European Vending Association makes contactless payments push

The European Vending Association has announced the publication of its cashless position paper, which the Members of the Cashless Committee have been working on for almost 2 years.

It is a collaborative, comprehensive document that sets out the requirements needed to increase the uptake of contactless payment systems in vending machines.

Please click here to read or download the position paper.

Extending Payments Interoperability

[Source: gtnews - Fred Bär, VocaLink - 06 Oct 2009]

The introduction of the single euro payments area (SEPA) is transforming the face of the European payments landscape. It will improve the efficiency of cross-border payments by turning fragmented national markets for euro payments into a single domestic area. It brings standardisation, opportunities for cost reduction and encourages competition, all of which means that the customer should ultimately benefit. But why can’t the principles of SEPA extend beyond Europe? The world’s economy isn’t limited to Europe alone.

We need to harmonise payment processing to help achieve this goal. Interoperability plays a key role and much progress has already been made. Since 2006, the European Automated Clearing House Association (EACHA) has worked to establish an interoperability framework. Furthermore, the International Payments Framework (IPF) was set up to support the growing requirement for efficient processing of low-value cross-border payments on a global scale. Its aim is standardising the technical operating model for interoperability of clearing and settlement mechanisms (CSMs), facilitating reach between infrastructures carrying out payment processing, clearing and settlement. In three to five years, it is expected to enable members to offer clients payments to new countries and/or currencies in a low-cost and efficient manner, eliminating the complexities in international non-urgent payments. This is a significant step towards addressing the issue of international cross-border payments.

However, the group is not alone in striving for this goal. Earlier this year, the National Automated Clearing House Association (NACHA) commenced work to create international standards for e-payments schemes. This signals the first move towards globalising interoperability of payment infrastructures. The development will initially focus on the delivery of a new International Automated clearing house (ACH) Transaction (IAT) rule. The organisation’s goal is to link all participating schemes so that a consumer in one country using online banking can seamlessly make a purchase from an online merchant located in a different country. Interoperability provides a huge opportunity for online merchants by providing access to a global online customer base across participating schemes.

So what are the benefits of interoperability? And how do the benefits move us towards a true standard?

One Big, Happy Family

Banks and payment processors will benefit from the seamless payment processing environment that global interoperability creates. Operationally, it promotes the opportunity for straight-through processing (STP), supporting the principles of SEPA beyond the European marketplace. It could facilitate the removal of unnecessary boundaries enabling banks to choose from a wide range of processors, thereby encouraging competition in the payment processing market. Greater competition results in lower costs, which will further enhance services leading to benefits for the customer. Furthermore, there will be no need for proprietary interfaces with CSMs for payment service providers, as they can easily link up to CSMs or other payment service providers at a comparatively low cost.

Additionally, under the EACHA framework, settlement, credit and liquidity risk will be mitigated through the ‘settlement before output’ model. The model guarantees the payments by ensuring messages are only ever forwarded to the bank of the receiving CSM once settlement has been successfully completed.

All these benefits will ultimately reach the customer, but interoperability can offer a direct benefit to the end consumer. If a cross-border interoperability model is implemented, money can be transferred more quickly, more cost-effectively and without the need to connect to multiple CSMs. This model represents an opportunity to support not only the worldwide financial community but also recipients of international remittances. These are usually family members of foreign workers and the beneficiaries are often dependant on the funds to cover day-to-day living expenses, providing a cushion against emergencies or as funding for small investments. However, transaction fees incurred through bilateral relationships expose a direct expense to the remitter/beneficiary, which is currently expensive compared to the often low incomes of migrant workers and the relatively small amounts sent.

There are markets that are uncompetitive or have regulatory barriers to the provision of remittance services. As a direct result, higher-risk alternative international remittance providers are often used to avoid these high fees. Some remitters revert to unregulated or even illegal cash-based channels and the financial streams disappear in the grey and black economy. Moreover, underdevelopment of a domestic financial infrastructure, particularly in receiving countries, may mean that transferring funds to the access points is slow and unreliable. In some cases, non-cash payment services may only be available in urban locations. Mobile payments service providers are actively entering this space in Latin America and Africa.

