Outside of Europe — notably in the U.S. — there exists a consensus that digital payments are evolving more quickly than in other regions. But is that the reality?
MPD CEO Karen Webster recently spoke with Miles Jack, Director of International New Solutions at TSYS — who is based in Cyprus — to get an on-the-ground perspective on what’s really happening with digital payments in Europe. It turns out that, while there is innovation occurring, there still remain obstacles for businesses and consumers alike in getting on board with the related technology.
What emerged from the discussion were explanations of those obstacles, as well as potential solutions that could put the European market on the pace with digital payments that a lot of outsiders think it is already.
KW: I'd like to get your sense of the landscape and growth potential for digital payments in Europe. Who is driving innovation, and what role is TSYS playing in that evolution?
MJ: There are a lot of things going on in Europe — a lot of discussion, a lot of players entering the market. In terms of actual activity, however, it's been fairly patchy to date.
There's a lot of interest in people doing pilots, doing proof-of-concepts, but no real sort of industrial-scale rollouts of mobile payments — and that's due to a couple of reasons.
There have been issues related to the infrastructure of contactless payments in Europe; there is also a reluctance on the part of some the institutions to invest in technology without knowing which way the market is going to go or which technology is going to take the lead. There's a long history of digital payments — different ways of doing them, different aspects of technology — and potentially some of the investment is being held back until people are quite sure which way it's going.
An issue of the moment is the revised Payment Services Directive (PSD), which is having an impact on the way that institutions are planning. They're looking at their investments, looking at their business models, very, very carefully. They really need to be convinced before they invest that whatever direction they take will result in a high degree of success.
KW: There are many dimensions associated with the new Payment Services Directive. What in particular about it is giving the banks and the innovators pause; what are they most concerned about?
MJ: One aspect for the banks is the effect on interchange, and the income that will be gained from interchange. The second aspect is the longer-term impact of elements such as the rule pertaining to the use of cards.
Some of these things are starting to change, because things are becoming clearer — and the general direction of where things are going has become more evident.
KW: The perspective of many people in the U.S. is that there's so much more going on with digital payments in Europe than there actually is, but you seem confident that things are shifting despite some of the uncertainty around the new Payment Services Directive. In what direction are things going?
MJ: Things have changed a lot this year; we're seeing an awful lot of investments and new ideas coming into the market.
One of the players that has really kickstarted things is Apple. The introduction of Apple Pay has been a huge boost for everybody, but it's also helped in terms of settling on technology. When they selected to go with NFC, when they selected to use the existing payment associations, that collated a lot of the understanding in the industry and it's got people moving forward on the same path.
The brand awareness of Apple also helps to get the customers interested and involved; it really drives enthusiasm — and that makes space for some of the other players to get into the market. So we're seeing a lot of interesting ideas and developments coming on the back of Apple's entry into the market.
Although it's been a bit of a patch work, as I said, we're seeing a huge amount of movement this year, things like host card emulation (HCE), and companies are starting to pick and choose on the basis of how they want to drive their business, rather than what the technology is telling them they have to do.
In terms of retailers, we've seen a lot of programs come and go; we've seen a lot of different issues. But now everybody's getting behind NFC. The retailers know what sort of technology they need to put in place in order to be able to be secure and accept transactions like Apple Pay.
We can then see the developers and tech companies coming in knowing exactly what technologies they need to put in place; and we can see the banks then are comfortable with investing because they know exactly what direction the market's going.
These things together are really driving the growth of digital payments this year in Europe.
KW: You mentioned some uncertainty about business models with respect to interchange and the PSD. Is that giving banks pause, given Apple Pay's model of taking a little piece of interchange revenue?
MJ: I don't think so. I know that banks will of course always be looking to claw back any piece of revenue they can — and particularly with the PSD hanging over them, they have to look very carefully about how they're going to invest — and I'm sure they will push very hard for that piece. But I think the enthusiasm they're seeing around things like Apple Pay and all the other pay models probably outweighs the negative connotations of perhaps giving up a little bit of their revenue.
KW: I know you don't touch consumers directly, but obviously your customers do. How are consumers responding? Are they ready for the digital wave?
MJ: They are. We actually did some research this summer, reaching out to about 1,000 consumers across the U.K. and Germany to understand what their reading was of digital payments and whether they'd be willing to use them. Two-thirds of respondents indicated they'd expect to use mobile payments for at least half of their in-store purchases within the next two years.
There's definitely an appetite among the customer base, and they're very enthused about the general concept. Beyond the early adopters using the technology simply because it's there, more people are starting to understand that they can potentially get other benefits from using digital channels for payments.
KW: I know that TSYS is very involved in helping to advance the movement of digital payments throughout the world, and certainly in Europe. How are you helping, and what kinds of conversations are you having with your partners on that front?
MJ: From a TSYS perspective, we're trying to do two different things. We're obviously trying to innovate and bring technology and services to the market, but we're also trying to facilitate that journey for our customers.
There's trepidation on their part as to how they can move into the digital space. They're wondering if it's going to be an overhead for them, or if it's actually going to drive new business. I think we can both bring the ideas to them, but also facilitate how they implement them.
Digital doesn't change the fundamentals of any business; it remains the same one at heart. But it does change a lot of discussions about delivery, such as content and channels, and, more particularly, user experience.
We always talk about security when it comes to digital payments, but the really big conversation we're having is about user experience. It seems counterintuitive, but digital is really a personal experience. We're finding that the clients are focusing more on presentation and the end-to-end experience because — particularly for some of the new challenger banks or smaller players in the industry — that digital experience is how they define what makes them different.
KW: What are some of the things that you are cooking up in your innovation centers to address those opportunities with your clients?
MJ: A lot of it still relates to how to push digital payments out to the client, whether that is on Apple Pay, Samsung Pay, Android Pay, host card emulation, or so forth. There's a lot of work still to be done on getting people enabled.
The second thing that we're starting to look at is the changes that allow that — for example, how to put account controls into the hands of the customer so they can decide how they want to make their payments, how they want their account to be handled, and how they want to be marketed to. Those kind of ideas will come through. I think we'll see a shift in the next year or so towards getting a handle on those additional services.
People talk a lot about loyalty; and obviously, loyalty and real-time reward processing is a lot easier in the digital space than it was with plastic cards. But that won't be the only conversation; it will really be about how to drive the customer experience overall.
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