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EMV AND THE UNITEDSTATES

TOGETHER AT LAST

September 2015 Issue 523 www.cardsinternational.com

• ANALYSIS: Contactless Cards• REPORT: The Future of Digital Payments

• RESEARCH: Merchant Acquiring• GUEST COMMENT: Jerry Norton

CI Sep 523.indd 1 12/10/2015 11:46:07

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Cards International

September 2015 y 1www.cardsinternational.com

EDITOR’S LETTER

CONTENTS6 REGULATION: EMV

As of October, the United States will fully be on the EMV wave. However, how hard has the road been to get there? Are the banks and card issuers ready? And how do the consumers feel about this huge change? Patrick Brusnahan writes

8 ANALYSIS: CONTACTLESS CARDS

With the sheer amount of changes made to contactless cards in the UK, including a recent rise in spending limits, how can the consumer ever hope to understand what’s going on? David Parker argues

9 ANALYSIS: ONLINE CHECKOUT

David Parker looks at the developments within online checkout and the concerns surrounding them. The market is certainly growing, but is it going in the right direction?

10 RESEARCH: MERCHANT AQUIRING

Across the world, the merchant acquiring industry is undergoing phenomenal change after the global financial crisis. More than ever, there is an immense pressure on profits. Patrick Brusnahan reports

12 REPORT: THE FUTURE OF DIGITAL PAYMENTS

Anna Carlson reports on new research regarding the Asia Pacific (APAC) region and its favoured payment methods. One striking trend is the desire for newer payment methods, despite a flurry of them having just come out

14 COUNTRY SURVEY: INDONESIA

16 COUNTRY SURVEY: SOUTH KOREA

18 COUNTRY SURVEY: KAZAHKSTAN

20 GUEST COMMENT: JERRY NORTON

Jerry Norton considers the latest addition to the increasingly congested market of mobile payments, Samsung Pay, and whether it is a bold, new solution or just the same old thing

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I am obliged to David Parker, the founder and CEO of Polymath Consulting, and a longstanding friend of CI, for giving us a preview of his firm’s new Consumer

Card Fee Simulator for Issuers, Processors, Programme Managers and Brands looking to launch prepaid cards in the UK and Italy.

Polymath, the UK based consultancy, has rolled out the simulator tool, supported by MasterCard, building on the consumer fees data analysis that it has carried out for the Prepaid Report since 2007.

Published twice yearly, Polymath’s Prepaid Report has tracked every consumer loaded card issued in the UK, their fees and benefits. There are now over 230 cards, up from only 108 in 2008.

The simulator enables the user to create a new card, edit an existing card, or just take a product they already have in the market - all consumer cards are already loaded into the system.

The user can then use one of the standard usage scenarios, or create/customise their own and com-pare this card to some or all cards in the market based on the fees and costs a consumer would pay.

The tool is user friendly, easy to use and timely, given the upcoming changes in interchange.

While the tool is backed by MasterCard, the fees simulator covers all consumer cards in the UK that are open-loop with the database updated quarterly to ensure that all information is current.

The simulator has detailed help sections at all stages for all of the relevant information.

Interchange: beware the government spinIf you believe the UK government’s hype, the

interchange fees reduction will result in retailers passing on savings to shoppers of about £500m.

There is talk that the average UK shopper will be better off by about £36 a year.

The consumer lobby seems to have convinced itself that a cap on interchange – 0.2% of the transaction value for debit cards and 0.3% for credit cards – will be great news for cardholders.

With merchants seeing the cost of payments decline, this will as a direct result drive down pric-es for consumers.This optimistic outlook rather tends to overlook the experience in other markets.

The UK Treasury is to allow some flexibility on debit transactions to avoid 0.2% being levied on expensive items so there is to be a maximum fee per transaction of £1 but the 0.3% credit card fee is fixed, leaving open the possibility that retailers might seek to encourage customers to use their debit rather credit card for large transactions.

As credit cards are funded by three sources: interchange revenue, interest payments and annu-al card fees, it is a safe bet that annual card fees will be on the rise.

Meantime, Senator Dick Durbin, author of the US legislation aimed at regulating transaction fees in 2011, is back in the news and gunning for debit card interchange fees.

The writer’s instinct as an unreconstructed eco-nomic liberal is to argue that regulating fees and bank pricing does not always work in practice; will not necessarily benefit consumers; will not benefit small businesses and will quite likely result in unintended consequences and restrict innova-tion and competition.

I will be delighted to be proved wrong – and to run comment pieces on these pages telling me why I am wrong. This one will run and run and is just another example of why this industry remains such a fun sector to cover. <

Douglas [email protected]

Polymath launches prepaid card fees simulator

EDITOR’S LETTER

CI Sep 523.indd 1 12/10/2015 11:46:09

Cards International

2 y September 2015 www. cardsinternational.com

NEWS: COMMENT

The number of ATM machines in UK has now exceeded 70,000 for the first time. And as one might expect, g iven that supply tries to meet

demand, some £11.3bn ($17.2bn) was withdrawn from ATMs in July, marking a 4% increase compared with July 2014. We have seen that 92% of UK adults used a cash machine in the past year.

Contactless GrowthContactless, the product that is meant to take away all our needs for cash has seen a 150% increase in value in the last year, and a 134% increase in number of transactions accord-ing to Barclays. Their research indicated that 57% of people in the UK expect to increase their use of contactless technology because of today’s rise.

We have also just seen the increase go from £20 to £30 per transaction which is meant to further drive the consumer to use contactless and could be a big boost to some of the supermarkets where, for many, the average basket size is over £20.

It is thus no surprise that the Spar Group stated that in May 2014 Spar took 55,000 contactless transactions, but within three months this had quadrupled. One year on, this figure has grown 10 times over, repre-senting 15.5% of all Visa Debit card pay-ments made in its stores.

Visa Europe has estimated that the increase to £30 could affect approximately three million Visa transactions a day, for a

total of over £70m of spend. Of course they face a slight challenge in that their biggest issuer Barclays has not increased their limit, as their website states: “Why can’t I use my Barclaycard MasterCard to make contactless purchases up to £30?”

It is not currently possible to increase the contactless limit on the Barclaycard MasterCard to £30; however this could change in the future. The contactless limit for Barclaycard MasterCard is staying at £20. For any payments over £20 you will be prompted to use chip and PIN.

This of course will start to nicely confuse consumers as some can spend up to £30 and some cannot. Oh, but it also depends on whether the retailer and their acquirer have updated to allow £30.

The War on CashSo who is winning the war on cash? Well, as much as the schemes try and tell us that we are all falling in love in contactless, and as much as we are, it would appear that a lot of the contactless spend is just replacing existing card transactions. And as the ATM figures prove we are still increasing the amount of cash we take out and spend. This may start to be affected with the launch of Apple Pay and other mobile wallets along with weara-bles such as bPay.

This may though be hard to assess as Spar’s UK retail payments controller Roy Ford explained: “Apple Pay was designed to be simply deployed alongside existing contactless payment technology so the Verifone payment terminal software sees an Apple Pay transac-tion simply as a ‘contactless’ transaction.”

This of course means that ApplePay and soon to come Samsung and Google Pay

transactions are just seen as part of the wider contactless volumes.

Consumers should have to opt in to have a bed in your hotel room! Just like with Contactless on CardsMattresses come automatically, but if you want a bed you have to tick the box. This is an entirely logical scenario if we look at what the Australian parliamentary commit-tee has called for. It wants banks to create an opt-in service for contactless cards in order to counter fraud. The report cites evidence provided by Victoria Police revealing a nota-ble rise in deception offences with new tech-nology, which allowed fraudsters to commit multiple low value transactions with stolen credit cards.

Consumers, of course, already have the right to ‘opt out’ in that the can go to a dif-ferent bank, just as if a hotel did not provide beds, only a mattress on the floor, a lot of people may choose to use a different hotel. What a great way to stifle innovation, you make consumers have to opt in to receive it.

It is worrying that governments feel the need to protect consumers to such a degree when in most cases banks already take on the liability if and when there is a fraud.

I like to think that one of the advantages of the free market is that where there is a demand there will generally be a supply. If the demand for non-contactless cards was big enough either the banks or a new entrant would meet that need.<

The war on cash: Who is winning?David Parker studies the contactless boom currently happening within the UK. Are contactless cards having as much of a dent into cash’s market share as everyone is expecting? Is this going to continue to happen? In addition, the weird contactless practices in Australia is examined, particularly how it might stifle innovation

n TOP 10 WAYS PEOPLE USE CONTACTLESS CARDS IN THE UK

Supermarkets 29%

Restaurants 20%

Commuter transport 18%

Fast food outlets 10%

Pharmacies 4%

Pubs and bars 4%

Convenience stores 3%

Service stations 3%

Newsagents 2%

Caterers 1%

n AVERAGE BASKET SIZE ACROSS THE UK

Supermarket Average Basket Size

Aldi £17.92

Asda £21.69

Sainsburys £15.28

Co-Op £11.60

Waitrose £28.24

Morrisons £24.61

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Cards International


NEWS: ROUND-UP

REGULATION

Israeli banking regulator asks Hapoalim and Leumi to sell off credit card operations Bank of Israel, the central bank of Israel, has asked Bank Hapoalim and Bank Leumi to sell off their credit card businesses.

Hedva Ber, who took over as supervisor of banks at the Bank of Israel less than a week ago, commented: “We will work to separate the credit card companies from the banks whose share of the retail credit business is more than 20%.

“That means that the two biggest banks will be required to sell control of their credit card units and will be barred from operating

or processing credit cards, though they can continue issuing them.”

The move is part of the country’s banking regulator to increase competition in consumer and business credit.

“The initiative will support competition on two levels: by encouraging non-bank lending by the two entities spun off from the banks and by competition within the system because it will strengthen in relative terms mid-sized banks that will continue to control a credit card company,” Ber said.

“Competition can be promoted without negatively impacting the stability of the bank-ing system,” she added.

She did not talk about a timetable for the credit card spinoff and also left open the ques-tion of who would control the newly inde-pendent credit card issuers.

Ber also revealed that she would allow banks to distribute insurance products and permit institutional investors and non-bank entities to provide finance for retail and small business customers.<

DIGITAL

Discover to support Apple Pay with 10% cashback Discover Financial Services is set to enable its card members to add Discover cards to Apple Pay from 16 September.

In addition, the company will reward a 10% cashback bonus for its card members in the US who use their Discover cards through Apple Pay. Card members will receive this bonus on up to $10,000 of in-store purchases from 16 September to this year end.

