The Retailer Autumn 2017

retailer |

autumn 2017

| autumn 2017

retailer

GOOD NEWS ALL ROUND

Overall, assuming its potential teething problems are overcome,

PSD2 is good news. It should herald an onset of a greater number,

and more importantly, greater type of players in the payments

ecosystem; and by opening up (properly controlled) access to

bank accounts, catalyse innovative products and services. A

bigger market with more choice is a good thing, for firms which

are able to adapt quickly. Perhaps it will help to drive improved

experiences for customers in-store – which, unlike so many other

areas, hasn’t changed much recently, and itself is probably ripe for

disruption.

VERIFONE UK

// +44 (0)20 3264 3100

verifone.co.uk

Neil Burton

CAO & Head of Change Management

Verifone Europe

A ONCE-IN-A-GENERATION CHANGE IS OPENING A

NEW ERA OF PAYMENTS. HERE’S WHAT IT MEANS

FOR RETAILERS:

Usually we equate disruptors with startups and innovators. PSD2

proves that regulators qualify, too. In January 2018 the Second

Payment Services Directive (PSD2) will come into force; altering

the retail payments ecosystem. Whilst the impact may initially be

small, it is intended to drive a great deal of change.

PSD2 mandates Open Banking, opening the door for non-banks

to access data held exclusively within banks today, and to provide

account-account payments services. There are of course strict

safeguards, including customer opt-in. New entrants quite rightly

must adhere to bank-like standards, including security and

financial propriety. As with the first PSD, already-large companies

as well as startups will join the ecosystem. Some may already be

retailers. They are expected to bring innovative new approaches

and services. In conjunction with Instant Payments – near-

immediate account-account transfers, which are today live in

many European countries, with a pan-European scheme launching

in November – we should expect to see new players touting

a new retail payment method for both online and in-store.

In PSD2-speak, these are PISPs – payment initiation

service providers.

For merchants, Instant could be cheaper than card payments,

and come with other benefits. According to Accenture

‘the PISP model presents other benefits to merchants, including

the removal of the liquidity risk within the transaction and the

potential for faster clearing of funds’. However, few merchants

have the purchasing power to cause a change in consumer

behaviour, so consumer preferences play a major part. If it’s less

convenient, why change. And here another element of PSD2

is unfortunately working in the opposite direction.

Secure Customer Authentication

enforces multi-factor authentication

for many use cases (contactless at the

point of sale being a major exception).

By seeking to increase consumer protection from fraud, the

regulation inadvertently nobbles its market-disruptive ambitions.

As a result of a great deal of industry pushback, the Secure

Customer Authentication requirements are not yet finalised –

which, since their timeframe is different from that of the bulk of

PSD2, means they won’t be imposed until after Brexit. In this fast

moving world, at least one event horizon is certain.

AHEAD OF THE GAME?

As is often the case, the Nordics offers some strong pointers.

Banks have collaborated (remarkable in its own right) to establish

mobile payments schemes; which are remarkably successful.

MobilePay, which started in Denmark in 2013, grew to more than

3.6 million users (about half the population) in three years.

Norway’s VIPPS and Sweden’s Swish are two other very strong

models. VIPPS had one million users within six months of launch

and is Norway’s largest payment application. These schemes

support bank account to bank account transfers – a different

model to the now-familiar use of a smartphone to initiate a card

transaction – as well as card-on-file.

Because of the strong adoption, retailers need to support those

payment modes instore. Retailers are understandably reluctant to

place additional technology instore, and providers of their card

and contactless acceptance devices have responded by enabling

instant payments at the POS. More than 55,000 Danish shops

accept payments via MobilePay.

Concurrently, those upgrades spawn further innovation; what

was once a payment acceptance device now has new roles in

onboarding and delivering loyalty, and in enabling upsell and

cross-sell. Technology is enabling change to the in-store

consumer experience.

And experience is where the value lies. At a recent industry event,

a senior exec of Saxo Bank

, another Danish innovation, used the

coffee industry to outline the difference between a commodity

and an experience. A bean costs $0.02; fresh ground beans $0.30;

a mundanely-presented fresh cup of coffee $2; and a coffee

experience, $5. Whilst on-line has changed dramatically, the

in-store shopping experience hasn’t, and disruptors are looking to

change that. PSD2 and open banking will change consumer

expectations, concurrent with a technology refresh in-store.

Where older-gen devices’ role was firmly at the checkout, today

it’s across the entire store walk. In some models, it may no longer

be necessary at the checkout at all. And of course, it must be

consistent across marketing and purchasing channels;

omnichannel is a prerequisite.

PSD2: Get ready for the Open Banking

revolution

“PSD2, Open

Banking, Instant

and new-gen

technology

will change

more than

payments; also

the shopping

experience,

both instore

and online”

business

1. Seizing the Opportunities Unlocked by the EU’s Revised Payment Services

Directive, Accenture.

2. Benny Boye Johansen, Senior Director, Head of OpenAPI at Saxo Bank,

at FS Club London 12 Oct 2017