 1 3

Co-Op 11 11

Nandos 0 4


Source: Brandwatch

n APPLE PAY USE DURING FIRST FEW DAYS OF LAUNCH- BASED ON TWEET MENTIONS

TfL 922

Pret 407

Tesco 433

Waitrose 233

Boots 174

Costa 147

Starbucks 132

McDonalds 86

Subway 58

Co-Op 68

Nandos 49


Source: Brandwatch

Cash stands to lose An average smartphone today has more computing power than all of NASA in 1969, when it put two astronauts on the moon. Placing this at a consumer’s fingertips is driving phenomenal opportunities in payments, writes Chris Davies, managing director, Global Payments


It is a truism that technology now permeates every part of our daily l ives, with the ubiquitous smart-phone being the prime example.

The launch of Apple Pay in the UK has the potential to push mobile payments into a completely new sphere.

The payments industry in Europe is mature but that is not to say that it is not ready, willing and able to adopt new tech-nologies and to innovate. In fact the sector is evolving, perhaps at a pace never before seen, as innovation and changing consumer habits converge to create unprecedented opportunities for payment companies, tech-nologists, retailers and shoppers alike.

Over the past decade the world of retail has been revolutionised. Most significantly, the rise of online has turned traditional customer shopping habits upside down, generating intense competition for bricks and mortar retailers by lowering costs and decreasing high street footfall – but simulta-neously creating huge opportunities for new and existing market participants.

Against this backdrop, the way retailers take payments has also been shifting, both in line with changing consumer habits and emerging payments technologies. Indeed, the way customers pay could play a sig-nificant part in the future fortunes of major European retail brands, particularly as they come to leverage technological innovations.

However, the pace of adoption of new ways to pay still differs greatly depending on where you are in Europe. In Germany the use of credit cards remains stubbornly low and many people in Italy still instinctively prefer cash. But while we will see different markets adopting different technologies at different times, the overall trend is clear. The way we pay for things is going to shift from cash to the use of electronic payments including smartphones, watches and other 'wearable' technology.

A popular handset with a mobile wallet has the potential for very swift and wide-spread adoption, incentivising retailers and consumers to really engage with mobile pay-ments, such as we see with Apple Pay.

But Apple isn’t just using its phones for payments, the smartwatch enables the user to make a payment too. The development of wearable payment technology such as this is another feature of the payments industry.

For example, prepaid or contactless wrist-bands will be seen 'queue busting' at many music and sporting events this summer. And the potential for wearable payment tech-nology is only just starting to be seen with applications for clothing, jewellery and even glasses in various stages of development.

Another area where we are seeing inno-vation is in the development of peer-to-peer money transfer, which typically uses smart-phones to transfer funds.

Starbucks now operates its own closed-loop payments system. This means custom-ers can pay Starbucks directly for their cof-fee using a mobile app without the need to introduce another financial intermediary, such as a card network, into the process.

What’s more, some digital wallet services such as Skrill can link directly and secure-ly to bank accounts while other apps, like Barclays Pingit, just need a mobile phone number to transfer money directly to an individual, without the need for cards. In March Facebook launched a money transfer service to compete with existing payments providers such as PayPal and Square and this could prove to be highly disruptive to the rest of the market.

In response to this it is the responsibility of the traditional providers such as payment card processors and card networks to rise to the challenge and show the real value that they add to the end consumer.

New technology and innovation are growing the market for electronic payments in Europe while at the same time creating opportunities for both new and established players. But this doesn't necessarily mean pitting one against the other in a winner-takes-all battle for supremacy. A bigger market will be able to accommodate more participants offering new ways to pay. The reality is that the real loser in this is likely to be cash as it gets pushed ever further to the payment margins. <

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n COMPETITIVE OFFERINGS

Zapp, UK

Key Technology Direct debit in combination with tokens and QRs. Will launch NFC in 2016

Strengths Low cost for merchantsAvailable via customers' mobile banking appReal-time fund transfersSupport from retailers, banks and acquirersSecurity- does not share sensitive information- digital tokens expire in three minutesCaptures consumer data that can be utilised for targeted marketing

Weaknesses No support for payment cards, including prepaidNo access to loyalty or reward schemes on credit cardsRequires log-in to banking app

