Regulation shapes Payments Industry strategy

The 2019 edition of the Merchant Payment Ecosystem (MPE) was back in Berlin from the 19th to 21st of February. Over 1,000 attendees from more than 40 countries descended on the Intercontinental Hotel to exchange views and learn from over 130 speakers and to hang out with the odd robot and dinosaur.

MPE now has a trusted and well-liked band of industry heavyweights on board to facilitate proceedings, including David Birch of Consult Hyperion, Ghela Boskovich of Femtech, Paul Rodgers of Vendorcom and many more.

Kicking off the conference, Mr Birch reflected on the way the ecosystem has evolved since last year, stating, “In 2018. PSD2 and GDPR seemed a little distant and hazy, but this year they are shaping and constraining the strategic routes available to us”. With the looming September 2019 deadline, the discussions have evolved from technical API to the strategies and tactics to focus on across Europe.

Regulation: PSD2 and GDRP begin to bite as SCA looms

While in previous incarnations of MPE many of the regulatory concerns seemed remote, it was clear that mainstream banks are now busy achieving compliance with PSD2 and GDPR, and new entrants are seeing these as delivering a cornucopia of opportunities. With the deadline for Secure Customer Authentication (SCA), a component of PSD2, now just 200 days away, participants across the ecosystem engaged in a lively debate on how to adapt against the backdrop of card scheme surveys which indicate that three quarters of e‑commerce merchants are unaware of many of their mandates.

Banks are busy achieving PSD2 and GDPR compliance, and new entrants are seeing these as delivering a cornucopia of opportunities

Steve Cook from Facetec suggested, “SCA will deliver more security for payments and less friction than people might think”. Meirav Peled of Riskified sees it as ‘GDPR on Sterroids’ and quoted research estimating a 30% decline in transaction approval owing to the impact of SCA.

The steps merchants might take to deal with SCA were discussed, with some presenters advocating the continued need for merchants to score risk, while others challenged this approach given that issuers have the legal responsibility to make the risk decision and have a ‘final say’.

In open banking we trust?

Rigo van der Brock of Mastercard provided the first industry keynote and looked at the role that trust – the real currency of commerce – plays, in particular in e‑commerce, and suggested that it presents the “invisible challenge that delivers a smooth customer payment experience”.

In a panel discussion, Dagmara Kowatzky, also from MasterCard, pointed out that trust is key in open banking, and that it is best built up in a collaborative ecosystem and facilitated by a smooth user experience. One noteworthy example of what is in store is IATA Pay, jointly developed by the International Air Travel Association and Deutsche Bank, a horizontal sector play combining PSD2 APIs and instant credit transfer to deliver a direct‑to‑account payment offering. Taking a peek below the bonnet, Bankingblocks’ Daria Rippingale pointed out that in order to truly thrive in an increasingly API‑centric environment, banks need to do better than a new lick of paint: “Until banks modernise their core banking platforms, they might as well be putting lipstick on a pig”.

Trust is key in open banking, and it is best built up in a collaborative ecosystem and facilitated by a smooth user experience

The pursuit of omni‑channel and the seamless experience

In line with previous incarnations of MPE and the industry more generally, participants keenly discussed the way customers experience commerce at different touchpoints. Paul Prodrick from Elavon provided an overview of an integrated cross‑country payment infrastructure and the lack of a fully integrated infrastructure, while Angus Burrell of Valitor looked at how to support merchants’ omnichannel needs and channel hopping, while avoiding ending up in a consumer cul de sac.

Ghela Boskovich, summarising the Payment Service Provider discussion, pointed out that against the background of an ever‑evolving line‑up of payment methods both online and face‑to‑face, one answer for small merchants is to tap ‘as-a-service’ backends, focused on the value‑added services of onboarding, monitoring and finance. And furthermore, they should not own the infrastructure, but leverage SaaS models that standardise the process while allowing for customised front‑end experiences.

Dr Christine Bailey of Valitor gave a crucial sanity check of the actual consumer pain points as studied in the firm’s after payment emotional experience survey. A highlight of the survey was the insight that 50% of consumers see ‘no free returns’ as the most annoying issue, with 60% vowing not to shop at such a merchant again. Dr Bailey also cautioned merchants to “mind the generational gap” with Gen Z having very different expectations from the babyboomers.

Start‑up innovation corner: MuchBetter triumphs

Start-ups and fintechs were well represented throughout the show but took centre stage during the innovation corner on day two of the event. Five firms vied for top awards: Konsentus, MuchBetter, myGini, paybyrd and token. Jens Bader of MuchBetter provided a compelling pitch that won the popular vote for this impressive next gen payments app.

In addition to the big trends that were discussed at MPE, what is arguably small change for the industry – spontaneous acts of generosity – was raised as an overlooked topic by Silvia Mensdorff of ACI. She asked, “Can cashless payments ever be kind?“ It is hoped that steps towards a fully-fledged offering will have been taken by the time MPE2020 comes around.