[Insert Title]
Presented by [Insert Speaker]
[Insert date as: Day, # Month Year]
“Embracing innovation in e-payments”
A play in one act byRod Tasker, Payments Consulting Network
Michael Anastas, HWL Ebsworth
Wednesday, 7 October 201525th Annual Credit Law Conference 1
About Rod
• 1980s:
o EFTPOS
o mobile EFTPOS
o smart cards
• 1990s:
o Windows e-banking
o Web shopping payments
o High value payments
• 2000s:
o Internet B2B
o POLi
• 2010s:
o Smart phone payments
o Crypto-currency
• EFTPOS
• BPAY
• RTGS
• EDI
• Dismissing PayPal
• MAMBO
About Michael
• Working with leading global
and Australian brands to
deliver payment innovations
to market
• Working with regulators to
deliver innovative solutions
• Advising on banking and
financial services and
payments regulation for
over 14 years
• FSR implementation /
refinements
• Payments reforms
• AML/CTF implementation
• NCCP implementation
• Privacy reforms
What one usually hears at conferences
about payment innovation……
What’s going on … Who’s doing it …• Mobile Phones
• Social Media
• E-Wallets
• Prepaid
• BitCoin and Block Chain
• The New Payments Platform
• Contactless Card Payments
• Biometrics
• Wearables
• ISO 20022
• Uber
• PayPal
• Alibaba
• Apple
• Amazon
• Optus, Samsung
• AMEX, M/C, Visa, CUP
• Facebook, Twitter
• VeriFone
• CBA, Heritage Bank
How we usually help a bank with
payments planning …
“The payments industry is going through an
unprecedented level of change, driven by …
And we look at things like product portfolio health, demographic trends,
competitors’ activities, … with a view to developing a “target state” and a
road map from today to the future.
• Changing customer preferences and expectations (mobile, online,
real time, segment of one, …)
• Regulatory demands (Licensing, AML, Privacy)
• Technology Evolution (Cloud, PAAS, SAAS, IAAS, …)
• New competitors (start-ups, retailers, …)
• Globalization (trade deals, connectivity of people and things,
standards, laws, ….)”
• We look at the nature of the product, the structure of the
offering and the channels to market.
• We advise on how to bring the product to market having to
regard to the regulatory requirements, regulatory risks and
efficiencies to be achieved.
• This often involves a staged approach to product launch and
implementation and arrangements with third parties to assist
in overcoming regulatory restraints.
Navigating the regulatory highway
A number of different
options or is it a
combination of all?
Financial Institutions
Technology Companies
TelCoProviders
Merchants
The RBA’s “Strategic Review of
Innovation 2012” …
• Identified systemic impediments to innovation
• Recommended changes that could unlock innovation over
medium term, 5 to 10 yearso same-day settlement of Direct Entry (DE) payments
o real-time settlement into payee accounts
o out of hours availability
o additional remittance data
o identification via email or phone number
• Led to the “New Payments Platform” (NPP) industry initiativeo in the “build and internal test” stage, scheduled to complete
2017
o initial members : ANZ, ASL, BAB, CBA, Citi, CUSCAL, Indue,
ING, MBL, NAB, RBA, WBC
Financial System Inquiry Final Report
• Identified:
• a low awareness of, and impediments to, innovation
• siloed perspectives and inability to identity system wide
opportunities
• an inability to influence regulators / Government in a
coordinated way
• a lack of a single point of entry for new entrants
• potential impacts on international competitiveness
• Actions include:
• clearer graduated payments regulation
• clear guidance of the framework for industry
• narrowing the AFSL regime and introducing a two-tiered PPPF
regime
Today we explore payments innovation at a grass roots level …
As a consultant, people call me and say “I’ve got this great idea
for a new payment service. It will be as big as (choose from)
PayPal/BPAY/Visa. All I need is … (choose from)
• an introduction to bank/card scheme product managers
• a business plan to raise money
• validation that there’s nothing fundamentally wrong
• a fancy presentation deck with the right acronyms
We’ve taken a collage of experiences to bring you a payments innovation case study…
Some observations before we start,
most of which we’ll revisit …
Payments innovation is hard.
