Payment Services and Money Transfer in
the FinTech Space - What is next?
Jacob Ghanty, Partner, K&L Gates LLP
© Copyright 2016 by K&L Gates LLP. All rights reserved.
OVERVIEW
 Regulatory Issues in Payments and FinTech –
Jacob Ghanty
 Block Chain and Key Trends Within the
Payments Systems Space – Anthony Watson
 Shape of Things to Come: Digital/Mobile
Payments, Banking & Commerce – JeanStephane Gourevitch
 Panel discussion
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HISTORY OF PAYMENTS
Promissory
notes
Barter
Tokens
Ecommerce
Cards
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Virtual
currency
3
INDUSTRY OVERVIEW
 £75 trillion payments sector in UK
 Diverse range of players including



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
Clearing banks
Challenger banks
Infrastructure (e.g. Bacs, CHAPS)
Card companies
Bill payment firms
Money transmitters
Prepaid card providers
 Technology and regulation as drivers of change
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NEW PAYMENT SERVICES DIRECTIVE - PSD 2
• New European legislation governing payment services
What?
When?
What’s new?
• Published in Official Journal on 23 December 2015
• Implementation by 13 January 2018
• New types of payment service:
• Payment initiation services
• Account information services
• Extra territorial scope
• Exemptions narrowed
Interesting
points
PAYMENT SYSTEMS REGULATOR
• Utility style competition regulator for retail payment systems in UK
• Part of the FCA
What?
What are its
powers?
What has it
done?
What might it
do?
• Variation of agreements relating to payment systems
• Concurrent competition powers
• Directions
• Market reviews
• Access directions
• Depends on outcomes of reviews
• Disposal of interests in payment system operators?
OUTLOOK: EMERGING THEMES FOR 2016
Cyber risk
Competitionbased
remedies
Build up to
PSD2
Emerging
Themes
2016
New entrants
to banking
market
Consolidation
in FinTech
Open Banking
Standard
4th Money
Laundering
Directive
Block Chain and Key Trends Within
the Payments Systems Space
Anthony Watson, President & Chief Executive Officer, Uphold
Inc.
© Copyright 2016 by K&L Gates LLP. All rights reserved.
Shape of things to come:
Digital/Mobile Payments, Banking & Commerce
Seminar on Payment Services and Money Transfer
Jean-Stéphane Gourévitch
CEO and Founder, Mobile Convergence Ecosystems Ltd. &
Business Development, Europe, Matchi.biz
GOOD EVENING !
Summary
• Mobile/digital payments a fundamental building block for
digital/mobile banking and commerce but also financial
inclusion
• Overall ecosystem is becoming much more complex
integrating mobile money/payments, mobile banking and
mobile commerce
• But also much more competitive through new entrants on
payments markets and regulatory pressures
• It develops both on horizontal and vertical ways (general
payment systems/products and industry verticals specific
systems/products) and adapt to customer/user
requirements
1. Some figures and data
EXPONENTIAL GROWTH OF USERS AND TRANSACTIONS
Sources: Pymnts.com; Gartner, Juniper Research, GSMA; Pew Research
On emerging markets, different models co-exist with a crucial role anyway by
mobile operators
Source: JSG, 2015
Source: GSMA, 2014
ANOTHER VISION….
World population per continent…
The world per bank accounts held in banks/financial
institutions
SOURCE: The Guardian and Visa, November 2015
The world per mobile money penetration
The world per use of online shopping/payments
2. Digital and mobile payments developments in
emerging and developed countries
Mobile money/payments decisive contribution to
financial inclusion in emerging countries
 Mobile money evolved from remittances and P2P
money transfers to a much more complex ecosystem
including other services
 Africa has seen some tremendous successes although not
“one size fits all”:
 Eastern and Southern Africa: Great successes since 10 years
 Western Africa: Difficult evolution, picking up now.
 Northern Africa (aside of Egypt): Almost no development
 Latin America is developing
 Asia: some tremendous successes and failures
 Market conditions incl. cultural and policy context are
crucial
 Countries where regulation ban mobile operators from
direct provision of financial services have witnessed
horrible growth rates of mobile money (e.g. India, Nigeria,
A number of countries in Western Africa). Change is
coming though
 Countries allowing mixed models & direct involvement of
mobile operators have seen major growth rates (e.g.
