Future of Payments

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Dec 3, 2013 (3 years and 11 months ago)

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_ 04. September. 2012
Future of
Payments
Social chat
and sales

Page 18...
The payments
landscape

Pages 12 & 13...
Mobile means
less cash

Page 06...
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03
Future of Payments
STEPHEN ARMSTRONG
Contributor to The Sunday Times, London
Evening Standard, Monocle, Wallpaper
and GQ, he is also an occasional
broadcaster on BBC Radio 4 and Radio 2.
DAVE HOWELL
Freelance journalist, writer and micro
publisher, he specialises in business and
technology, and has written for a range
of publications and websites.
JAMES SILVER
Specialist writer on the media and
technology for, among others, WIRED
magazine and The Observer, he is also a
regular presenter on BBC Radio 4.
CHARLES ORTON-JONES
Former Professional Publishers
Association Business Journalist
of the Year, he is editor-at-large of
LondonlovesBusiness.com.
KATE BASSETT
Freelance business journalist and former
editor of Real Business, she writes for
publications including the Financial Times,
The Guardian and The Independent.
ConTribuTorS
Distributed in
and at
Publisher
Will Brookes
Editor
James Silver
Managing Editor
Peter Archer
Design
The Surgery
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without the prior consent of the Publisher. © Raconteur Media
ȖIt’s a drizzly Sunday morning
in 2020 and Harry is shuffling to
Sainsbury’s to pick up some milk,
Alka-Seltzer and cat food. At the
automated checkout, a camera
scans his iris and the till spits out
a receipt.
That afternoon, at the cinema, he
pays for tickets with little more than
a wave of his RFID-enabled (radio
frequency identification) wrist-
watch past an electronic reader,
connecting to his bank account.
Later, dinner is Domino’s pizza
delivered to his door, paid for by the
virtual credits he’d steadily been
accumulating on his Zynga gaming
account; (he’d also qualified for a
new range of gardening equipment).
Harry can’t remember the last
time he put his hand in his pocket
for actual, you know, cash. Paying
for things with coins and banknotes
seems, well, like something the Vic-
torians did. Like walking canes and
whooping cough.
OK. Harry’s cashless society may
not quite be here in eight years. Yet
all the modes of payments listed in
Harry’s Sunday are already viable
or in use in other fields. Iris recog-
nition technology, though flawed,
can be found at a number of air-
ports and border agencies around
the world, while a wristwatch con-
taining an e-wallet was developed
by Speedpass and Timex nearly a
decade ago, and a handful of busi-
nesses, including Wuala cloud stor-
age, based in Switzerland, already
accept virtual currencies.
Society is on the brink of gen-
erational disruption in the way
we pay for goods and services.
Indeed, it could be argued that we
are living through a period of what
might be termed “technological
congestion” with the arrival of
new payment methods ranging
from F-commerce to smartphone
NFC (near field communications),
and payment apps to services like
Stripe, Braintree and Dwolla.
And as a global financial services –
and payments – hub, the UK is well
placed to take advantage of all this
innovation, says MP Mark Hoban,
Financial Secretary to the Treasury.
“Almost 80 per cent of UK house-
holds have internet access, 38 mil-
lion adults (74 per cent of the popu-
lation) shopped online last year and
half of mobile users now access the
internet via a mobile phone,” he
says. “Some 27 million adults (52
per cent) use internet banking. The
UK is a world leader because we are
such a highly-networked country,
with multiple, interlinked technolo-
gies, including PCs, tablets, laptops
and smartphones.”
Certainly, East London’s tech-
nology quarter, which grew
organically, but was collectively
branded Tech City UK by the Gov-
ernment, is spawning a number
of notable “fin-tech” start-ups,
among them GoCardless, an
online payments platform.
When viewed as part of a pay-
ments landscape which incor-
porates Britain’s leading banks,
payments providers, telecommu-
nications companies and retail-
ers, new tech companies have the
potential to offer real advantages
to the general economy, by mak-
ing it quicker and easier for pay-
ments to be made.
“At a time when credit is con-
strained, faster payments makes
money work harder,” says Mr
Hoban. “Small businesses alone
are having to fund almost £110 bil-
lion in overdrafts and short-term
loans. They will benefit most from
faster payments.”
He says the Government intends
to develop the UK’s world-leading
faster payments technology fur-
ther, by ensuring “red tape does
not stifle innovation” and putting
in place “a supportive regulatory
regime that promotes competi-
tion”. Welcome political pledges,
with a familiar ring.
But, ultimately, of course,
money is emotive and trust slowly
earned. If Harry’s cashless utopia
does not arrive by 2020, it will be
down to consumer caution, rather
than tardy technology. In other
words, the public still needs to be
persuaded that it needs a wrist-
watch to buy cinema tickets.
James Silver looks into the future and sees a cashless society, which technology
has already largely enabled, but may yet be delayed by consumer caution
OVERVIEW
80%
52%
50%
74%
(27m) adults
use internet banking
of UK households
have internet access
of mobile users access the
internet via a mobile phone
(38m) adults shopped
online last year
Society is on the brink of
generational disruption in the way
we pay for goods and services
Source: HM Treasury
2012
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The state of pay
and a cashless society
© © Jeffrey Blackler / Alamy
East London’s Tech
City uK is home to
notable “fin-tech”
start-ups
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04
Future of Payments
ȖIn every technology race, there’s
a Hovercraft or a Betamax or a
BBC Microcomputer – great ideas,
functioning tech, ultimately a
dead-end curiosity.
At the start of 2012, the Oyster
was looking like the Betamax of
payments. First issued in 2003 –
in part to cut back on cash stored
in buses to reduce robberies
– competitive pricing made the
contactless smart card a rapid hit
with Londoners. By June 2010, 80
per cent of the £2-billion-worth of
journeys made on Transport for
London (TfL) involved an Oyster.
Small, light, functional – it was an
obvious love affair.
Recently, however, TfL seemed
to lose its love for the Oyster. In
November 2011, the organisation
declared its intention to accept
open-loop payment on its network,
effectively allowing contactless
credit card payments on all jour-
neys and opening the door to near
field communications (NFC) pay-
ments by mobile phone.
London major Boris Johnson
made it clear he wants TfL to get
out of the business of changing
money and collecting fares, reduc-
ing costs by allowing banks and
payment card networks to take an
ever growing share of transactions.
For banks and payment providers
this was good news; Barclaycard
OnePulse, a credit card issued by
Barclays with Oyster capability,
led the charge but others followed
including, MasterCard’s PayPass.
“We’re expecting single PayPass
wallets to dominate payments in
the future,” says James Davlouros,
vice president – mobile business
development, Europe, at Master-
Card. “People won’t want to carry
multiple cards around – a single
card, possibly simply their mobile,
for point of sale and transport,
should be better. TfL’s move will
prove pivotal in this.”
And yet some analysts aren't so
sure. “You just have to think about
how people use their Oyster card,”
says Alistair Newton, research
vice president at Gartner’s bank-
ing division. “It’s kept separate, in
its own wallet, while people have
Oyster could yet
become a pearl in payments
Smart cards are set to revolutionise the way we pay, but
contactless payment is still evolving, writes Stephen Armstrong
SMART CARDS
The national roll-out of smart
cards could have a fundamental
impact on the way the UK pays
maybe two or three credit cards
in their actual wallet. If they tap
those on the tube gates or bus card
reader, you can expect some real
confusion as all three cards pay. If
you have to take one card out, that
slows you right down. And who’s
going to want to put their most
frequently used card in a separate
wallet with photo ID? I’m not sure
TfL have thought this through.”
NFC-equipped mobile phones,
he adds, have problems that hinder
their uptake. The NFC chip had
been included on handsets, but
telecommunications companies
insisted it become a SIM feature, to
increase revenue. This slows down
the time taken to make a payment.
TfL requires 500-millisecond
transaction times or faster and it’s
not clear yet whether SIM cards
in NFC phones, running either
DESFire, PayPass or payWave, can
achieve that.
Just as these details emerged, the
UK government granted Oyster
a new lease of life – in spring, the
transport secretary announced a
national roll-out for pre-paid cards,
in part to allow greater variation
in the fares. The roll-out might
allow Oyster’s contactless system
to restructure around models fol-
lowed elsewhere in the world.
Stored-value cards, like Tokyo’s
PASMO, Hong Kong’s Octopus and
Singapore’s EZ-Link, all operate
with radio frequency identification
(RFID) technology and have been
in use in Asia since the 1990s.
Where, for instance, Octopus
differs from Oyster is its retailer
relationship. Octopus cards can be
used in pharmacies, newsagents,
dry cleaning shops – the kind of
stores that cluster around trans-
port hubs. The stores have been
involved since day one and their
main benefit is access to the vast
and constantly updated passenger
data silos that Hong Kong’s Mass
Transit Railway collects. Thus,
stores can discover exactly which
times of day they’ll have the great-
est footfall, literally knowing the
number of people likely to pass
their door between 2pm and 3pm.
There are problems, explains
Jerome Cle, chief executive of
SCCP Group, which runs the
SWIFF mobile card payment plat-
form. “Card ownership is almost
universal but, despite the avail-
able network of retailers, usage
outside the travel network is not
widespread,” he points out. “The
technology is not sophisticated or
secure enough for consumer needs
– there are no detailed transaction
records and no mechanism for
payment dispute resolution.”
Innovations in pre-paid card
technology, however, could over-
come many of these flaws, says
Howard Berg, director at digital
security giant Gemalto. The
company is introducing pre-paid
option featuring a built-in key-
pad and display screen, which
enables users to enter a PIN
and see their balance. "You can
straightaway understand how
much is on your card," says Mr
Berg. "So at the point of sale,
you're 100 per cent confident
that you’ve got the money to
cover the transaction.”
With pre-paid smart cards roll-
ing out in hospitals, schools and
universities for everything from ID
to canteens, there’s the potential,
especially for debt-averse consum-
ers, budget-conscious consumers
or low-income families, for the
national roll-out of smart cards to
have a fundamental impact on the
way the UK pays. The Oyster could
yet prove to be a pearl.
uK point-of-sale terminals accept
contactless payments, 2012
smart cards globally, 2012
forecast value of smart
card market, 2012
100,000
6.9bn
$5.1bn
Electronic
wallet at
heart of
challenge
CARTES 2012
The major players in the payment sec-
tor, where mobility already represents
a key strategic approach, have made
the electronic wallet their chief issue.
"It all began in 2011, with the ISIS
Mobile Wallet and the Google NFC
Wallet. This was a real detonator,
marking the start of the e-wallet era
and triggering the wallet war we are
now seeing," says Isabelle Alfano,
director of the CARTES show, the
world's leading smart technologies
event dedicated to security, payment,
identification and mobility.
To spread the use of the e-wallet, the
first aim is to transform payment into
shopping by proposing new services
to consumers: price comparers, alerts
about discounts and special offers,
options for recharging phone SIM
cards, buying train tickets, and so on.
But current developments also
raise numerous questions in terms of
security and private life.
For the smart security industry,
these questions are not so much
challenges as new opportunities and
a number of technological responses
are already appearing, which associ-
ate security with personal data
protection in e-wallets.
The CARTES 2012 show, from
November 6-8, at Paris-Nord
Villepinte, features representatives
from 143 countries, 450 exhibitors
and 140 conference events with
international experts.
Source: barclaycard
Source: Eurosmart
Source: Eurosmart
The oyster card
transformed
bus,tram, tube and
rail fares in London
bloomberg via Getty images
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05
Future of Payments
Commercial Feature
Helping SEPA deliver on its promise:
the future of payment platforms
Martin Herlinghaus, director, merchant
services at arvato Finance, discusses the
importance of putting the user experience
at the heart of payment innovation
The tradi ti onal boundari es of
domestic payments are tumbling
down around us. The growth of
e-commerce i n a gl obal market-
place, combined with customers
purchasi ng from wherever loca-
ti on and whatever devi ce they
choose, means merchants have to
ensure their payment processing
strategies put the user in control.