Payments innovation is deceptively hard.
Payments innovation is rare and protracted.
Most of what we call “innovation” is window dressing and incremental
change to existing mechanisms. Genuine innovation takes time
because there’s always more than one party involved.
R I PPayment Innovator
The graveyard is littered with dead payment concepts. Is it harder than
any other innovation? There are reasons to think so; it takes two to
tango; it’s all about the money; nobody gets up in the morning and says
“I feel like making a payment today”.
We all know how to make a payment, right? How hard can it be?.
Economics of payment products is rarely understood by innovators.
Regulation of payments is complicated. How many regulators do we
need? Why is Australian law different?
Payment Instrument Timeline
Money
Lenders
Merchant
Banks
Central
Banks
World
Bank
Bartering
Livestock
Shekels
Shells
Coins
Leather
Notes
Paper
Notes
Letter
of Credit
Bill of
Exchange
Cheque
Charge
Card
Credit
Card
Electronic
Payment
Electronic
Collection
Digital
Coin9000 BC 1920
1950
1970
1980
20003000 BC
100 BC
800 1000 BC
1000 BC
1400
1700 1100
2015
Digital
Note
“Embracing innovation in e-payments” …a play in one act, about
Iva Goodin an inventor who woke up one morning with an idea for a new e-payments product to revolutionize bill payments using crypto-currency for loyalty. Iva’s plan is to raise venture capital and launch “DebtPay” in 2016, so he can sell the company and retire in 2017, just in time for his 40th birthday party. What could go wrong?
Rod Tasker, alternatingly plays Iva and himself, a consultant specialising in e-payments product development.
Michael Anastas, alternatingly plays Iva and himself, a lawyer specialising in banking law and payments regulation.
Cast
Earn money by paying your bills!
DebtPay helps you pay your bills on time, making payments electronically to registered billers and handled for you by our experienced team.
Store money in your DebtPay e-wallet, earn rewards in “BatNotes” to spend on rewards in-store, online or redeemed for cash!
Each $10 transaction processed with DebtPay earns 1 BatNote (BN)
BatNote beats BitCoin, hands down.
[Iva: I’ll need some terms and conditions, won’t I? I’ll get some legal help …]
Let me tell you about …
DebtPay, a revolutionary way to pay your bills!
DebtPay Framework
USER
Biller
EARN
BATNOTE
S
(LOYALTY)
PREPAID
STORED
VALUE
Merchant
Pay Redeem
Is DebtPay …
Carrying on a banking business? Purchased payment facility?
A Financial Service? Non-cash payment facility?
A potential tool for money laundering or terrorist financing?
Subject to ASIC’s ePayments Code?
A scheme facility or a closed loop system?
The regulatory framework
Exploring the requirements
Banking Act
banking business includes the provision of a PPPF if APRA
determines the facility:
is of a type allowing payment to be demanded in Australian currency
of all or part of the balance held by the HSV (i.e. akin to a deposit]
is available of a wide basis as a means of payment having regard to
restrictions limiting purchasers or payees [ie open loop]
Payment Systems (Regulation) Act
regulates non-ADI holders of stored value (HSVs) for PPFs
exemptions apply – gift cards, limited value ($10M), limited
participants (50)
unless an exemption applies, an authority or exemption from the
RBA is required
Exploring the requirements
Corporations Act
Financial product includes non-cash payment facilities
subject to certain exemptions including:
single payee facilities or where payees are related companies
wire transfers and money remittance depending on settlement
timeframe – useful for non-prepaid payment services
gift facilities and low value facilities ($1000 per person and
$10M float cap)
ePayments Code
regulates consumer electronic payments transactions
voluntary
consumer terms, receipts and statements, liability and
mistaken payments
How will DebtPAY make money?
o Fees, float, arbitrage, seigniorage, …
Who will use DebtPAY?
o At least three target markets: consumers; billers; merchants.