Discover it Miles, Miles and Escape card members will secure an additional 10 miles per dollar on up to $10,000 of in-store pur-chases.

While choosing to use Apple Pay-enabled Discover card, Discover card members will continue to get all protection, services and benefits offered by Discover, such as $0

Fraud Liability Guarantee, which implies that a card member cannot be held liable for unauthorised purchases on a Discover card, as well as access to 24-hour US-based cus-tomer care centres.

In order to add a Discover card to Apple Pay, card members need to first upgrade free to iOS 9, and then go to the Wallet app to get started. If they already have a Discover card on file with iTunes, they are only required to enter the security code, or choose to add a new Discover Card.

Discover rewards vice-president Heather Roche said: “We are excited for Discover card members to have the ability to use Apple Pay. Rewards have always been impor-tant to our card members, and we want to

make sure they receive a generous offer for shopping with Discover and Apple Pay.

“We want to encourage new and existing Discover card members to add their Discover card to Apple Pay with a few simple clicks using our mobile app, take advantage of this 10% Cashback Bonus, and experience the ease and convenience of using Apple Pay.”

Apple Pay is a mobile payments service that does not store the actual card numbers on the device or on Apple servers, when cardholders add their credit or debit card to Apple Pay. It instead generates a unique device account num-ber which is assigned, encrypted and securely stored in the secure element on the user’s device, with every transaction authorised with a one-time unique dynamic security code.<

M&A

Citigroup to sell consumer bank in Hungary to Erste Group

American banking giant Citigroup has agreed to sell its consumer banking opera-tions in Hungary to Austria’s Erste Group Bank.

The sale includes Citibank’s retail bank-ing and investment operations, consumer loans and cards operations, the CitiBusiness microenterprise accounts along with transfer of consumer banking employees.

The deal is expected to receive the regula-tor’s nod by this year end, with the transfer of customer accounts likely to occur by the fourth quarter of next year.

Commenting on the deal, Citibank Europe plc Hungarian Branch Office acting CEO Jon Wiggins said: “We are transferring a demand-ing and financially sophisticated customer base that is open to innovative banking solu-tions. We have a big challenge ahead, but we believe we have found the right partner to

fulfil Citibank customers’ expectations.“We are committed to ensure great out-

comes for customers and employees. Until the migration takes place, which is not expected to occur before the fourth quarter of 2016, Citibank continues to run its con-sumer business in a business as usual mode.”

Meanwhile, Citi said intends to remain in Hungary and concentrate on expanding the services it provides to Hungarian corpora-tions, financial institutions, multinational clients as well as public sector clients.

In addition, it also intends to expand its Citi Service Center in Budapest, which ser-vices Citi franchises operating in over 50 countries across the globe.<

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Cards International


NEWS: ROUND-UP

REGULATION

Australian parliament recommends contactless opt-in An Australian parliamentary committee has called for banks to create an opt-in service for contactless cards in order to counter fraud.

In a report into financial-related crime, the parliamen-tary joint committee on law enforcement revealed concerns that launching new technology without consulting law enforce-ment bodies has the potential to increase crime in the sector.

The report cites evidence pro-vided by Victoria Police reveal-ing a notable rise in deception offences with new technol-ogy, which allowed fraudsters to commit multiple low value transactions with stolen credit cards.

Victorian Police claimed that contactless crime led to 100 extra credit deceptions per week in the state. It also criticised financial institutions for not consulting with the police before introducing such features.

The committee therefore rec-ommended that providers issu-ing debit and credit cards will need customers’ consent for contactless payment technology on their cards prior activation.

“While banks have argued the fraud risk of new technologies is accounted for in their banking systems, the committee believes that consumers should have the option of disabling contactless payment features,” the commit-tee said.<

REGULATION

Australian federal court fines Visa for anti-competitive conduct Australia’s federal court has ordered Visa Worldwide, a sub-sidiary of Visa, to pay a penalty of A$18m ($12.7m) for engaging in anti-competitive conduct.

The Australian Competition and Consumer Commission (ACCC) brought the case after the company blocked a rival currency conversion service, Dynamic Currency Conversion (DCC), on its payment network from a period spanning 1 May to 6 October 2010.

ACCC said in a statement: “This prohibition meant that retail stores, hotels and restau-rants that were not already offer-ing DCC to their customers as at 30 April 2010 could not choose to offer DCC.

“In effect, this froze the pool of merchants who could offer DCC during the period of the prohibi-tion, which in turn prevented the further expansion of DCC during that period. The Court declared that by this conduct Visa contra-vened section 47 of the CCA.”

DCC competes with Visa’s cur-rency conversion services, help-ing international cardholders complete a transaction in their home currency, including online merchants.

After a consumer opts for DCC, the exchange rate is locked in and revealed to the cardholder at the time of the transaction.

The court has also directed Visa to pay A$2m to ACCC in legal costs.<

PRODUCTS

Yiftee partners Global Payments to provide gift cardsYiftee has signed an agreement with pay-ment services provider Global Payments to offer Yiftee No Hassle Gift Cards.

The gift card solution aims to help Global Payments’ US merchants easily participate in the gift card market by adding a gift card link to their website.

The sign-up provided by Global Payments can be completed by merchants in minutes. The new solution enables easy implemen-tation for merchants, with administration and tracking conducted by Yiftee. The ser-vice allows subscription for all merchants accepting MasterCard, and enables their customers to buy gift cards online or from mobile devices.Customers instantly get a virtual gift voucher and personal message through email, text, or Twitter.

Yiftee CEO Donna Novitsky said: “It’s clear that commerce is going online, mobile, and social, and today’s independent mer-chants need to be there for the customers who already know and love them, plus to engage new customers.

“We are here to help them grow top-line revenue with one simple link for all chan-nels: their website, Twitter, Facebook, email, text, and in-store.”<

SECURITY

Ricoh launches new payment security solution for banks in India Ricoh India, a provider of digital office equipment and IT services, has launched a new security solution that allows banks to detect suspected fraudulent transactions.

The TranSecure geolocation tech-nology-based payment security solution is aimed primarily at financial institutions in India.

It will allow banks to reduce false positives, and card declines as well as aid the prevention of e- and m-commerce fraud.

Through this service, a bank can verify users’ identities based on their mobile phone location at the point of transaction, including ATM machines, merchant outlets or e-commerce websites.

This enables the bank to effectively and proactively determine a potential fraud transaction and take necessary precaution-ary measures.

The service, which does not require installation of any mobile application, will protect both the bank as well as a custom-ers from rising card fraud in India.

Ricoh India CEO and managing direc-

tor Manoj Kuma said: “Incidence of bank card fraud in India (involving either debit or credit card) has risen 238% in the first five months of 2015.

“Ricoh forays into the service solution space for financial insti-

tutions, further strengthen-ing our solution portfolio beyond office automation, into the application space.”

The company has intro-duced another geolocation-

based solution for banks and insurance companies,

called Pinpoint.The solution will help banks to

reach customers near partner retailers with customised offers, and allow insur-ance companies to monitor their wide-spread agent and sales forces by tracking their location, allowing better planning of customer visits and service calls.

Pinpoint has been designed to create personalised offers to retain partner-retailers’ loyal customers. It aims to cre-ate impulse sales opportunities when customers are close, drawing customers away from the competition and reinforc-ing loyalty.<

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Cards International


NEWS: ROUND-UP

PRODUCTS

Kyiv enables subway contactless payments Kyiv has introduced contactless payments at turnstiles at the city subway, which will enable passengers of the Kyiv metro to pay fares with MasterCard contactless cards or devices while passing through the turnstile.

The Ukrainian city is the fifth worldwide, preceded by London, St Petersburg, Chicago and Bucharest, to launch the service.

Currently, 17 out of a total 52 subway stations in Kyiv allow contactless payments, with plans on to equip contactless terminals across all Kiev subway stations by the year end.

MasterCard Europe’s representative office in Ukraine and Moldova country manager Vira Platonova said: “MasterCard contactless payment technology is ideal for those places where service speed is especially important.

“Millions of people in Kyiv take the sub-way each day, and the possibility of using their MasterCard contactless cards for sub-way rides will make their trips faster and more comfortable.

“Implementing contactless payments will also help both the Kyiv Subway and the Kyiv Municipal State Administration to optimise operating costs and to create a fare payment system integrating different modes of trans-port in the future. We are happy to have partners who are willing to adopt such an innovative solution.”<

DIGITAL

MasterCard launches new tokenisation programme; Google, Samsung partner MasterCard has introduced the new Digital Enablement Express (Express) programme, designed to speed up the process of digit-ising and tokenising MasterCard accounts through the MasterCard Digital Enable-ment Service (MDES).

The Express global framework will allow every MasterCard issuer to securely digit-ise tokens into multiple devices, internet of things environments as well as card on file systems, in order to offer easy access to secure digital payments for consumers.

In addition, the program will limit the use and sharing of sensitive cardholder and transaction data, and enable the use of tokenised credentials to protect pay-ment integrity, reduce fraud and protect merchant rights.

The latest digital payments services can be immediately accessed by financial insti-

tutions of all sizes.Google and Samsung are among the first

digital partners to join the program, and will have a simple on-boarding process to engage with all participating banks.

Capital One, Fifth Third Bank and Key-Bank are among the early first issuers who have announced their support of the new programme.

MasterCard chief emerging payments officer Ed McLaughlin said: “MasterCard is working relentlessly to increase payment security and enable innovative new digital services for consumers, to the benefit of all participants in our network.

“Express now allows key technology partners to make their offerings available to all MasterCard issuers in a simple, safe and consistent manner, extending our net-work model into digital enablement.”<

PRODUCTS

Alliance Data unveils tap-and-pay function for EMV-based co-brand credit cards

The card services arm of Alliance Data Sys-tems has launched an EMV-enabled co-brand credit card solution with tap-and-pay func-tionality for its retail partners.

Among these dual-interface chip cards, the f irst include a co-branded card with MasterCard and BJ’s Wholesale Club and the Fuel Rewards program.

The new card will enable customers to make payments easily and quickly by tapping their card on a contactless-enabled terminal.

The contactless credit cards incorporate the universal wave symbol, featuring a series of semi-circles on the card front.

To make a payment, customers need to hold their credit card close to or on the sym-bol when they see the same wave symbol on a payment terminal, and wait till the terminal indicates that the card has been accepted.

Alliance Data card services business senior director of payment services Art Roca said: “With the rise of mobile wallets, the indus-try will continue to shift to faster and easier methods of payment.