Customers who have di ffi cul ty
making payments can find a more
accessible option with one click or
touch of a screen, so companies
cannot afford compl exity to get
in the way.
Innovation is critical and mobile
wallets have been at the forefront
– the abi l i ty to transact seam-
l essl y wherever you choose to
purchase, with concepts such as
one-touch payments for musi c
or apps make the process almost
invisible to the customer.
A number of frameworks have
been developed to facilitate cross-
border transacti ons, but j ust
enforci ng these on to a di verse
consumer base will simply cause
fear, uncertai nty and doubt that
wi l l ul ti matel y affect sal es vol -
umes. Success wi l l come for
those merchants who are able to
bal ance an excel l ent user expe-
rience with the tangible benefits
that these frameworks bring to an
international marketplace.
SEPA: a golden opportunity?
The i ntroducti on of SEPA (Si n-
gle European Payments Area) i s
designed to facilitate simpler and
more cost-effective cross-border
transactions.
It promi ses much: the UK Pay-
ments Counci l websi te states
that SEPA wi l l assi st pan-Euro-
pean trade, helping UK businesses
compete by making it simpler and
cheaper to recei ve Euro pay-
ments. From a consumer per-
spective, it facilitates the transfer
of funds for individuals travelling
and should mean UK-issued cards
become more wi del y accepted
– an excel l ent advantage for
the gl obal e-commerce market,
where debit cards may not previ-
ously have been accepted.
The framework was l aunched
several years ago and up unti l
recentl y i nterest has remai ned
low. The industry has felt that the
concept has been “forced” upon
them, and with little guidance on
practical implementation around
e-Mandates or the need for cus-
tomers to know their lengthy Bank
I denti fi cati on Codes (BI Cs) and
International Bank Account Num-
bers (IBAN).
However, the deadl i ne of 2014
has been recently set and SEPA
i s comi ng, regardl ess of adop-
ti on rates. So the chal l enge for
merchants now is how could this
framework be used i n the next
round of payment innovation?
Harnessing the potential
The way to get maxi mum val ue
from frameworks such as SEPA is
to consider how it can integrate into
existing solutions, evolving them
into platforms that match what cus-
tomers and businesses are looking
for – today and tomorrow.
The SEPA Task Force, set up by
arvato Finance, has worked with
our gl obal customers, i ncl ud-
ing 1&1, Facebook and Google, to
develop innovative, effective solu-
tions that will enable them to meet
the 2014 deadline, keep transac-
ti on costs l ow and ensure thei r
customers conti nue to recei ve
the very best experience.
By i ntegrati ng i nto exi sti ng
pl atforms and keepi ng custom-
ers’ needs uppermost, arvato
bel i eves SEPA Di rect Debi t
offers the potential for a payment
method that:
I s fami l iar to payers, so won’ t
requi re huge educati on for
customers;
Offers security when payments
are revoked;

Will have a heavy uptake in coun-
tries, such as Germany, the Neth-
erlands and UK, which will sup-
port ambitious expansion plans;
I ntroduces streaml i ned pro-
cesses;
And offers loyalty between payer
and payee, as it sets up a secure
payment rel ati onshi p whi ch
encourages repeat purchases.
Taking up the challenge
Maintaining high adoption rates
for SEPA wi l l be a chal l enge, so
it’s important that the solutions in
place are flexible enough to adapt
and evolve to suit changing cus-
tomer purchasing demands.
Undoubtedly, those companies
who can work col l aborati vel y
wi th payment i ndustry experts
to understand the ways in which
their customers and the payment
market wi l l devel op, and l ook at
i nnovati ve ways of harnessi ng
so-called “requirements”, will turn
them to their advantage.
1&1: Preparing for growth

As the world’s number-one web
hosti ng company, 1&1 i s known
for offeri ng i ts customers rel i a-
ble, user-friendly web design and
hosti ng servi ces, so i t i s i mper-
ati ve that i ts payment methods
meet the same high standards.
A successful gl obal expansi on
has to be built on technology and
processes that are not only stand-
ardi sed to del iver speed to mar-
ket, but are al so fl exi bl e enough
to incorporate local market sensi-
tivities, practices and customers’
preferences.
1&1 i s working with long-stand-
i ng partner, arvato, to devel op
an innovative solution to support
both l egacy and future payment
methods, throughout its interna-
tional expansion.
“We see a huge opportunity to
expand our payment offeri ngs
to i ncl ude SEPA Di rect Debit, as
thi s enabl es us to target more
customers across new markets.
However, we need to be abl e to
maintain existing payment meth-
ods to offer customer choi ce,”
says Robert Hoffmann, of 1&1
I nternet’ s management board.
“arvato’s future-proof payment
platform meets our needs today
and wi l l ensure a smooth transi -
tion to full SEPA requirements as
the 2014 deadl i ne approaches.
More i mportantl y, thi s wi l l al l be
seamless for our customers.”
SEPA Direct Debits
of credit transfers
are SEPA- compliant
of eurozone direct debits
are SEPA-compliant
SEPA migration deadline
potential annual savings to EU economy
electronic payment
transactions annually
mandates could be
converted to SEPA
28%
¤50bn – 100bn
71.5bn
750
citizens are affected
by SEPA
32
2014
0.5%

490m
February 1
andcountries
Commercial Feature
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06
Future of Payments
06
ȖAt the moment NFC (near field communication)
has failed to set the world alight, at least outside
Japan. In the UK and US, all eyes remain on Apple,
who some predict will make the next generation
iPhone an NFC-enabled device.
Retailers have already adopted the iPad into
their stores across the US as fast and efficient next
generation tills. NFC would be the next logical
step to take, as the availability of a mass-market
smartphone with NFC capability would kickstart
the NFC market as a whole, and drive retailers
and the payment processing service providers to
develop their systems rapidly.
Meanwhile, for consumers, an NFC-enabled
iPhone would finally deliver an electronic wallet
into their hands. If “wave and pay” from Barclays
was a revelation to shoppers, simply moving their
smartphone near a pay point will be nothing short
of a revelation.
"Mobile technology has long been a revolution-
ary force in our lives and NFC-enabled devices,
such as the Galaxy S III, will fundamentally change
the way we pay,” says Sandra Alzetta, senior vice
president of mobile at Visa Euope. “The future is
mobile and cash usage will continue to decline, as
people use their devices to manage their money,
shop and pay.”
Will chip bear
fruit for Apple?
Until recently, the smart money has
been on Apple incorporating a chip
in its next iPhone for short-range
wireless transactions, but latest
reports may have cast doubt on such
speculation, writes Dave Howell
SMARTPHONES
Retailers have already adopted
the iPad into their stores across
the US as fast and efficient next
generation tills
ȖThink about last weekend.
Like millions of others, you will
probably have visited a hole-in-
wall for cash to pay for low-value
items. An estimated 21 billion
such cash payments are made
each year, 80 per cent of which
are below £10.
The sheer scale of these transac-
tions requires the creation, trans-
portation, collection and, ulti-
mately, the destruction of about a
billion bank notes annually, with
a huge attendant environmental
impact, all of which is paid for by
the taxpayer.
But all that could be about to
change. According to the Payments
Council, by 2018, the volume of
cash payments is projected to fall
by 20 per cent, after adjusting for
inflation. And in five years, cash
is likely to make up less than half
of UK transactions (45 per cent)
for the first time. Welcome to the
mobile economy.
You may already be one of the
users of Barclays’ “wave and pay”
system that allows payments to
be made without chip and PIN, or
perhaps make mobile payments
(m-payments) with Barclays’ Pin-
git, which allows up to £750 to
be sent via a smartphone? Or
your favoured option could be
the Orange Quick Tap initiative
with Everything Everywhere and
Barclaycard, which offers UK
NFC (near field communication)
payments of under £15 at retailers
such as Pret A Manger, EAT, Sub-
way and McDonald’s?
Well, imagine if you could make
these payments without cash by
simply using your smartphone
as a wallet? That is the promise
of NFC, which allows your phone
to wirelessly communicate with
a retailer’s till or other phone
users. And NFC is only one of a
range of m-payment systems that
now offer you contactless pay-
ment options that together are
developing the digital economy,
with your smartphone or tablet
PC at its heart.
“Consumer behaviour is begin-
ning to shift,” says Mary Carol
Harris, vice president and head
of mobile strategic alliances at
Visa Europe. “Contactless cards
issuance and acceptance technol-
ogy are not only providing the
infrastructure for future mobile
NFC services, they are easing con-
sumers into the habit of using a
contactless payments device to pay
for goods rather than using cash.”
According to Juniper Research,
smartphone shipments will
increase by 40 per cent this year
with m-payments expected to
exceed $180 billion (£114 billion)
by 2017. “NFC technology is trans-
forming mobile phones into pay-
ment devices that will change the
way people live, work and play,”
says Niki Manby, Visa’s head of
emerging products in Asia Pacific,
Central Europe, the Middle East
and Africa.
While Jim Wadsworth, head
of mobile and digital payment at
Accourt, adds that NFC is about
more than just payments. “NFC
enables other services too, such
as secure access control, the pro-
vision of information via ‘smart
posters’, and joins together digital
social media with the real world –
for example, it will enable users to
‘like’ and share anything they see
in the real world where it has an
NFC Facebook tag,” he says.
The use of barcode and QR code
scanners to quickly capture prod-
uct information is also on the rise.
In addition, m-commerce is deliv-
ering a level of personalisation
never seen before. Retailers can
now detect when a past customer
walks into their store – a coffee
shop for instance – and know
what they ordered last time. Some
US stores are even allowing pre-
ordering, so that as a customer
hurries towards a café’s doors,
their latte and muffin are already
being prepared.
And with more of us storing our
digital lives online in the cloud,
it was bound not to be too long
before payment systems moved
there too. A good example is
Google’s Wallet, which had some
limitations at its launch (not
least, a lack of compatibility with
smartphone handset models).
Now that Google has moved its
payment platform to cloud, these
have been rectified. Cloud-based
solutions, where payment infor-
mation is held centrally, mean
that debit or credit cards can now
be used over multiple devices.
Changing handsets or buying
a new tablet PC? No problem, as
you can keep on making purchases
with your existing payment infor-
mation. This kind of seamless
interface between your preferred
payment method, the cloud and
the mobile device in your pocket
is the future of m-payments and
m-transactions.
“Retailers’ e-commerce teams
are buying into m-commerce with
app and enhanced websites, and
their retail store teams are broadly
piloting or rolling out contactless
payment to work with the cards
that are being distributed by the
banks as a standard on credit and
debit cards,” says Neil Garner,
founder and chief executive of
Proxama. “They are installing
contactless payment terminals
as part of their natural upgrade
plans. This is all happening today,
with M&S and The Co-op among
those who have announced their
intentions in this area.”
However, Richard Johnson,
group strategy director of Moni-
tise, cautions that too many
individual solutions will hinder
customer adoption. “This space
is never going to flourish if it’s
full of a plethora of closed-loop
schemes where you have to have
to open a special account, use a
certain device or shop in only one
type of store or where merchants
look at solutions individually,” he
says. “In the long run, consum-
ers are going to demand inter-
operability; payments have got
to be seamless and they need to
‘just work’.”
If banks, payments providers
and businesses get it right, then
Mobilising payments
will mean less cash
From browsing to checkout, m-commerce is
set to transform the UK into a nation of mobile
consumers, as Dave Howell reports
MOBILE ECONOMY
Ms Harris of Visa Europe pre-
dicts that, within a decade, “an
entirely new shopping experi-
ence” will be created. She says:
“From browsing goods to check-
out, deals and offers, the opportu-
nity is enormous for consumers,
retailers and financial institu-
tions around the world.”
Payment platforms, such as
PayPal Mobile, Amazon Pay-
ments, Google Wallet, Master-
Card’s MoneySpend and, later this
year, V.me from Visa are creating a
vibrant and rapidly evolving eco-
system of payment options.