BBVA Wallet, Spain

Key Technology NFC - HCE

Strengths SecurityCaptures consumer data that can be utilised for targeted marketingConvenienceWorks on both Android and IosWorks with wide range of smartphones, bank supplies stickers for phones without NFC functionPopular among BBVA customers

Weaknesses Supports only BBVA-issued cardsPrivacy a concern for some customersWindows phones not supported

CommBank Tap & Pay, Australia

Key Technology NFC PayTag stickers

Strengths Security- the bank guarantees 100% refund of unauthorised payments Works on Android and IosWorks with range of smartphones- NFC stickers suppliedDoes not require app or phone display activation

SEQR Wallet, Europe

Key Technology QR codes and NFC if available

Strengths Access to large set devices, incl. non-NFCSupports Android, iOS & WindowsNo exchange of sensitive information between mobile and cashierLow cost for merchantsProvides credit option for payments- but not through cardsAllows P2P fund transfers

Weaknesses Privacy a concern for someDoes not support credit card loyalty or reward schemesScanning QR codes can be less practical than NFC and cards

Source: Timetric

n MSC REVENUE SHARE OF A TYPICAL $100 CREDIT CARD TRANSACTION THROUGH APPLE PAY

Total revenue of all participants in a $100 credit card transaction= $2.49

Card Issuer $1.71

Merchant Acquirer $0.47

Card Scheme $0.16

Apple $0.15

Note: Revenue shares in a debit card transaction may vary; card issuers revenue includes that of the issuing processor and card acquirer’s that of the acquiring

Source: Timetric

David Abbott, Fiserv

From a business perspective, the UK is rapidly moving to a low interchange environment which means that any additional costs for payments processing will go against the market trend for merchants. This is a consideration that cannot be ignored as Apple tries to grow its share of the payments market. Despite these challenges, Apple Pay is a highly innovative pay-ment option that will have appeal for both Apple fans and con-sumers who see Apple Pay as a bonus feature on their smart-phones. There have been 12 years of hype around mobile payments, and this announcement represents a real change for the industry. We’re seeing an invigoration in payments across the sector, with emergent payments methods coming to fruition, an uptake in consumer usage and merchants ensuring that they have the latest technology to fulfil transac-tions. As such this could well be the perfect time for the roll-out of this technology.

Mohamed Horani, HPS

The payment industry is in full digital transformation, most noticeably in the mobile payment space. It is booming world-wide, and is now the object of a wild race between banks, telephone operators, international payments organisations, tech-nology companies, large retailers and many other entrants seek-ing new opportunities beyond their traditional activities.

According to a report published by McKinsey in October 2014, growth in the payment industry is built on sound foundations and is expected to be reinforced in the coming years.

Revenues increased by 6% in 2013 reaching $1.6trn, and accounted for 41% of the revenues of banks in the world. The annual growth rate of the payment industry should reach 8% in 2018, and should boost payment income to $2.3trn.

The bad news is that according to the same report by McK-insey, the margins on revenues have been under pressure for the last 5 years. The most striking example is the new regulation by the European Commission of the interchange rate, which is likely to come into force in 2016. In its current form, it would cause the evaporation of $7.2bn of revenues in Europe.

The key to facing these challenges is technology, as it gives companies the tools they need to adapt in an ever changing envi-ronment. The rate of change can only increase, democratising access to electronic payments and contributing to financial inclu-sion. They provide great opportunities for all market players.

New entrants are challenging the traditional players, using entirely digital means. For instance Uber, the largest taxi com-pany, has no vehicle and Alibaba, the largest trader in the world, has no stock.

2008 marked the start of a new financial world, even if we were not aware of it at the time. What emerged from the finan-cial crisis was a new economic system based on sharing and col-laboration, driven by communication, with the gradual spread of the Internet of Things, and secondly energy, with the arrival of new sources of energy.


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Bringing financial services out of its shellFinancial institution brands have been known to lack social media foresight for a number of reasons such as regulatory concerns and unimaginative marketing. Franchesca Hashemi examines a report delivered by Innovalue on how to engage effectively in the rapidly growing environment of digital consumption

Financial institutions (FIs) and social media have a challenging relationship: it is not a natural marriage, to say the least.

