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March 23, 2017

Payments regulation: Bringing down walls, letting innovation in

The move to a cashless society is visible everywhere you look. Silvia Mensdorff-Pouilly, general manager European payments intermediaries at ACI Worldwide, comments

By Verdict Staff

The move to a cashless society is visible everywhere you look. Silvia Mensdorff-Pouilly, general manager European payments intermediaries at ACI Worldwide, comments

While Germans love their cash payments, even autobahn restrooms (yes, the ones most people whizz by at 180kmph) are going contactless. Accumulating enough small change for three children’s needs on a long car journey used to be a regular challenge – no more – we just tap and… this is just one example of why I  am personally grateful for an increasingly ‘open’ payments ecosystem!

The speed of this global digital revolution is increasing, driven – in part – by a more technologically and commercially open payments ecosystem.

But the question remains; when it comes to payments, how open is too open? We are talking about peoples’ money, and while everyone wants convenience, when that convenience opens the door to fraud suddenly the tables turn.

This being the case, no-one can argue against the fact that we have to regulate financial services because of the massive impact on society. There is, however, a tendency for the payments ecosystem to expect doom and gloom regarding new regulations; seeing them as restrictive, interfering, costly… or all of the above. The reality is that the Payments Services Directive 2 (PSD2), along with other regulatory changes being enacted across Europe and the world, is a massive opportunity for all participants in the payments ecosystem to carve out new revenue streams. PSD2 is shaking up the industry, and for good reason.

Open payments require new kinds of collaboration between traditional payments players and new entrants, and successful collaboration has its foundations in trust.

The payments ecosystem is changing, with new technologies, schemes, and regulators working to bring down the walls. However, strong regulation is needed in order to ‘aim’ the wrecking ball. For example, the goal is to enable new kinds of payments services through data access, but not at the expense of data privacy. Regulation, including PSD2, opens up payments and mandates data access and transparency, while also encouraging competition and innovation.

The regulatory drive for competition and innovation is in turn spawning new payments players across the full spectrum of services. From frictionless checkout, to real-time payments – new business models are rapidly appearing.

So does this mean a smaller slice of the pie for incumbents? Not at all. There are still plenty of areas of payments which are currently underserved, and not just in the consumer space. The SME market holds revenue opportunities for those who develop a business model for tailored services; micro payments, bespoke instant payments, B2B discounts, and more. These services can be delivered by new kinds of PSPs, or in collaboration with traditional players. In the cards space, MasterCard and Visa are investing in strategic acquisitions and developing new technologies in order to develop their P2P and instant offerings. The ‘one-trick payments pony’ may disappear in this new payments ecosystem,’ as acquirers, processors, fintechs, and banks expand their payments offerings to meet customer demand for greater choice.

The key is to truly put the customer (merchant/corporate as well as consumer) at the centre of the payments equation, and then build a model that serves their needs.

It’s especially important to keep the customer in mind when it comes to the innovation part of the equation. Frictionless is the current buzzword, and it’s true that customers do want frictionless payments; look at the uptake of contactless card payments. But customers also want a sense of control, which is where regulation around secure ID and authentication comes into play. It’s about providing frictionless payments, without it feeling like pick-pocketing. This can be accommodated by the payments industry by building in authorisation preference management. Happy transactions are fast, open, and secure.

PSD2 will drive an open marketplace, where digital payments abound. And digital payments require a fast ecosystem. Beyond the fast instant transfer of money (in real-time), the entire customer experience needs to be fast. From customer onboarding, through payment initiation and authorisation, right up to the immediate transfer of funds – all the stages of a fast digital payment offer opportunities to bring new services to market, which meet the demand for real-time customer experiences. Payment initiation in particular will be a hotbed of innovation as Payment Initiation Service Providers (PISPs), and Account Information Service Providers (AISPs) spring up to take advantage of the new opportunities.

These fast services will require open partnerships in order to succeed. Whether that means partnering with other financial institutions and intermediaries for access to new customer groups, markets and capabilities, or being an attractive partner through both attitude and ease of technical integration. In an open payments environment we have to think of the regulator as a partner, helping us to develop new revenue streams. We all want to be successful in this New Payments Ecosystem. As Charles Darwin said, “It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change.”

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