For consumers the choice can
be confusing, but expect the
larger players, such as PayPal,
the banks and credit card pro-
viders, to remain at the fore-
front, with new payment pro-
viders, like Twitter co-founder
Jack Dorsey’s Square, to offer
systems that are tailored for
phone and tablet users. What
seems certain, however, is that
the future of payments will be
increasingly mobile.
Dwolla's cyberspace
vision free of credit
card fee
Pages 08 & 09
From browsing goods to
checkout, deals and offers,
the opportunity is enormous
for consumers, retailers and
financial institutions
Worldwide m-payment users
212.2m
448m
2011
2012
Source: Gartner, 2012
2016
(forecast)
160.5m
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07
Future of Payments
07
The digital economy means linking
the traditional retail environment with
customers who want to shop on the
move with their smartphone or tablet.
Many businesses are now using these
platforms for interactive ads and even
to drive direct purchasing.
Think about the last time you stood
in a store and would have loved to
access more information about an
item on the shelf. Barcodes evolved
into QR codes, which personal devices
can scan for more information. Now
SnapTags are offering brand owners
a new way to place their company’s
branding within a code which smart-
phones can scan.
Publishing is also embracing
the digital economy. All the major
publishers have an iPad edition of
their leading titles. But this doesn’t
mean that print is dead – far from it.
Publications are using QR codes to
offer readers an interactive experi-
ence right on the page.
Augmented reality, meanwhile,
looks set to become even more
creative. New business services, such
as Crossfy, don’t even need special
codes to be printed. The publisher
decides which images in their publica-
tions will be interactive. When a smart-
phone sees these images, the reader
will see additional information, move to
the brand’s website or see purchasing
information for the product or service.
Quick response
to mobile technology
will boost sales
SCAN AND BUY
Smartphones are set to revolutionise
contactless payments
$617bn
expected value of
m-payment market in 2016
© © Jeffrey Blackler / Alamy
Source: Gartner, 2012
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08
Future of Payments
08
ȖInterstate 29 cuts through the
centre of the United States from
the eastern side of the Dakotas
along the state lines of Nebraska
and Iowa to Kansas, Missouri. This
multi-state region, spliced by the
I29, is heartland America, where
farming, manufacturing and finan-
cial services have traditionally pre-
dominated.
But it’s also home to a growing
cluster of technology companies,
collectively known as Silicon
Prairie, one of the best known of
which is Dwolla – a peer-to-peer
payments platform based in Des
Moines, Iowa.
Dwolla, an inventive mash-
up of the words “dollar”
and “web”, cannot
be accused of
lacking ambi-
tion. In its
bid to
rewire
the
hitherto somewhat stolid, suit-
and-tie world of payments, the
start-up says it has nothing less
than the credit card giants in its
sites.
“We want to be our generation’s
version of Visa,” grins Ben Milne,
Dwolla’s amiable 29-year-old
founder, soon after his heavily-
bearded features pop up on Skype.
“We want to empower anyone with
an internet connection to be able
to access their money, exchange it
with someone else and receive it –
at an exceptionally low cost.
“Our generation is built on the
internet. We believe in freedom
and we don’t understand geogra-
phy in the same way [as previous
generations]. We just know that
money is data and we want to be
able to exchange it without mak-
ing it less valuable. Our technology
just facilitates that.”
Currently only available in the
US, Dwolla allows its customers
to use their iOS [mobile operat-
ing system] and Android-enabled
devices, as well as social networks
and physical locations, to send and
receive money.
The company, founded in 2009,
describes itself as “a cash-based
payments network”, on top of
which it has built technology
for moving cash around fast.
“Whether that means buying
a latte with your phone at your
favourite coffee shop, paying for
a new pair of shoes online or
sending money to a Facebook
friend, Dwolla represents a whole
new payment experience that we
believe is the future of cash,” shrills
the company’s website.
While the “future of cash”
seems a tall order (the US Federal
Reserve may have something to
say about that), Dwolla is already
making in-roads in this notori-
ously risk-averse industry. In its
latest released figures, from April
2012, the company announced
that 100,000 users and 15,000
merchants were generating daily
transactions worth between $1
million and $4 million. Although
it won’t reveal the latest numbers,
Dwolla is believed to have grown
steadily since then.
Initial investors included the
actor and serial start-up backer
Ashton Kutcher (which didn’t
harm their profile), followed by $1
million in Series A funding from
two Iowan financial services com-
panies. In February 2012, Union
Square Ventures led a $5-million
Series B funding round.
The spark of inspiration for the
Are dollars on
the web a credit
card killer?
Ben Milne, founder of Dwolla, tells James Silver
of his cyberspace vision of a payments world free of
credit card fees
PAYMENTS PLATFORM
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09
Future of Payments
09
understanding
the payments
landscape
Pages 12 & 13
We just know that money
is data and we want to be
able to exchange it without
making it less valuable
start-up, explains Mr Milne, was
less a wide-eyed eureka moment
than a slow-burning sense of frus-
tration that so much revenue from
his previous business – selling
speakers online – was devoured by
credit card fees.
“I just got obsessed with it,
man,” he says. “I couldn’t look at
how much money was coming in
without thinking about how much
was going back out. It became less
about celebrating a good day in
sales and more about boiling with
anger about how much I’d lost that
day to the credit card companies. I
was losing about $55,000 a year at
the time – that would have paid for
a great employee, a new product
line or a car.”
From there Mr Milne started
researching online about how to
avoid paying interchange (card)
fees. The more information he
consumed, the more convinced
he became that “there was a huge
opportunity for technology to
solve a problem”, he says. “It’s
amazing that technology serves
people taking pictures and sending
text messages, but the technology
stack when it comes to moving
money hasn’t really got any better
in 30 or 40 years. So the opportu-
nity is just massive, which makes
it a really exciting sector to be in.”
Exciting or not, Des Moines –
often dubbed Middle America’s
capital – is a long way from Ameri-
ca’s hyperactive coastal technology
hubs of Silicon Valley (in the San
Francisco Bay Area) and Manhat-
tan’s Silicon Alley. Indeed, many
would argue that a fin-tech (finan-
cial technology) start-up based in
back-of-beyond farming country
is hardly well-placed to take on the
plastic giants of Visa et al.
Mr Milne takes the jibe in good
sport. “I don’t live in a cornfield, I
live in a loft, in a city,” he says. “The
advantages we have of being out-
side the coasts are: one, I can get to
the east or west coast really easily;
two, building a team was great,
because we were able to benefit
from the geographic knowledge-
base people here have, which is
finance and payments. First Data
[Solutions], Jack Henry [Banking],
Principal Insurance, EMC [Insur-
ance] and Wells Fargo – those
are the employers in these com-
munities and people here know
payments. We were lucky enough
to figure that out and I think had
we not been here, we might never
have understood that.”
Warming to his theme, he adds:
“Also when you are in a community
[like Silicon Valley] where you’re
competing with everyone else all
the time for the next headline in
techcrunch, that creates a certain
type of culture. Here, we’ve been
able to have 30 super-smart peo-
ple, heads down, building some-
thing without anyone on the planet
having any idea what it is.”
While the company was in its
seed investment stage, Mr Milne
had cannily turned to investors
steeped in both Iowa and financial
services, attracting a total of $1
million from The Veridian Group
and The Members Group (a sub-
sidiary of the Iowa Credit Union
League) in November 2010. That,
he says, enabled Dwolla to navigate
labyrinthine – and prohibitively
expensive – US non-banking regu-
lations, which differ in every state.
“I would have needed $8 mil-
lion to $10 million before I could
have legally opened an account,”
he says. “That deal meant that
we didn’t have to raise all that
capital. It also brought us our first
customers, a bank to operate as
our back-end and the structure we
needed to operate legally – a huge
thing in payments.”
Dwolla’s founder knows he has
a titanic battle on his hands if the
credit card and banking systems
– so entrenched in our daily lives
– are to be disrupted by fresh-
thinking and technology. Yet the
internet renders the sector’s infra-
structure entirely redundant, he
claims. “You don’t actually need a
card or a card-reader. You don’t
need to swipe. You don’t need any
of that architecture any more. Our
phones all have GPS [global posi-
tioning system]; we are connected
constantly to the internet. And
as offline and online commerce
converge, the ability of an API
[application programming inter-
face] to pass an authorisation back
and forth is really all that matters.”
Unshaven and scruffy, Mr Milne,
whose first business was a lawn-
mowing firm, looks like any of
10,000 tech entrepreneurs from
Boston to Berlin. That’s fine for
e-commerce or the frenzied world
of apps. But perhaps less so in the
sober environment of financial
services. People are naturally
cautious when it comes to their
finances. The mattress stuffing
can look appealing beside a fast-
talking start-up guy, promising to
unseat Visa. Won’t some (perhaps
slightly older) customers think
twice before trusting him?
“I don’t look like a banker,” he
quickly concedes, laughing. “I
run the risk of not being trusted.
If you look me up on YouTube,
you’ll see I swear a lot. Those
are things that I know. But I do
think recognising the problem
and sticking to my motivations,
allows people to accept you for
what you are. Look, I’m not trying
to take money out of the economy,
by selling you something instead
of something else you could pull
out of your wallet. I want to put
a lot of money back to work in
the economy. And if I can do that,
and make a good living for myself,
then I’m a pretty happy guy.”
Despite consistent interest in
Dwolla from Europe and Canada,
Mr Milne says that while he is
“working on” expanding overseas,
his focus remains on getting the
core US business right first. “This
is not a build it and flip it com-
pany,” he asserts. “I’m in it not for
the next few years, but possibly for
the next decade. We need to make
sure we’re building the right tech-
nologies for the future. And that’s a
marathon, not a sprint.”
How DwollA
WorKS
Total investment to date
1.
2.
3.
4.
Sign up
Fund account via
another Dwolla user or
your financial institution
Send money to merchants
and people through mobile
apps, email, SMS, Facebook
friends, Twitter followers,
LinkedIn connections, by
location or Dwolla ID
User receives money
instantly and is able
to transfer to another
merchant, person or
their bank account
DwollA
BY NUmBERS
100,000
$
6.31
m
number of users
Year founded
2009
Employees
28
$
0.25
Transaction fee
Daily transactions range
$
1
-
$
4
m
number of
participating merchants
15,000
for any amount
over $10
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Future of Payments
ȖThe age of purchasing on the
go and one-tap payments is here.
From search to shopping, book-
ing a taxi to redeeming a voucher,
ever-increasing aspects of day-
to-day life are converging on our
smartphones and other devices.
Most new handsets will soon
be enabled with NFC (near field
communication) technology as
a matter of course, transforming
phones and tablets into electronic
wallets or purses.
But just as the rise of plastic, in
the form of credit and debit cards,
spawned new security risks, so
similar concerns are now being
voiced about the burgeoning
m-payment environment.
As more of us use our devices
to buy goods and services, as well
as manage our finances, ensuring
we have strong security systems
attached to these transactions is of
paramount importance.
The evidence suggests the risks
are rising. The Kaspersky Lab – a
leader in security applications –
revealed in research published
earlier this year that there was
a six-fold increase in mobile
malware incidents between 2010
and 2011, while “the number of
distinct mobile malware families
more than doubled” over the
same period.
“The latest mobile devices have
inbuilt security modules that allow
data to be stored securely, but this
doesn’t mean they aren’t suscep-
tible to malware,” explains Simon
Collins, vice president of business
consulting at WeDo Technologies.
As the m-payments market
develops, we will all need
to become much more
security-aware as we make
mobile payments
Guarding against the hackers and fraudsters
MONEY MALWARE
“Criminals will always opt for
the easiest way to manipulate a
system, so they’re likely to target
things like the keypad or display.
Keystroke logging, for example,
lives inside malware programmes
that run underneath the operat-
ing system of a device and allows
criminals to track which keys are
struck on the keyboard.”
The good news is that if NFC
takes off – and all eyes are on Apple
and whether the new iPhone will
have NFC capability – the security
systems in place will ensure that
payments made using that tech-
nology should be secure, as they
use the same security protocols
as current contactless card-based
systems, like Barclays PayTag, that
can be attached to any phone to
make secure NFC payments.