Research by consultancy firm Innoval-ue and Locke Lorde, a strategic management and advisory firm rooted in finance and inter-national law firm respectively, list key areas where significant gains can be made:“Talent recruitment, employee and consum-

er engagement and empowerment, market intelligence and product design, credit scoring, analytics, awareness, marketing”.

The report entitled ‘Financial Services and Social Media’ includes a wealth of solutions, including customer-centricity, brand culture and social responsibility to help financial pro-viders build a loyal online following.

However, unfortunately for the sec-tor, there are not many fast track solutions. The organic approach, from the bottom up, comes highly recommended.

The Future’s in the PastPresently there are more than one billion active Facebook users around the world, and this figure is steadily increasing. There is undeniable scope for banks, challengers and fintech developers to integrate themselves into the online community.

Facebook is worth $245bn, according to FB Tech 30, since its launch in the US in 2004.

Innovalue’s research shows almost 2.1 billion people are now engaged in social networking, with approximately one billion people registered to a Youtube account. A further 28% of time spent online is on social media, of which more than half is on Face-book, according to wearesocial.net.

Yet as social media and banking analysts, The Financial Brand, state on its website:

“As social media marketing continues to gain steam in retail banking, financial mar-keters need to pause and think about how they use social channels and whether this activity is really adding any value.”

The report advises businesses to think care-fully about the platforms they choose.

For instance, there are 100 hours of video uploaded to YouTube every minute, Innoval-ue’s research found -and YouTube has had a profound impact on advertising and culture.

Photographs and moving images are fun-damental to user engagement on social media. Mobile app Vine, a short-form video service that plays clips of footage which its users pro-duce on six second loops, garners one billion hits per month. Interlink Vine with Twitter and you’ll find that 12 million Vine videos are posted every month, according to a New York Times blog from 2013.

Elsewhere, Instagram and Twitter, whose respective defining features are breaking news and alluring pictures, provide financial services with an unorthodox platform to post all sorts of content.

The Financial Brand advises: “Instead of boring readers with posts exclusively about your bank’s hours, rates, or services, try to entertain them.“Post content that people respond positively

to and in varied forms- text, photos, video. Use a casual, conversational tone.”

In order to do this however, Innovalue rea-sons that operational challenges preceding

“real time interaction”, paramount to cred-ibility, come into play:“Communications that are typically routed

through marketing and legal departments for time-taking reviews and approval….require banks to rethink their processes and roles…”

In 2013, Instagram – or “Insta” as its larg-est demographic say – hit 150 million month-ly users, according to its own figures. Today, in 2015, current statistics stand at 300 million users, with 75 million using it daily.

According to analytics firm Twopchart, there are 974 million Twitter accounts as of September 2014. The figure rivals Facebook. However, research published by American radio and TV corporation CBS explain that only 25% of Twitter’s near billion users have an active presence (activity defined as sending a Tweet every 30 days). Yet this coffee shop in the sky – as Times journalist and glorified Tweeter Caitlin Moran calls it – proves popu-lar because its users acquire verified informa-tion on global events, or what’s ‘trending’, as opposed to communicating.

Furthermore, the evolution of social media has created a powerful relationship between business, employee and audience. Custom-ers can ask brands direct questions and get

immediate answers, enabling the customer to solve a problem with minimal hassle.

This connects convenience to excellent cus-tomer service, which are mainstays of mar-keting. The task now is to transfer existing business acumen to an online platform, while showing a vocational personality that focuses less on “strategy”, as Innovalue states.“Possibilities have to be considered within

the cultural context each FI operates in, accommodating consumer preferences, as well as regulation and compliance.”

Financial Services Brands on Social MediaJust over 1% of Facebook’s users ‘Like’ the card payment brand Visa however nearly double this number ‘Like’ Redbull, accord-ing to Innovalue’s figures.

Similarly, Starbucks’ updates adorn just under 3% of Facebook user’s timeline, with huge graphic images of colourful Frappuc-cinos and seasonal hot drinks enticing users to ‘share’ the post, ‘comment’ on it and ulti-mately buy the product.

Are FIs able to drive the same amount of traffic as an energy drink company?

Innnovalue warns the sector risks “lagging behind” its commercial peers. However, it should be noted that Red Bull boasts a string of sponsorship deals which maximises its online popularity.

