Report: Card, Mobile and Internet Payments: Future Trends and Scenarios (April 2013)

7/28/2019 Report: Card, Mobile and Internet Payments: Future Trends and Scenarios (April 2013)

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Card, Mobile andInternet Payments

Future Trendsand ScenariosApril 2013


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This paper rom MHP Communications,

one o the UKs leading public policy and

communications consultancies, sets out some

o the major trends impacting the payments

industry, as well as some ideas about how

important stakeholders can help shape thisast moving public policy environment.

MHP sees three major changes on the horizon:

1.A sea change in fnancialservices policy-making

2.The emergence o anew European regulatoryramework

3.A constantly evolvingpayments ecosystem


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This scrutiny needs to be seen against the

background o the nancial crisis, where the

regulation o nancial services, including rules

impacting payment systems, has become

highly politicised.

The ownership o nancial regulation by

the G20 means that Heads o State and

Government take a personal interest in issues,

which has led to a complete overhaul in the

dynamics o decision-making in Europe.

At the same time, the media and general public

have also become drivers o policy. Public

perception is increasingly orcing companies to

rethink how to engage in a more politicised and

emotive debate. As decision-making on nancial

services regulation in Europe has shited so

decisively rom the UK to Continental Europe,politicians in Germany, France, the Netherlands,

Finland and Spain have gained control o

the agenda. The recent debate over bonus

payments in banks is a clear demonstration

o how the UKs inuence has waned.

In addition public authorities at the EU

(such as the European Commission) as well as

Member States are clearly considering that the

establishment o a competitive level playing

eld in the payments industry will help boost

innovation and growth in the wider economy.According to EU policy-makers, existing

bottlenecks limit competitive opportunities

and remove incentives to innovation in areas

such as mobile payments. From a regulatory

perspective these bottlenecks have to be

removed as soon as possible.

European policy-makers thereore will have to

contend with two countervailing pressures over

the next ve years: the need to enorce new rules

across the board in nancial services, while

stimulating enough condence and demand that

lending ows back into the economy, in support

o innovation and growth. For the paymentsindustry, there is an opportunity to set out some

o the real economy implications o its business

model and regain some inuence over the political

and regulatory debate lost in the crisis years.

For participants in the payments sector looking

to have a stake in the uture legal ramework,

these seismic shits mean that they need to

engage in a regular and structured dialogue

on policy and regulatory issues - rather than

purely on commercial considerations - with key

decision-makers in Europe, on a sustained basis.

This is where MHP Communications can help;

our role is in helping companies understand

the public policy agenda and how it interacts

in support o your business strategy.

A new public policy environment

The attention being paid to the card payments market by theEuropean Commission and national competition authorities,whose aim is to act increasingly and strongly to disrupt the

status quo, is one o the major actors contributing to thechanges the payments industry is going through.


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Add to that the Durbin amendment in the Dodd

Frank Act, the rst moves by US retailers to set

up their own payments networks and concerted

European regulatory activity are creating a new

reality. Zero interchange is now openly being

discussed by policy-makers around Europe -

rst on debit cards, with a cap on credit cardpayments to ollow. The ull extent o the

possible changes should become apparent in

June 2013, when the European Commission

adopts a Regulation on interbank ees related to

card payments, which will then be scrutinised by

the 27 Member States and European Parliament.

In parallel, the Commission will continue

competition law-based investigations, with

ongoing scrutiny o Visa and MasterCard

expected to lead to some commitments over

debit and credit card rates in the near uture.

With or without commitments, the changing

political agenda in 2014 should keep card ees

high on the political agenda. With elections or

the European Parliament in May 2014, as well

as the selection and composition o a new EU

Commission in Autumn 2014, Brussels will be

keen to show citizens how and why the EU acts

in their interests. Tangible deliverables, such

as capping roaming charges and lowering

interchange will be tempting targets or EU

policy-makers, increasingly seeking legitimacy

and recognition.

Moving away rom the debate surrounding

interchange ees, the Commission also identied

other areas, such as co-badging, the structural

separation between card schemes, processing,

settlement, clearing and interoperability,

transparency and technical standards issues.