For consumers, the ability to
make fast and convenient pay-
ments using contactless cards or
their phone is not only attractive,
but here to stay. That’s why users
should be cautious about the secu-
rity of the environment where a
transaction takes place, says Vanja
Svajcer, a mobile security expert
with Sophos Labs. “For instance,
it would not be very wise to make
e-payments in an internet cafe
where potential attackers may
have installed malicious pro-
grammes to intercept the confi-
dential information,” he says.
“As long as the operating sys-
tem can ensure that the data is
stored securely, where no other
application can read it, it can be
considered a secure platform. The
problem arises when the device is
not properly configured, so that
the data is accessible to poten-
tially malicious applications. It is
very important for users to make
sure the data on their device is
encrypted and that the data which
leaves the device is also encrypted
and accessible only to the user.”
That’s advice echoed by WeDo
Technologies’ Mr Collins, who
says that, while many mobile and
web payment systems have good
security, a significant number
do not. “Systems using SMS or
unencrypted information trans-
fer are particularly vulnerable,
as well as those that don’t use
security modules in the SIM or
mobile device,” he says. “Every
system should be checked for
flaws in the security design.
Unfortunately, there are some
mobile operators and systems
operators that lack in this area.”
Recent revelations regarding the
vulnerabilities of Google’s Wallet
on Android phones shows NFC, still
in relative infancy, can be exploited
by hackers. However, as these
systems are backed by standard
fraud protection from the banks
that support them, any money lost
though an m-payment fraud should
be refunded in most cases.
As the m-payments market devel-
ops, especially if NFC takes off, we
will all need to become much more
security-aware as we make mobile
payments. At present, however,
says Vaughan Collie, a fraud expert
with Accourt, m-commerce is still
too limited a target. “Fraudsters
have a knack of focusing on poten-
tially high-value targets where
they can maximise the return
on their investment in time and
money spent on the attack,” he
says. “M-commerce in its various
guises is still a relatively small
market from a transaction revenue
point of view and has therefore not
attracted significant focus from
criminal elements – yet.”
New payment platforms that
use contactless systems are still
developing, but are based on sound
security principles. As mobile pay-
ments become more popular, they
will of course attract the attention
of hackers and fraudsters, yet
users are far from powerless. The
number of e-payment systems
that are now on offer can be bewil-
dering, but the advice is the same:
always be aware of the system you
are using and take precautions to
protect yourself.
Adoption of e-payment systems,
especially on mobiles, is gaining
pace. But how do you ensure your
transactions stay safe and secure?
Dave Howell reports
Adoption of e-payment systems,
especially on mobiles, is gaining
pace. But how do you ensure your
transactions stay safe and secure?
Dave Howell reports
As with e-payment security, safeguarding
m-payments is of paramount importance
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Commercial Feature
Contactless cards

Barcl ays and Barcl aycard have
powered the introduction of con-
tactl ess payments si nce 2007.
There are now more than 19 million
contactless-enabled Barclaycards
and Barclays debit cards, making
payments easier and quicker for
both retailers and shoppers. They
enable customers to make a pur-
chase of up to £20, without the
need to sign or enter a PIN.
barclaycard PayTag
We launched Barclaycard PayTag,
turning any phone into a contact-
less way to pay, earlier this year. It
is a sticker which is the third of the
size of a standard credit card and
gives our customers the option of
using them to make easy, conveni-
ent, everyday purchases without
the need to upgrade their current
handset. We offer it to Barclaycard
customers at no additional cost.
Mobile Payments
I n t he summer of 201 1, we
l aunched the UK’s fi rst contact-
l ess enabl ed mobi l e phone with
Orange, revol ut i oni si ng how
payments are made. The move
marked a new era for consum-
ers, offeri ng greater si mpl i ci ty,
convenience and control. We are
al so poweri ng new technol ogy
so that credit or debit card hold-
ers from any UK bank can top-up
Barcl aycard’s mobi l e payments
application in the Quick Tap wal -
let. As Orange brings the service
to the latest Android handsets, it
wi l l open up the opportunity for
contactl ess payments to more
Orange customers.
barclaycard Payband
At the Wireless Festival this sum-
mer, we introduced PayBand, a spe-
cially designed silicon wristband so
the crowds were able to enjoy the
festival atmosphere and perfor-
mances without the hassle of hav-
ing to carry cash. As the UK’s first
fully contactless festival, with all
retailers offering contactless tech-
nology, festival-goers were given
the chance to pay using any con-
tactless device.
Offering choice to
our customers
Donna Dawson, behavioural psy-
chologist, explains the fear of the
new: “There are connected issues
at work – habit and fear. We’ve been
using coins since 600BC, which is
a tough habit to break. Because of
this, different ways to pay have the
shock of the ‘new’ and, if we have no
experience of something, we fear
it. Increased recognition leads to
a significant trend developing and
represents the breakthrough of a
psychological barrier. So the fact
that we’re witnessing this with a
technology which is only five years
old, compared to centuries of cash,
is remarkable.”
Mark Hale, chief information
officer and supply chain direc-
tor at The Co-operative Food,
explains how the technology
works in its stores:
“Customer reaction has been
very positive since we introduced
contactless payments into our
stores within the M25 and Man-
chester city centre in May 2012. We
identified, from implementation
in other retailers, that customers
often worry they’ll do something
wrong and so hold back from using
their cards. We learnt from that
experience and have focused on
training our store colleagues to
help customers through their first
purchase and have supported this
with clear point of sale promoting
the fact that contactless is available.
We also made sure that our solution
was part of the chip and PIN device
so that the customer didn't have
to look for a different terminal to
make a contactless payment. Once
shoppers have used contactless
technology, they really seem to
appreciate the quicker payments
and are choosing to use it on a
regular basis. My advice to custom-
ers is to try it when you next make
a purchase in one of the stores that
offers contactless payment.”
Fear of the unknown
Co-op and contactless
Contactless
comes of age
David Chan, chief executive of Barclaycard Consumer Europe,
charts the progress of contactless payments in the UK
Ȗ Most of us have seen cash all our
lives and yet couldn’t name the peo-
ple on the back of our bank notes.
Given this, the fact that over 80 per
cent of people can now recognise
the contactless payment symbol is
an encouraging sign for a technol-
ogy that was only introduced into
the UK by Barclays and Barclaycard
five years ago.
More i mpressi ve sti l l i s that i n
July thi s year contactl ess trans-
action made by Barclays and Bar-
claycard customers surpassed a
mi l l i on a month, as the payment
technol ogy becomes more and
more available on the high street
and beyond, including big names
such as Waitrose, Marks & Spen-
cer and McDonald’s.
Critics will point to the fact that
thi s i s a ti ny proporti on of total
chi p and PI N transacti ons; how-
ever, with its £20 limit, contactless
is slowly but surely eating not into
debit and credit transactions but
into cash purchases.
Our research shows that over
the last 12 months there has been
a real shift in consumer spending
preferences, wi th a remarkabl e
61 per cent of people saying they
preferred usi ng cards over cash
to buy i tems up to the val ue of
£20. With that in mind, we believe
it is now time to give contactless
more credit.
One consequence of contact-
less entering the mainstream con-
sci ousness has been the atten-
tion given to its security with the
perception that such cards favour
convenience over risk of security.
However, when we spoke directly
to the public, 75 per cent were una-
ware that contactless, like all card
payments, is insured against fraud
and that we bear the risk entirely.
What’s encouraging is that when
told this, fewer than 10 per cent still
had concerns about making con-
tactless payments.
Contactless is not just about sim-
pl i fyi ng the moment we pay by
removing the need to enter a PIN
or hand out change; it’s about offer-
ing the right way to pay for each
specific situation. We are focused
on offering choice that matches
the needs of the shopper, and this
means thinking more widely than
j ust credi t and debi t cards. We
understand that often customers
want to leave the plastic at home,
along with the cash, and carry not a
wallet or purse, but rather a phone
or other device. We’re here to make
life easier by offering a wide range
of payment options to suit each and
every one of our customers.
We’ve come a long way i n five
years and have opened up a world
of possibilities in payments. We’re
proud that contactl ess i s now
fi rmly establ i shed i n the publ ic’s
consciousness and our challenge
from here is to turn that awareness
into action. With an ever- growing
array of contactless devices, sup-
port from a growing range of retail-
ers and rise in the transaction limit,
we’re confident in the future of con-
tactless payments.
Returning to those faces on the
back of bank notes, next ti me
you’re poised to hand over a pic-
ture of Charles Darwin, consider
whether that is actually the natural
selection or whether contactless
might be more convenient.
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12
Future of Payments
12
Understanding the
payments landscape
PSMS billing
remote mobile payments
Those buying physical goods in the UK via smart-
phones are spending $300 a year each and, via tab-
lets, more than $700. Sales of digital goods (apps)
have soared as consumer smartphone adoption
has increased. Companies, such as eBay and
Japan’s Rakuten, are leading the way with mobile
transaction volumes; more than $5 billion in mobile
transactions was recorded via eBay Mobile in 2011
and this is expected to reach $8 billion this year.
mBlox, Netsize,
PayPal
and Sybase
Key players
ones to watch
BOKU
and Onebip
Online payments
Global eRetail sales grew nearly 12-fold between
2001 and 2011. Online payment providers are now
offering in-built financing; PayPal’s Bill Me Later
offers instant credit at the point of purchase.
Growth in social media has increased online
micropayments. And merchants are seeking to
integrate online as part of seamless cross-channel
sales processes. However, credit and debit card
payments predominate.
Amazon
Payments,
ClickandBuy,
Google Checkout,
Neteller and PayPal
Key players
ones to watch
Braintree Dwolla
and Stripe
operator billing
This allows consumers to have content purchased
on their mobile handsets charged to their phone
account and offers operators a way back into
content monetisation in the wake of the app store
revolution. In most regions, billing is capped and
applicable only to digital purchases. All equipment
manufacturers, except Apple, now support NFC
(near field communication), although Apple is
expected to include NFC in the iPhone 5.
Bango, mBlox,
Netsize
and Sybase.
Key players
ones to watch
Aepona, BOKU
and boxPAY
Contactless cards
market
segmentation
Payment
mechanisms
First introduced into the UK in 2007, there are
now more than 23 million contactless cards in
circulation. However, usage and awareness
levels are low; in January, a YouGov survey
found that just 12 per cent of the population
believed they owned a contactless card. Pay-
ment caps have increased slowly and rose
from £15 to £20 in June.
Gemalto, Giesecke
& Devrient
and Oberthur
Technologies
Key players
ones to watch
Dot Origin, Smart
Technologies
Group and sQuid.
20m
5m
10m
15m
0m
Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12
UK Contactless cards in circulation 2009-2012
$0m
$15,000m
$10,000m
$5,000m
A rapidly expanding payments market is transforming the industry and offers
opportunities in a number of key sectors, as data from Juniper Research shows
$600bn
$800bn
$200bn
$400bn
$0bn
2001 2011
eRetail gross transaction volumes
PSMS volumes
2012-2017
North America
rest of world
Europe
Asia
Fixed
Money
transfer
online
payments
online
banking
eCommerce
remote
payments
Downstream
unified communications
Upstream API access
Advertisers
retailers
Developers
other SaaS
providers
Enterprise
clients
Consumer
clients
North America
rest of world
Europe
Asia
operator
as PaaS
provider
2012 2013 2014 2015 2016 2017
Remote mobile purchases
digital and physical goods
2012-2017
$600,000m
$350,000m
$0m
North America
rest of world
Europe
Asia
2017
20162015201420132012
SmS/
Premium
SMS
Direct-
to-bill
Credit/
debit card
PayPal
Prepaid
cards
online
banking
transfer
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13
Future of Payments
13
PSMS billing
Historically the dominant mobile payment mecha-
nism, PSMS (premium short message service)
suffered from several high-profile subscription-
based scams which led to tighter regulation. Usage
fell as the ringtone market declined and consumers
migrated to app stores using credit cards. How-
ever, PSMS is relatively simple to implement and
lack of pre-registration means it remains popular
for impulse-buy content outside app stores.