The irrefutably “cool” Red Bull Music Academy brings together established and new alternative musicians and has more than 244,000 Facebook likes. ‘Red Bull’ as the umbrella company draws in 43 million. Within this arm, Red Bull TV, racing, adven-ture, games, hiking, and sky-diving exist.

Collaboration and association work well in the world of social media. On Facebook, Innovalue’s research shows approximately 0.03% of the Twitter population follow Red Bull’s Twitter account, which is more than Visa, American Express, Bank of America and the insurer State Farm.

It illustrates the importance of commercial popularity, which is prerequisite of successful online campaigns and financial services have suffered very bad press.

Social media users, with the most avid aged 18-29, follow brands like Red Bull, Starbucks,

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n COMPANIES’ VS FINANCIAL INSTITUTIONS’ FACEBOOK & TWITTER INCLUSION (% OF TOTAL USERS)

Company Twitter inclusion

Facebook inclusion

Red Bull 0.29 3.51

Starbucks 1.11 2.91

Nutella 0.02 2.33

Nike 0.69 1.74

H&M 0.74 1.69

GoPro 0.2 0.64

Microsoft 0.94 0.49

Vitamin Water 0.02 0.32

Visa 0.04 1.35

American Express 0.12 0.44

Progressive 0.01 0.41

Bank of America 0.06 0.16

State Farm 0.01 0.14

BNP Paribas 0.01 0.03

Fidelity 0.02 0.01

Vanguard 0.03 0.01

Source: Innovalue

Nike and H&M because they literally buy into the brand. Slick, feel-good advertising campaigns, with an interactive edge, satisfy a culturally hungry generation.

In Other NewsPew Research Centre found that 72% of online adults use video-based websites, such as YouTube, Vine and Vimeo. This figure is more than double the number recorded between 2006 and 2013.

Picking up on the cross-functionality of video, Lloyds Bank celebrated its 250th anni-versary with an advert which found resound-ing praise in the Twittersphere.

• “#lloyds what’s the name of the song in Lloyds bank ad? Goose bumps every time I hear it!”

• “From the #Lloyds ad! Beautiful tune. I just used #Shazam to discover Wings Acoustic [soundtrack] by Birdy”

The second Tweet has even incorporated another social media app. It is a good exam-ple of what Innovalue terms “consumer ser-vice/engagement” as well as “product aware-

ness, marketing and promotion”.Lloyds gained traction in print and digital

media by focusing the celebration on the cus-tomer.

Innovalue references MasterCard’s “imagi-native” social media competitions. In 2012, MasterCard co-sponsored the Brit Awards, using the #priceless hashtag to offer fans the chance to duet with their favourite pop-star.

Competitions are alluring. It gives mil-lennials and low-earners reason to click a brand’s Facebook page, maybe winning a month’s supply of Nutella or pair of Nikes.

The report states:“The advantages of social media over traditional communication chan-nels include its universal reach, its ‘non-cor-porate’ atmosphere and speed of discussion.”

If FIs want to garner more social media shares and likes, it may be a question of investing in trendy social media managers, to

“empower” employee, brand and company.As well as this, light subject matters will

rejuvenate a financial brand’s online reputa-tion. Jason DeMers of Forbes Magazine calls this the “humanisation element”.

‘The Social Media Opportunity’According to Innovalue’s report, there are

nine strategic categories FIs already deploy.The first two (recruitment and employee

engagement) should work cohesively for opti-mum productivity, the report discloses. This works both practically and empirically, as advertising job openings through the brand’s social media account is a positive conversa-tion starter for the online community.

It allows vast amounts of skilled and tech-nologically savvy people to view the job open-ing. This increases brand awareness while

‘empowering’ recruiters and existing employ-ees, who may choose to share the recruitment link on their personal account

The go-to business community is LinkedIn, which is designed for professionals. Its figures state the site networks more than 264 million customers across 200 countries, including 39 million students or graduates.

It should be kept in mind however that “social recruitment” can be applied in any capacity the financial brand sees fit.

LinkedIn, Facebook and Google Plus allow employees to discern specific information about potential recruits, as well as providing an analytical space to conduct research.

