Bernhard Lachenmeier, Head Products & Marketing, SIX Payment Services
The European payments landscape is undergoing a period of dramatic change. The emergence of alternative technologies and new payment players, combined with public distrust in our banks, has created an ecosystem of movement and change in which traditional players are struggling to keep up the pace.
This change, in the shape of new payment technologies and disruptive brands, can be seen in both the US and Europe. In Europe we see the likes of iZettle moving in on the micro-SME merchants and in the US everyone is talking about Square, the payment start up from Twitter’s Jack Dorsey.
Such an explosive period of change inevitably results in a need for adjustment – it is unsurprising then that uncertainty looms over the payments industry. Evidence is two-fold when judging seismic shifts to the marketplace. On one hand, European bodies are likely to play a more active role and step forward to regulate the new landscape, one such example being the European Commission’s Green Paper in May last year. On the other hand, there is also increasing demand for the key players to come forward and ‘own’ the alternative payment movement. But who will take up the mantle of leadership in this evolving European payments landscape?
There is certainly a solid argument for the regulators as the owners of this space. For one thing, the creation and enforcement of regulation is essential to the financial services industry, and this will not change with the emergence of new market entrants. If anything, the start ups and challenger brands increasingly having a voice in the payments space illustrate precisely why we do need regulators – security and trust are crucial when consumers and merchants are transferring their money. Without the presence of vigilant and powerful regulators, the transference of funds could be subject to fraudulent activity. This would damage public trust in the alternative payments movement – and this would in turn damage the banks’ ability to offer new and convenient payment methods.
Yet there are concerns that regulators can be both heavy-handed and slow to react to payment trends – which is certainly a real concern in the current environment in which we see near daily announcements and product launches.
With this new emphasis on flexibility and immediacy, regulators lagging behind is not good enough anymore. The beauty of alternative payment products is the heightened convenience and usability of the start-to-end payments experience. The potential downsides, unsurprisingly, are around security, fraud-protection and trust. This grey area of security vs. usability is one which regulators are currently struggling with – which begs the question of who else can help structure the current fluid arrangement?
A key barrier currently dissuading stakeholders from striking out is the direct correlation between responsibility of the emerging space and the subsequent exposure to risk. Whoever takes on the responsibility for developments in this space will consequently take on the risk and costs should the new ecosystem fail.
Banks are traditionally acknowledged as being conservative when it comes to adopting change, and as such we currently see little evidence of banks diverting from this well-trodden path. Yet without the risk, banks also won’t benefit from the drive and power that will come with the acceptance of greater responsibility.
In all the time that banks are dragging their heels on evolution in this space, it is increasingly likely that new payment providers will step up to the plate. It is refreshing to see new faces on the payments scene and if these new players can offer a proof of concept on their innovations then they are welcome to take responsibility for the changing marketplace. All the time these players are present, they are driving greater improvement in technology and forcing the banks to focus on delivering improved services to their customers – which can only be a positive move.
There are those who suggest that politicians have a responsibility in the future of payments. I disagree. There is an argument that SEPA will help shape payments going forwards, turning the currently fragmented national markets into one single domestic market for Euro payments. However, creating the framework does not equate to responsibility – responsibility comes with risk and cost, which the politicians will not be taking on.
Change is afoot, and the European market will undergo great transformation as payment players, both old and new, take part in a power struggle for responsibility. My hope is that banks and alternative providers will step up and take control – in their absence, it will be the regulators and politicians who react, creating a backward-looking and rigid framework.
The European payments ecosystem cannot flourish without a leader – but who will take up the mantle? 2013 is certainly going to be an interesting year.