Open banking will change the merchant payments ecosystem

We think a major focus for the whole merchant payments ecosystem in the coming year will be the new threats, opportunities and players in the emerging open banking world. Starting with the U.K.’s move to open banking in January (the implementation of the Competition and Market Authority’s “remedies”, or the “CM9”) and moving ahead with PSD2 across Europe, the ability for trusted organisations to access consumer bank accounts and to not only obtain transaction information but also to instruct payments will inevitably change the landscape.

There are new opportunities for acquirers to become broad-spectrum merchant service providers (MSPs) to facilitate interaction between the open banking infrastructure and the merchant community. This very appealing vision of the future (for merchants) will draw them towards a once in a generation change at point of sale. Merchants can easily afford to incentivise customers to switch to account-to-account “instant payments” and at the same time offer considerable customisation based on customer account data.

Merchants definitely need some help, and it’s not all about payments. A recent Consult Hyperion survey found that more than 90% of merchants want to use PSD2 to reduce card fees, three-quarters of them also want to use it to reduce the impact of fraud and data breaches. An Accenture survey last year also found that half of the retailers they surveyed want to use customers’ bank account data to provide special offers and customised services at POS.

Apart from anything else we expect to see a resurgence of interest in the “decoupled debit” proposition whereby platform-provided strong authentication to retailer apps will allow them to bypass the existing card infrastructure (I have seen projections indicating that a third of European card volume could disappear in the coming years) and perhaps even the physical POS itself. I can certainly imagine self-scanning my way around Waitrose and when I hang up the scanner to leave, the Waitrose app will pop up on my phone with the total, ask me to swipe my fingerprint to confirm, and then Waitrose will instruct an instant payment from my account to theirs.

As a customer, the instant payment proposition seems to me just like the familiar debit proposition: I walk out of Waitrose and the money walks out of my account. The fact that it never goes near the existing rails is something I neither know nor care about. This, as is often pointed out (by, eg, me), is a great opportunity for new players (eg, Google, Apple, Facebook and so on) to join the ecosystem. These are players with a business model built on data, not merchant service charges, and thus the business models in the ecosystem will reorient. This was one of the key themes I picked up at last year’s Merchant Payment Ecosystem conference in Berlin, and I wrote at the time that my impression was that some of the big plays coming would be big data, analytics and machine learning.

 20170214-mpe17-0163//embedr.flickr.com/assets/client-code.js

Having said that the existing rails may be bypassed, open banking also provides an opportunity for the schemes to reinvent themselves and their propositions. (As we think that the UK is about to become an interesting, exciting and unpredictable laboratory experiment in open banking, it seems to us that Mastercard’s work with VocaLink should be a focus of industry attention in this regard.) After all, a payment scheme isn’t just a data switch that connects consumers, banks, merchants and retailers. If it was, there wouldn’t be any, because we’d all just use the internet instead. Rates, rules and rights are fields in which Visa, Mastercard, Amex, Discover et al have decades of experience to leverage through both their existing relationships and the new ones that will arise.

The retailers themselves, especially the millions of small retailers, will also benefit from this transition because a variety of new products and services will spring up to help them to manage their bank accounts, funding requirements and general financial services needs. I’m no expert on small business financing but the ability to see the details of a retailer’s bank account will surely lead to new opportunities for specialist financial services providers.

Gary Munro at MPE//embedr.flickr.com/assets/client-code.js 

All things considered, 2018 is going to be a pretty interesting year and we are very much looking forward to learning about the new possibilities at Merchant Payment Ecosystem 2018 in Berlin. If you want to meet me or our Principal Consultant in the POS field, Gary Munro, at the the event then just drop us a note and we’ll see you there.

Blockchain in Practice

LegalFling is the first blockchain based app to verify explicit consent before having sex.
– via legalfling.io

LegalFling is the first blockchain based app to verify explicit consent before having sex.
– via legalfling.io

To look at the blockchain in practice, I am delighted that we have been able to put together a distinguished panel with real-world experience of what the illuminati call “blockchain solutions”:

Keith Pritchard completed a secondment from JPMorgan to the DTCC in 2017, where he was responsible for building a blockchain-based platform to support the credit derivatives market. He is currently with the consultancy Base60 where he is helping ISDA with the groundwork for a wider distributed ledger strategy.
Martin Walker is currently head of product management at Broadridge for securities finance and collateral management, and worked on capital markets product development at R3 – the firm behind the Corda distributed ledger platform;
Haydn Jones is founder and MD of Blockchain Hub providing educational, strategic and operational support for organisations seeking to leverage blockchain technology;
William Garner is head of CRS’s broking, trading and markets practice, where his list of blockchain clients includes SETL – which uses blockchain technology for payments and settlements (and which now has Deloitte as a major investor).
I hope we will get beyond the hype, to see exactly what is being done by whom and for what in the blockchain space. If you (or a colleague) would like to join us and perhaps share your thoughts, please call the CSFI on 020 7621 1056 or email alex@csfi.org. Thanks to CRS, we can promise generous wine and sandwiches.
– via CSFI