Bango, mBlox,
Netsize
and Sybase
Key players
one to watch
Onebip
CorFire,
Gemalto, NXP
and Proxama
mobile NFC marketplace
NFC (near field communication) payments techni-
cal solution is now judged to be in place based on
agreed cross-sector standards, while payment
security concerns have been alleviated. Merchants
and retailers are rolling out NFC-contactless
infrastructure; the Post Office now supports NFC
in 11,500 branches. All equipment manufacturers,
except Apple, support NFC and Apple is expected
to follow suit with its iPhone 5.
Key players
ones to watch
Thinair, Narian
and Nokia.
Royal Bank
of Scotland,
Deutsche Bank,
Barclays and
BNP Paribas
online banking
While online banking was initially geared towards
transactions, focus is increasingly now on product
marketing and use as a communications platform.
Several banks are introducing personal finance
management products and seeking to incorporate
mobile as a critical means of accessing online
portfolios. Improved security has seen online bank-
ing fraud levels fall since 2009, despite increased
phishing attacks.
Key players
ones to watch
Intuit and
Tesco Bank
American
Express, Green
Dot, MasterCard,
NetSpend
and Visa
Prepaid cards
These can be disposable or reloadable and are
preloaded with funds while expenditure is limited
by the preloaded value. They can be closed loop
and redeemable by a single merchant, as with
a gift card, or open loop and general purpose.
Prepaid cards are often used by consumers who
do not qualify for credit or debit cards and are
increasingly popular in under-banked nations.
Key players
ones to watch
Moneycorp
and PayPal
Accenture,
Fundamo,
Gemalto
and Fiserv
mobile banking
Banking by mobile has been given further impetus
as crisis-hit financial institutions redefine channel
strategies. There is a transition from simple text-
based alerts to smartphone apps and the web
as primary mobile channels, although SMS (short
message service) is increasingly used for product
marketing and cross-selling. More than 860 million
consumers worldwide are expected to access
some form of banking via mobile by 2016.
Key players
ones to watch
Monitise
and Tyfon
Accenture,
Comviva,
Fundamo, Gemalto
and Sybase
Mobile money transfer
Almost 200 mobile money transfer services had
been launched globally by the end of 2011 and most
since early-2009. The trailblazer has been Kenya’s
Safaricom and its M-PESA service with nearly 15
million users, and more than $12 billion transferred
since 2007. Service providers in developing
markets are seeking to augment money transfers
with more sophisticated microfinance services and
savings accounts.
Key players
ones to watch
Boom Financial,
DonRiver, mChek
and Monitise
2m
£45m
600m
800m
2.5m
£60m
800m
1,200m
0.5m
1m
£15m
200m
15
1.5m
£30m
400m
400m
30
0m
£0m
0m
0m
0
2008
2008
2013
2013
2007
2012
2012
2009
2009
2014
2014
2010
2010
2015
2015
2011
2011
2016
2016 2017
201120092007200520032001
UK Prepaid cards 2008-2011
UK online banking fraud 2007-2011
Mobile banking service
user- base 2012-2017
NFC smartphone
user- base 2012-2017
Mobile money transfer
services launched 2001-2011
45
North America
North America
rest of world
rest of world
Europe
Europe
Asia
Asia
Mobile
payments
Mobile
banking
Point
of sale
Money
transfer
Mobile
(mCommerce)
eCommerce
Contactless
payments
North America
2017
Credit/
debit card
online
banking
transfer
NFC credit/
debit cards
Prepaid
cards
nFC
handsets
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14
Future of Payments
ȖOn a corner of Finsbury Square,
East London, where the hipsters
of Old Street’s technology compa-
nies start to be replaced by suit and
tie-clad City workers, sits a some-
what forlorn and half-empty office
building. Rent is reportedly cheap
there (by City standards) and a
bewildered security guard seems
unsure where my interviewees, the
team behind online payments plat-
form GoCardless, are to be found.
When I finally shuffle out of a
half-hidden lift at the rear of the
building, two of the company’s
founders, Matt Robinson, 24, and
Tom Blomfield, 27, tell me the
office block is rumoured to be soon
turned into a hotel, which will pre-
sumably leave them scouring the
streets for new digs.
Given how things are report-
edly going for the pair (and their
co-founder Hiroki Takeuchi),
GoCardless’s next offices are set
to be rather swankier. Founded
in January 2011, the start-up has
grown by 50 per cent every month
since its launch. Developed at Sili-
con Valley-based tech-accelerator
Y-Combinator, GoCardless closed
an initial £1-million funding round
at the end of last year, led by Accel
Partners and Passion Capital.
Although the team won’t confirm
it, it’s understood that a further
round of (Series A) funding is likely
to be announced soon.
A range of tech start-ups, includ-
ing Twitter co-founder Jack Dors-
ey’s Square, Stripe and Braintree,
are jockeying to reboot different
aspects of payments. But US-based
Dwolla and GoCardless are the key
players in the race to build propri-
etary systems which aim to turn
plastic cards, readers and other
hardware into historical artefacts.
GoCardless is described by its
founders as an online direct debit
platform which simplifies the col-
lection of regular payments. It
charges users a flat fee of 1 per cent
per transaction, capped at £2. The
company partners with a number of
online accountancy providers, such
as Kashflow and Freeagent, plug-
ging into their payment options.
A couple of factors have
played into the GoCardless
team’s hands. The first was the
2009 Payments Service Direc-
tive (PSD), which opened up
payments in the EU to new,
potentially disruptive suppliers.
Another is fast-changing technol-
ogy which web-based start-ups
are best placed to exploit.
“The wave of tech companies
now innovating in this area can
leverage cool ways, like using social
networks or browser footprinting,
to tell whether people are who
they say they are, which traditional
payments companies wouldn’t be
doing,” explains Mr Robinson.
GoCardless, for example, have
built their own anti-fraud tool.
“There are so many things like
that we can do, but we’re not going
to tell you about them, otherwise
we’ll have to design some new
ones,” he smiles.
Start-up business plans are rarely
worth the printer toner expended
upon them and GoCardless’s early
iterations wrongly identified con-
sumer-facing transactions, includ-
ing card-based subscriptions to
services like Spotify or LOVEFiLM
as their focus.
“The problem is those services
are already very competitive with
their rates, which means you are
competing over fractions of pen-
nies,” says Mr Blomfield. “Rather
than try to compete at mass-mar-
ket payments, where we’ve really
found a lot of traction is in smaller
business or B2B [business-to-
business] transactions. Our typi-
cal merchant [client] might be a
web-hosting company that takes
payment from a few hundred
businesses, with the amounts
varying every month. Until now
that was an arduous, manual
process. What we’re offering is
ease-of-use and time-saving for a
human being.”
Mr Robinson adds: “Not only
could we add the most value there,
we also realised it was a huge and
underserved market. So it makes
sense to stay really focused on it
and smash it out of the park.”
Focused on
‘smashing
the ball out
of the park’
James Silver meets Oxford
graduates, Tom Blomfield and
Matt Robinson (pictured left
and right), who are taking on US
payments top guns in an online
shoot-out
START-UP
GoCardless is an online direct
debit platform which simplifies
the collection of regular payments
GoCardless by
numbers
PAYmENTS
50%
Growth rate
Year founded
2011
Employees
12
investment so far
Daily transactions range
$1-$4m
Participating merchants
2,500+
£1m
every month
since launch
©Eleanor Farmer
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15
Future of Payments
Fear of the eurozone crisis is
already having a measurable
impact on British firms
ȖBritish exporters are terrified
of a Europocalypse. Greece is on
the brink of bankruptcy. Spain
and Italy are not too far behind.
Nobody, not even the governors
of the European Central Bank,
can predict what will happen. We
might see a sovereign default or
two. Banks may go bust. Nations
may leave the euro. In one grim
scenario, the euro itself becomes
unstable, devaluing wildly.
Fear of the eurozone crisis is
already having a measurable
impact on British firms. A study
of 1,000 small and medium-sized
business by invoice finance spe-
cialist Bibby Financial Services
reveals one in five firms is too
concerned about the crisis to even
think about doing business inter-
nationally. A third say the crisis is
having a negative impact on their
day-to-day performance.
British exports dipped 20 per
cent from March to April this
year, way above the normal sea-
sonal change. So what can British
exporters do to reduce exposure?
Currency hedging is attractive.
Alastair Archbold, senior foreign
exchange trader at Foremost Cur-
rency Group, points out it would
already have paid dividends.
“An exporter who expects an
income of €250,000 in the first
six months of this year could have
fixed the rate in January at 1.20,
allowing accurate budgeting for
the year, and only lodged a small
In the unwanted
event of apocalypse
now in Europe…
Charles Orton-Jones looks at ways of hedging against the
worst possible scenario in crisis-torn European money markets
EUROZONE
deposit in order to do so,” he says.
“Due to the weakening euro, this
strategy would have already saved
the client £15,000.”
As the crisis unfolds the cost of
hedging is increasing. Arnab Dutt,
a director of Market Harborough-
based polyurethane manufacturer
Texane, warns that finding a good
foreign exchange deal is not easy.
“Presently the banks will offer
you a plethora of complex hedging
products as insurance. But these
products will now have eye-water-
ing premiums. It may be better to
approach professional FX dealers
instead,” says Mr Dutt.
“Either way in this environment,
expect this insurance to be expen-
sive.” He advises: “If the bank or
FX broker fails to make you clearly
understand how the product works
and what are the potential down-
sides – leave.”
If the crisis is really bad, a cli-
ent may go bust. This is why
credit insurance is valuable. If a
creditor can't pay, the policy will
cover the shortfall. The trick is to
double-check you are getting the
cover you need. Garbhan Shanks,
partner at law firm Addleshaw
Goddard, says: “Exporters should
carefully consider the cover a pol-
icy delivers and the claims history
of the insurers themselves. In
the aftermath of the 2008 global
financial meltdown, numerous
insurance buyers inexplicably
found themselves without con-
firmed cover at precisely the time
when they needed it the most.”
Factoring provides similar
cover, though in a different way.
Invoices are passed on to a third
party for immediate cash pay-
ment. The factoring firm chases
the debt. Most have branches
or affiliates across Europe, run
by teams of multilingual export
credit controllers, meaning they
are well placed to enforce pay-
ment. The “non-recourse” variant
of factoring means your firm is
not liable even if the debt is not
paid by the creditor.
Letters of credit provide the
highest level of certainty. The
buyer's bank issues a letter guar-
anteeing payment. The letter
will usually be sent via the Swift
inter-bank financial messaging
service. A version, known as a
Bank Payment Obligation, was
launched in 2010. This automates
and speeds up the payment guar-
antee process.
Naturally, if the meltdown is
severe enough, these measures
may fall short. Philip Herbert,
partner at law firm Hamlins,
says that many contracts include
a clause to cover unexpected
chaos. “If the export agreement
includes a force-majeure clause,
there is the possibility that the
buyer could seek to assert it is
no longer bound by the contract
terms.” In some storms, there is
no safe haven.
british exports
dipped 20
per cent from
march to April
this year
Universal Commerce
With the boundaries between retail channels increasingly blurring,
companies that can offer consumers a seamless shopping experience will
be well placed to take advantage, says Jon Rutter, product management
director for mobile solutions at First Data
The retail experience is changing all
around us. Today’s consumers no
longer rely exclusively on any one
channel. They go into a store hav-
ing already researched products
online or on their mobile phone –
recent research suggests 84 per
cent of people already know what
they want when they go into a shop
– or they see something they like in-
store and order it later on the inter-
net to be delivered to their front
door. Others may do the opposite;
buying online and picking up from
the high street. The various chan-
nels are blurring as never before.
The emergence of e-wal l ets
stored in mobiles will only acceler-
ate this trend, allowing consumers
to pay for products i n the same
way whether they are at home in
front of a computer, on the trai n
on the way home from work or at
the traditi onal checkout. I n 2011,
Googl e became the fi rst gl obal
brand to rel ease a vi rtual wal -
l et appl i cati on for use i n mobi l e
devi ces, enabl i ng customers to
store payment card i nformati on
on thei r mobi l e phones, pavi ng
the way not just for swifter online
payments, but for the conti nued
spread of contactless payments.