“The rollout of an EMV tap-and-pay card enables us to keep the customer experi-ence consistent across our mobile and chip card solutions and with the predominance of plastic cards, contactless will reach more customers earlier in the adoption cycle.”<

PRODUCTS

Contis to distribute Visa contactless prepaid cards Contis is distributing Visa contactless pre-paid cards across its entire UK and European client base.

The latest initiative from the European alternative banking and payments group aims primarily to help control all elements of the delivery supply chain, and will deliver additional products and features for fintech and legislation through its own processing platform.

Contis Group founder and executive chairman Peter Cox said: “Contis have spent millions in ensuring our capabilities are in line with modern consumer and commercial organisations’ needs.

“Our investment in developing contactless across our global platform capabilities is seen as a significant step, and will allow our brand partners to offer their customers the latest technology and convenience at the point of delivery.

“From a good idea to a necessary deliv-erable, the move to wearable and alterna-tive contactless payments is a feature that is being driven by strong user demand,” Cox added.

“To maintain customer loyalty, we are more than ever, now in a stronger position to adapt to any future changes in this industry.”

Movements within high-volume, low-spend retail outlets and transport systems are currently seen by many industry observers as the main influence for the use of contactless technology.

After its launch of contactless, Transport for London emerged as the biggest merchant for this technology with over 157 million journeys paid through contactless to date, of which most were made on Visa cards.<

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Cards International


REGULATION: EMV

Chips cards are no longer seen as innovative in certain markets. The majority of Europe implemented the EMV (Europay, MasterCard

and VISA) liability shift around in the middle of the 2000s.

The situation is similar in the Asia Pacific region. Since then, countries such as Austral-ia, Brazil, Canada, New Zealand and South Africa have also implemented the technology. So why has it taken so long for the United States to get onboard?

The tug-of-warBilly Tran, marketing manager for financial services at Gemalto, a chip manufacturer, said: “The US is probably one of the last countries on Earth to migrate to EMV tech-nology.

“One of the reasons that we’re relatively late to the frame is that, historically, there has been this ‘chicken and egg’ game between the issuing banks and merchants.

“Merchants have been reluctant to upgrade their point-of-sale (POS) by argu-ing that no consumers had chip cards so why bother upgrading their infrastructure?

“Similarly, on the issuers’ side, financial institutions would say ‘Why would I issue a chip card if there’s no POS for it at merchant locations?’ It’s been a stalemate that has been going on for well over a decade.”

In addition, it was hard to put across the business case for EMV to some merchants and financial institutions. It was considered by some as an unneccessary step and security was tight enough as it was.

Carolyn Balfany, senior vice president of US product delivery at MasterCard, said: “The US, historically, has had very low fraud rates so sometimes the pure business case was a little bit more difficult to justify.

“That certainly changed over the past few years because now we’re not just talking about a better system and global interopera-bility. We’re now talking about a rising fraud rate and high incident rate of breach events.

“As a result of those breaches, consumers have had their confidence shaken and so that has added a whole different element to the business case for merchants and issuers to consider. The progress towards migration is now tremendous.”

With regards to data breaches influencing the flow of change, Tran said: “This has bro-ken the stalemate and has given incentive for issuers and merchants to upgrade.

“That was all accelerated in recent time by data breaches in the US market that were fairly high profile and that added fuel to the fire.

“We’ve seen rapid acceleration in terms of cards being issued to the market and mer-chants improving the POS.”

Becoming liableHowever, the mentality in the marketplace changed once the Payment Networks’ Liabil-ity Shift was introduced.

As of 1 October 2015, whichever side is lacking EMV will be culpable for any fraud. MasterCard defined the shift as ‘the party, either the issuer or merchant, who does not support EMV, assumes liability for counter-feit card transactions’.

It is important to note that by issuer, the card companies do not mean themselves, but banks and other financial institutions issuing credit and debit cards.

Considering that annual costs of card fraud in the US are an estimated $8.6bn a year, possibly rising to over $10bn this year, the country needs to make significant pro-gress with regards to chip card adoption.

MasterCard sees the shift to chip cards greatly affecting the fraud numbers that the US is experiencing.

Balfany said: “We expect to see the pat-terns that we’ve seen around the world and what we’ve seen is that as a market goes to chip, counterfeit fraud drops dramatically, by over 80%, and that happens before the marker gets to 100% chip terminals and 100% chip cards. We really expect to see that.

“Secondly, we expect to see that rather quickly and here’s why: while the US is com-

The US beginning to PIN down chip cards

In the constantly evolving world of fraud prevention and protection, the United States is finally taking steps to integrate EMV standards, which includes chip and pin, on their payment cards. How is this being managed? What took so long? And is it too little too late? Patrick Brusnahan investigates

CI Sep 523.indd 6 12/10/2015 11:46:17


Cards International

ing from behind a bit and catching up, the projection is that we’re going to migrate quite quickly.

“By the end of this year, we expect some-thing around 65% of the cards to already be upgraded and we think about half of the merchant terminals will be upgraded.

“By the end of 2017, we expect almost 100% of both to be upgraded and, by that, I mean around 97-98%. That is certainly a very quick migration. What we think that will yield is the realisation of those drops in fraud to come very quickly.”

Tran has a similar opinion and said that the new chip technology was much more secure than the old magstripe technology.

He explained: “Historically, one of the challenges with traditional magstripe cards is that all of the user’s account information is basically stored on that magnetic stripe and when you swipe your card at the POS, the information gets sent to the financial institu-tion that either verifies your information or declines that transaction.

“The challenge is that all of the informa-tion on the magnetic stripe is static. Anyone could very easily read that magstripe or steal it and make a duplicate card.

“There would be no way for the financial institution to determine or distinguish a real card from a counterfeit one. That is the fail-ure of magstripe cards.

“With chip cards, the obvious advantage is that the consumer’s information is on a chip which is tamper resistant.

“For each transaction, a unique code is generated and sent to the issuer to verify before it’s approved.

“Each transaction is unique. If a hacker or fraudster came to steal that information, there’s nothing they could do with it. They couldn’t take information and make a fraud-ulent card.”

Challenges: Size and ScaleThe path towards EMV has been a long and winding one.

Considering the sheer size of the US mar-ket and the number of people who need to adapt, it’s no wonder that financial compa-nies have been working on this for a long time. Any slight change has the possibility of affecting millions of consumers’ lives.

Balfany said: “We have been in the process for over three and a half years so, as you can imagine, it takes a bit of time, particularly to migrate a market the size of the United States. We’ve done a number of things over time.

“Early on, it was about setting the road-map which was defining the dates when the liability shift would go into place. That’s really what drives a lot of the activity, or at

least a consideration, for when banks want to enable chips.”

Another problem that comes from the size of the market is the difficulty in chang-ing entire manufacturing and supply chains which can span an entire country.

On this issue, Tran said: “Gemalto has production facilities across the world. We manufacture well over 650 million EMV chip cards every year and so, in terms of scale and scalability, we are very well positioned. We didn’t have to make new investment in hardware or equipment to be able to serve the US market.

“Other players who are traditionally plas-tic manufacturers probably had some chal-lenges in terms of this ramp up. They prob-ably had to invest in new equipment and technical capability.”

Changing consumers’ card habitsEducating consumers of the upcoming changes is equally important. Merchants training staff to guide a consumer is crucial to the process. On the other hand, training consumers to adjust to a new method of payment takes substantial time and a large effort from the industry at large.

The EMV rollout in the UK saw a humongous government-funded advertis-ing campaign that informed consumers in the UK when the shift would happen, how it affected them, and how to utilise the new technology.

Banks also played their part in constant-ly reminding their customers of the com-ing cards changes with online messaging, in billing, on card statements, and in other forms of communication.

Balfany said: “We’ve done quite a lot of education. Driving consumer awareness relates back to size and scale, but it also relates to ingrained consumer behaviour. Consumers are very used to the way they transact and so there has been some appre-hension in the US market about changing that process for the consumer at the point of sale.”

She added: “We’ve done quite a lot of work, both individually as well as collabo-ratively in the industry with others to drive consumer awareness.

“That was modelled after things we had seen in the UK and Australia where there was a national campaign put up and tight collaboration around how to communicate to the consumer.

“In the US, we’ve all agreed that clear-ly the way the best customer experience is going to be yielded is if each of us are describing the process exactly the same to the consumer so they aren’t being confused or given different instructions.”

Billy Tran agreed: “Historically, the US has been a magstripe market and moving this market to EMV requires education for consumers, merchants and the financial institutions as to the benefits and the tech-nical challenges in rolling out this type of technology.”

Just the beginning for card securityWhile EMV is a crucial step forward, work on security doesn’t end there.

Balfany added: “There is no silver bullet to security. While we’re wildly optimistic about the benefits of chip, we also are very realistic in that we’re going to need to con-tinue to layer and intersect multiple types of fraud technologies in order to stay ahead of the fraudsters.

“This certainly isn’t the destination; it is one layer of security that will be employed. Tokenisation is going to play a very impor-tant role. It is one layer, but I feel it’s a highly effective layer.”

With EMV out in other markets for such a long time, and fraudsters getting more competent with the technology, was the move too little and too late for the US?

Tran argued: “I don’t think so. There have been academic exercises that have been trying to find out how you could work around EMV, but none of these academic exercises have translated into a real life exercise of committing fraud.

“By all means, EMV is a first step, but it’s a living step that continues to evolve to stay ahead of new attacks that might emerge.”

Belfany added: “I don’t think it’s too little too late. It’s a very effective technology. It does need to be implemented thoroughly.”

She concluded: “For the US consumer, they are very positive about companies such as MasterCard and their banks offer-ing the security they need.

“They also have high expectations at this point and they very clearly expect their banks to be giving chip-enabled cards and the merchants to be caring about their pay-ment security.

“This isn’t just a technological upgrade; this is a technological upgrade that con-sumers have expectations about.”

Sucha big change will always carry extreme expectations. With that in mind, as well as the sheer size and scale of the opera-tion, both from companies and consumers, will the EMV liability shift be a success? Tran certainly thinks so.

He added: “In terms of card deployment, we’ve seen projections as high as 575 mil-lion EMV cards out in the marketplace by the end of this year. That’s a significant number of EMV cards in the hands of con-sumers by the end of the year.”<

REGULATION: EMV

CI Sep 523.indd 7 12/10/2015 11:46:19

Cards International


ANALYSIS: CONTACTLESS CARDS

How can we expect consumers to understand contactless when we make it so complicated?Visa and Barclays, amongst many others in the industry, have spent a lot of money reminding us that contactless is the way to pay: it is simple and quick. However, is it simple enough for the consumer? And is change moving too quickly for British customers to keep up with the developments. David Parker writes

What can be s impler? With contactless first launching in 2007 followed in 2008 by Barclays and Barclaycard launching the first tap

and go contactless cards, enabling a user to spend £10 ($15), it should be incredibly sim-ple.

