Fulfilling Future Market Needs In Payments Processing
Like all business-to-business service providers, payment processors face the challenge of developing a service portfolio that fulfils the future needs of both their clients and their respective customers. This presents an even greater challenge to the payments industry, where differentiation in an increasingly commoditised market is essential. To fulfill future market needs, initiatives flourish in three areas. First, research to find out in which exact direction these needs will develop. Second, international co-operation on EPC and EC level to shape EU-wide standards, solutions and laws. And third, ‘hard core’ innovations born out of direct contacts between service providers and their (potential) markets.
A solid payment infrastructure is a common interest, which emphasises the importance of the collective effort currently being made in research. An important initiative in this respect is the Banks and Future innovation forum, initiated by the Fraunhofer IAO in Stuttgart. In co-operation with several international banks and IT partners, this forum investigates interests and research issues regarding the current and future needs of banks. Based on joint input from banks across Europe, a detailed survey is being conducted by the innovation forum. Equens has extended this survey with a number of specific questions regarding the European payments market. The results will be published shortly after the survey has been completed.
At a European level, key networks – such as the EPC Expert Group on electronic and mobile payment (e+m) and the European Commission’s Expert Group on e-invoicing – are working hard to co-ordinate and implement new international standards for current and future payment methods. Equens is an active participant in these networks.
Within the framework of the EPC, banks have unanimously decided to extend the scope of work, previously restricted to core payment services (credit transfer, cards, etc.), to new payment channels, such as Internet and mobile payments. With regard to online payments there is a strong push towards a framework similar to iDEAL, a method developed, and very popular, for online payment in the Netherlands. If such a solution were to be adopted on a European basis, then any customer in Europe could buy online at any shop in Europe using their home bank’s familiar and secure Internet banking, giving the merchant immediate guarantee of payment.
Another innovation to come out of the EPC e+m Expert Group was a concept for the paper-free issuance of mandates for single euro payments area (SEPA) Direct Debit (SDD). This not only uses the same infrastructure as the online payment outlined above (thus saving investment) but is also another initiative in streamlining existing processes – away from paper to straight-through processing. It is anticipated that this will be an optional feature available in time for the introduction of SDD and its national legal base.
In the field of mobile payments, a wide range of pilots are being carried out in a number of different countries. The EPC has drafted guiding principles to ensure the interests of the banking community are represented. It is also having constructive talks with the many stakeholders and industries involved that make up the mobile payment ‘ecosystem’. Equens is involved in this and is also a member of Mobey Forum, a leading voice of banks in mobile payments.
A field that potentially offers great opportunities is e-invoicing or electronic billing. Ninety-seven per cent of all invoicing worldwide is still performed on paper. This usually involves an extremely inefficient process of photocopying, distributing, and archiving paper and re-entering data. There are now hundreds of initiatives for electronic invoicing on a national level, so the time seems ripe for an international approach. At the end of 2007, a small group of international experts was assembled by the order of the European Commission, with the goal of identifying a European e-invoicing Framework that addresses the legal, operational and standardisation issues. Equens was selected by the European Commission to represent the European Association of Co-operative Banks (EABC), to which 4,500 banks are affiliated.
Research and international collaboration are important to ensure a strong European payment infrastructure. But real innovations from the cradle are vital to ensure a dynamic and competitive environment in the long run. From Equens’ point of view, new product market combinations that focus on mobile payments, prepaid cards, healthcare transactions and e-invoicing represent the most promising opportunities. Two particular interesting fields are near field communication (NFC) and biometrics.
Since 2007, a successful mobile payments pilot has been conducted in Rotterdam. The pilot was an initiative of Payter, an innovative new company with the intention of distributing a solution for mobile payments. A number of consumers received a mobile phone with NFC chip and GPRS, with a prepaid balance. Participating retailers used a special POS terminal for communications with the NFC chips in the consumers’ mobile phones. Equens has facilitated Payter by offering various authorisation services from its pre-paid infrastructure. The pre-paid gift card as an alternative to the paper gift coupon has secured itself a permanent position in the Netherlands.
This card type has a magnetic stripe linked to the credit on a virtual bank account by means of a terminal contact (pre-paid debit card). Another new phenomenon, based on the same technology, is the Prepaid Pluscard, also developed by Equens. Prepaid Pluscards can be used by several new target groups that currently make the majority of their payments with cash, credit cards and gift vouchers. Less money in cash, increased safety and easier administration are the main advantages. Maestro and other international brands will transform the Prepaid Pluscard into an international solution. Equens is also involved in a pilot in the healthcare sector, where a card is used for electronic processing of claims, for such costs as dental expenses, etc. After a consultation, the card is swiped through a card reader, which is interconnected with the insurance company. If the patient is insured for the treatment, further processing takes place directly. If not, the patient has to pay the bill in the traditional manner. This solution could also be applied in other areas of the healthcare sector.
The above examples demonstrate that there are many interesting and innovative developments in progress. As a consequence of increasing competition and pressure on prices, scale and financial solidity are required to enable fundamental product development. Furthermore, a vision is required to determine the correct approach to linking technologies with future market requirements.