The new model of how consumers
make purchasing decisions is also
changing. The old predictable path
where customers would go from
initial awareness to a final purchase-
decision has radically evolved, into
one where they find their own jour-
ney to making a purchase, using a
variety of different i nfl uences –
whether conscious or otherwise –
along the way (see diagram).
Much of this is due to the devel-
opment of new online influencers.
Soci al medi a pl atforms, such as
Facebook and Twitter, can drive
impulse purchases and peer rec-
ommendati ons, whi l e the use
of online discount sites and deal
aggregators has become common-
place among a new internet-savvy
generation. Location-based mar-
keting, too, has contributed to the
ever-increasing crossover between
the online and offline worlds, giving
retailers the ability to target cus-
tomers with tailored offers when
they come within range of a store.
Customers now expect a seam-
less retail experience, regardless of
whether they eventually purchase
products in a store, online or over
a mobile device. This has given rise
to the concept of Universal Com-
merce, where the entire shopping
process – from marketing to pay-
ment – is integrated into one expe-
rience, and where transactions can
take place anywhere, any time and
on any type of device.
Already, customers are creating
their own personalised shopping
and money-management experi-
ences, and the race is on for tradi-
tional and new players in the pay-
ments space to feed this demand
through ever-more innovative and
tailored offerings.
Yet, while there may only be one
purchasi ng experi ence for cus-
tomers, for fi nanci al i nstituti ons
and merchants the challenge is to
pull together the different aspects
that compri se Uni versal Com-
merce in one ecosystem, includ-
ing smartphones, actionable intel-
l i gence, i ntegrated appl i cati ons
and partner platforms, all within a
secure infrastructure.
Central to thi s i s the need for
financial institutions and merchants
to work with a partner that has rela-
ti onshi ps across the enti re pay-
ments value chain, providing a sin-
gle point of contact for everything,
and allowing for a consistent and
seamless customer experience.
Those that can put in place such
an infrastructure will be the ones
that can take advantage of the new
opportunities that exist in the new
age of retail.
First Data has produced a free
white paper outlining the impli-
cations of universal Commerce
for consumers, merchants and
financial institutions. For more
information visit www.firstdata.
com/en_us/insights/UnivComm-
wP.html?cat+White+Papers
-20%
Source: onS
Commercial Feature
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16
Future of Payments
16

wHY ARE wE SEEINg So mANY
PARTNERSHIPS?
AL: Payment by its very nature
is a partnership industry. The
only reason you can get off a
plane anywhere in the world and
use the same bank card and same
pin to access your cash is because
of partnerships. LINK in the
UK consolidates all the ATMs in
the country, connects into Visa
or MasterCard or Swift to go
overseas, then connects to Atos
Origin in France, which connects
into Société Générale for you to
be able to take money out of their
ATM. But it is not an industry
which is high-profile. What has
changed is the introduction of
mobile devices which is big news
in its own right, so the partner-
ships are high-profile. That is the
only difference.
JLB: We need collaboration
to create the ecosystems to sup-
port very large-scale use with
a ubiquitous experience. If you
take, for example, NFC [near field
communication] payments for
transport. Until you are able to
travel the whole country or maybe
the whole Continent – in an NFC
context where you buy your ticket
in an NFC environment and use
it in an NFC environment – until
you have that, the consumer expe-
rience is going to be fragmented.
Consumers are ready to use the
technology. The challenge to a
variety of industries is to get the
ecosystems in place. What we
need is for a bunch of players in a
vertical industry to get together
and declare they are going to
work together to adopt contact-
less payments. First Group are
doing so, but we need Stagecoach
and a variety of other players to
do so too.
A question of the
future of payments
Charles Orton-Jones leads a discussion
among four industry leaders on latest
developments and the shape of things to come
ROUNDTABLE
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17
Future of Payments
17
PA: Visa has always operated
on the basis of working with
open platforms so everyone can
compete on our platforms. That
has been a fundamental thing
for us. We believe that it is in the
consumers’ interest not to have
different closed-loop systems
so that every time I want to use
something I need to use a differ-
ent payment device wherever I
go. For example, the Oyster card
is closed-loop. I can use it on the
transport system, but I can’t use
it anywhere else. Hence Visa has
been working with mobile phone
operators, such as Telefónica and
Vodafone, and with handset pro-
viders – we have just done a major
deal with Samsung around the
Olympic Games. Collaboration is
the best way to go.
THERE ARE So mANY NEw
START-UPS AND PlATFoRmS.
IS THE INDUSTRY Now Too
FRAgmENTED?
JLB: I think what we are seeing
is a function of the fact that these
new markets are very nascent.
We are going to see lots of innova-
tions for a period and then we are
going to see consumers guide the
market on which solutions are the
most acceptable to them. Then we
will see some consolidation.
AL: One hundred per cent
spot on. If you think of search, of
music, of mobile phones, of video
recorders, of Walkmans, there is
always multiple innovation. You
get pioneers; you get inventors
who create stuff. But it will all
eventually go through a period
of consolidation. The winner is
not necessarily going be the best
technology. The techies hate me
saying this because they always
say how pure their solution is, but
consumers don’t give a monkeys
about technology. Consumers will
use what is intuitive to use. And I
think that Apple, more than any
other brand on the planet, has
proven that time and time again.
JDG: I agree. I don’t think
we have seen the beginning of
fragmentation yet. Over the next
two or three years, payments
companies will be popping up all
over the place. Give it four or five
years and you will see a massive
consolidation.
PA: If you are a consumer, it
must be quite difficult to follow.
They ask, “What do I need? Do
I need an O2 wallet? Do I need
a Visa wallet? Do I need a Mas-
terCard wallet? A PayPal wallet?
A Google wallet?” It is unclear.
Hence I think we will start to see
more consolidation over time. But
now is not the time to strangle
the innovation; let’s get the ideas
about and work together to see
how we can leverage them.
wHAT IS THE SIzE oF THE
oPPoRTUNITY FoR THE
vICToRS?
PA: By 2020, I think that 50
per cent of all our processed Visa
transactions will be on a mobile
device. That is how big it is. We
have already seen at the Olympics
that one in every six transactions
taking place across the venues was
contactless and in Horse Guards
it was one in every four. There are
24 million plastic cards in the UK
Founding chief executive of izettle.com, which
produces a mini chip-card reader and app
that lets anyone process card payments on
an iPhone, he launched the service in Sweden
last summer. it is now available to individuals
and small businesses across Sweden, norway,
Denmark, Finland and the UK. The firm recently
closed a $31.6-million Series b funding round.
President and chief executive of Visa Europe,
he previously spent more than 20 years
with Lloyds TSb where he held a number of
executive posts in the bank’s retail business.
He also spent five years as a non-executive
director on the Visa Europe board and is a
non-executive director for investor in People.
He was named Industry Personality of the Year
at The Card Awards 2009.
Co-founder of Monitise, he says the payments
industry thought he was “insane” when he
first proposed a mobile payment platform in
2003. Today the Monitise platform is used by
more than 300 financial institutions to allow
consumers to make payments and check their
bank balances on a mobile. The AIm-listed firm
is valued at £304 million.
A 23-year-old veteran at Barclays and
barclaycard, he became managing director of
o2 Money in 2010. He has also overseen o2’s
adoption of contactless technology, and the
introduction of pre-paid Load & Go and Cash
manager cards. The mobile operator’s latest
product is o2 Wallet, which allows customers
to use their mobile as a payment device.
JACoB DE gEER
PETER AYlIFFE
AlASTAIR lUKIES
JAmES lE BRoCQ
By 2020, some 50 per cent of all
processed Visa transactions will
be on a mobile device
which can accept contactless pay-
ments. That capability is moving
to mobile. By the way, I have no
idea what a mobile will actually
look like in 2020.
JDG: Smartphone penetration
across Europe is 30 or 40 per cent.
Yet point-of-sale payments pene-
tration across Europe is something
like 1.5 to 2 per cent. That is a mas-
sive gap to be bridged which we
can do with the help of cell phones.
At iZettle we are democratising
payments, making it possible for
anyone, even a sole trader, to take
card payments.
wHAT IS THE UlTImATE goAl
oF THE PAYmENTS INDUSTRY?
JDG: The ultimate goal of the
payments industry is to increase
the transaction flow the greatest
extent possible. If you ask most
card schemes what is on their
agenda, they say it is to declare
war on cash. Across Europe pay-
ments or electronic payments,
and 70 per cent are still cash and
invoices. 50 per cent is still cash.
There is massive potential to
convert those to card payments.
JLB: Ultimately the end goal
for O2 in the UK is to connect
our customers to the people and
things which matter to them. We
will be looking to bring services
and experiences and capabilities
and products to our custom-
ers that they are interested in
and motivated to use. So I don’t
have a goal which is payment-
dominated, I have a goal which
is around giving our customers
access to the products, services
and experiences which enables
them to remain connected to the
people and things which matter
to them.
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18
Future of Payments
ȖAmid plunging share prices and
a flurry of lawsuits from disgrun-
tled investors, Facebook’s May
stock market launch looks increas-
ingly troubled.
No wonder, then, that the world’s
largest social network, with 845
million monthly active users, has
been quietly road-testing new
revenue streams.
In August, the platform
announced that, after a successful
trial with games-makers Zynga,
Kixeye and Playdom, it would
make a payments subscriptions
feature available to all developers
with apps on Facebook, to allow
them to “establish recurring rev-
enue streams and offer updated
content or premium experiences
for a monthly fee”.
Users can sign up with a credit
card or PayPal and then manage
their subscriptions via their Face-
book payments settings. The social
network, which now has 235 mil-
lion monthly gamers, will continue
to retain its hefty 30 per cent cut of
all in-web app payments.
There’s little doubt that virtual
goods, and games in particular,
are the ideal product for the
social shopping mall: engage-
ment levels are high, purchasing
seamless and delivery instant.
They also offer a range of ways for
companies to monetise.
Tapjoy, a free platform on
which visitors are rewarded
for interacting with popular
brands, now claims 90 million
active monthly users. Players
of social drawing game, Draw
Something, owned by Zynga and
available on IoS, Android and
Facebook, for example, can earn
tokens to buy “colour packs”
by interacting with ads on Tap-
joy’s marketplace. This virtual
payments model, underwritten
by advertiser hard currency,
generates about 30 per cent of
revenues earned by developers
on the service.
But when features such as cal-
endars are utilised, the sophis-
tication of social purchasing,
particularly in the area of gift-
ing, starts to increase sharply.
Paul Bowen, Tapjoy’s UK vice
president and general manager, is
sceptical that anyone “has really
cracked social payments yet”,
but points to Karma, a gift-giving
service within Facebook, created
by Tapjoy’s founders, which was
acquired by Facebook in May for
$80 million, for the way the com-
pany tailored its app specifically
to the social networking site.
“Karma have created a very opti-
mised experience. There have been
too many cases of e-tailers just
dumping their normal web-stores
inside Facebook and expecting
them to work,” he says.
And it’s both in bespoking apps
and building on technological
advances that social purchas-
ing’s best chances for growth lie,
argues Vincenzo Annunziata, sen-
ior social media strategist at Carat.
Mr Annunziata also cites a social
gifting service, Wrapp, an app
which enables users to send vir-
tual gift cards to Facebook friends,
for the way it could, potentially,
launch “real-time gifting” using
geo-location to customise offers
to where groups of friends happen
to be. “That would mean that, if
I check in at Pizza Express with
five Facebook friends, I’d get a
discount,” he explains. “That’s
absolutely where I see social pur-
chasing going more and more.”
Beyond gaming and gifting,
the success of social purchas-
ing is harder to gauge. Cer-
tainly as social activity converges
Can chat convert
to sales on the
hype network?