Of course it was such a good idea, that just as consumers were getting used to this devel-opment, they increased it in March 2010 to £15.

Okay, this was early days, there were not that many cards in the market so edu-cation these few was relatively easy. But as things started to grow, they again decided to increase it, this time to £20, in June 2012.

The situation So where are we today? Well, according to the UK Cards Association, there are 58 mil-lion contactless cards in circulation in the UK. This represents a 52.2% rise compared to December 2013. This is split between 36.9 million debit cards and 21.2 million credit or charge cards.

Spending on contactless cards has also gone up having more than trebled over the last year to reach a record £2.32bn in 2014.

So we can say that pretty much everyone in the UK has a contactless card in their pocket.

And of course many of them are just get-ting used to the fact that contactless is good for £20, they will suddenly find out that in September/October it is good for £30.

However, how relevant can this change

be when we are told that the average contactless transac-tion is £8.26, as of December 2014.

But the real com-pl icat ion is that the £30 limit is not appl ies only for contactless cards.

If you are pay-ing by contactless mobile, then the limit is ‘in theory’ higher. So for ApplePay, or Samsung Pay coming soon, you do not have this magical limit, but it fully depends on if the retailer allows it.

Which retailers currently allow a higher mobile payment? Well at the moment the list is not that long (see table below).

That is of course assuming the retailer takes contactless at all. MasterCard has led the way stating “From the beginning of next year,(sic. 2016) any new payment terminal that gets deployed has to accept contactless.”

MasterCard’s head of emerging pay-ments products, Mike Cowan, stated. “By 2020, every single terminal will accept contactless.”

So what could be simpler, everyone knows about contactless and all the terminals by 2020 will accept them – in theory assum-ing that the terminal has been replaced since 2016.

Well, there lies our next problem in the contactless conundrum.

Computer-based point of sales solutions are seeing longer life cycles from just a mere decade ago where expectations were in the range of 6-7 years before being refreshed.

Advancements in technology, design, and manufacturing have extended the durability of today’s hardware devices.

The type of industry, environment, and transaction volume a POS experiences may permit 10+ years of service, or promote an early exit.

Three tips for the modern contactless consumerSo as a consumer it is very simple:

• Your store has to have a contactless terminal. Not everyone will despite being told by MasterCard that, by 2020, them and everyone else will;

• If you are going to go to pay via contactless, if it is a credit or debit card you have to remem-ber that you can now spend up to £30, not the previous £20, and• If you are using a phone you can spend more – but only if specific retailers say that that is allowed.

And many in the financial sector wonder why consumers sometimes find all this a bit too much and just stick to the new fangled chip and pin thing they are just about get-ting used to.<

n HOW LONG DOES POS HARDWARE LAST?

Campaign effectiveness

Hardware Years

Server 5-7

POS Terminal 7+

Cash Draw 9+

Barcode Reader 7+

Customer Display 5-7

Receipt Printer 3-6

Kitchen Printer 3-5

EFT Devices 6+

n COMPANIES ALLOWING A HIGHER MOBILE PAYMENT

Retailers Restaurants Transport

Mango Pret a Manger TfL

Vodafone stores Le Pain Quotidien London Taxis

Marks and Spencer Cote Brassiere Malthurst and Pace Service Stations

Apple Bills Restuarants Rontec Service Stations

Thomas Sabo Patisserie Valerie Virgin Atlantic

National Maritime Museum Burger King

Kitchen Printer Simit Sarayi

Jack and Jones Swan at the Globe

H&M Brooks Brothers

Pandora Iberica

Boots

CI Sep 523.indd 8 12/10/2015 11:46:19

Cards International


ANALYSIS: ONLINE CHECKOUT

Who will win the online checkout war?

Although Paypal can trace its roots back to 1998, but in 2005, when it acquired Verisign, it did so with the desire to expand its e-commerce presence. It

now is in 190 countries moved and has moved $228 billion in 26 currencies. Certainly it has grown on the back of eBay, but also the sim-ple fact of making consumer lives easy. No more entering that long 16 digit Pan number on every transaction and making customers feel they are nice and secure at the same time.

Visa has been trumpeting just recently that Visa Checkout now has over six million reg-istered users and is available in 16 countries. MasterCard and their MasterPass brand meanwhile, who launched earlier than Visa, are now live in 24 markets. What is interesting is when you compare who is in what market, and given that this is currently an online play, how this aligns to the world’s biggest ecom-merce markets.

Increasing online expenditureOf course no one can argue about the over-all growth in online spend with the Retail-MeNot report showing that 46% of Europe-ans and 55% of Americans now shop online. Online shopping is particularly popular in Sweden and the UK where more than two-thirds of the population make purchases on the web; 71% of Swedes and 67% of Brits use the internet to shop. While growing, online shopping is less popular in southern Europe; one in five people shop online in Italy (20%), while one in three (32%) use the Internet to shop in Spain. Around half of people in France (52%), Poland (51%), Netherlands (49%) and Germany (45%) also shop online.

The study, which included telephone inter-views with 100 major retailers and 9,000 con-sumers, revealed that most consumers expect to shop online at least once a month in 2014. On average, European shoppers will make 15.2 online purchases during the year with a typical basket worth £49, while American shoppers will make 15.6 online purchases, with an average spend worth £71. In the UK, shoppers are expected to make an average of 18.0 purchases online during the year, spend-ing an average of £59 each time.

Throughout 2014, European shoppers are expected to spend £749 online, an increase of 18% compared to 2013, while American shop-pers are expected to spend £1,106 online, on average 14.4% more than in 2013. In the UK, shoppers are expected to spend £1,071 on the web during 2014 (15.8% more than in 2013).

Payment cards are the predominant global payment method for online payments, but

some markets are bucking the trend with local preferences. Germany and The Netherlands seem to prefer their local systems. Germany has a tradition of bank account based systems such as bank transfers and direct debits (ELV) whilst credit card penetration is low. ELV counts for 38% of all online payments in Germany whilst payment cards are just 25%. Online credit card use in Netherlands is low with the preferred online payment being the iDeal interbank sys-tem which has a 55% share.

In Argentina, where 60% of internet users have concerns about online payment security, the share of payment methods is fairly evenly spread. Cash based solutions, such as Pago-Facil and RapiPago, represent 44% of online payments and are on par with cards.

While North America is dominated by card payments, which total 85% of online transac-tions, Mexico has more of a mix, with cash based methods and bank transfers accounting for a combined 57% of payments PayPal’s

reach in 2014 highlighted how security still plays a major issue on consumer concerns.

Issues remain They researched consumers across 15 coun-tries and found their key concerns:

• 57% fear that payment details will be stolen;

• 38% cited having to register on a website they do not plan to visit again;

• 38% noted the annoyance of discover-ing added taxes or hidden charges at final checkout;

• 30% do not like having to enter card details for each transaction;

• 29% are annoyed by web pages timing out before finalizing a transaction, and

• 26% do not like having to remember PINs and passwords.

And then of course in addition in the UK we have Zapp launching in the Autumn, who state that a user by clicking the Pay by Bank app symbol online, will automatically open a consumer’s bank app on their phone. Once securely logged in, they can quickly complete payments. Consumers will be able to see their account balances before they pay and choose different accounts to pay from, thereby stay-ing more in control of their finances. They then add on security that Pay by Bank app trans-actions are protected by a consumer’s existing bank app security and because the payments use secure digital tokens, customers don’t need to reveal any of their financial details to mer-chants when they are shopping.

So who will win? Well, it will come down to the basic things:

Acceptance: Who has the merchant base, a payment solution is no good if I cannot use it where I want to shop

Usage: Who conveys the best value/benefit proposition to users, as ultimately it will be customers globally whom decide the final victors.<

So the battle is on, the schemes seem to have woken up to the fact that consumers want an easy checkout experience and whoever gives them that will get their business. In some ways it could be argued everyone has been rather slow to wake up. David Parker looks at the development and pioneers of online checkout

n USA’S ONLINE PAYMENT METHODS

Source: Card & Payments World 2015

Visa/MasterCard

75%

PayPal15%

Discover2%

AmericanExpress

8%

CI Sep 523.indd 9 12/10/2015 11:46:19

Cards International


RESEARCH: MERCHANT ACQUIRING

Examining the merchant acquirersAcross the world, the merchant acquiring industry is undergoing phenomenal change. As a result, merchant acquiring is now more stratified and complex. Lines are becoming blurred with many participants assuming multiple new roles. Patrick Brusnahan reports on Timetric’s research into this market

According to the report, Global Trends in Merchant Acquiring, pressure on profit is the name of the game at the moment in the industry. Due

to this, acquirers have been forced to look for growth opportunities in new locations and merchant segments. Over the next dec-ade, the industry is expected to move more towards specialisation and consolidation.

Also increasing the pressure on profit margins is the market’s movement to price competition due to the commoditised nature of products and services. The situation is becoming tricky for acquirers as regulators have begun capping debit merchant service charges (MSCs) and interchange fees in an effort to actually reduce MSCs. As a result, acquirers need to explore new opportunities and evolve their current business models to survive.

Due to the intense competition and near saturation in advanced markets, acquirers are looking towards new merchant segments and emerging markets. Expansion into new areas and focusing on omni-channel acquiring is an attractive proposition for large acquirers. On the other hand, small- and medium-sized acquirers have to focus on gaining niche capabilities to improve their situation in new markets.

Analysing the situationOne area that couple be improved to gain a competitive edge is analytics. Acquirers, whether small or large, need to explore these opportunities to reduce fraud and merchant attrition. It can also aid in targeting the right market segments. Alongside the correct and capable technology, such as cloud comput-ing, analytic costs can be kept low while also offering flexibility.

Moreover, it is imperative for acquirers to offer relevant value-added services, such as marketing tools, accounting applications

and mobile coupons to gain merchant loy-alty. Analytics plays a crucial role in this. Merchants could be using multiple merchant accounts and loyalty is critical in attracting transaction business.

E-commerce has grown substantially in key countries and creating opportunities. E-commerce in emerging markets such as China, Russia and India recorded CAGRs of 56.62%, 35.66% and 34.63% respectively between 2010 and 2014.

Developed markets such as the US and the UK also registered CAGRs of 12.42% and 16.02% respectively in the same time period.

Cross-border e-commerce in particular is creating significant revenue opportunities. Profit margins are higher than for conven-tional acquiring, as is the potential for the number of acquired transactions.