Innovalue lists opportunities surrounding “credit-scoring, fraud prevention and analyt-ics” that help financial services make good choices. According to the report, payday loan provider LendUp checks the Twitter footprint of potential clients for “economic stability”.

There are a number of tools referenced by Innovalue that help the social media checking process: microfinance, research on behaviour-

n KEY MILESTONES: SOCIAL MEDIA AND FINANCIAL SERVICES

Financial services Year Social Media

2001 Wikipedia launched

2002 Friendster launched

2003 LinkedIn and MySpace launched

2004 Facebook launched

Wells Fargo launches Second Life's 'Stagecoach Island Community'

2005YouTube launched

RBS launched the 'Innovator Blog'2006

YouTube bought by Google for $1.65bn; Twitter launched

2007 Facebook reaches one million UK users

Progresive Corporation launches 'Flo the Progressive Girls' on social media

2008Facebook surpasses MySpace

Chase launches 'Chase Community Giving' on Facebook

2009Foursquare launched; flickr reaches more than 4bn images

Chase shuts its 'Chase+1' initiative on Facebook only three years after launch 2010

Pinterest and Instagram launched; Instagram gains 1m users after only one month

Top 35 banks on Facebook reach 9m likes between them; ING launches the 'Orange Ambassador' initiative

2011Snapchat and Google+ launched

DenizBank launches Facebook banking services2012

Facebook acquites Instagram for $1bn in cash and stock; Twitter reaches more than 500m active users

American Express launches 'Pay by Tweet' service 2013 Instagram reaches 100m active users

Snapcash launched 2014 Pinterest: 250m users

LinkedIn: 313m users

Twitter: 645m users

Facebook: 1.3bn users

Source: Innovalue

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al consumption and social media data.Kreditch Digital Lending, a Hamburg

based online creditor, ousted traditional credit checks. Instead, it developed a unique software analysis system, using big data from Amazon and eBay. This created a matrix to check credit scores, enhancing the lender’s innovation technique.

However, this type of analysis is open to much scrutiny in the mainstream. It brings back the age-old transparency debate, which is a vital core value of any business.

Product Awareness and MarketingProducing and distributing marketing mes-sages on social media can generate user engagement while encouraging new audi-ences to join in. However, customisation and insightful posts, which take into account the social platform you are posting, are key to influencing relationships.

Within Innovalue’s report, it describes Fidor Bank as “implementing headline-grab-bing [social media] initiatives by incentivising its audience to “Like” the bank’s page. The bank also sets its current account interest rate according to the number of likes its Facebook page receives in a year.” This approach will not suit legacy or well-established financial structures, however, as Innovalue states:

“Increasing connections provide Fidor with a stream of prospects as well as engage-ment that lowers the cost of acquisition to an average of $20 per customer, compared with $1,500 for the average US bank.”

Fidor has successfully investigated the potential Facebook brings to an FI. The Ger-man bank also utilises aspects of Innovalue’s remaining five ‘strategic applications’:

“Consumer engagement/ loyalty building, customer service/consumer education/, pub-lic relationship and social responsibility, and payment initative.”

Research by UK-based Kantar Media TGI from the first quarter of 2014 found that social media users are more likely to embrace financial innovation technologies.

The same study found that people who log onto a social media platform at least twice a day are 22% more likely than an average consumer to stay abreast of new technologies, and 22% more likely to use NFC payments.

Financial brands such as American Express, French company S-Money and American-based web payment developer Stripe, have teamed up with Twitter, Google and Face-book and introduced E-commerce services.

It should be stated however that payment services must be authorised in the EU, and as Innovalue states: “the reporting and capital requirements accompanying such authorisa-tion form a very high bar for organisations to enter.”

Regulation, Security and ConstraintsData concerns and security are major issues for financial services and social media. There is a slew of regulation that keeps in check Brit-ish institutions as well as their global arms.

From the Financial Services and Markets Act 2000 (FMSA), which states a company’s online presence can be held accountable to the Data Protection Act (DPA) to the FCA (Financial Conduct Authority) and ASA (Advertising Standards Agency), digital mar-keters must ensure that rules which apply on paper are applied accordingly online.

Pew Research Centre found that 86% of internet users have at some stage attempted to hide their online footprints: “from clearing cookies and encrypting their email to avoid-ing using their name to using virtual networks that mask their internet protocol (IP) address.