Despite reports of growth, social purchasing
remains a niche player or marketing medium,
writes James Silver
SOCIAL PURCHASING
on mobile devices, US retail-
ers are hurrying into the space.
Top main street brands, including
Best Buy, Target and Wal-Mart,
have created the Merchant Cus-
tomer Exchange (MCX), which
will streamline m-commerce
payments and create “custom-
isable offers”. Yet, while For-
rester Research estimates that US
m-commerce will increase to $31
billion by 2016 (with compound
annual growth of 39 per cent),
it will still only represent 7 per
cent of total e-commerce sales.
Besides, how much of the 7 per
cent can be classified as “social
purchasing” is moot.
The indications are decidedly
mixed. While Payvment, the
leading e-commerce platform on
Facebook, saw its monthly active
shoppers treble during 2011 to
more than one million, research
by online marketing tech firm
Monetate found that platforms,
such as Facebook and Twitter,
lag far behind search and email
as a tool for sending users to
e-commerce sites.
The report analysed more than
100 million “shopping experiences”
and found that, while 4.25 per cent
of referral traffic from email in the
second quarter of 2012 went on to
make a purchase (and 2.49 per cent
from search), social had a conver-
sion rate of 0.59 per cent.
Unsurprisingly, therefore, social
is still chiefly viewed by the indus-
try as a “seeding” or marketing
medium. Mr Annunziata says its
main value is to drive chatter among
niche advocacy groups. “As a brand,
you always want to communicate
with your influencers because they
will create buzz,” he says.
F-commerce success stories in
this sphere include Adidas, who
according to Katie White, head of
social at communications agency
Isobar, “have mastered the art
of the flash sale on Facebook,
allowing their most hard-core
fans to buy limited-edition and
new-release product for the first
time through their Facebook
page”. She also cites Dulux for
“wrapping conversion into social
interaction, showing their specific
colour ranges through content on
Facebook and allowing their users
to click straight through to their
site and order a tester”.
Yet individual brands, however
large, are in a sense an irrelevance,
while the key social players are
still testing payments models.
Twitter, for example, is experi-
menting in social gaming, com-
merce and giving, via Twitpay,
while Apple is vying for a stake
in the social-purchasing world
with its potential acquisition of
The Fancy, and Facebook’s much
vaunted NFC-enabled handset
has the potential to own users’
purchase journeys from search
to checkout. Pinterest, too, is said
to be close to launching shop.
pinterest.com – a virtual window-
shopping platform for brands.
But for now, social purchasing
remains in a sort of hyper beta-
mode, caught in the slipstream of
e-commerce.
As a brand, you always want
to communicate with your
influencers because they will
create buzz
From TwitPay
to iZettle
PAYmENTS
Tim Dunn, director of mobile strat-
egy at Isobar, imagines a day in the
life of smartphone user Joel, just a
few months from now...
9:14am: Joel’s on the tube when
he gets a text from his friend Tim
who he owes £20. So Joel opens a
Tweet and tweets the money using
TwitPay, which pays it directly into
Tim’s account.
9:55am: Next, Joel nips into
Starbucks to grab a bagel and latte,
paying via the Starbucks app, which
means he simply has to show a QR
code to the till to charge his account.
1:03pm: While in the queue at Eat,
he checks in on Foursquare and
sees that American Express have
a special offer running: they will pay
for his lunch today, if he uses the
Amex account on his phone. He
quickly flicks his phone over and
pays by Amex.
1:56pm: Joel stops at a street stall
as it’s his turn to buy cakes for the
office. The stallholder inserts Joel’s
credit card into his phone, which
has the iZettle plug-in attached, to
take payment.
4:40pm: Back in the office and
checking his boss isn’t looking,
he renews his Zynga premium
subscription via the social games
company’s Facebook app.
7:29pm: After work, Joel’s phone
buzzes with an alert from Ticketmas-
ter: there are tickets left for Trashcan
Sinatras. With just a few clicks, he and
his girlfriend are in. On the way, he
spots that the iPint app from Carling is
offering vouchers which they take into
a pub for free drinks.
online social
media networks
are seeking new
revenue streams
© ©mattjeacock
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19
Future of Payments
Direct route to improving
your bottom line
Leading international
e-commerce companies
have discovered a payments
provider that is cutting declined
transactions for their customers
and thereby improving their
bottom-line revenue
GlobalCollect’s choice of pay-
ment provider routes means that
if a payment is rejected by one of
them for whatever reason, it will be
automatically switched to another
route to be handled successfully. All
this happens in seconds and is invis-
ible to customers who simply make
their purchase and go away happy.
ExAmPlES oF INCREASE
IN CoNvERSIoN RATES
We’ve al l experi enced it. You’ve
fi nal ly found exactly the hol iday,
the book or perhaps the car insur-
ance that you’ve been searching for
online. You type in your payment
details, click the “Pay” button and…
you get that message telling you
your payment can’t be processed.
As a consumer it’s frustrating. If
it’s your business, it’s considerably
worse – not only have you probably
lost a sale, but your brand has been
damaged. Research shows that a
growing percentage of consum-
ers will not bother trying to make
the purchase again. Instead, they’ll
simply find another site and buy the
product there instead. In the cur-
rent tough market conditions, this
is a more serious problem than ever
for companies in all sectors with an
online presence.
Very often this common, but infu-
ri ati ng, experi ence i s caused by
busy circuits or other errors within
the highly complex networks that
connect banks, credit card compa-
nies and merchants.
To avoid this problem, more and
more forward-thi nki ng compa-
nies are turning to a fast-growing
payments service provider called
Gl obal Col l ect. I nstead of bei ng
tied to a single online payment cir-
cuit, GlobalCollect’s unique struc-
ture gives it access to a whole net-
work of different payment circuits.
So, when a transaction is declined
because the primary payment pro-
cessor cannot authorise the trans-
action, GlobalCollect automatically
and dynamically reroutes that trans-
action to a series of back-up proces-
sors until the payment is approved
or occasionally declined for non-
technical reasons, such as a lack of
funds in the customer’s account.
All this happens in seconds and
is completely invisible to the shop-
per. Customers at companies using
Gl obal Col l ect si mply make thei r
purchase and go away happy.
GlobalCollect clients are discover-
ing that across different industries
the average added revenue that
this system brings them is around
8 per cent, with one example reach-
ing a remarkable 27 per cent.
Best of all, thanks to its expert
knowl edge of i nternati onal pay-
ments systems and of the particu-
lar requirements of each industry
sector, GlobalCollect simplifies the
complexities of the various pay-
ment services systems. As a result,
clients can focus on running their
businesses, rather than worrying
about how, and if, their payments
are being processed.
With GlobalCollect’s full reconcili-
ation service and 24/7 live report-
ing, clients can access their latest
financial information whenever they
want and can feel in complete con-
trol of the payments system.
Thanks to its regional expertise
and l ocal knowl edge. Gl obal C-
ol l ect can al so advi se cl i ents i n
al most any country about the
payment method that consum-
ers there prefer. Detai l ed, regu-
l arl y updated knowl edge such
as this is helping GlobalCollect to
keep ahead of the competition and
serve its clients better.
Regional exPeRtise
Thanks to its regional expertise
and local knowledge, GobalCollect
can also advise clients in almost any
country about the payment method
that consumers there prefer.
VeRtical maRKet
Knowledge
Gl obal Col l ect’s verti cal gl obal
market di rectors provi de cl ients
with insights and advice through
their extensive knowledge of the
industries they represent, whether
the sector is retail, gaming or travel.
With 18 years’ experience in the
payments industry and a team of
more than 350 professionals world-
wi de, Gl obal Col l ect i s now the
world’s largest bank-independent
payment service provider. It offers
181 currencies in more than 221 coun-
tries and over 100 payment methods.
The company’s global reach and
i ts two decades of experi ence
mean that it can offer depth of spe-
cialist experience and thought-lead-
ership in particular fields that clients
particularly appreciate in the fast-
changi ng worl d of e-commerce.
GlobalCollect’s vertical global mar-
ket directors provide clients with
insights and advice through their
extensive knowledge of the indus-
tries they represent, whether the
sector is retail, gaming or travel.
These experienced e-commerce
professionals can offer GlobalCol-
lect clients information about new
developments, examples of best
practice and solutions to emerging
challenges within the industry. All
this is in addition to their vast knowl-
edge and experience of payment
processing in e-commerce.
As well as having a wide range
of bl ue chi p compani es among
its clients,GlobalCollect’s confer-
ences and seminars are attended
by i nstantlyrecogni sabl e names
who come to l earn more about
new trends and cutti ng- edge
technol ogy i n the onl i ne pay-
ments space.
I n additi on to its sector exper-
ti se, the company al so focuses
on geographi cal areas. I t sup-
ports more than 30 different lan-
guages and it enables its custom-
ers to offer alternative payment
methods on a l ocal l evel i n l ocal
currenci es. But, because these
customers don’t have to maintain
relationships and negotiate rates
with l ocal payment servi ce pro-
viders, they can also save them-
selves time and money.
Fraud preventi on i s another
issue that GlobalCollect can help
with. The company complies with
card scheme security rul es and
offers fraud-screening services.
It processes transactions in highly
secure networks wi th back-up
systems. So every payment that
customers of compani es usi ng
Gl obal Col l ect make i s secure –
as well as being much more likely
to be processed successfully. No
wonder, then, that the worl d’ s
most successful online names are
turning to GlobalCollect.
To see what leading merchants
in travel, gaming and other indus-
tries have to say about us and to
get advice from the GobalCol-
lect experts on how to increase
your revenue, simply visit www.
globalcollect.com/raconteur
leading international
e-commerce companies
have discovered that
globalcollect’s combination
of international and local
acquiring networks,
professional services,
business intelligence
and vertical knowledge
improves their
bottom-line revenue
+ 6.4%
+ 6.3%
+ 10.1%
(figures show increase on processed volume)
Gaming
Travel
Software
When a transaction gets declined by the primary
acquirer, GlobalCollect automatically and dynamically
reroute the transaction to the back-up acquirer for
reprocessing. This all happens in the background in
seconds and is completely invisible to the shopper.
This set-up has shown to increase the conversion rates
of our merchant partners 8 per cent on average.
ConSuMEr
oRDERS oNlINE
e - CoMMErCE
mERCHANT ACQUIRER 1
ACQUIRER 2
Commercial Feature
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20
Future of Payments
20
Paying for cabs in China, trains
in Turkey and at the convenience
store in the States is going to look
very different in the next five years
INTERNATIONAL PAYMENTS
Kate Bassett takes a tour of the world
of contactless payments and e-wallets,
and maps out the way forward
ȖWhen it comes to the payments
market, it’s the countries you per-
haps wouldn’t expect that have
been among the most innovative.
Take Turkey. It may be a nation
known for its Ottoman minarets,
Crusader castles and bustling
bazaars, but with a young popu-
lation, a booming bank-card
market and high levels of mobile
phone usage, this country is
leading the way in Europe when
it comes to contactless cards and
mobile NFC (near field commu-
nication) payments.
Or look at Kenya: a country,
which suffers from poverty, unem-
ployment, political unrest and food
security issues, but has also devel-
oped the phenomenally successful
M-Pesa mobile payments system.
Across the globe, local entrepre-
neurs are changing the landscape
of the payments industry. In
the US, Twitter co-founder Jack
Dorsey last year launched Square:
a personal credit card reader that
plugs into your iPad or iPhone's
headphone jack. In August, Star-
bucks invested £16 million in
the scheme and announced that
7,000 of its shops would accept
payment via the service.
In Sweden, Magnus Nilsson and
Jacob de Geer, who founded iZettle
in 2010, went on to raise venture
capital funding, led by Greylock
Partners and Northzone. Their
mini chip-card reader and app
is aimed at mobile tradespeople,
such as plumbers and beauticians,
who find traditional card process-
ing too expensive. iZettle is the
first company to commercialise a
mini chip-card dongle for Android,
the dominant smartphone plat-
form in the region.