The report stated: “This trend of expand-ing sales to overseas markets had gathered momentum with growth in mobile com-merce. A rising number of e-commerce merchants and marketplaces such as Ama-zon, Alibaba and eBay offer apps to enable customers to make mobile and cross-border purchases.”

Conventional acquirers are trying to adapt to a high-volume and low-margin environ-ment. Consequently, consolidation is expect-ed in the industry over the next ten years. The ability to offer services at the lowest possible cost has become a key objective. Timetric’s research purports that it is simpler for large merchant acquirers to enhance service offer-ings through the acquisition of technology vendors and small competitors with devel-oped capabilities in alternative payment instruments, rather than developing some-thing in-house.

In addition, this is a preferred method for expansion into new locations. Small competi-tors unable to cope with low processing costs offered by large acquirers are more likely to

be acquired or exit the industry totally. Alternatively, banks that manage their

acquiring business in-house are increasingly likely to outsource to process to specialist organisation such as First Data and World-pay.

Merchant aggregators are helping acquir-ers explore the micro and small merchant segment, an area that independent sales organisations (ISOs) have had limited suc-cess. The difference in the operating models of aggregators and ISOs is crucial into the different levels of success. Acting as a mas-ter merchant, aggregators not only ease the onboarding process for merchants, but also help them establish operations.

Although the majority of the aggregation in concentrated in e-commerce, innovations such as mobile point of sale (mPOS) technol-ogy are pushing the boundaries of aggrega-tion to brick-and-mortar stores.

E-commerce emergenceDigital-only channels and alternative instru-ments such as mobile payments have created opportunities for new entrants to the market. A couple of examples are payment gateway pro-viders and payment service providers (PSPs).

Payment gateways are software applica-tions that act as a virtual POS. Similar to con-ventional POS terminals, they allow secure exchange of card and bank account informa-tion with the processor.

PSPs normally take on a wider role and offer multiple payment options to merchants through a single platform. For example, in addition to credit and debit cards, a PSP can offering cash- or card-on-delivery payments, e-wallets, prepaid cards, vouchers, and cheque-processing services.

As these are independent intermediaries, they are also able to integrate multiple domes-tic and international payment options in a sin-gle platform. PSPs can also offer value-added

CI Sep 523.indd 10 12/10/2015 11:46:20

Cards International


RESEARCH: MERCHANT ACQUIRING

services such as risk management, fraud pro-tection, data analytics, integration into shop-ping cart infrastructure, and warehousing facilities to merchants.

Merchants usually sign up to a PSP which offers them one or a multitude of acquirers or pick an acquirer and the PSP will integrate them. However, some acquirers offer these ser-vices directly.

For instance, Worldline offers all the sup-port for hundreds of payment instruments in an e-commerce environment, which it offers in brick-and-mortar stores and for all sizes of merchant account. Moreover, some e-commerce giants, such as Amazon, can also carry out acquiring and processing in-house.

Many PSPs focus on multi-country service offerings. This is due to the complex nature of linking two different acquirers in each country. This allows PSPs to carve out a niche business proposition. Several PSPs such as PayPal, Sage and Stripe perform the role of merchant aggre-gators as well.

The Global MarketThe merchant acquiring industry recorded positive growth momentum over the past five years.

This has been attributed to electronic payments, government efforts to make economies cashless, and the emergence of e-commerce. Other factors include a decline in card fraud, due to EMV technol-ogy, multifactor authentication and fraud analytics.

Moreover, the use of open application pro-gramme interfaces (APIs) has increased small merchants’ access to online payment accept-ance.

The total value of acquired transactions rose from $12.2trn in 2010 to $22.9trn in 2014 at a CAGR of 16.92%. In addition, the number of acquired transactions totalled at 167.2 billion and spiked to reach 268.7 bil-lion transactions at a CAGR of 12.06%.

These positive signs are set to grow until 2019, according to Timetric. In addition, to factors that previously supported growth, increased focus on new markets, both in terms of merchant segments and expansion of card payments in new regions will drive growth over the next five years.

Mobile and contactless technology will play a critical role in promoting card-based micropayments at physical POS terminals. Timetric estimates suggest that the total value of acquired transactions is likely to increase from $25trn to $39.2trn between 2015 and 2019 at a CAGR of 11.93%.

Moreover, the total number of acquired transactions during this period is expected to increase from 300.3 billion to 421.8 billion at a CAGR of 8.87%.

The impact of the capAlthough a cap on interchange fees has a greater impact on card issuers’ profit mar-gins, it also affects merchant acquirers. The impact can very if the changes are limited only to interchange fees, and acquirers are not obliged to lower MSCs. There is a lag time between a reduction in interchange fees and adjustment in MSCs.

However, Timetric’s research suggests that the market is improving in terms of availabil-ity of information and merchants are now quicker to claim discounts from acquirers following a cut in interchange fees. Acquirers operate on thin margins and further pressure could decrease the industry’s appeal.

A reduction in MSC fees could result in a multitude of negative effects. Lower profit margins, impaired investment in the market, and less free value-added offerings are just three examples.

There has been a global focus on consumer protection and lowering transaction costs

over the last five years. For example, in July 2010, the Dodd-Frank Act was enacted in the US on interchange fees charged by debit card issuers. According to Regulation II, the debit card issuers should not charge an interchange fee in excess of $0.21 plus 0.05% multiplied by the value of the transaction, plus a $0.01 fraud-prevention adjustment, if eligible.

These regulations resulted in a significant reduction in interchange fees in the US. The total debit card interchange revenue gener-ated by card issuers in the US fell by 24.3% during 2011-2012 to reach $15.4bn in 2012. Analysts believe that this could encourage card issuers to renegotiate revenue-sharing agreements with acquirers.

In addition, merchants may demand the benefit of lower interchange fees to be trans-ferred in terms of lower MSCs, which in the US are almost twice those of developed countries in Europe. This can be a concern to acquirers, if regulators choose to bring them in-line with their European counterparts.

The European Commission (EC) has enact-ed changes in MSCs that impact the bundling of debit and credit cards interchange fees. From 2011, merchant acquirers in Europe were required to disclose charges related to each scheme and card type. The EC reports

that merchant fees paid by retailers in the EU currently exceed €10bn ($13.3bn) a year.

In June 2012, the Reserve Bank of India (RBI) declared the MSC structure for debit card transactions. It capped the MSC for debit card transactions at 0.75% for a trans-action amount up to INR2,000 ($34.1) and 1% for transaction values exceeding INR2,000.

Moreover, in China, the State Council approved a change in MSC effective from February 25, 2013. New charges are up to 25% lower than previously. The new MSC varies from 1.25% to 2% and includes 0.9% for issuance service fees, 0.13% for the clear-ing house online service fee, and a 0.22% transaction fee.

CNP fraudWhile the percentage of card fraud out of total card transactions decreased through-out the last decade, in absolute terms, the value of card fraud has risen. This has been

mainly driven by card-not-present (CNP) fraud, which is particularly relevant for acquirers as the majority of losses due to chargeback are borne by acquirers and merchants. Although the initial incidence of fraudulent transactions is borne by the card issuer, liability can be shifted to mer-chants and acquirers. Moreover, in cases which merchants fail to provide a refund, the incidence of loss shifts to acquirers.

New technology and a rise in e-commerce activity provide opportunities for CNP fraud to cybercriminals. Accord-ing to Visa, chip-and-PIN-based cards have helped to reduce credit card fraud in more than 113 countries.

CNP fraud is fairly difficult to con-tain due to a few reasons. Low awareness among customers and merchants, malicious computer applications (such as malware and spyware), legacy systems and ease of use with stolen cards are all keeping CNP fraud in the market.

Cybercriminals are harder to track as they can operate from countries that may not necessarily cooperate with foreign authorities and can target thousands of people simultaneously. From a technical perspective, they are less constrained than other types of criminal and can develop new threats faster than can be anticipated.

Digital security is largely created to slow down and reduce unauthorised entry into payment systems or ‘perimeter security’. These methods are limited in their impact on targeted attacks. Once a hacker gets through the perimeter, there is nothing to stop them. This is assuming that a customer or merchant hasn’t been tricked into provid-ing access already.<

“A rising number of e-commerce merchants and marketplaces such as Amazon, Alibaba and eBay offer apps to enable customers to make mobile and cross-border purchases.”Global Trends in Merchant Acquiring, Timetric

CI Sep 523.indd 11 12/10/2015 11:46:20

Cards International


REPORT: THE FUTURE OF DIGITAL PAYMENTS

Immediate payments method is the biggest demand by Asian consumersDriven by mobile-savvy 18-34 year olds and lifestyle changes, faster and more efficient MOPs (methods of payment) are being sought after in both emerging and mature markets. ACI Worldwide published the first of a two-part report titled The Future of Digital Payments on this very subject. Anna Carlson reports

Focused on the Asia Pacific market, the report, published earlier this month, highlighted Asian consum-er’s demand for new MOPs.

Mobile devices are forcing the banking and social media industries to consider the ‘next billion’ users. The ‘next billion’ users typi-cally have mobile devices but are accessing the internet for the first time.

Social media and banking industries need to create streamlined user experiences to retain customers as many of these users may also only have access to the internet via a mobile device.

Of the 2,000 people polled in nine Asia Pacific countries, eight out of ten consumers were already using emerging MOPs, includ-ing smartphone wallets, in-app purchases and social payments, and mobile money. With the future of the internet already skew-ing towards mobile, the future of digital pay-ments is heading there too.

Smartphone WalletsSmartphone wallets were as cited having the biggest room for growth in emerging MOPs.

When polled, 27% of people said they have used a smartphone wallet for a pur-chase before, while 74% and 46% of people in emerging and developed markets, respec-tively, said that they intended on using their

smartphone for a purchase in the next six months.

Smartphone wallets have a clear advantage in smaller but more frequent transactions, and have been used most for offline shopping and taxi rides. Trends suggest that this MOP could overtake cash for smaller purchases, especially within emerging markets.

With finger print and facial recognition enhancing the security on smartphones, people were willing to give up a little bit of security in exchange for a fast and easy trans-action.

With Samsung Pay launching in the US at the end of September, it’s poised to give Apple and Android a run for it’s money as Samsung doesn’t need to be NFC-enabled as with the other two due to its use of magnetic secure transmission (MST) which can emu-late the technology of a magstripe card.

Social PaymentsWith social media already rising in popular-ity, in-app and social payments are a natural next-step in emerging MOPs.

Three major social payments or in-app purchases have emerged as the most popular in the Asia Pacific market: Facebook, Line and Wechat.

