EPC Leader: mPayment Stalling in Europe

The Father of SEPA, the European Payments Council recently issued its proposed plan for achieving interoperability of mobile contactless in Europe. Dag-Inge Flatraaker, EPC’s M-Channel Working Group Chair, spoke with Market Platform Dynamics founder David Evans in this exclusive NEXTcast interview about the reaction thus far to the new contactless SEPA payment guidelines and how close Europe truly is to full-scale mobile payments adoption.  

Listen to audio interview: 

Transcript:

David Evans: Hello, this is David Evans. The folks at PYMNTS.com asked me to talk to Dag-Inge Flatraaker, who is the M-Channel Working Group Chair at the European Payments Council. Dag-Inge is also the General Manager and head of interbank infrastructure and payment system strategy in DnB NOR, which as I understand it, Dag-Inge, is a bank in Norway?

Dag-Inge Flatraaker: Yes, it’s a Norwegian bank, but with activities globally, but mostly in Norway and the Nordic & Baltic region.

Evans: And how long have you been chairing the M-Channel Working Group at the EPC?

Flatraaker: I’ve been involved in this many years, and have been chairing it from the start. I mean this was established as a strategy for the payments industry here, and then we created a working group and a roadmap for how we could help the industry to leverage the mobile channel, as such, for the SEPA services.

Evans: Very good. And Dag-Inge, here, I see you spent some time at Harvard University here in Boston, which is where I’m situated today, so we have that in common.

Flatraaker: OK, yes.

Evans: So Dag-Inge, let me start out with a question for you. I spend a lot of time in Europe. Why aren’t we all waving our phones like crazy to pay in Europe?

Flatraaker: I think you could say that the focus in Europe, the last years, has been the migration to EMV. That has been quite a big move. And then we are, in a way, almost final with that, but that has been a big effort by the whole industry in order to do that turnover, the migration. Many communities, of course, look at mobile contactless payments. This is however a much more complex ecosystem that requires corporation and agreements across industries, and between different stakeholder groups.

Evans: So it takes time to get all that done?

Flatraaker: Yes, exactly.

Evans: You proposed guidelines for the interoperability of mobile contacts. What are those guidelines designed to accomplish?

Flatraaker: Well, as you know the European Payments Council, together with the mobile operators, GSMA, have developed the requirements and specifications for mobile contactless payments management whereby the MCP applications resides on the secure element, the UICC SIM. The term TSM was then introduced to describe this, and introduced to fulfill some of the roles on behalf of mobile operators and issuing banks. We published this last year, and with the new publication we are doing now regarding the implementation guidelines, we – the EPC – has extended the scope in respect to the type of secure elements that can house MCP applications.

And those are, of course, the UICC SIM, but also incorporating embedded secure elements, and micro-secure digital cards. So in a way, based on these different types of secure elements, the new document describes service models in the ecosystem for the provisioning and life cycle management of the MCPs. And with all –

Evans: If I could interrupt you just for a second, I mean have you had any reactions to the guidelines yet? And if so, what has the reaction been?

Flatraaker: We also had a press release, with a very good coverage, and has resulted in a number of interviews that clearly show that there are a lot of interest in this subject, and that the market seems to be awaiting guidance in this area.

Evans: And we’re going to make the press release available on the URL for PYMNTS.com, so people will be able to see that. Do you expect that any of the significant players, and I’m not going to name any, will decide to go their own way and not to – intentionally not interoperate with other players in the ecosystem?

Flatraaker: Well, it could well be, that it will happen. However, I think major pilots and rollouts such as Payez Mobile in France, already seek international cooperation, and are fully aligned with the guidelines we are creating, and we are trying to mobilize everybody in the right direction and to join in. Typically, for cost efficiency reasons, I think most initiatives over time will seek interoperability and converge. We have seen examples of that, for example with the EMV evolution, and the card payments evolution. And our goal is to have all on board, so that we, over time, achieve an interoperable environment.