These are seen as undamental to solve beorethe market can become more uid and optimal,

and innovation ourishes.

The prospect o negotiations on a Transatlantic

Free Trade Area between the U.S. and the EU

could give additional impetus to the Commission

to act strongly to address many o these issues.

The Commission will also publish a review o the

2009 Payment Services Directive in June 2013

to adapt it to the new payments ecosystem

outlined, alongside a communication on thegovernance o the Single European Payment

Area. Associated with urther actions in the

eld o banking regulations, open technical

standards and avourable consideration o

strategic developments led by mobile operators

and technology providers in the eld o mobile

payments, the Commission is clearly willing to

implement a highly aggressive enorcement

strategy to open the market to competition

and innovation.

Finally, Member States could implement ar-

ranging policy actions that either anticipate or

complement EU policies. This was demonstrated

by the proposed creation o an economic

regulator or the payments industry in the UK,

in charge o implementing utility-style regulation

to the payments market as well as sector

specic competition law.

Regulation: the end o interchange

The combination o distrust towards the banking industry,the economic and fnancial crisis, consumer resistance tohidden charges, and the increasingly essential articulation

between the physical and virtual / digital retail distributionchannels are driving the debate on interchange.


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The Payments Ecosystem

Policy-makers understand the essential role that

payment cards have played in the growth o

e-commerce. Cards have, or many years, been

the key instrument allowing customers and users

to purchase, sell, subscribe and trade over the

Internet - providing the essential inrastructure

to support the emergence o new services andnew market participants. This transition was

urther acilitated by the substantial growth o

card payments in Europe, where the plastic-

based economy developed into the principal

way or consumers to pay or goods or services.

With their widespread and commonly accepted

use in the oine and online world, card

payments are currently the predominant orce

globally. This unique market position reinorces

the close links between card payments and

emerging innovative systems such as mobilepayments, which could underpin new products

and services that are drivers o new economic

growth.

Mobile payments have the potential to contribute

to more socially acceptable banking products

such as micro-loans, nancing, trading and

person-to-person money transers that can be

used more responsibly by all citizens, including

those most impacted by economic and social

challenges. Mobile payments and banking

services developed in emerging markets in

Arica and Asia have demonstrated the viability,

attractiveness and success o such business

models, particularly or the so-called unbanked.

This growing segment could create new realities

or traditional payments market players by

moving rom the bank account or card-based

payment environment to mobile device-based

wallets and accounts. This will increase the

growing importance o mobile operators and

technology companies, combining residualcooperation and increasingly erce competition

between the players o the global ecosystem.

These new realities resulting rom both

commercial, market and societal evolutions such

as mobile device penetration rates, increasing

use and role o social media, geo-location and

requirements or localised inormation whilst

on the move) are opening new segments and

patterns such as Social Local Mobile (SoLoMo)

or Research Online, Purchase Oine (RoPo)

that will support a range o innovative newpayment options.

The payments ecosystem has now become

increasingly complex:

ICT Businesses

The pre-eminent place that major technology

companies such as Google, Amazon and PayPal

are now holding has contributed to a large

extent to stimulate the high level o competition.

There has also been an emergence o smaller

start-up companies proposing new technologies,

products and services with a more specic ocus

on a vertical market, customer base or

communities.

As a new set o policy-makers arrives in Brussels in 2014, it isincumbent on the payments industry to educate stakeholderson the evolving nature o the industry and its development.

From our point, we see a much more complex ecosystemwhere market players are at the same time cooperating andcompeting quite fercely.


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Banks

Financial institutions need to keep control o

new products that could potentially compete

with their own, whilst providing customers with

innovative products and services. Innovation

is crucial or them to rebuild loyal and more

trustul relationships that have been damagedsince the start o the nancial crisis in 2008.

PSPs and Schemes

Payment Service Providers and card payment

platorms need to maintain their positions as

the core o the payment system and maximise

their market share by anticipating technology

and market evolutions. These include MNO-

independent solutions as well as embedding

their mobile payments solutions directly on

mobile devices through partnerships with

manuacturers, such as Visa and Samsungintegrating NFC-enabled payments.