POST The better way to use biometrics

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The truth is, biometrics are collapsing all round. The figures for biometric failure have been staggering. In Rajasthan, in the PDS, exclusion because of fingerprint failure has been close to 36 per cent — which means not even one person from 36 per cent households are able to authenticate using their fingerprints.
– via The Indian Express

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That biometrics are not working as hoped is made evident in the Watal Committee report on digital transactions, in December 2016… the committee asks that for digital transactions, the “OTP sent on registered mobile number of Aadhaar holder” be allowed, thereby downgrading biometrics.
– via The Indian Express

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Bakeries struggle as banks refuse to take coins – OTHER STATES – The Hindu

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Neither banks nor are our material (like sugar, flour, etc) suppliers accepting coins. Even, workers are not accepting wages in coins. Many of us stopped manufacturing cakes,

[From

Bakeries struggle as banks refuse to take coins – OTHER STATES – The Hindu

]

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The Bitcoin rule of thirds, and what Bitcoin tells us about the future of money

I don’t have the exact figures to hand, but as I understand it the Bitcoin coinbase breaks down roughly into thirds…

 A third of them are lost (well, last year 23% but I think it will get worse as more people forget their passwords). This is because (like me) someone wiped their old phone wallet away and forgot to transfer it over to their new phone wallet first or because they accidentally threw away the old hard disk with all the Bitcoins on them or because the dog ate the Bicoin cold wallet or because they died or whatever. As Jonathan Levin of Chainalysis, who I regard as the “go to guy” for tracing Bitcoins, told NPR in January: “For the people that have lost their bitcoins, I say tough luck”.

(These lost Bitcoins, as my good friend Steve Bowbrick rather eloquently observed, are like treasure in sunken galleons waiting to be discovered by an intrepid explorer in the very latest kind of submarine. Which, in this instance, would be a quantum computer. It’s not only Bitcoin tucked away in these sunken galleons, by the way. There’s half a billion dollars in Ethereum stuck in just one Ethereum address: it’s the address “0”, essentially. In July 2016 someone accidentally sent ETH 1,493, currently worth more than a million dollars to that address. And thanks to the magic of the cryptography, it will stay there until the quantum submarine can uncover it.)

Another third of the Bitcoins are in the hands of the .0001%, the cryptoscenti. Bloomberg estimated that a few hundred people at most own these Bitcoins, but I’ve heard estimates that fewer than 50 people have the lion’s share. These are the people who have every interest in driving the value of Bitcoin higher so that they can cash out at a steady rate. If they dump their coins, that will drive the price down (a row has just been going on about the sale of the Mt. Gox assets for this very reason), so they need a rising market where they can convert Bitcoin to one Lambourghini at a time.

Meanwhile the other millions of Bitcoin peasants scrabble for their share of the remaining third. This distribution makes Trump’s America look like a kibbutz in comparison and stands testimony to the deranged nature of utopian projections around this “digital gold” for the masses. So, to get to the question that I was asked on Sky News a few weeks ago, what does the Bitcoin market tell us about the future of money?

Nothing.

I’m not sure that the state of Bitcoin, or indeed the history of Bitcoin, tells us very much about the future of Bitcoin or money. It’s not anonymous enough for criminal enterprise on a large scale (and there is every evidence that criminals are turning to crypto alternatives) and it’s not functional enough to be a mass-market medium of exchange. If it is to remain a store of value beyond speculation then it must be useful for something and I’m at a loss as to what that something might be, although I’m perfectly prepared to believe that it’s because I grew up in an era of chip and PIN cards and ApplePay.

Does that mean that we should ignore it? No, of course not. There are many different ways to look at Bitcoin and it deserves study as a much as a social and political phenomenon as it does as a technological and economic one. What’s more, it tell us something about the future. In today’s Financial Times, Benoît Cœuré and Jacqueline Loh from the Bank for International Settlements (BIS) say that “while bitcoin and its cousins are something of a mirage, they might be an early sign of change, just as Palm Pilots paved the way for today’s smartphones“.

I agree.

So what can we guess about the future of money, given what we have learned so far? Well, as I said in my presentation to Seamless Payments in Australia, what we may have learned is that the token economy is a more accurate pointer toward the future of money than the underlying cryptocurrencies are, because the tokens link the values managed on shared ledgers to the “real world”. There’s a logic to this model of “the blockchain” as the security infrastructure for a token economy and really enjoyed engaging with the good people of Sydney on this view of the emerging cryptoeconomy.

POST China clearing

As was explained to me on a trip to Shanghai in 2017, Alipay built bilateral relationships with individual banks, in effect becoming a clearing centre. Other “third party” systems followed so the Chinese central bank required them to create a single central clearing system. So now there is Unionpay for debit and the “Internet Association” for mobile payments.

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