1. Leverage global expertise and plan in detail for migration by analysing the requirements of the payment schemes, the impact on your infrastructure and operations, the resources you need to migrate and timeline for completion.

2. Make sure your migration strategy considers the complexity of EMV and that you select the right options, such as your cardholder verification methods,  to reduce risk and improve the cardholder experience; ensure you have a test infrastructure that can emulate all of the configurations in EMV to reduce the possibility of interoperability issues and infield card failure.

3. Recognize that the US payments market is uniquely complex and fragmented with many more players than in other EMV markets. This means the EMV migration path will be different and that testing interoperability will be critical.

4. Consider how to protect your entire payments business as fraud migrates to potentially weaker non-EMV segments such as online commerce.

5. Establish the business opportunities you can now realise as part of the EMV roll out, including reduced fraud, better risk management, loyalty programs, NFC contactless and mobile payments, and new card products.

6. Identify existing customer needs that can be incorporated into your EMV migration project.

7. Launch a program to communicate the benefits of EMV and your future payments roadmap to whoever your customers are.

We examine the question of the US migration to EMV in more detail in our free guide, “What EMV Migration means for US Payment Firms“.

Click here to download!

It’s hard to change the way in which transactional banking and specialist products like mortgages, loans and wealth management products are delivered to consumers across contact channels. The technology that sits behind these channels is designed to deliver process flow and data processing, security and authentication, not to mention regulatory compliance and financial accounting. It’s not easy to layer sophisticated customer interaction models on top of this technology, which is often older, hard-coded, and bespoke.

Certainly, it looks like the rate of channel innovation isn’t about to slow down. From time to time, financial technology commentators write articles about the death of the branch, or the replacement of all other channels by mobile but none of the predictions really come true. Instead, businesses just keep adding new channels, modifying existing channels, adjusting the mix, and then try to find better ways to create a seamless experience wherever the customer chooses to interact with them.   Some banks, like Metro, are seeking to transform the branch using a trendy coffee-chain retail model and some like KBC are even launching “pop-up” branches. Some previously pure-play digital retailers are even stepping on to the high street. eBay launched a pop up store recently and even Amazon was at least rumoured to be considering investing in retail locations. Multi-channel is here to stay so the headache for banks is just going to keep getting bigger.

One useful measure is to implement purpose-built channel management solutions. Channel managers provide a way to manage all the channels consistently and provide a single integrated link between the bank’s back office and all it’s customer channel technologies. They also shield the core systems from expensive IT change in the race to keep up with channel innovation. The result is definitely more customer-centric but it doesn’t always address the presentation layer very effectively. Every channel has different requirements and mobile Internet technologies are changing so fast you need to be a specialist to keep up. Traditional banking IT just isn’t agile enough for the demands of a dynamic retail market.

So is the answer to call it quits? After all, following the economic downturn, everyone says, banks should just stick to the basics: focus on manufacturing product and keep deposits safe. Banks, rocked by the financial crisis, need to retrench. Many banks are considering outsourcing more of their non-core activities such as ATM management, card issuing, and merchant acquiring. So, instead, why not use specialist partners to manage the customer interaction layer? Specialists can respond in a faster and more agile way to market change.

An interesting example of this is SmartyPig, the online firm offers savings tools and prepaid card products. From the consumer’s perspective SmartyPig lets you do what you need to do. In this case, you can set savings targets and configure a savings plan to reach goals. It does this very well. Behind SmartyPig sits BBVA, the actual bank, hidden from view. BBVA is where the customer’s savings are actually deposited.  In this relationship BBVA gets new deposits, which is the bank’s primary goal, and SmartyPig delivers an experience that the consumer requires without the bank having to make changes to its core technology. Another example is Moven, which aims to provide a customer-centric banking experience on behalf of other banks. That’s not to say specialists need to be branded entities – they can just as easily be white-labelled – but the principle still applies.

