22 April 2016
Earlier this month, our Payments Strategy Advisor, Tim Duston, attended the Money 20/20 Europe conference in Copenhagen. The conference highlighted the huge amount of innovation and change occurring across the payments industry today; these are his eight key themes and take-outs from the many presentations and panel discussions.
1. Fintech and banks are moving closer together
Growth and innovation in the fintech sector were major themes of the conference, along with a broad acknowledgment that collaboration between banks and fintech companies is increasing. Bank panellists acknowledged they are not, by design, as agile in delivering technological innovation compared to many fintech companies. Conversely, many fintech companies acknowledged that they need access to banks’ large customer base, access to customer’s funds in bank accounts, and to address regulatory hurdles such as anti-money laundering and ‘Know Your Customer’ rules. This mutual acknowledgement underpinned the motives for collaboration between fintech and banks.
2. Real-time payments provide the experience customers expect
All of Europe is on-board with real-time payments. Many European countries, such as the UK, Sweden, Denmark and Poland already have real-time capability and the rest of Europe is close behind through the development of a pan-European instant payment solution. Panellists and speakers all accepted that real-time payments reflect customer expectations and are aligned with how customers behave in a digital world. The focus was not whether or not they should develop real-time capability, but on developing the customer value proposition and attractive services that can be built on top of real-time payments capability.
3. Disruption battles and innovation centres on big markets, with many yet to reach New Zealand’s shores
After hearing speakers from Google, Samsung, Amazon, Alipay, Klarna, Dwolla, VocaLink and venture capitalists, it is clear that a huge amount of innovation and competitive disruption is occurring. Most of this is in major markets, such as Europe, Asia and the USA. Relatively few of these innovations, brands and products have hit New Zealand’s shores so far.
4. Open banking and open payments
A major theme was using technological advancements such as cloud computing, increased computing power, big-data, apps and smartphones, to provide new products and services to customers. In Europe, payments initiation and access to financial information is getting a major shake-up via new Payments Service Directive II (referred to as PSD2). PSD2 covers a wide range of payments subjects, including that banks must provide authorised third party payments processors access to customers account balances, and allow third parties to initiate payments when mandated by the customer. The impact of PSD2 is a major focus and area of opportunity in Europe. PSD2 has shown that efficient and standardised APIs will be needed and, accordingly, initiatives such as the Open Bank Project are rising in prominence.
5. Helping merchants sell more (while reducing risk)
This was covered by a wide range of speakers, including payments gateway providers, card schemes, data analysis providers, established banks, and challenger banks (such as Klarna). Irrespective of whether it’s online or in-store, conference participants were having a wide-ranging conversation about using payments to improve purchase conversion rates, make better use of loyalty programs, using data to make better customer propositions, identifying customers, and generally removing points of friction. Speakers believed that payments and their integration with other platforms can shift payments from being a cost to increasing merchant revenues.
6. Blockchain is getting big backers, but not necessarily in payments
Lots was said about the use of blockchain as a platform for innovation and disruption. What was striking about this was how major corporations, technology providers and large banks are developing blockchain systems. Of particular note was R3’s (a consortium of over 40 major financial institutions) announcement of their Cordea platform which is tailor-made for financial institutions. Blyth Masters from Digital Assets gave a compelling presentation on the uses of blockchain in financial markets, such as the platform they are building for the Australian Stock Exchange. The main focus was on efficiency gains from blockchain’s “reconciliation revolution” especially when asset transfers require certainty, irrevocability and speed. There was little indication of blockchain being used in domestic payments. Bitcoin was only occasionally mentioned, always in a historical context (refer to our Rise of blockchain article on why this may be the case).
7. Making payments is a key part of financial inclusion
Some speakers focused on the use of technology, particularly smartphones, to improve the world’s financial inclusion rates. This is not only in developing countries, but also in developed countries where the cost of being financially excluded is often higher due to larger contrasts. Providing the ability to make payments was seen as a key part of improving financial inclusion. Improving financial inclusion simultaneously improved the lives of people, while opening up large new markets. Ann Cairns from MasterCard talked about their partnerships between aid organisations, governments, technology providers and the likes of the Gates Foundation to develop new enabling tools.
8. The payments market is massive, expanding, but complex
Speakers and panellists all saw the significant value of the payments market, especially when payments are smoothly integrated with end-to-end customer experience. However, there was a broad acknowledgement that managing peoples’ money is complex, risky and is highly regulated. Fraud and other risks need to be carefully managed in order to maintain and build trust. Regulatory compliance requirements such as Know Your Customer and Anti-Money Laundering are challenging. Further complexity is added through differences in local payment systems and domestic requirements. Panellists saw this driving the renewed focus on collaboration and strategic partnerships.
If you haven’t already, take a look at our Payments Direction strategic work which considers many of the same areas above from a local perspective.
We’ll be watching these and other important trends as we continue to develop the programme for our industry conference this year, The Point 2016, on 8-9 November. More information about this premier event will be available soon.