MNOs

Mobile Network Operators (MNOs) need to

generate new income in a maturing market

with decreasing revenues, saturated penetration

rates and an economic crisis, while also acing

important investments into 4G. They have to

increase trac on their networks, urther grow

ARPU and reduce churn rates.

MNOs could decide to take of the gloves and

show a ar more aggressive attitude by breaking

the traditional cooperation with banks and other

nancial services players, and taking advantage

o regulatory developments at EU level. MNOs

are not hesitating to acquire E-Money or

Payment Institutions Authorisations in a

number o key EU markets, as seen by

Teleonica O2s acquisition in the UK in 2012.

Mobile operators are also extremely eager

to avoid the dumb pipe sickness and toincreasingly become a commodity, producing

low added value and stagnant revenues. They

are keen to be an attractive partner to content

providers, leverage their huge customer base

and acquire a undamental stake in the

payments system.

Other constituencies are important or the

mobile payment ecosystem in particular:

Mobile device manuacturers are trying to

increase and maintain attractiveness o their

devices and or some o them re-imagine

themselves with a survival imperative.

Consumers are looking or more personalised,

competitive, convenient, secure systems or all

payments on the go.

Merchants need cheaper, diverse, secure,

aster, customer-riendly, integrated payment

options than currently available.

Governments want to promote more

competition in the payment market, achieveless reliance on PSPs, create new tax revenues

and promote economic/technological progress

by ofering new opportunities or companies

and citizens.

The Payments Ecosystem continued


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At MHP we help our clients understand

and engage with the key nancial services

policy-makers in Europe. They include:

The Heads o Government, nance ministers,

administrative heads o the nance ministries

and central bankers or regulators o France,

Germany, Poland, Italy and Spain.

The leaders o the opposition in France,

Germany, Poland, Italy and Spain.

Key Committee Chairs o the national

Parliament; where appropriate.

The Heads o Government and nance

ministers o the country holding the EU

Presidency (rotating every six months).

The next Presidencies are Lithuania and

Greece.

The National Regulatory Authorities in

charge o the sector.

The key players in the European Union

institutions are:

The President o the European Council in

Brussels, currently Herman van Rompuy.

The President o the European Commission

Jos Manuel Barroso and the Commissioners

or the Internal Market and Competition aswell as the Commissioners or Justice (e.g.

new Data Protection Regulation) and or the

Digital Agenda (ICT policy). The Commission

will be renewed in 2014.

The Directors General in the European

Commission in DG Internal Market and

DG Competition.

The President o the European Parliament,

Martin Schulz, the Chair o the Parliaments

Economic and Monetary Afairs CommitteeSharon Bowles and the coordinator o the

largest Group in the Committee the French

Conservative Jean Paul Gauzes.

The President o the European Central Bank,

Mario Draghi.

MHP helps our clients develop coherent

strategies underpinning engagement with the

European Union institutions, measured against

previously agreed benchmarks. In addition, we

help clients to create, maintain or change theirexternal perception in the market place

by creating a constructive dialogue with the

key media.

The opportunity is to take greater control o

the regulatory environment and where possible,

to positively inuence the thinking o the above

target group o senior key decision-makers on

nancial services regulation in the European

Union institutions and Continental Europe.

Doing this successully, you open the way to

becoming the industry partner o choice orregulators, policy-makers and businesses in

Continental Europe in the payments arena.

Working with MHP

About 50% o all European legislation originates rom the EuropeanUnion institutions in Brussels, but in fnancial services this fgure jumpsto near 100%. Over the past fve years o Single Market Commissioner

Michel Barniers term, in the region o 70 pieces o legislation have beenproposed, debated or implemented at European level with an immediateimpact on the fnancial services sector.


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For more inormation about MHP Communications

and or specifc questions on mobile payments

please contact:

Alisdair Gray

Brussels

Robert Roessler

London

Jean-Stphane Gourvitch

London

[email protected]

tel 0044 203 128 8100

Documents

Report: Card, Mobile and Internet Payments: Future Trends and Scenarios (April 2013)