Recently, American regulator FFIEC released guidelines governing social media use by FIs domestically and abroad.

According to Innovalue, the FFIEC pro-posed: “financial institutions must have a formal written social media strategy that is aligned with the global goals and objectives of the organisation.”

Innovalue also stresses that customer “cul-ture” must be taken into account, as this helps the brand see through media hype and adhere to legal challenges.

DataProtecting customer data is tantamount to the image of financial institutions. Yet the very nature of social media, its openness and instant conversations, means that negative interactions will happen.

Complaints directed at the institution should not be covered up by a social media manager. Leaving negative user comments on a business page, as long as there is a helpful reply below, show good will and keen inter-est in maintaining healthy customer relations.

It is almost impossible to hide or delete bad press on social media. Attempting to do so could do more harm than good.

Yet Innovalue reports that “uncontrolled and unaddressed complaints” are difficult to moderate or control. This is factually true, however, allowing bad press, as long as it doesn’t infringe anyone’s rights, conveys com-mitment to customer satisfaction.

A survey carried out by Forrester showed that 8% of US social networkers, who inter-act with financial firms, do so primarily to

“post reviews, complaints and questions” while 15% preferred to be “alerted to promo-tions and special offers”. The contrast proves that it isn’t all doom and gloom for the sector. However, Innovalue concedes:“While many commentators still claim that

the power of social media will have a signifi-

cant impact on the way financial services con-duct business and on people’s perception of FIs, it is unlikely that there will be widespread convergence, beyond nice topical areas or beyond single organisations that are manag-ing to set themselves up as a social media best practice, between social media and financial services in the foreseeable future.”

In the UK, only 9% of Forrester’s respond-ents agreed that communication with banks via social media is central. Contrastingly, 25% of respondents in Hong Kong consider their banks giving personalised advice via social media a priority.

Wells Fargo challenges the undertone of this sentiment with its online persona, which includes 733,000 Facebook likes, Twitter and LinkedIn accounts, a YouTube channel with 2.6 million views, seven active education-based blogs and a unique online community developed by the brand Stagecoach Island.

Innovalue sums up the survey: “The vast majority of people do not consider engaging or sharing information with banks via social media channels a priority, mainly suggesting concerns around security.”

However, the report cites the financial cri-sis and well-publicised scandals as reasons why customers are disinterested in pursuing social media relationships with them:“Consumers lost their trust in financial

institutions; social media can give financial providers new means of engaging with con-sumers in an appealing manner that can help restore lost confidence.”

Clear objectives, a team of natural Face-bookers, Tweeters and image distributors are necessary components of social media success. Competition from luxury, entertainment and commercial brands – let alone customer’s real social media friends – is tough. FIs must first establish their perimeters.

Further advice includes questions that financial services should ask:

• To what extent should they involve themselves in social media?

• What regulator, security and privacy dangers are involved?

• Do they have prerequisite capabilities? If not, are they willing to make the sus-tained investment to acquire them?

• What level of autonomy do social media employees have?

People will continue to use social media as long as it exists. Therefore if a financial brand wants to remain relevant to consumers, it must sign up to social media.

At least for appearance’s sake. <

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Financial Services and Social MediaLocke Lorde’s global head of cards and payment Robert Courtneidge highlights some stand out social media campaigns of key financial players and reveals how the sector can implement successful online and social media strategies while appeasing the regulators, despite their inherent disadvantage in the field

Despite lagging behind other regu-lated industries there have been a number of stand-out successful social media campaigns by finan-

cial services firms. Below are some exam-ples of firms which have quickly attained higher levels of social media engagement.

PaypalIn early 2013 PayPal’s social channels were overtaken by complaints about customer service and negativity. PayPal’s social pres-ence historically has been fragmented with low engagement.

Joining forces with Edelman, it tackled these issues in order to transform not only its social presence, but also its brand. Customer service quickly became a known presence on social media channels, with the creation of the @AskPayPal handle. PayPal’s competing brand pages and handles have been consoli-dated.

Content has shifted to a cohesive PayPal customer benefits dialogue; including chan-nels such as Twitter, Pinterest, Instagram and more, and these have been used to engage with celebrities and other brands in real-time. A strategic presence on YouTube and LinkedIn has been launched, fuelled heavily by thought leadership being published on the new PayPal Forward innovation blog.