Wechat has over 90 million accounts active in China, while Facebook is limited within

China, and Line has enabled P2P services in Japan, Taiwan and Thailand. P2P transfers within these social apps are limited geo-graphically and by participating banks. This could be a very interesting area to watch with cross-market P2P transfers lacking represen-tation.

Twitter has recently launched Stripe, which allows users to purchase goods with just one tweet. Other areas of usage would be to purchase virtual products and use services such as calling taxis or food, or topping up mobile accounts.

Mobile MoneyMobile money has the highest gap between percentage of people who have used it in the past versus people who said they intend to use it in the future, 10% and 49%, respectively.

For emerging markets, this is an important area of development as many people have access to mobile phones, but not necessarily a reliable internet connection.

Mobile money services such as mPesa allow consumers flexibility in payment options without having a bank account.

With a simple text, customers can send money, pay bills or top-up their phone. Country leaders in mobile money usage in the Asia Pacific markets are Vietnam,

n SMARTPHONE WALLET USAGE

Source: Timetric

Consumers who have used it in last 6 months

Consumers who intend of using it in next 6 mon

DevelopedMarkets

EmergingMarkets

33%

74%

17%

46%

n MOPS USED WITHIN SOCIAL MEDIA

Source: Timetric

Sent money

to someone

Online

shopping

Paid for b

ills0

10

20

30

40

50

Used financial

services

%

WECHAT LINE FACEBOOK

10.6%8% 6.4%

30.9%32.8%

49.6%

13.4%11.5%

7.1%

15.1%10.7% 9.8%

CI Sep 523.indd 12 12/10/2015 11:46:20

Cards International


REPORT: THE FUTURE OF DIGITAL PAYMENTS

China

India

Indonesia0

20

40

60

80

100

Thailand

Malaysi

a

%

ONLINEPAYMENTSERVICES

SMARTPHONEWALLETS

MOBILEMONEY SERVICES

n USE OF MOPS IN ASIAN EMERGING MARKETS (USED AT LEAST ONCE IN THE LAST YEAR)

Source: Timetric

India, the Philippines, and Indonesia.When polled, customers have the highest

level of trust in mobile money companies versus online payment services and smart-phone wallets.

Traditional MOPsAlthough emerging MOPs have the potential to overtake traditional MOPs in percentage of usage, there is still a place in the market for cash and card payments.

85% of people polled said they used cash at least once within the last six months for offline transactions.

Emerging MOPs have an advantage in smaller, more frequent transactions (less than $50) but consumers still prefer a safer form of MOPs (cash and cards) for larger, less fre-quent transactions.

There are also income and financial requirements to obtain a credit card, which could account for some of the move into emerging payment methods.

The future of digital payments within the Asia Pacific market lies in the cell phone. Between smartphone wallets, social pay-ments and mobile money, more payments in the future will come from cell phones. This movement is already occuring with the mainstream mobile payment methods, such as Apple Pay, as well as the technology being utilised in developing markets, such as M-Pesa.

Consumers want faster and more efficient payment methods, and there is certainly a big gap in the market. It just depends on who's willing to take a risk and fill that gap.<

n TRUST IN MOPS

Source: Timetric

Online Payment Services

21.8%

Smartphone Wallets

19.5%

0 51 01 52 02 53 0

Mobile Money Services

26.1%

% of people polled

n MEXICO’S ONLINE PAYMENT METHODS


n CANADA’S ONLINE PAYMENT METHODS


Credit Cards35%

Cash Based Methods

31%

Bank Transfer

26%

PayPal8%

Visa/MasterCard

75%

PayPal10%

AmericanExpress

5%

Interac10%

n TURKEY’S ONLINE PAYMENT METHODS


Credit Cards87%

OtherWallets

6%PayPal7%

n RUSSIA’S ONLINE PAYMENT METHODS


QIWI35%

Webmoney25%

PayPal14%

Yandex20%

Credit/Debit Cards

6%

CI Sep 523.indd 13 12/10/2015 11:46:21

Cards International


COUNTRY REPORT: INDONESIA

Indone s ia’s e conom ic g row t h enhanced employment and house-hold income, and propelled a great-er number of previously unbanked

individuals straight into the financial mainstream.

As more people became aware of the bene-fits of electronic transactions, the use of cash decreased between 2010 and 2014.

In terms of transaction value, credit trans-fers dominate Indonesia’s cards and pay-ments industry, yet consumers are gradually adopting payment cards as a reliable and often utilised payment instrument.

In between 2010 and 2014, Indonesia’s payment cards market grew in terms of transaction value and volume, register-ing respective compound annual growth rates (CAGRs) of 11.95% and 19.89%.

Owing to government efforts to increase awareness levels with regards to payment cards, bolstered consumer con-

fidence, middle-class population growth and urbanization contributed to their growth over this five-year period of time.

While the country’s banking infrastruc-ture is well developed in urban areas, it is still in development in rural ones. This situation is gradually improving, how-ever, as banks expand their branch net-works outside of the cities and more into underserviced areas.

The rural population is slowly switch-ing to payment cards, although this is mainly for cash withdrawals at present.

Banks are migrating to EMV standards in order to enhance security. In October 2011, the central bank mandated banks

to replace their magnetic strip ATM and debit cards with EMV cards.

A deadline was set for December 31, 2015. From January 2015, the central bank also made six-digit PINs compul-sory when authenticating credit card transactions at POS terminals.

Banks and card issuers in Indonesia have introduced contactless technology to increase their levels of consumer con-venience.

Banks are making concentrated efforts to establish the required infrastruc-ture for contactless technology through which consumers can make purchases at POS terminals via their mobile phones.

n INDONESIA CARD TRANSACTION VALUE BY CHANNEL(US$ BILLION), 2010-2019

Source: Timetric

20102011

20132015

0

30

60

90

120

150

20182019

20162014

20122017

ATM POS

Source: World Bank and Timetric

n INDONESIA PAYMENT CARDS BY TYPE (MILLIONS), 2010-2019


Year Debit Cards Credit Cards

Charge Cards

2010 48.9 13.1 0.5

2014 91.7 14.9 0.5

2015 100.3 15.3 0.5

2019 129.7 18.9 0.6

Source: Central Bank of Indonesia and Timetric

Indonesia getting to grips with payment cardsThanks to the country’s economic growth, a large number of the previously unbanked in Indonesia are starting to join the fray, mainly due to cards and new forms of payment. However, there still remains a divide between those in more urban centre and parts of the population living in rural areas

CI Sep 523.indd 14 12/10/2015 11:46:24

Cards International


COUNTRY REPORT: INDONESIA

New regulations impacted credit card market dynamicsIn 2012, the Bank of Indonesia (BI) changed the minimum monthly income requirement to be eligible to apply for a credit card to US$319.6 (IDR3 M), and the maximum available credit limit was set at three times a person’s salary.

Banks were required to comply with this from January 1, 2013.

Effective from January 2013, the BI placed restrictions on credit card owner-ship in order to control card debt.

According to a new regulation, an indi-vidual with a monthly income of between US$252.7 and US$842.4 may own a maximum of two credit cards.

Those with a monthly income in excess of US$842.4 are required to undergo an assessment by any potential provider before acquiring further cards.

The new regulations resulted in the slow growth of the credit card market in terms of the volume of cards in circula-tion, transaction value and volume.

Prepaid card market presents a significant growth opportunityThe prepaid card market recorded a strong performance both in terms of the number of cards in circulation and transaction value, registering respective CAGRs of 60.29% and 46.16% between 2010 and 2014; a situation which is anticipated to continue over the next five years, all the way up to 2019.

As more consumers are using prepaid cards to undertake daily transactions, issuers are looking to introduce new prepaid card variants into the market.

The range of products has also been expanded to include e-toll, rail, fuel and gift cards.

Jakarta Bank offers the jakCard which can be used to pay for public transport in Jakarta.

Similarly, Bank Mandiri offers three prepaid cards: Indomaret Card, Gaz-Card, and E-Toll Card.

These cards can be used for road tolls and gas payments, and at 870 merchants in Indonesia.

Mobile payments are gradually gaining importanceSupported by mobile network operators (MNOs), mobile payments (m-payments) are playing an important part in the development of electronic payment plat-forms in Indonesia.

Indonesia serves as the perfect ground for m-payments, with a sizeable portion of its rural population having limited access to banking and financial services and a segment of the population considered as underbanked.

An e-wallet service called TCash was launched by Telkomsel in 2007. Other MNOs – Indosat and XL Axiata – launched Dompektu and XL Tunai in 2008 and 2012 respectively.

The government is also keen to develop the m-payments market.

In April 2014, the BI issued regulation No. 16/8/PBI/2014 – a revision of regu-lation No. 11/12/PBI/2009 – to permit non-bank financial institutions to issue e-money for payment purposes.

This means that mobile financial ser-vices in Indonesia can now be offered by a bank alone, or a combination of both an mobile network operator and a bank in collaboration.

Growing banking infrastructureSeveral domestic and foreign banks in

Indonesia offer a wide range of banking services, and banks are expanding their ATM network in order to maximize their presence within the country.

ATMs are available in shopping centers, convenience stores and in areas that are fre-quently visited by tourists.

Banks are also expanding their ATM net-work in rural areas.

Consequently, the number of ATMs increased at a CAGR of 34.68% between 2010 and 2014, and is anticipated to increase further at a CAGR of 8.60% from in the five years after 2015.

To further increase the ATM penetration, banks are introducing floating ATMs.

For instance, BRI has four customized boats with ATMs.

The number of POS terminals in Indo-nesia increased from 218,253 in 2010 to 300,320 in 2014, at a CAGR of 8.31% between 2010 and 2014.

This is supported by an increase in the number of POS terminal installations at smaller retail outlets.

Banks are also introducing their own POS terminals to generate transaction fees.

In February 2015, BRI announced the addition of 35,000 new POS terminals by the end of the year.

This addition will take the total num-ber of banks terminals up to 166,204 by the end of 2015.

The number of commercial bank branches grew from 13,837 in 2010 to 18,558 in 2013, while the number of rural bank branches increased from 3,910 to 4,678 over the same period.

