New payment forms and rulesThe stakes for marketeers

in the financial services industry

Simon Lelieveldt

Financial services landscape: changing (fast)

Applicable rules

Nature of technology

Internationalisation Nature of competition

Outside EU New technologies

Niche focused

European market for financial services

Nature of demand

Economic growthInterest rate

Increase of scale

Infrastructure(central banks)

Unbundling

Payments as the working laboratory

•Drivers of change• Technology• Regulation

•Customer demand

•Conclusions

•Challenges for marketeers

Technology - trends

• From proprietary technology, to open infrastructures and lower cost

• Traditional competitive technological advantage becomes a handicap for the existing financial institutions

• Locking in customers is no longer an option

• Building payments as modular building blocks using an API-infrastructure and tokenisation

• Further innovation: public ledgers / blockchain

Composing the payment product…Payment

type

Pay Before

Pay Now

Pay Later

Mode

Internet

IVR/ASR

SMS / MMS

BLE

HCE

NFC

Devices

PersonalComputer

Landlinetelephone

Tablet

Token

Smartphone

POS-terminal payment card

Context

Banking-securities-savings-payments

Digital content

Internet-payments

UnmannedPOS-payments(vending/parking)

POS-paymentsin merchant shop

Virtual currency players

Authent

TAN / PIN

Card-PIN

Calling LineIdentification

SWIM

UserID/password

Biometrics

Paymentsupplier

Bank

E-money Institution

Payment Service Provider

Billing serviceProviders (ISP, Telco)

Third Party Payment Service Provider

Brands & Networks

Bitcoin and the blockchain

Bitcoin• Value, attached to solved puzzle of complicated calculation• Made by users themselves• Registered in a public blockchain that everyone can

verify/validate

Blockchain• Currently, numerous applications of blockchain / ledger concepts• Playing around with private / public records and business cases• The Internet of things… smart contracts

What really matters….

Bank

E-money Institution

Payment Service Provider

Billing serviceProviders (ISP, Telco)

Third Party Payment Service Provider

Brands , Retailers &Networks

UserContext

ID & Authentication

Fullfillment

Payment SupplierUser context requires

proper identificationand authentication

(or reputation) as the main building blocks

So where is the competition ?

• We expect that the main competition will come from non-banks who play a role in eCommerce and mobile payments (Paypal, Google, Apple, payment processors, etc.)

Source: Finextra Survey, May 2015

Big data…. and the mental divide

Technology – wrap up

• From legacy systems to APIs that slice up the value chain

• New channels (mobile) create the omni-channel challenge

• Importance of authentication and identity

• Using public ledgers and reputation to shape credibility

• Towards an internet of things, with smart contracts

• Big data with big consequences and big differences

Regulation…

Internet store bol.com

Eventim, Theatres& ticketmaster

All bookshops in Netherlands

Max 100-150 euro, valid for 18 months,No redeemability

Max 150 euro, unlimited validity, redeemable

Max 150 euro, unlimited validity, redeemable

Prepayment of services

Limited Network Electronic Money

Regulation…

Challenge: How can regulated financial service providers achieve a similarservice level (ease of use) as non-financial retailers that providesimilar services?

How can regulatory hurdles turn into appreciated assurance?

EU-Regulations for payments

• EU regulations shaping the market:

• Settlement Finality Directive (1998/2009)

• Electronic Money Directive (2001-2009)

• Consumer protection rules (1987-2014)

• SEPA and the Payment Services Directive (2009-2014)

• Anti-Money Laundering Rules (2005-2014)

• Competition Cases and regulation (1988-2014)

• MIF Regulation (2015/751)

Gamechanger - 1

Multilateral Interchange Fee Regulation (2015/751)

• Limits retailers fees for debit/credit-card transactions

• Reduces interbanc fee compensation in the cards domain

• Requires bank (industry) to rethink their business model and packaging of services

Similar regulatory interventions exist for other business lines.

Gamechanger - 2

Revision of Payment Services Directive (2015/751)Requires banks to• open up their accounts systems • to allow payment initiation service providers • to execute one-off payment transactions • on behalf of the banks’ own customers

• Entry into force/implementation by the end of 2017• EBA Draft regulatory standard for interfacing

Gamechanger - 2

Revision of Payment Services Directive (2015/751)Requires banks to• open up their accounts systems • to allow payment initiation service providers • to execute one-off payment transactions on behalf of the banks’

own customers

• Entry into force/implementation by the end of 2017• EBA Draft regulatory standard for interfacing

The payment initiation service providers do not necessarily enter into contractual relation with the account servicing payment service providers and, regardless of business model used by the payment initiation service providers, the account servicing payment service providers shall make it possible for payment initiation service providers to rely on the authentication procedures provided by the account servicing payments service providers to initiate a specific payment on behalf of the payer.

Impact of PSD on business models

For our bank rethinking our retail banking customer relationship and business/revenue model is the most important issue:

Source: Finextra Survey, May 2015

But an opportunity as well…

PSD offers banks the opportunity to become a Third Party Processor (TPP) and access accounts of their customers held at other banks

Source: Finextra Survey, May 2015

Customer demand

Customer demand

•Payments are a hygiene factor• It’s about avoiding the hassle / discomfort• It’s never about the payment• It’s always about the world outside the payment

•Payments habits remain local• Culture and technology still pave a local usage path

Customer demand

•Non-financial service providers set the service standard• Banks have a hard time maintaining an optimal service

experience, particularly for the younger generations

•Customers are less likely to:• Stay with their bank• Refer others• Buy additional products

Source: World Retail Banking Report, EFMA/CAP Gemini, 2015

Customer demand: instant and omnichannel

• All over the world, instant payment projects are starting up to ensure 24/7 payment and settlement• Central banks set up back-end infrastructure

• Market develops interfaces / protocol / standard

• Consumers unlikely to accept an incomplete view of themselves by their financial institution • Get the view of your institution as experienced by the customer

• Requires omnichannel approach in servicing, marketing and brand experience

All is not lost for financial institutions…

• 84% of customers trust the app from their bank, versus 5% from social network providers and other new market entrants

Source: IPSOS/ING Survey, April 2015

Conclusion #1

Although many Fintech companies stumble on the learning curve, the remaining challengers pose

serious challenges to the financial services industry

Conclusion #2

Regulation will additionally force financial institutions to open up and rethink business

models amidst a crowded regulatory agenda.

Conclusion #3

Despite the trusted position of financial institutions, time is running out quickly.

The relevance and urgency of a seamless and excellent customer service is very high.

Challenges for marketeers #1

Ensure a service and brand experience that cancompete with niche-entrants and non-regulated

(web-)retailers

Help the customer overcome regulatory hurdles with ease

Challenges for marketeers #2

Be aware of the mental divide where ‘classic’

providers of financial services are held to a

different privacy-standard than ‘new entrants’

Challenges for marketeers #3

While todays focus is on identity/profile,

the next challenge may be

to turn profiles into reputations

(and digital tokens)

A final thought…

What if Bitcoin wouldn’t be about moving money

towards a digital customer-owned blockchain but

about moving all customer data there?