Evans: Right. Very good. Now mobile phones with interoperable contactless, that all sounds wonderful, but it’s not going to do the consumer any good if merchants don’t have contactless terminals where you can wave your phone. What’s going to get merchants to install contactless terminals? We’ve just put on this big effort to get chip-and-PIN blown out in Europe. What’s now going to get merchants to install contactless terminals?

Flatraaker: Well, for merchants, value added services, such as loyalty over the contact interface might improve their business case, and they can also achieve faster check-outs, that also give them more value. And since more and more customers will also use mobile contactless for other applications, such as transport, ticketing, and so forth, I think it will become a commodity over time, and hence merchants will need to jump on the boat to retain and attract new customers. So I think there are some incentives for everybody here.

Evans: In the States – and I’m not sure whether this is true in Europe – we have a number of startups that are not going contactless, but they’re actually using barcodes. Are we sure the contactless is the technology that’s eventually going to be adopted?

Flatraaker: Yes, I think so. Well, we see barcodes more as bridging technologies, while NFC based solutions offer better security with the payments application residing on a secure element. And we also believe that there are a lot more flexibility for users. But of course, in a wait for a more mature and ready ecosystem in place, we have seen bridging technologies emerge.

Evans: Which country in Europe, in the Euro-zone, is closest to having a widely adopted mobile payment system? Is there any country where you would say that it’s widely adopted, and if not, is there one country that you would say is the farthest ahead in mobile payments?

Flatraaker: I think we will see many examples in Europe, but we have to divide it, and mobile contactless, that’s one area, and remote payments, mobile remote payments, that’s another area. If you take the MCP or the mobile contactless area, we have a good example in France; very close to have a nationwide NFC based mobile payments system.

Evans: This is the Carrefour/MasterCard alliance?

Flatraaker: No, this is Payez Mobile. It’s a national launch, a cooperation between banks and other stakeholders as part of a national plan there. And also, Holland are on the way, when you talk about MCP preparedness. However, I think also in other countries, such as the UK and Spain, some trials and launches are underway within banks, and in other countries, you find initiatives for mobile payments, both contactless and remote, such as in — well, I mentioned Holland, but also the UK, Belgium, Sweden, Norway, Denmark etc. So there are a lot of things going on just now in the market.

Evans: And just one last question for you. If you had to make a forecast, and forecasts are always difficult, but if we go forward, let’s say, five years, do you expect that a large fraction of transactions at the point of sale in the major European countries will be done with mobile contactless?

Flatraaker: I think what we’ll see is that this will speed up, but you will see that contactless payments also will be carried by physical cards, side by side with the mobile. So what could happen is that the physical cards probably could go first, take up the volumes, and then it will bring it into the mobile in parallel or at a later stage. So in five years time, I think we will see more major changes in the market. It’s of course very difficult to say what the market share will be. So just now, everything is more, let us say, getting in place. Technology, the ecosystem, standards and requirements are now more ready, getting in place. And the European Payments Council are working on closing a few remaining gaps, including security requirements.

Evans: And of course, we had the recent announcement by Google that it’s going to be pushing contactless with the Android enabled phones, so there is indeed lots going on in this area at the moment. Dag-Inge, we really appreciate your time today. A lot of great insights on what’s happening in Europe, and we really appreciate it. So thank you very much, and have a great rest of the day.

Flatraaker: Yes, sure, Thanks.

Dag-Inge Flatraaker is General Manager and Head of Interbank Infrastructure and Payment System Strategy in DnB NOR. He holds a Master Degree in Economics (University of Oslo) and a mid-career Program at Harvard University (Boston) in Public and Business Administration. In DnB NOR he has held different management positions including payments, treasury, mid- and back-office functions.

Before that he had a long career in the Central Bank of Norway. He is standing member of COGEPS, APACS Council and EBA Association and holds key positions in the Norwegian payments infrastructures.