Statistics show that PayPal’s social media progress has been a great success: 327% increase in engagement, 207% improve-ment to sentiment (positive to negative ratio), 329K new fans and expansion into 5 addi-tional social platforms for a total of 8.

Progressive The insurance service business has gained over 5.4 million fans on Facebook by post-ing highly on-brand visual content, using a mix of humour, inspirational quotes and quirky input from a character called ‘Pro-gressive Girl’ to project its promotional brand messages.

Charles SchwabFinancial investment company Charles Schwab has achieved more than 100,000 likes on Facebook with a more sedate

approach, balancing self-promotion and helpful advice. It’s all done by providing helpful content on investment, planning and retirement created by the brand itself. Obvi-ously a very competent content marketing team at work here.

State Farm Nation Insurance service provider State Farm Nation takes a different approach again. It has gained 1.5 million Facebook ‘likes’ by sharing ‘hacks’ from other sites about health, lifestyle, safety and cookery techniques. Though most posts are curated, the content combines to appear like on-brand, helpful advice for the community

HSBCFurthermore, every morning on the @HSBC_UK_Help Twitter feed, an HSBC person gives their name and says they're there to help with any queries. This method is reas-suring to customers because a name shows they're reaching out to a real human.

In terms of regulation, privacy barriers and the unfortunate reputation of the financial industry within the mainstream community, is the sector at a fundamental disadvantage in comparison to Starbucks or Nike?

It is important for financial services to recognise the need to exploit social media as a strategic long-term investment if younger generations are to be brought on side and retained however, clearly, the financial indus-try is at a major disadvantage in comparison to the likes of Starbucks or Nike.

The gap in relation to social media success between companies from other regulated sec-tors can be attributed to structural barriers to entry, preventing financial institutions from fully exploiting social networks and limit-ing the size of their web audience and brand awareness.

For a firm to operate a social channel there takes a substantial amount of forethought and planning as it’s a highly regulated envi-ronment. Far more so than other B2C indus-tries. You can’t just suddenly announce a discount incentive, or a ‘retweet to win’ com-petition because the regulators don’t allow it.

Furthermore, when it comes to customer service, banking or credit card companies cannot ask for account information on social media, not even via private or direct informa-tion therefore customers have to be directed to a secure email channel. This is of course not inherently ‘social’, but it does mean that a customer can safely provide information that will give an advisor access to their account.

How can financial services encourage social media interaction with a younger generation?Younger generations have been born into a technology age. They think differently about brands to older generations and they use customer service departments much less frequently. If they want to complain they go straight to Facebook or Twitter to have their say. With this in mind, financial institutions can therefore use social media to target stu-dents who use the medium extensively for talent recruitment, to advertise jobs, answer questions related to positions and direct potential candidates towards online screen-ing tests.

Furthermore, an increasing number of financial services businesses exploiting social media opportunities are using brand and marketing technology platforms to manage the process. An automated process with a documented audit trail is created and accessed from a single interface, bringing together the people, departments and poli-cies involved in compiling and posting social media messages.

Financial services companies can control the creation, approval and posting of social media messages, helping reduce the risk of compliance breaches or the wrong messages appearing in the wrong context.

Fidor Bank has implemented several ini-tiatives including a current account interest rate set according to the number of Facebook Likes the bank’s page receives in a given year and a crowdsourcing tool allowing custom-ers to answer other people’s financial ques-tions, encouraging word of mouth. This is a prime example of a bank using innovation to encourage interaction with millennials and younger generations. <

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ING and the faster payments streamING has already digitised and streamlined account opening, nailed mobile and internet banking and utilised predictive analytics to maximise the customer experience. What next in terms of the drive for global real time payments? Anna Milne speaks to Inge Van Dijk, ING’s director of instant payments

AM: What has ING learned from new entrants?

IVD: The main thing is to look at the cus-tomer experience, which we did when we developed iDEAL. We did not do this as much with SEPA because we came from legacy, so we had to compromise. This never brings out the best in the products- certainly if you do that with four, five or six thousand banks, it becomes difficult. Whatever the new entrants tell us, one thing is clear, we’ve left something out which they’ve tapped into and are succeeding at. Mark Buitenhek said they are really good at cost, speed and most of all user experience. If you want to be rel-evant you have to listen and tap into that.