Banks continue to invest in technology solutions to meet the interaction needs of the consumer because they believe they need to own and control the entire customer relationship. But relinquishing ownership doesn’t necessarily mean giving up control. And, in a changed financial services marketplace, perhaps banks should now be rethinking what they want to be and embracing innovation to help themselves to get back to basics.

P2P payments are primarily designed for people who want to transfer funds to each other directly from a bank account or a card account. The great breakthrough for P2P payment services is the mobile and the utilization of technologies such as smartphone apps. This delivers a huge leap forward in convenience from the days when the only option was to find a bank branch or  local money remittance shop and fill in a set of forms. A growing number of mobile P2P payments services are now being established in various states across Europe. These include Barclays’ PingIt and a new offering from the Bank of Ireland called Pay to Mobile. Initial take up is usually good for these services but it’s not clear yet whether this first generation will achieve significant market penetration.

There are two types of Mobile P2P Payments service in play today. In the first, customers (usually of the same bank) use mobile phone numbers as a proxy for their bank account details, like in the Bank of Ireland service. This requires both parties to register their phone number with a particular bank so it can be associated with their account. It’s really the same thing as your standard online banking transfer, just with the added convenience of being able to do it straight from your mobile. The second option, an extension of the first, is more open and usable. The process is similar but allows customers of different banks to transfer funds to each other. For example, Swish is a new Swedish P2P payments service that enables the entire country to transact. Following on the heels of Barclays’ PingIt, the U.K. Payments Council is planning to launch a service that will reach 90% of UK bank accounts in spring 2014.

These P2P payments initiatives could pose a threat to existing Internet and Mobile Money Transfer Services such as PayPal as well as the traditional Money Transfer firms, especially if they could be expanded for Pan-European Payments (see The Myth of Pan-European Mobile Payments). For example, Mobile P2P payments could be used as an alternative to debit and credit card acceptance for certain merchants by eliminating the need to physically accept a card. Perhaps though each will find a niche driven by specific use cases and get a slice of a payments market that is increasing in volume by giving customers more choice and opportunities to make payments.

Payleven recently hit the news with its Square-syle mobile payments service for the European market. Like iZettle and Square itself, Payleven allows users of iOS and Android phones to use their devices to accept card payments in person. So are we now at the point where we have pan-European mobile payments? Well, not quite and here’s why:

The first thing to clarify is that turning your phone into a payment terminal does not fall within the strictest definition of a mobile payment. What you’re doing is allowing your phone to act as a temporary Point of Sale terminal which you can then carry around to accept payments by debit or credit card. Sure, you can bring the terminal with you wherever you go but, when the transaction actually takes place, it’s just an everyday retail payment. In other words, it’s not actually a mobile-originated payment transaction. That’s not to say it’s a bad thing. On the plus side, what this does is allow more people and a more diverse group of businesses to accept payments without being tied to a retail location. It also makes the transaction a lot more secure. But, when the payment happens, it’s a standard “customer present, card present” transaction and not a “mobile to mobile payment”.

This distinction throws up some interesting challenges. If you’re a business that wants to take payments using your iPhone at random locations around Europe (let’s say you’re on the summer festival circuit), you will want to be able to accept cards in different countries ideally with a single merchant account. So will these services work for you? Well, because the transactions are “card present” they don’t benefit from the freedom of true Internet and mobile payments. iZettle and Payleven front up a payment service which also requires you to sign up to a merchant account with an acquiring bank or processor such as Elavon. The payment service provider is obliged to processes the transaction as a local “card present” transaction. This means the service has to be confined to the the country where you have the agreement with the service provider unlike a mobile-originated or a card-not-present Internet transaction which are effectively “borderless”. The result of this distinction is that you’ll need to have a merchant account for each country in which you are accepting transactions. You can’t – yet – get a single multi-country roaming merchant acquiring service, so you will probably need a separate service contract and a separate merchant account for each country.

There’s no doubt the industry will work to reduce the administrative overhead and these problems should be resolvable. Similarly, although the current providers are expanding, they are not truly pan-European just yet. Payleven’s current offering supports Germany, Italy, the Netherlands, Poland and the UK. iZettle is available in Norway, Denmark, Finland, the UK, Spain and Germany. iZettle has also experienced teething problems with Visa card acceptance in the Nordics. There’s more work to be done here to get complete coverage across Europe.