An important aspect of the infrastructure is correspondent banking, widely used for cross-border transfers of funds, which can be expensive for low-value payments such as remittances. The opportunity to leverage and enhance interoperability of global payment system infrastructures gives rise to the potential to increase the efficiency of remittance services. Ultimately, this not only aids the customers remitting payments but also reduces the cost of their transfers. This gives banks the opportunity to improve their customer service and increase loyalty while competing with international remittance providers, some of which are looking to enter into the banking world.

Finally, interoperability can support the reduction of fees associated with cross-border ATM withdrawals. At present, the majority of foreign visitors wishing to withdraw money from an ATM can only use dual-currency credit cards, which carry high withdrawal fees. However, in 2007, the Euro Alliance of Payments Schemes (EAPS) was formed to unite the networks of independent domestic card schemes (LINK, ZKA, SIBS, Euro 6000, Eufiserv and Consorzio Bancomat). The scheme, which supports SEPA standards, enables European banks to deliver a standard card payment experience direct to cardholders and retailers alike. This reaches right across Europe, at the lowest cost for all participants achieved through interoperability.

Card interoperability, beyond SEPA, is also taking shape. In 2008, China Union Pay signed an interoperability agreement with LINK to enable their customers to withdraw from any LINK ATM.

One Language for All

While interoperability has numerous benefits for banks, their customers and payment providers, there are also challenges to consider. To ensure consistency of communication formats, the introduction of ISO 20022 enabled standardised the communication for interoperability between financial institutions, their market infrastructures and end-user communities. In the long term, there needs to be a common format for all. For now, however, there are still major obstacles to be overcome in the implementation of a standardised communication format. Nevertheless, the fact that businesses are increasingly automating manual processes as they evolve might help achieve this aim, since it makes it possible for banks to implement XML rather than continue with the outdated MT formats. Ultimately, standardisation of these formats will reduce the complexity and costs of corporate-to-bank communication while increasing the STP rate, not just within SEPA but also beyond Europe. These standards are also helping to achieve a shorter turnaround and delivery time for payments, which is supporting the Payment Services Directive (PSD) requirements in Europe.

What’s more, the large number of clearing houses which payment processors must connect to, as well as bilateral agreements between banks, add time and costs to the transaction cycle. Moving forward, banks should be looking at a direct connection to a CSM to complete the transaction cycle. The CSM infrastructure can also be re-used to support bilateral arrangements. In this way, banks will be able to cut their fees and reduce the risk of payments being delayed or failing, which will ultimately benefit the customer.

The Future is Now

Market demand for efficient payments processing on a global level is on the increase. To future-proof services and support banks in offering the services that their customers want and need, payment providers must leverage the opportunity that interoperability offers.

While SEPA has introduced a new payments landscape, it is time to start looking beyond the borders of Europe, extending interoperability, and introduce a new approach to payments that promotes efficiency and reduces costs for banks and their customers. The industry has already taken its first steps towards achieving this goal. It must, however, continue to work collaboratively in order to create a truly efficient, interoperable infrastructure beyond SEPA.

PSD and SEPA research results

A research report has been published on September 8th by The Financial Services Club, sponsored by BT, Earthport and Logica.

The report can be purchased on a single user licence basis at The Financial Services Club. A free copy of management summary of qualitative analysis (19 page pdf, 300kb) and a free copy of key answers to quantitative views (27 page pdf, 1.5mb) can be downloaded below.

Download Survey Summary

Download Results Summary

The press release says that there are alarming differences in country interpretations and implementation.

In particular:

When asked: “how ready are your banks for the implementation of SDDs in your country?”

• Belgium: 13 out of 15 respondents said ready (87%)
• Germany: 20 out of 24 respondents said ready (83%)
• Austria: 10 out of 12 respondents said ready (83%)
• Italy: 10 out of 12 respondents said ready (83%)
• Spain: 6 out of 8 respondents said not ready (75%)
• Ireland: 11 out of 18 respondents said not ready (61%)
• Sweden: 4 out of 8 respondents said not ready (50%)
• France: 4 out of 8 respondents said not ready (50%)
• UK: 36 out of 78 respondents said not ready (46%)
• Netherlands: 4 out of 9 respondents said not ready (44%)

When asked: “How well prepared do you believe your national authorities are for the implementation of the Payment Services Directive on 1st November 2009?” the survey found that only 15% of country-based respondents felt their country was ‘very ready’; 23% felt ‘quite ready’; 30% ‘just about ready; 27%, ‘not really ready’; and 6% ‘not ready at all’.