In the UK, Monitise founder
Alistair Lukies has performed the
seemingly impossible task of get-
ting the major banks and mobile
operators to work together as
part of his mission to turn mobile
phones into electronic wallets. The
business he started in 2003 now
turns over £34 million a year and
has nearly 16 million registered
customers worldwide.
New frontiers of
electronic payments
While the rest of the world
has moved to chip-and-Pin
technology, the uS has dithered.
but, finally, the country is ditching
its antiquated magnetic stripe
technology, with American
Express, Discover, masterCard
and Visa all planning to move
to an EMV-based payments
infrastructure. Google is trying
to phase out plastic cards
altogether; it launched Google
Wallets in the States last year,
allowing customers with certain
smartphones to pay for purchases
from their handsets. A consortium
of uS retailers, including best buy,
Target, wal-mart and lowe's, are
joining the virtual-wallet market.
UNITED STATES
Whether paying for a taxi ride,
a haircut or a café-com-leite,
brazilians nearly always pay by
credit or debit card. The number
of credit cards in brazil has
quintupled to more than 628,000
in the past decade, according to
industry association ABECS. last
year, a new financial card Elo was
introduced into brazil by banco
bradesco, banco do brasil and CEF,
and began its quest to claim 15 per
cent of the credit-card market in
the country by 2016. Meanwhile,
m-commerce initiatives, such as
the partnership between banco do
brasil and mobile operator Ôi, have
finally begun to emerge and mobile
shopping is expected to skyrocket.
BRAzIl
contactless cards
deployed in Turkey
6m
Source: Gemalto
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21
Future of Payments
21
india is predominantly a cash
economy with 67 per cent of retail
transactions being conducted
with notes and coins. but mobile
banking is starting to make inroads
here. in February, Movida (a mobile
payments joint venture backed
by Visa and Monitise) launched
a mobile payment service with
India’s second largest bank, HDFC,
to allow customers to pay bills,
top-up pre-paid airtime and buy
tickets from their phones. out of
a population of 1.1 billion people,
600 million have a mobile phone.
India's Associated Chambers of
Commerce and industry forecasts
that mobile penetration will hit 100
per cent by 2015.
INDIA
According to smart card
company gemalto, Turkey has
the third highest level of credit
card adoption in Europe and it
is considered one of the front
runners to become the world’s
first cash-free state. it was the
second country in Europe to
be equipped with contactless
terminals; there are now around
40,000 locations, such as stores,
ferry terminals and parking lots,
where consumers can make
low-value purchases with a
simple tap of their card. Almost
six million contactless cards have
been deployed in Turkey so far,
with Bank Asya and garanti Bank
leading the way.
TURKEY
Euromonitor International projects
that Vietnam will be the fastest
growing market for card payment
volume over the next year, with
pre-paid cards expected to be
the strongest growth category.
However, this is a country that
still loves cash. To wean locals off
notes and coins, the government
will be: paying salaries to 80 per
cent of state workers through
banks; accepting non-cash
payment at all public utilities;
doubling banking penetration to
30-40 per cent; increasing the
number of merchants accepting
cards from 70,000 to 250,000;
and reducing taxes on non-cash
transactions.
vIETNAm
There are now more phones in
Kenya than adults, according to
the world Bank, with more than
80 per cent of people with a cell
phone using a mobile-money
model known as m-Pesa. The
local system, launched in 2007 by
Safaricom and Vodafone, has been
used by a staggering 15 million
people to date, from rural villagers,
who use their phones to pay for
produce, to urban dwellers who
no longer need to make overnight
trips to their rural homes to pay
their children’s school fees. Though
mobile money networks in East
Africa currently only exist within
individual countries, there are plans
afoot to create a regional network.
KENYA
PESA users
in Kenya
15m+

Source: Safaricom
Chinese mobile payment
market will become the
biggest in the world
2015
Source: Kapronasia
of India's retail
transactions are
conducted with cash
67%
Source: The Associated
Chambers of Commerce
China has made big steps in
internationalising its local currency
and shaking off its reliance on US
dollars. under new regulations
released by the People’s Bank of
China, all Chinese importers and
exporters can now settle foreign
trade in renminbi. Alongside
supporting Hong Kong, Singapore
and London to become offshore
renminbi centres, the Chinese
government has also established
currency swaps with more than
14 countries. The Chinese mobile
payments market is set to become
the largest in the world by 2015.
At that point it will be worth more
£50.5bn with 441 million active
users, according to Kapronasia.
CHINA
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22
Future of Payments
22
ȖIn the future you might shop
with quantum money. This will
not truly exist until it is spent.
Quantum theory physics suggests
that, at the subatomic level, matter
only exists as an overlay of all pos-
sible forms, all of which are equally
possible. If quantum comput-
ers, as conceived by the research
physicist Stephen Wiesner, created
banknotes, they would only be a
series of possibilities until meas-
ured, say by an in-store swipe card
system. At which point they would
become one irreversible payment.
This, Mr Wiesner argued, would
make them difficult to forge.
If this sounds more like science
fiction than contemporary finance,
pretty much everything predicted
for the future of payments at the
ten or twenty-year range feels like
something out of Blade Runner.
Contact payment systems in
watches or jewellery that can send
small currents down the skin so
that a simple handshake trans-
fers £10
between accounts are just 15 years
away while progress in telepathy
chips – small devices wired into
the frontal lobes of paraplegics’
brains that can trigger computers
over wifi links to choose movies or
close curtains – suggests you could
simply think a payment and it shall
come to pass.
Kevin Warwick, professor of
cybernetics at the University of
Reading, has chips wired into his
brain and arm. He believes that in
25 years you could be walking past
a Coke machine, think “Get me a
drink” and the can would spring
into your hand.
More immediately, Master-
Card Labs in Dublin have been
“soft trialling” a system that
allows you to shop from your
sofa by waving a hand. The
QkR platform links your
account with your smart-
phone and an Xbox Kinect,
reconfigured to understand
specific gestures. Key ges-
tures call up a menu, which
allows you to scroll down
and order a pizza.
Of course, there are
some problems with
bringing things like
quantum money on to
the high street – some
to do with the higher
equations of theo-
retical physics and
some to do with what
seems to be the main
problem with clever
ideas in the world of
payments: it's the
Thinking of a
future when science
fiction becomes fact
QUANTUM MONEY
biometric wallets
3
Quantum money
1
Money clouds
2
8
3
2
1
5
4
6
7
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Technology trigger
Peak of inflated
expectations
Peer-to-peer foreign
exchange marketplace
7
infonomics
6
Social capital
10
Co-creation
8
iP money
9
MintChips
4
Mobile lending
5
EXPECTATIONS
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23
Future of Payments
23
answer to a question consumers
aren’t asking.
“Take a £10 note,” says John Rut-
ter, director of product manage-
ment for mobile solutions at First
Data, the US payment processing
company, “it can pop out of holes
in the wall. You can hand it to
someone in payment of a debt, to
buy something at a shop or even
as a gift. It’s universally accepted
and a bundle of them look pretty
good in your wallet – much better
than a credit card, which looks
the same whether it’s maxed out
or ready to spend. New payment
technologies have to be at least as
good as a £10 note or we’re wasting
people’s time.”
At the same time, few experts are
denying a potential sea change is
on the way. Gartner’s 2012 Hype
Cycle for the Future of Money
points to waves of policy, technol-
ogy and social trends sweeping
away the sandy walls of our current
trading practices.
Sir Mervyn King, governor of
the Bank of England, sees no rea-
son why the central bank needs
to clear final settlements, open-
ing the possibility of private-
sector creation and issuance of
money. There are policy reviews
everywhere from the Reserve
Bank of Australia to the UK’s
Payments Council which reports
in October. National and even
regional currencies are vulner-
able to attack. Trust in govern-
ments and banks is at a low. Peer-
to-peer networks and trading
are growing. Set all that against
companies struggling to raise
capital and technology advancing
at an exponential rate, and things
start to look interesting.
“You’re already seeing some
countries banning cards to pre-
vent citizens from getting into
debt,” argues Ian Pearson, a
futurologist who worked on bio-
metric payments at BT and is now
running consultancy Futurizons.
“I would expect to see the rise of
corporate currencies, electronic
currencies and collaborative
schemes along the crowdsourc-
ing lines producing the next wave
of building society-style mutual
institutions.”
Already crowdfunding is hugely
successful in raising capital from
a large group of small lenders
offering low-risk amounts. Origi-
nally launched as a fan-funding
scheme to help big-name acts
without a record deal to secure
touring and recording advances,
crowdsourcing schemes and
sites are now financing films,
small businesses and start-ups.
FundersClub, a crowdfunded
venture capital site launched this
summer, raised more than $1.5
million in less than a month.
Alistair Newton, research vice
president on Gartner’s banking
team, suggests that in future
money raised or spent needn’t
actually be conventional cur-
rency. Social capital, time banks,
mobile lending and even money
clouds are forecast to grow over
the next two to five years. And
Gartner foresees they could
become viable forms of trading,
possibly even developing into a
new shadow currency system.
Once an open- source currency
develops, especially one that
could be spent on, say, both Face-
book and World of Warcraft, it
has the potential to become a true
peer-to-peer currency, which can
be spent or lent without the need
for banks or payment providers.
“The future of payments is offer-
ing a bouquet of currencies at the
point of sale,” Mr Newton argues.
“You’ll pay partly in sterling,
partly in euros, partly in loyalty
points and partly in other possible
currencies.” He points to online
currencies, like Zynga credits or
digital currencies like Bitcoin,
produced online by programmer
Satoshi Nakamoto with no cen-
tral issuing authority or govern-
ment backing, but accepted by
businesses like pizza chain Papa
John’s and computer hardware
firm LaCie, which already offer the
tantalising idea of a people’s cur-
rency with no banks involved. The
founders say a Bitcoin debit card is
on the way this year.
On the high street, meanwhile,
banks and card companies are
more interested in the long-term
development of contactless pay-
ments and biometric security.
Jim Wadsworth, who runs con-
tactless payments for Accourt,
believes biometrics offer the key
to the ultimate in contactless
payment – no need for a mobile
wallet if your face or your hand
conducts your transactions.
“Isbank in Turkey has recently
installed some 3,400 biometric
finger vein scanners in ATMs
and branches across the country,
letting customers withdraw cash
without a card,” he points out.
“They are planning to extend
this system to shops, creating the
largest biometric point-of-sale
network in the world. Finger
vein and palm vein recognition
have been widely used in Japan
for cash withdrawal for a while
and, as a result of the chaos fol-
lowing the 2011 earthquake and
tsunami, which left many peo-
ple without bank cards, Ogaki
Kyoritsu Bank is introducing
biometric palm recognition at
ATMs, again removing the need
for cards.”
James Davlouros, vice president
of mobile business development,
Europe, at MasterCard, thinks this
will take some time. “Merchants
change their in-store systems
every three to five years, so you’re
looking at a good ten years for
any new technology to become
widespread,” he says. “Then the
consumer has to embrace it, which
can take longer.”
New payment technologies have to be at
least as good as a £10 note or we’re wasting
people’s time
From corporate electronic currencies,
loyalty points and biometric finger vein
scanners, payment methods are changing
shape, as Stephen Armstrong discovers
QUANTUM MONEY
Share and
discuss online at
theraconteur.co.uk
26
27
28
29
30
Trough of
disillusionment
Slope of enlightenment Plateau of productivity
Bank digital safety
deposit boxes
24
Time banks
25
Micropatronage
as crowdfunding
22
Carbon credits
21
Social network
payment system
23
Physical complimentary
currencies
29
internet micropayments
systems
30
Retail PIvAS applications
for promotional activity
27
Digital barter exchanges
26
Mobile retail
stock trading (US)
28
Mobile coupons
15
Collaborative currency
14
behavioural economics
13
Mobile thin
wallet solutions
18
Loyalty point
marketplaces
19
bandwidth as currency
20
mobile thick
wallet solutions
16
Digital complimentary
currencies
17
Green money
11
gaming tokens
as money
12
TIME (as of July 2012)
Plateau will be reached in :
2 to 5 years
5 to 10 years
more than 10 years