How will they know they can use it?
o Promotions, referrals, re-sellers, …
Why would people change?
o Each party has to perceive a benefit, now. Further the benefit has to overcome the status quo. Benefits have to be shared.
The commercial frontier, some things to contemplate:
How will incumbents react?
o By and large, banks, schemes, payment processors, and other incumbents, won’t welcome you. The exception is if they can sell you something or use you to access a market they can’t reach.
What finance do you need?
o All these things take money. Are you financing it yourself? Development, testing, promotions, legal and compliance fees, …
o Whether you need to be licensed, and how you do it, will affect costs and cash flows.
Rod: my guess is that DebtPay would need an AFSL, have you considered the options for achieving this?
Iva: Time to re-visit that creepy legal guy …
The commercial frontier, some things to contemplate:
Facilities which are not pre-funded are relatively unregulated
(eg money transfer business. AFSL may be required
depending upon settlement timeframe)
Closed loop facilities are relatively unregulated
Significant entry barriers remain for open loop (except where
exemptions apply – eg gift cards) – ADI status and scheme
membership requirements
The legal characterisation of a prepaid card facility is
important to determine whether a range of laws apply
The impact of licensing requirements
White Labelling
Tripartite Alliances
Even the card schemes need a sponsor
Specialist platform operators manage most prepaid card
programs
Pure BIN sponsorship
BIN Sponsor acting as issuer (BIN sponsor assumes full
regulatory responsibility but the distributor might need an
AFSL)
The impact of licensing requirements
Cryptocurrencies and Loyalty
A cryptocurrency harnesses strong encryption techniques to create
a digital coupon that is so secure that it can be used as a store of
value and a medium of exchange.
The most famous today is BitCoin, but it wasn’t the first. Mondex
and Digicash both date from the 1990s. They had limited success,
but pre-dated the internet and pervasive communications.
Beenz was an early (pre-2000) attempt to create an internet
currency based on loyalty. A decade or so after its creation, and
several hundred million dollars down the drain, it was rated as one
of the biggest dotcom disasters.
The top 100 cryptocurrencies represent about US$4B of stored
value globally. Bitcoin comprises about $3.5B, so there are 99 also-
rans, including Unobtanium ($250K) and CannabisCoin ($150K). Do
we need another one?
Cryptocurrencies and Loyalty
BitCoin was intended more as a demonstration of principles than an
attempt at a commercially attractive system.
The BitCoin approach spawned various offshoots including
LiteCoin, FeatherCoin, PeerCoin. These are variations of the
BitCoin technology, which is often referred to as the “Block Chain”.
Each variant tries to address a different BitCoin shortcoming, but
mostly these are technical in nature.
A more commercially oriented approach can be seen in Utoken,
which aims to curb volatility by providing backing for each coin
issued (like the Gold Standard for fiat currency).
Will cryptocurrencies become mainstream?
Cryptocurrencies and Loyalty
There’s a huge amount of innovation occurring in this space today,
and for good reason. Cryptocurrencies and the Block Chain can
make lots of things easier and cheaper.
But there’s a long way to go.
Some wild, unsubstantiated predictions, based on my view of the
world:
o In 25 years, … most countries in the world will issue cryptocurrencies in
addition to notes and coins.
o BitCoin will be like Diners Club – there at the beginning, and a minor
player, but not compelling compared to MasterCard and Visa.
o Cost and convenience will drive adoption, not loyalty. BatNotes will not
be there.
o Major factors in my thinking are the regulatory and legal challenges
…
Non-cash payments
Anti-money laundering
Taxation
Investor protection
Legal aspects of cryptocurrencies
Some challenges:
Crowded, sophisticated market.
Lots of regulators. Lots of regulation. Some annoyingly specific
to Australia.
Regulators are not “innovation friendly”.
Australia is 2% of global economy.
Hard to achieve critical mass.
Everybody has lots of options, and are generally getting by
A few players dominate every category.
Capital is hard to come by.
Is payment innovation too hard?