When asked: “How is your country implementing the PSD?”

• 7% of respondents say their country is implementing the full PSD with no changes;
• 60% state they are implementing the full PSD with changes that are permitted;
• 19% are implementing part of the PSD, but the important parts (10% with no changes and 9% with changes that are permitted);
• 10% are transposing with changes that are not permitted; and
• 4% are not implementing the PSD at all.

CONCLUSIONS

The Payment Services Directive is flawed in both its drafting and transposition.

The 23 Additional Optional Services (AOS) mean that Member States have inconsistencies over how currencies are treated and whether they are in or out of PSD’s coverage (the ‘leg-in’ / ‘leg-out’ issue); how small businesses are classified as consumers or corporates; how payment accounts are defined; how direct debit products are defined; and more.

Every country is using AOS to protect historical products, services and infrastructures.

This inconsistency means that there is no harmonisation across Europe’s payments instruments, even though this is a maximum harmonisation directive.

It is highly likely that 2012, when the European Commission review the transposition and implementation of the PSD, that a revised PSD will be drafted eliminating AOS and other anomalies, such as multilateral interchange fees on cross-border direct debits.

The result is that the PSD will not support an integrated and harmonised European payments marketplace until 2013 or beyond.

The Single Euro Payments Area is progressing but too slowly.

SEPA’s clearly gained momentum as banks convert core systems to use the new schemes and formats; by way of example, SEPA Credit Transfers have more than doubled in volume from under 2% of all credit transfers in the Eurozone in May 2009 to almost 5% by August 2009.

SEPA is still progressing far too slowly to be convincing however, and when SEPA Direct Debits come into play in November 2009, if the new schemes are not demonstrating critical mass within an eighteen month timeframe, then the SEPA program will be deemed to have failed.

SEPA has strong support amongst the banking community, but not amongst corporates and other end-users; this support needs to be promoted through political weight of force by ensuring all member state public authorities and utilities migrate to the use of SEPA instruments during 2010 and by the introduction of an end-date for SEPA migration as a regulatory mandate.

The SEPA end-date is expected to be around the end of 2013, but the migration of end users (corporates) and obsolescence of existing national infrastructures is not expected to happen until the end of the next decade (2018 or thereafter).

Service for payments via social networking system

[Source: The Paypers, Friday 22 May 2009]

BT Tradespace, an online social networking community for small businesses, has launched the BT Book It Now online payment and booking service which allows UK consumers to make payments via a social networking system.

Via BT Tradespace’s web 2.0 platform, businesses can engage with customers, partners and suppliers by accessing social networking and blogging tools. The new service, which integrates Dutch online booking applications developer Libersy’s technology, will be made available to users of Tradespace facilities via the BT Tradespace business network.

The initiative allows for companies in the service industry, including hairdressers, restaurants, sports clubs and consultants to add a PayPal payments system to an online bookings platform within a social network environment where customers can book appointments and make online payments. The Book It Now comes in three versions: free, basic and advanced. The basic package offers businesses the possibility of accepting full or partial payments, as well as adding other services.

German Operators Launch Mobile Payments Service

Cellular news
17th October 2008

Two German operators, O2 and Vodafone are launching a mobile payment service today (Friday), branded as mpass. The new mpass service combines the proven direct debiting scheme with a SMS payment confirmation on the mobile phone. In practice, this means that customers will in future be able to order a product in the internet shop or on the mobile portal. All they have to do is enter the mobile number and a mpass PIN of their choice.

The customers will subsequently receive a SMS which they confirm and get the amount debited from their bank account automatically.

The operators said that payment through two independent communications media significantly increases the security as entering sensitive and personal data like bank details and credit card numbers is not required anymore.

Lutz Schüler, General Manager, Marketing & Sales for Telefónica O2 Germany: “Our customers ask for simple and smart solutions. Our payment system takes account of this request. Effective immediately and without the need to register, the system offers about 14 million contract customers of Vodafone and O2 the possibility to pay online in an easy, rapid and secure manner – at home and on the go.”

Dr. Peter Walz, Member of the Executive Committee of Vodafone Deutschland and Director Arcor AG Strategy and Partner Companies: “The innovative payment service not only meets customer requirements. In addition, the payment method offers retailers many benefits like more efficient accounting processes or the acquisition of new customers who have been skeptical towards shopping and paying in cyberspace so far.”