According to July 2014 data from the BI, there were 19,224 commercial and 4,768 rural bank branches operational in Indonesia.<

n NUMBER OF ATMS AND POS TERMINALS IN INDONESIA (THOUSANDS), 2010-2019

Source: World Bank and Timetric

0

100

200

300

400

500

blurb

ATM POS

20102011

20132015

20182019

20162014

20122017

n INDONESIA CARD TRANSACTION VOLUME BY CHANNEL (MILLION), 2010–2019

Year ATM POS

2010 1,307.6 306.4

2011 1,620.7 343.6

2012 1,958.2 402.8

2013 2,354.0 478.5

2014 2,779.8 554.3

2015 3,230.8 641.4

2016 3,701.4 736.3

2017 4,153.5 840.6

2018 4,596.8 950.1

2019 4,976.9 1,059.9

Source: Timetric

CI Sep 523.indd 15 12/10/2015 11:46:25

Cards International


COUNTRY REPORT: SOUTH KOREA

South Korea’s payment cards market is one of the most competitive and attractive in the Asia Pacific (APAC) region. It is mature and over-served,

with credit and debit card penetration rates of 1.8 and 3.0 respectively per inhab-itant in 2014.

In terms of transaction value and volume, South Korea’s payment cards accounted for 6.0% and 17.0% shares respectively in Asia-Pacific in 2014.

M-payments gaining traction in South KoreaBetween 2010 and 2014, the South Korean cards and payments industry moved towards mobile technology, as telecoms companies moved into pay-ments. M-payments using near-field

communication (NFC) are gaining popu-larity among Korean consumers. This demonstrates the convergence of mobile and traditional card-based payments, and signals the rising dominance of telecoms companies in payments.

Non-banking card issuers such as Hyun-dai Card and Lotte Card could lose mar-ket share to both telecoms companies and banks.

To capitalise on the growing m-payments market, non-banking card issuer Samsung Card is anticipated to launch Samsung Pay m-payments in the second half of 2015.

South Korean government looking to rein in credit card spendingThe number of credit cards in circulation fell in the previous five years. The number of credit cards issued in South Korea fell in 2012 for the first time since 2008, due to the prolonged economic slowdown and govern-ment regulations to curb overuse of credit cards and control household debt within the nation.

An increase in household debt has prompted the government to introduce measures to discourage credit card spend-ing, reducing tax deductions on credit card

n SOUTH KOREA’S PAYMENT CARDS BY TYPE (MILLIONS), 2010-2019


Year Debit Cards Credit Cards

Charge Cards

2010 128.5 115.2 1.4

2014 151.5 91.4 1.0

2015 153.4 86.3 0.9

2019 158.2 77.1 0.8

Source: Central Bank of Indonesia and Timetric

0

100

200

300

400

500

600

700

800

blurb

ATM POS

20102011

20132015

20182019

20162014

20122017

n SOUTH KOREA’S CARD TRANSACTION VALUE BY CHANNEL(US$ BILLION), 2010-2019

Source: Timetric

South Korea’s cards standing strongAs one of the most developed markets in the Asia Pacific (APAC) region, big things are expected from South Korea’s card payment market. While debit and prepaid cards are holding steady, credit cards have suffered a blow due to the country’s economic slowdown, leading to the first fall in credit cards issued since 2008

CI Sep 523.indd 16 12/10/2015 11:46:28

Cards International


COUNTRY REPORT: SOUTH KOREA

transactions and increasing them for debit cards.

A tax reform bill in 2012, increased tax deductions on debit card spending from 20% to 30%, while for credit cards it was reduced from 20% to 15%. In April 2013, the government introduced new rules for closure and automatic cancelation of dor-mant card accounts.

The South Korean government offers income tax deductions on card-based spending to encourage the use of payment cards instead.

The maximum deduction amount for credit card-based spending is $2,740.10 (KRW3 million).

The deductible income tax amounts are 20% of the eligible amount for credit card spending and 25% of the eligible amount for debit card and prepaid card spending.

However, the tax reform bill, passed in August 2012, lowered the tax deduction on credit card spending from 20% to 15% of the eligible amount.

In addition, the tax deduction on debit card spending was increased from 20% to 30% of the eligible amount.

These factors, in tandem with security concerns raised by leakages of credit card customer data, are anticipated to further decrease the number of credit cards in cir-culation over the next five years.

Data security breaches dampen the credit cards marketIn January 2014, the FSS announced that the information of 20 million credit card users had been stolen by a temporary employee of personal credit ratings firm Korea Credit Bureau.

In a separate incident on April 11, 2014, the FSS announced that hackers had stolen the personal data of 200,000 credit card users, using some to produce counterfeit cards and make fraudulent payments of $113,859.60 (KRW120m).

As a result, the regulator ordered all credit card issuers to upgrade fraud-detec-tion systems to prevent similar data thefts in the future.

However, the incidents became a major issue in the country, and this is anticipated to affect the credit cards market for some time yet.

Digital gift cards to drive the prepaid cards marketDigital gift cards are seen as a key driver of prepaid gifts cards.

In South Korea, cash gifts are common for holiday periods, such as weddings, birth-days or birth celebrations, and are gener-ally viewed as a very attractive alternative to

straight cash. Prepaid gift cards are widely used as gifts

for both individual and business users, and digital gift cards are a key driver of the pre-paid gift card market in South Korea.

Korean retailer Home Plus introduced digital gift cards in association with HID Global in 2010, which allowed customers to customise cards by adding text messages and company logos.

Store staff were given intensive training to assist customers with issuance of online cards.

Digital gift cards have remained popular and are expected to be a key driver for pre-paid cards over the next five years, all the way up to 2019.

Utilising tourismAnother example of a prepaid card is the Korea Pass card.

Launched by the Korea Tourism Organi-zation, it is aimed at foreign tourists stay-ing in Korea, allowing them to load up to US$456.7 onto the card for use on subways in various cities, accommodation, and entrance fees to popular tourist destina-tions.

It is a variation of a product that Korean consumers are already very familiar with and confortable in using.

The well-known contactless T-Money card is used on transport networks around the country and also in stores, and is issued by the South Korea transport authority.

It permits swift reloading of credit through automatic recharging machines at subway stations, and also at convenience stores for less than $1.40.

Retail sales grew between 2010 and 2014, from $213.4bn in 2010 to $267.9bn in 2014, at a CAGR of 5.85%.

The three largest department store opera-

tors, Hyundai Department Store, Lotte Shop-ping and Shinsegae Corporation, all offer payment cards.

Subway virtual stores have emerged as an important business driver of the South Kore-an payment cards market.

Growing retail and e-commerce markets provide scope for card payments

Virtual stores were introduced in 2011, enabling users to purchase goods such as food, electronics, office supplies and toilet-ries at subway stations.

Dedicated areas at subways or bus termi-nals feature life-size images of goods, and each carry a small barcode.

Shoppers can download a smartphone app and initiate purchases by scanning the barcodes; orders placed in the morning are delivered by the evening.

The virtual store concept is being adopted by outlets such as Tesco and e-mart.

South Korea’s e-commerce market com-prises several domestic sites, with interna-tional retailers entering the market.

In 2009, eBay acquired domestic online retailers Auction and Gmarket.

Similarly, in 2013, the US-based Grou-pon closed its local operations and acquired Ticket Monster.

E-commerce posted a CAGR of 16.77% between 2010 and 2014, rising from $13.8bn in 2010 to $25.7bn in 2014.

Over the next five years (starting 2015), the e-commerce value is anticipated to grow further at a CAGR of 15.52% to reach $53.5bn in 2019.

The growth of e-commerce was also supported by the availability of high-speed internet access, which coupled with heavy government promotion and avid consumer interest led to a surge in online shopping across the country.<

n SOUTH KOREA’S CARD TRANSACTION VOLUME BY CHANNEL (MILLION), 2010–2019

Year ATM POS

2010 672.2 7,095.1

2011 692.8 8,365.0

2012 738.0 9,893.6

2013 761.9 11,477.7

2014 787.6 13,256.0

2015 817.0 14,651.7

2016 845.7 15,921.0

2017 872.3 16,975.9

2018 897.3 17,834.6

2019 921.9 18,463.9

Source: Timetric

n NUMBER OF ATMS AND POS TERMINALS IN SOUTH KOREA (THOUSAND), 2010–2019

Year ATM POS

2010 110.3 2,179.0

2011 118.5 2,195.0

2012 122.9 2,214.2

2013 124.2 2,225.8

2014 125.9 2,235.2

2015 127.9 2,248.3

2016 129.8 2,263.4

2017 131.5 2,279.3

2018 132.8 2,299.0

2019 133.9 2,321.1

Source: Bank for International Settlements and Timetric

CI Sep 523.indd 17 12/10/2015 11:46:28

Cards International


COUNTRY REPORT: KAZAKHSTAN

Despite Kazakhstan’s economic prog ress du r ing the be t ween 2010 and 2014, the penetration of financial services is still rela-

tively low. According to the European Bank for Reconstruction and Develop-ment (EBRD), 5.9 million individuals − accounting for 52% of Kazakhstan’s population − did not have access to any form of formal banking service as of January 2013. The government launched the Road Map program in 2009 to gen-erate employment opportunities for citi-zens; it was extended in 2010 and led to more employment opportunities and an increase in disposable incomes. This will benefit the cards and payments industry as more people opt into formal banking.

The central bank was instrumental in increasing the share of non-cash payments by requiring retailers to install POS termi-nals to accept payment cards. Furthermore, an initiative by the NBK to limit cash trans-actions for sole proprietors and companies, with tax incentives for businesses who accept payment cards, is anticipated to increase the share of non-cash payments over the fnext five years (2015–2019).

While the transaction value of credit transfers, direct debits and checks declined, transaction values and volumes for debit and credit cards grew, and recorded respective CAGRs of 19.97% and 13.85% between 2010 and 2014.

Changing lifestyles, rises in the economi-cally active population and per capita dispos-

able income, the growing popularity of online shopping, the increased acceptance of cards at retail outlets, and the adoption of new technology such as Europay, MasterCard, Visa (EMV) and contactless supported the growth of payment cards between 2010 and 2014; a trend that is anticipated to continue over the next five years.

Debit cards continue to dominate the payment cards marketIn 2014, the debit cards market accounted for 88.7% and 93.9% of the overall pay-ment cards in terms of transaction volume and value respectively. The rising popularity of debit cards supported this trend.