Some tips:- Don’t use “common sense” to assess legal or
commercial factors; ask people who know.- Focus on exactly what’s new, nothing more.- Don’t assume that what works in Australia
works elsewhere, or vice versa.- Make sure investors have the right
expectations.- Be prepared for a rocky road.
Is payment innovation too hard?
How would the case study differ if it involved a credit
facility, rather than a non cash payment facility/
purchase payment facility?
From debit to credit………
DebtPay Framework
USERBiller
EARN
BATNOTE
S
(LOYALTY)
CREDIT
FACILITY
Merchant
Redeem
Differences in the regulatory framework for credit
facilities National Consumer Credit Protection Act
National Credit Code
Privacy Act (Enhanced)
Anti-Money Laundering
Role of credit law Licensing
Responsible lending
Consumer protection
Enhanced enforcement powers
Commercial considerations
From debit to credit………
Continued grass-roots innovation, mostly doomed
Occasional major private sector innovation that
becomes mainstream and sustainable – Uber for
everything!
Continued regulatory change, both international and
domestic, including NPP, AML/CTF/, PCI …
Where to from here for payments ...
Streamlined regulatory landscape
Within Australia
Between Australia & other countries
Greater support for grass roots innovators
Capital
Resources
Guidance
Ease barriers to entry without compromising
consumer protection
and…. Embrace Innovation!
Some things we’d like to see ...
THANK YOU
AND
ENJOY THE 25th ANNUAL CREDIT LAW CONFERENCE
Rod consults in strategic management and
innovative solution delivery in the banking and
finance industry. He has experience in Australia
and internationally, and is an expert in payment
services, e-commerce and transaction banking
Rod has a track record in defining, designing and
driving profitable business change and product
innovation based on an in-depth appreciation of
both business and technology
Rod has a BSc (Computer Science), BA (Maths
and Philosophy), Grad Dip Business (Bank and
Finance) and AICD Directors accreditation
Payments Consulting Network (2013 – current)
Associate, Melbourne
Conducted market assessments on the commercial cards and prepaid
cards segments in Australia for two international clients; provided
consultancy support to an NZ client on agency banking arrangements;
and ran payments industry training seminars
Tasker Enterprises (2008 – current), Independent Consultant
Bank A: developed strategic approach for $100M payment innovation
project, acted as expert consultant to Group Payments Business
Strategy and developed an eClient strategy for the wholesale business
Bank B: developed Business Architecture and Operations Model for
Payments Services with outcomes relating to policy, procedures,
organisational structure, governance and technology deployment, with
net cumulative benefit projected to be $50+M
Various POS assignments: regulatory reform analysis and planning;
assisted vendors with business models for new devices, certifications,
impact of and planning for PCI, EMV, and convergence of mobile
mobile and traditional payments
Centricom Pty Ltd (2006– 2008), GM, Products and Operations
Managed development and operations of the POLi product, including
designers, implementers and support staff, policies and procedures,
regulatory compliance, SLA and supplier management
Previously: Westpac, ANZ Bank
Strategy formulation
Business
Improvement
Product development
and management
Ventures, M&A
Consumer payments
Business payments
Payment networks
Transaction banking
E-commerce
Private equity
Selected Experience
Functional Expertise Industry Expertise
Rod TaskerProfile
Michael Anastas
advising on banking and financial services and payments regulation for over 14 years;
providing advice to full spectrum of financial services providers in Australia and overseas including banks, other financial institutions, payment system participants, payment product issuer and distributors, bill payment providers;
advisory and project experience including new product development, advising on major outsourcing and distribution arrangements, financial services mergers and acquisitions and implementing regulatory reforms including Payment Systems, Privacy, FOFA, NCCP, PPS and AML/CTF; and
dealing with regulators including ASIC, AUSTRAC, APRA, RBA, OAIC.
2014, 2015, 2016 Michael Anastas: Financial Institutions,
Regulatory
The Legal 500 Asia Pacific2015 Leading Firm: Banking & Finance