Kenya, Tanzania, Philippines,etc.)
 Some countries like Brazil have linked developments in
digital/mobile payments with major public policy initiatives
Digital financial services ecosystem, GSMA 2015
Mobile Payments growing in developed country, with an increasingly competitive
ecosystem and some of this growth driven by contactless/M-payments in mass transit,
mobile commerce, etc.
Source: JSG, 2015
•
Increasingly part of broader products
•
•
e.g. mobile banking, mobile wallets
Specialisation for industry verticals:
• Transportation
• Hospitality, Restaurants, Bars;
• Healthcare & wellness;
• Education;
• Energy
• Mobile Payments are growing and the use
of cash decreasing
• Retail & mobile commerce
 Increasingly engine for growth &
integration of mobile payments & other
facilities
•
Major retailers use digital/mobile
technologies to not only improve shop floor
and checkout management.
• Increasingly essential to cover the whole
customer shopping journey before, during and
after visiting a shop/store.
• Digital/Mobile wallets combining payments,
loyalty, coupons redeeming functions.
A good example of competition in the remittances/payments market
The use and inclination to use m-Payments & m-Payments apps in particular for shopping is growing in
developed countries
Source: ING, 2015
Financial inclusion is a real problem in developed countries too…
• Solutions like Compte Nickel in
France has shown that addressing the
unbanked and
Excluded markets with proper
solutions is viable commercially (from
0 to 225,000 customers in 1 year) even
in developed countries
• Real concerns of impacts (and
legitimacy) of bank de-risking e.g.
money transfers/
remittances. Is it really because of
regulation and risks or …to smother a
market banks are losing
Source: Financial Inclusion Commission, UK, March 2015
3. The Regulatory context
Policy & Regulation have key roles as enabler or obstacle to market developments
 Governments, Regulatory Authorities, Competition Authorities, Standardisation bodies increasingly
active
 Market and dominance issues around agents networks exclusivity in Eastern Africa leading
competition/regulatory authorities to act (e.g. Kenya, Zimbabwe, Tanzania, Uganda)
 Competition Actions and investigations in the EU (ECJ decision on MasterCard, 11 September 2014, new
investigations on Merchant fees) and MasterCard and Visa continuous legal actions in the US
 Interoperability and proprietary standards concerns in both emerging and developed countries
 EU Regulation to cap Multilateral Interchange Fees and change card schemes rules entering into force
 Push to increase speed in faster payments developments (US, etc.)
 New specific payments/financial services legislations opening the markets:
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Review of the Payment Service Directive 2007 (PSD2 adopted) and soon the E-Money Directive 2009
Regulation on Payments Banks in India, 2014 and 2015
New strategic review of the payments sector in France
New developments in the UK
New Payment and E-Money Regulations in Turkey, 2014 and 2015
Regulation from People’s Bank of China on mobile payments, 2015
 Partnerships are also on the rise either intra or inter sectors, and Competition authorities are
increasingly acting
 Oscar/Weve case in the UK, Telefonica/BBVA/Caixa in Spain in the past few years, etc.
 Creation of the Polish Payment Standard (PSP) by the competition authority and the Financial regulator in 2014
 Acquisition of PSPs by banks (Leetchi/MangoPay by Arkea), or stakes in challenger or neo banks by incumbent
banks (Atom Bank/BBVA, BBVA/Simple)
 Convergence of relevant legislations/regulatory authorities
 Creation of the Payment Systems Regulator (PSR) in the UK
 Increased cooperation between digital/telecom regulators, financial services regulators and competition
authorities (e.g. EU, Kenya, Tanzania, Ghana, India, Bangladesh, Philippines)
The EU Regulation on Interchange Fees
 19 May 2015, Regulation on Interchange Fees for Card-Based Payment Transactions published in the EU Official
Journal. It applies caps on interchange fees charged by cardholders’ banks to merchants’ banks every time a consumer
makes a card based purchase.
