main mobile operators and other main players have been seeking to define an ‘access layer’ that would bring a standard way of adding a range of third-party services. Orange, which committed to roll out NFC in all its European territories, teamed up with Visa in France in November 2013 to raise awareness of NFC. In the Nordic region, e-invoices have almost killed off paper-based ones. But these are not European standards efforts and breakthroughs, they are country or regional ones. The UK always tends to do things differently and its Faster Payments scheme has been an example of this (see below). This is not to say that the regulators are totally wasting their time. The PSD/PSD2 has had a muted effect so far. The separation of card scheme management from processors has yet to be achieved and many of the PSD players have not changed their business models to date. However, more than 100 payment institution licences have been granted and it does bring the promise of opening up the market to new entrants. It has strategic implications for traditional issuer/ acquirer processing as well as for switching and clearing players. It could bring opportunities for card processors such as First Data and TSYS. Many retailers are already providing financial services and by becoming payment institutions they could expand their offerings, potentially taking banks out of the value chain. Belgian supermarket chain, Colruyt, has been a pioneer, with its own debit payment solution. In Austria, CQR Payment Services, owned by a number of large domestic e-commerce merchants, has e-money and payment institution licences and is eyeing Visa and MasterCard acquiring. To help counter this, one suggestion from long-standing commentator in this sector, Consult Hyperion’s David Birch, was that banks might consider setting up separate payment institutions and these might be more receptive to innovation. The three would-be challengers to Visa and MasterCard


could break through, but Payfair, Euro Alliance of Payment Schemes (eAPS) and Monnet have struggled to overcome the hurdles, particularly acceptance by issuers. Indeed, as pointed out, the hold of the big two is tightening as national schemes end, so competition is reduced. During 2012, eAPS and Payfair announced they had signed an agreement to evaluate cooperation but nothing is known to have come of this. France-based Monnet, a joint initiative of 24 banks, was abandoned in 2012. One area of regulation that is expected to have a positive impact is the unbundling of charges, bringing long overdue transparency to the market. This was from the start of 2011 and was expected to open up competition, encourage new entrants and, ultimately, bring improved efficiency. It looked to be an instance of regulations and innovations pulling in the same direction, with the former actually driving the latter and with other parts of the world seemingly looking with interest


6


at the outcome.


This could ultimately have a major impact on banks and payment service providers, challenging existing business models, while bringing the promise of significant benefits to corporates, the public sector and consumers. On the up-side, the payments business continues to grow and a major benefit (perhaps under-estimated in previous buoyant times) is its non-volatile and predictable nature, combined with continued attractive profitability in at least some areas and for some participants, particularly compared with some other business segments in banking.


It is not only the banks that are challenged by the changes.


Looking particularly vulnerable were the national CSMs. They have sought to jockey for position and, not surprisingly, there has been consolidation. This can be seen clearly in an entity such as Equens. Set up in November 2006, with the merger of Interpay and TAI, it had around seven billion payment transactions per annum at this point, split roughly equally across the Netherlands and Germany. It is now fairly much pan-European and in 2013 claimed 10.6 billion payment transactions. Its ambitions for further expansion were clear towards the end of 2009 when it announced an agreement with Crédit Agricole that was meant to propel Equens into one country of weakness, France. The two partners agreed to set up a combined payments processing subsidiary with anticipated volumes in excess of 15 billion. A framework agreement followed in 2011. For Germany, in September 2010, Equens announced its purchase from Commerzbank of card acquiring software and network service provider, Montrada GmbH. Beyond Europe, Equens has a partnership with the US Federal Reserve to define rules and procedures to allow euro payments to flow one way and US dollar payments the other. Equens is also seeking bridges to South Africa, Latin America, Asia and Oceania. The first live traffic between Equens and the Federal Reserve took place on 25th October 2010, with U.S. Bank and DZ Bank the first participants, exchanging both US dollars and euros. Looking at the bigger picture, new forms of electronic payments and improved uptake of existing ones look to be wholly desirable. Birch has pointed out in typical forceful style the social implications of cash: ‘Cash is essentially an evil product.’ In some economies, two-thirds of cash transactions escape taxation. Even in automated Norway, where 65 per cent of retail transactions are non-cash, the central bank estimates that 71 per cent of the cash in circulation is not used to support commerce. In the UK, despite being a card-centric market, 59 per cent of retail transactions are still in cash. ‘It is not just about economic efficiency, it is about what is right,’ said Birch.


One contentious issue is still the Merchant Interchange Fee (MIF), despite some progress. The EC’s DG Comp unit has been


Payment Systems & Suppliers Report | www.ibsintelligence.com


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