AM: Could you reiterate your points on the platform at EBA Day about having a payments infrastructure applicable to consumers, SMEs and corporates alike?

IVD: If you can do it on the consumer side, why can’t you do it on the business side? If you can do it for an SME, why not a bigger company?

If a consumer is paying for goods on the doorstep, on delivery, eg. with iDEAL in NL but also in the UK, why can’t a retailer pay his wholesaler (where his goods are stored, effectively), on departure of the goods and send direct to the consumer. So there is a whole different set of services that can be opened up by allowing instant payments also in business. Or indeed why can’t the supplier send directly to the consumer?

AM: What attitude should be adopted?

IVD: You need to think about the product comprehensively at the beginning, because once you hook the consumer in, it spikes interest from the SMEs, and then the cor-porates. So consider the broader perspective and build for that. This does mean more investment up front but it will pay out in the long run. It will snowball so quickly that by the time you’ve evaluated your P2P mobile pilot, they’ll be banging on your door and you will be constantly trying to catch up

with demand. Start simple by all means but make sure it

is extendable across platforms for the long run. It needn’t happen overnight. It can be a single solution for a single community that people have to sign up to. The community already exists, in the form of the account. But it needs to fit any type of account so if I only do P2P, I’ll need to have the ability to extend into P2B, B2B, B2C and then make that country specific.

AM: How much more complex is it to develop P2B than P2P?

IVD: Complexity in P2B comes not from the volume, but the fact that somebody has to sign off, it requires two signatures- this makes the authorisation of the payment more difficult.

The problem for banks is once volume and speed are up after you’ve brought in all the segments, the collateral you have to raise to have funds available for settlement cycles is massive- so you have to decide whether or not you can go for real time settlement. Also, once hours are extended over the weekend you have to cater for increased risk and liquidity costs, which in turn requires settlement cycles to be opened up over the weekend.

AM: The faster payments market is mainly domestic- 90-95%- and is likely to stay this way. Why the need for cross-border?

IVD: When it comes to business payments it’s international. When the internet came along everyone thought it would spike cross border transaction and it has, but only a small spike- one or two percent. This is because the internet became country-specif-ic- we have country domains. It’s true the consumer market is mostly domestic but I believe it would be wrong to focus on that and yet I can understand why banks do. The pan-European volume is just a few percent but the pan-European experience- the reach- has great potential. Card schemes have global reach- MasterCard and Visa, it is what makes them big. If you deliver instant

payments, built on the SEPA railway track, with a single pan-European user experience, then you have something that can compete with the MasterCards and the Visas.

First, as a community you have to under-stand each other and make sure you have the same belief. That’s what we’re doing within EBA.

AM: Is there a problem within bank departments, vying for budget when there is not an obvious business case?

IVD: Within ING, no. This is something new, inspiring and invigorating so no prob-lem getting people and resources in. Strategy discussions take place but it’s more about timing. I’ve heard other banks having dif-ficulties putting the strategy together for the board, especially after SEPA- it is again an investment in payments- their colleagues might like some investments in savings or mortgages or other products. ‘Payments’ does tend to eat up quite a lot of the change within a bank.

AM: What about collaborating with new fintech companies?

We believe we’re on the brink of a new era which will change the landscape, we can’t even predict how- it’s going to change it drastically. Payments have been so siloed with cards on the one hand and payments on the other. All of a sudden these new entrants are making it so much more fun.

AM: What’s ING’s take on blockchain technology within payments?

IVD: It’s really amazing- we’re looking at it with keen interest- it certainly fits with our philosophy in terms of opening up and safeguarding our customer’s input. We’re concerned about PSD2 and the re-use of credentials. But opening up and seeing if fintech companies can lift your infrastructure to find a new business model is something that’s top of our minds but we just haven’t pushed it yet. Something will follow soon. <

THIS ONE EPI 337.indd 16 24/07/2015 09:11:10

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APPLE PAY STRIKES THE UK · ANALYSIS: Apple Pay UK • INTERVIEW: Inge Van Dijk •REPORT: Social media in financial services MOBILE PAYMENTS: The road ahead July 2015. Issu. e