There is an alternative we should mention but it’s not perfect either. You can choose to take payments as if they were an internet transaction using something like PayPal. The reason this is not an ideal solution is because you want the payment experience to be as straightforward and “normal” as possible. The consumer would need to hand over their card and then have it keyed in rather than swiped or inserted so this makes the payment less seamless (and also less “normal”) as well as not benefitting from PIN-based security.

So if you want to be a roving pan-European merchant in the least complex way possible today you should be able to get going with one of these services, depending on the scope of your business. But the simple straightforward service promised as a result of EU payments integration isn’t really available just yet. Despite recent innovations and the push at a regulatory level to harmonise payments across European borders within the EU internal market (so that an international transaction is treated just like a domestic transaction), the reality for the merchant on the ground is that there are still a number of barriers that the payments industry hasn’t yet overcome. However, we expect (well, ok, we hope!) the industry will catch up fast and start offering a more seamless service in Europe very soon.

The full text of the press release follows:

Credit union shared business model project gathers pace

The project, developed in a partnership between ABCUL, Cornerstone Mutual Services and the credit unions, aims to significantly strengthen the credit union movement across Britain by building upon collaboration in the sector which has already delivered successful innovations such as the Credit Union Current Account and the ABCUL Prepaid Debit Card.

ABCUL has written to credit unions asking for expressions of interest in taking part in this project to be submitted by the end of July, with a view to building a team of talented and innovative credit union leaders to help take forward the development of a shared business model for the British credit union movement.

But what form will this growth take? And where is prepaid’s true home in the pantheon of banking and payments products? In this short article we examine what the future could hold for prepaid and where its real value can be found.

Blue Ocean Strategy: Prepaid cards are now growing rapidly in choice and functionality if not colour.

Prepaid gained its first market foothold when specialist companies began offering cards to the underbanked. This was ideal for consumers with a poor credit rating who were financially excluded by high-street banks. For those without a current account or credit card, it offered a new way to access basic banking services. However, prepaid card providers rightly received some criticism for charging these low-income earners with high fees including special loading charges for the privilege. For a while, prepaid suffered an identity crisis as a poor-value, poor relation in retail banking.

New payments regulation has changed the banking landscape for good. The European Payment Services Directive, E-money II Directive, along with a relaxing of Visa and MasterCard’s membership requirements, has opened the way for new entrants. “Non-banks” can now offer sophisticated payment account products and services including prepaid cards. For an example see our case study on the UK’s credit union prepaid card. This means they can meet the needs of the banked population and the growing debanked population (those who have made a choice to opt out of the traditional banking market) as well as the unbanked. Now non-banks like 02 and Walmart are also using prepaid as an entry point to financial services beyond the unbanked. The banks themselves including JP Morgan Chase are responding the growing threat of new entrants by embracing prepaid too, hoping that it will also combat the debanked phenomenon. As a result, prepaid is gradually being absorbed into the mainstream banking product portfolio.

But, you might ask, is prepaid really all that different? And why is prepaid so special? A prepaid card is, after all, effectively just another payment mechanism linked to a source of funds. Ultimately, it shouldn’t be all that different. Whether a payment is made by card, mobile, on-line, or offline, in the end it’s just a payment. Well, yes, that’s true, but we’re not there yet. We think the lines between prepaid and other payment mechanisms are going to be increasingly blurred. Look at the example of Paypal at the local garage. But, for now, it’s the way prepaid is being deployed to take advantage of its ability to adapt to new environments that is making the difference. In fact, the adoption of prepaid has been helped in no small amount by its jump from cards to mobile phones and virtual payments. Loading prepaid value onto a phone resonates with consumers already familiar with topping up their mobile phone account. Whether open-loop or closed-loop prepaid is infiltrating places where regular banking products find it difficult to go. Facebook credits are a good example of this. With mobile wallets, automated reloads, and tap-and-go contactless payments, industry is working towards the nirvana of frictionless payments. The trick is always to make the transactional experience, which itself is no more than a commodity, as simple as possible but also to add appropriate value on top of it to win customers. Prepaid is now ideally positioned to do this.