 8 June 2015: Entry into force
 Ban on “steering rules” comes into force
 9 December 2015
 New interchange fee caps come into force
- Debit card transactions – Domestic: 0.2% of the value of the transaction or a per transaction fee of no more than €0.05 with
a 0.2% cap and International 0.2% of the value of the transaction
-Credit card transactions – Domestic: 0.3% of the value of the transaction but Member States may define a lower
cap and International: 0.3% of the value of the transaction
- “Universal”* card transactions – 0.2% of the value of the transaction or a per transaction fee of no more than
€0.05 with a 0.2% cap and 0.3% of the value of the transaction for those transactions treated as credit card
transactions
 Territorial restrictions within the EU prohibited
 Payee’s payment service provider (PSP) must provide the payee with breakdown of charges for card transaction
incl. interchange fee and Merchant Services charge (MSC)
 9 June 2016
 Payment card schemes and processors must be independent, and cannot present bundled prices for both services
 Any rules hindering co-badging of two or more payment brands or applications prohibited
 Acquiring PSPs must offer and charge MSCs to the payees on an “unblended” basis
 “Honour all cards” rule is abolished
 9 December 2016
 Member States may no longer define a share of no more than 30% of the domestic payment transactions for
“universal” cards to be treated as credit card transactions
 9 December 2018
 Three party payment card schemes are no longer exempted from the Regulation
 9 December 2020
 Member States are no longer allowed to permit PSPs to apply a weighted average interchange fee
THE PSD2 adopted end of 2015: KEY ELEMENTS
1- Extension of scope:
•
non-EU currencies
•
OLO (one-leg out) transactions
•
clarification of "main activity", "regular occupation or
business activity"; group collection/payment factories; & acquiring
•
narrowing of exemptions like: commercial agent; limited network; digital
devices; ATM operators
2- Business rules:
•
Application of charges/SHA, value dating and availability of funds
•
obligations on payee's PSPs regarding misdirected
•
Payments (incorrect unique identifiers)
3- Security measures, including:
•
Operational risk framework
•
Incident reporting
•
The use of "strong customer authentication" when a payer accesses his payment account online, initiates a "electronic remote
payment transaction" or carries on any other action through a remote channel which may imply a risk of payment fraud or other
abuses, authentication to include elements dynamically linking the transaction to a specific amount and payee
4. Two new types of payment service introduced:
•
Payment initiation services (PIS)
•
Account information services (AIS)
•
PSD2’s approach is to set out framework for:
•
rights of PSU and obligations of AS PSP and PIS/AIS TPP
•
modus operandi between AS PSP and PIS/AIS TPP
•
PS’s rights include right to:
•
use a TPP where payment account is accessible online;
•
seek compensation from his AS PSP for unauthorised payment transactions (but AS PSP may have a remedy against the
PIS TPP)
•
PIS TPP’s obligations include to:
•
act only within PSU’s explicit consent;
•
authenticate itself towards AS PSP every session;
•
not modify the transaction, nor hold the payer’s funds
4. A new paradigm
Focus in now on use and user experience, not on products nor services
Payment is no longer a tool or a stand alone product, it becomes a complete User Experience
(UX). Customers are now surrounded by new technologies and new devices transforming the
way to interact with others
Source: JSG, 2014
Mobile commerce is increasingly based on an extension of
the converged area
Mobile/digital wallets are increasingly becoming like digital
“Swiss army knives”
The digital world generates new expectations, not regarding
services but about the user experience itself
The Next Gen Banking services will not focus on one
single service but will answer customers’ usages, ex. :
the “smart wallet”
Users are expecting Service Providers to be User
Relationship specialists. Oh, and consider the number of
users….
Oh, and competition coming fast in Mobile banking in the
UK, France, U.S. either targeting specific market or
customer segments
Time to wake-up…
• According to the Chairman & CEO of
BBVA, 50% of banks will fall wayward
From digital and could disappear in the
Next 10 years….
• And…BBVA in 5 years will not be a bank
But a software firm….
Source: McKinsey, 2015
Conclusions
• Digital payments increasingly part
of a broader, integrated, converged
offering (payments+ banking +
commerce)
• Competition starting to hit at
incumbent players both on specific
vertical industry or customer
segments but also through general
payments systems
• Regulation is playing a key role in
Intensifying the competitive heat
•The future: Convergence with other
fintech products also emerging
(Virtual currencies, P2P lending,
Crowdfunding, Insurance, etc.
Any questions?
Thank you very much for your attention!
Jean-Stéphane Gourévitch
jsgourevitch@hotmail.com
+44(0)788 775 4615
@jsgourevitch
uk.linkedin.com/in/jeanstephanegourevitch
Panel Discussion
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