Banks such as Halyk Bank and Kaz-kommertsbank have developed projects to

n VALUE OF PAYMENT CARDS ($m) IN KAZAKHSTAN, 2010–2014

Source: National Bank of Kazakhstan and Timetric

n VALUE OF CHECK PAYMENTS ($bn) IN KAZAKHSTAN, 2010–2014


n VALUE OF CREDIT TRANSFERS ($bn) IN KAZAKHSTAN, 2010–2014


0

200

400

600

800

1000

20102011

20132014

2012

US$ bn

0.0

0.1

0.2

0.3

0.4

0.5

20102011

20132014

2012

US$ bn

0

1

2

3

4

5

6

7

8

20102011

20132014

2012

US$ bn

Kazakhstan getting ahead of the timesThe emergence of non-cash payment methods, from cards to m-payments, has not gone unnoticed by Kazakhstan. In fact, the country is fully embracing these new methods in an attempt to get the unbanked population, over half of the Kazakhstan’s total population, into the financial system

CI Sep 523.indd 18 12/10/2015 11:46:31

Cards International


COUNTRY REPORT: KAZAHKSTAN

n KAZAKHSTAN’S CREDIT CARDS MARKET SHARES BY SCHEME (%), 2014

Source: Timetric

n KAZAKHSTAN’S DEBIT CARDS MARKET SHARES BY SCHEME (%), 2014

Source: Timetric

n KAZAKHSTAN’S DEBIT CARDS MARKET SHARES BY ISSUER (%), 2014

Source: Timetric

n KAZAKHSTAN’S CREDIT CARDS MARKET SHARES BY ISSUER (%), 2014

Source: Timetric

encourage companies to deposit employees’ salaries directly into their bank accounts as part of their Salary Projects, resulting in the increased use of debit cards. Similarly, the government prefers to distribute social ben-efits such as pensions and scholarships via debit cards. This has encouraged banks to offer social or pension cards.

Mobile payments (m-payments) are gaining prominence in KazakhstanM-payments are an emerging trend in Kazakhstan. One of the most popular m-payment services is MyPaykz; launched in 2011 by Halyk Bank and e-commerce firm Intervale, its popularity is growing. A number of companies have been looking to replicate MyPaykz’s service, which reflects the growing popularity of m-payments.

In June 2014, Kazkommertsbank launched a mobile contactless payment ser-vice based on MasterCard’s PayPass technol-ogy. The bank has installed 500 POS termi-nals in supermarkets, restaurants and retail establishments to support this move.

Growing banking infrastructureThe number of ATMs in Kazakhstan increased at a CAGR of 4.89%, from 7,605 in 2010 to 9,206 in 2014. This figure is expected to increase at a CAGR of 1.99% from now until 2019. Banks are expanding ATM networks into rural areas.

The number of POS terminals in Kazakh-stan recorded a CAGR of 23.99%, rising from 26,625 in 2010 to 62,920 in 2014. In November 2012, the NBK required certain categories of retailer to install POS termi-nals. On January 1, 2014, the regulation was extended to all traders, regardless of business model. Consequently, the number of POS terminals grew in the last five years, a trend that is anticipated to continue for anotehr five years.

In addition to conventional POS termi-nals, merchants are installing mobile POS (m-POS) terminals. In August 2014, Kcell launched mobile POS terminals in Kazakh-stan. Similarly, Halyk Bank offers Pay-Me m-POS terminals at a cost of $67, with a fixed commission of 2.75%.

Expansion of prepaid card market offers growth opportunitiesPrepaid cards are increasingly gaining acceptance among Kazak consumers, pri-marily because they tend to prefer to spend within their means. The number of prepaid cards grew from 9,569 in 2011 to 811,977 in 2014. In transaction value terms this was an increase from $1.2m in 2011 to $194m in 2014 – a trend that is anticipated to continue until the end of the decade.

Halyk Bank11.5%

Others36.4%

BTA Bank9.3%

Kazkommertsbank17.7%Bank

CenterCredit9.3%

Visa75.2%

MasterCard18.8%

Others8%

Kaspi Bank70.8%

Others29.2%

Visa95.7%

Mastercard3.8%

Others0.5%

According to EBRD, as of January 2013 there were 5.9 million individuals accounting for 52% of the total Kazakhstan’s popula-tion who are unbanked. The relatively high unbanked population provides scope for pre-paid card issuers.

The large migrant population also sup-ports the growth of prepaid cards. According to the Ministry of Health and Social Devel-opment, as of June 1, 2015, foreign migrants held 36,864 work permits in Kazakhstan.

According to a 2011 World Bank study, Kazakhstan has many access locations to remittance services through bank and KazPost locations. Due to the country’s large area, access locations are not readily avail-able in remote areas, where individuals often rely on informal or unregulated services.

Some regulated remittance companies that offer relatively low-cost services are not as accessible as others that offer higher rates. Partly because remittance companies can operate only through banks and KazPost, the number of service locations is limited to the number of branches.

The report adds that concerns over detec-tion by tax authorities, or having funds blocked by financial institutions or authori-ties, discourage some individuals from using formal channels. Combined with burden-some documentation requirements, these factors make many residents and non-resi-dents, including entrepreneurs, avoid formal remittance and financial services. This offers an opportunity for banks to introduce pre-paid cards especially for remittances.<

CI Sep 523.indd 19 12/10/2015 11:46:33

Cards International


GUEST COMMENT: JERRY NORTON

Samsung Pay: an evolution, not a revolution, in mobile paymentsThe mobile payments market is evolving rapidly, with new payment intermediaries, providers and services emerging all the time. The launch of Apple Pay, Samsung Pay and Android Pay earlier this year signals the growing role of non-bank payment intermediaries in this market. Jerry Norton of CGI writes

Mobile payments technology, togeth-er with enhanced consumer expec-tations, are putting added pressure on banks to innovate with mobile

payments, driving significant investments in this area and a renewed focus on develop-ing more competitive and pragmatic mobile payment strategies.

Moreover, as the mobile payment options offered to consumers increase, financial institutions will have respond faster and look beyond their own resources in order to compete more effectively with new market players. But will emerging services such as Samsung Pay disrupt the traditional pay-ments landscape?

Both Samsung Pay and Apple Pay are based on standardised technologies devel-oped by the international card schemes which essentially replace the physical credit card with a mobile device. In this sense they are more an evolutionary step, rather than a revolution.

Getting some standards One of the most important aspects these “Pays” will be the consolidatation of existing industry standards for mobile payments. Just like Apple Pay and others, Samsung Pay uses Near Field Communications (NFC).

Unlike them, it also adds an emulation of the magnetic stripe used on credit and debit cards - Magnetic Secure Transmission (MST).

This means that Samsung Pay should be able to work at most existing point-of-sale (POS) terminals, regardless of whether or not they have been upgraded to handle chip and PIN.

This will enable merchants to easily adopt the new payment method, as they won’t need to upgrade their terminals to be able to offer mobile payments to their customers.

This is of particular reliance to those coun-tries that still rely on magnetic stripe technol-ogy e.g. the USA, which is only now rolling out chip and PIN.

As more and more merchants roll out chip and PIN and NFC-enabled POS terminals, and banks allow their cards to be stored in mobile wallets, consumers will be able to

benefit from more convenience and choice. This in turn will open the way to new play-ers and tech start-ups entering the market with solutions that leverage the underlying technology standards and payment networks provided by banks.

Setting the path aheadIn this sense the “Pays” won’t replace tra-ditional card banking transactions but will push financial organisations to innovate fast-er in this space. But how can banks adapt to this rapidly changing and highly competitive environment?

First of all, the financial services industry needs to look at the underlying infrastruc-ture that enables payments innovation. This will require a concerted effort from financial organisations and their respective national associations.

The US, Canada, UK and other European countries are already making significant efforts to improve their payments infrastruc-ture. The UK’s Faster Payments Service is a good example of such and has led to signifi-cant improvements in bank payments in the past couple of years.

However, infrastructure itself is only half of it. Providing access to these payment frameworks for all players in the market is still an issue that needs to be addressed. Under the current model only direct mem-bers of these initiatives or organisations sponsored by a direct member can access such payments frameworks.

This could potentially limit the opportuni-ties for new market entrants to benefit from infrastructure improvements.

Another key area that is driving innova-tion in the payments space is the increased collaboration between banks and third party organisations.

As the payments ecosystem becomes increasingly complex, playing solo, so to speak, could be a massive disadvantage. This is why banks are looking to create APIs (Application Programming Interfaces) that can be used by third party developers to cre-ate innovative complementary services and payment products.

The Open Bank Project is one such exam-

ple. It’s an open source API and App store for banks that allows them to drive innova-tion in payments and other areas by using an ecosystem of third party applications and services.

Such services will enable banks to offer a wider range of web and mobile apps to their customers and compete more effectively with challenger payment providers such as Apple and Samsung.

According to Gartner, by 2016, 75% of the top 50 global banks will have launched an API platform and 25% will have launched a customer-facing app store.

To be able to make the most of this oppor-tunity, banks need to integrate this set of services into utilities that deliver packaged payments solutions to customers.

This involves a number of challenges such as finding effective ways to protect banks’ APIs and creating an effective regulatory framework that governs how banks share certain data and technology with third party providers.

However, financial organisations are already making significant progress in this area and in the introduction of a new set of more competitive payments products and services is only a matter of time.

Banks following the tideAs the payments industry is undergoing dra-matic changes banks are beginning to trans-form how they operate to catch-up with the innovation created by non-bank payment providers.

The launch of emerging mobile payment services such as Apple Pay and Samsung Pay marks a historic move of major technology firms into the payments arena.

However, banks will continue to play a key role in providing the underlying infrastruc-ture that facilitates mobile payments and will increasingly collaborate with other industry players to drive innovation in banking.

This increased collaboration will trans-form traditional payments as we know them today and will create more opportunities for launching frictionless, easy to operate ser-vices for consumers that will revolutionise how we make payments. <

CI Sep 523.indd 20 12/10/2015 11:46:34

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We are immensely proud of our achievements, in relation to our innovation, our thought leadership, our industrywide recognition, our demonstrable product differentiation, the diversity of our client base, and the calibre of our partners.

For many years we have been the digital heart of a diverse range of fi nancial services providers including Atom Bank, Generali Wealth Management, HRG, Ikano Retail Finance, Lloyds Banking Group and Think Money Group.

IE RBI final design.indd 1IE RBI final design.indd 1 17/09/2015 11:21:3217/09/2015 11:21:32

POWERED BY

Or

Intelligent Environments, the international provider

of digital fi nancial services solutions in association with

Retail Banker International, Cards International,

Electronic Payments International, Private Banker

International, and Motor Finance publications.

Join The Club!www.thedigitalbankingclub.com

Membership is free

For further information please email:

[email protected]

Membership benefi ts

Join thousands of fi nancial services professionals who

have joined The Digital Banking Club to understand

the future of mobile and online fi nancial services

10% discount for new subscribers

Annual subscription to Retail Banker International, Cards International,

Electronic Payments International

World Market Intelligence’s archive of over 250 Retail Banking and Cards and

Payments research reports for new report purchasers

Annual subscription to Retail Banking and Intelligence Centre

World Market Intelligence Ltd’s bespoke research and consultancy services

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