You can offer really sophisticated financial products through the prepaid banner. It allows for the addition of innovative value-add functionality. In particular, you can build a deeper relationship with your customer. Examples include American Express linking rewards and virtual cash to their prepaid card and Mango offering a higher interest savings account alongside the prepaid account. Mango claims this gives a rate of return to consumers of up to 45 times greater than the industry average. ABCUL’s offering lets cardholders set up automatic reloads with user-defined value and frequency. Many prepaid services, including ABCUL’s, offer text alerts for balance triggers or specific payments. This is useful for added-value money management services.

So has prepaid finally arrived as part of the mainstream retail banking story? Consumers continue to demand more sophisticated products that give them greater control over their money. They are seeking frictionless payments, transparent fee structures, and multi-channel usage. The potential for prepaid is to decouple payment services from deposit account banking, while building on the traditional debit card experience to improve customer satisfaction. Prepaid provides many opportunities for new entrant challenger banks and non-banks. It also serves up new challenges for incumbent banks seeking to hold on to their relationship with the consumer. For all participants in prepaid, an understanding of these market dynamics is essential in order to produce products that continue to meet consumer demand.

Learn much more by downloading the detailed case study PDF.

  To download content you must be logged in. If you haven’t already, login now or register.

There’s no doubt that upgrading your payments acceptance infrastructure can be expensive in terms of capital cost, business disruption, resource allocation and staff training. This partly explains why many first-generation contactless card and NFC payment initiatives struggled to get out of the pilot phase. Despite these questions, contactless is making steady progress spurred on by the might of the payments industry.

According to Berg Insight 2.5 million NFC enabled PoS devices were shipped in 2011 and they forecast that 43.4 million PoS devices worldwide will be NFC-enabled by 2017. In the face of seemingly inevitable change, retailers now need to work out the best strategy for the integration of contactless technology into their businesses.

What value does Contactless really bring to retailers?

There are at least three important commercial incentives for retailers to upgrade their infrastructure to support acceptance of contactless payments at the checkout. Firstly, by responding to changing consumer habits and expectations through the adoption of contactless, retailers can retain a competitive edge. The acceptance of payments from contactless cards and NFC-enabled devices can improve your consumer experience and potentially reduce your costs by increasing the efficiency of your total checkout process. In retail, seconds count towards revenue throughput and customer satisfaction.

Secondly, contactless payments can drive sales uplift. Consumers with contactless cards spent 30% more than those without according to a recent MasterCard study. This can be from factors such as increased convenience and even novelty value which can increase the frequency of purchase and pave the way for increased loyalty.

Contactless Payments Infographic from MasterCard Advisors

Thirdly, and perhaps most importantly, contactless cards and NFC-enabled devices establish a new connection between retailers and their customers, one that can be exploited as an invaluable channel for loyalty and promotions as well as for new service offerings. We explore this in more detail later in this post.

As an added incentive, the implementation of contactless is becoming a more pressing issue for retailers now that the Card Schemes are bundling contactless payments with the deployment of EMV Chip (using a dual interface specification), and offering additional incentives to eliminate expensive PCI audit and compliance.

The rollout of contactless payment services like Paytag from Barclaycard (or the Zapa Tag we profiled last year) mean retailers can now provide alternative queue-busting contactless payment methods for any phone to enhance the consumer experience and improve transaction throughput.

The adoption of Contactless and NFC payments, in particular via EMV Chip and Contactless, now presents a very different commercial proposition compared to when it first hit the market. If planned for correctly there are many benefits that can be realised for all parties in the payments value chain.

Contactless is more than just Payments

Contactless cards and terminals offer much more than just a new payment method. These technologies allow consumers and merchants to interact in valuable new ways.  Retailers can provide a more personalised shopping experience for customers. Alongside tailored mobile apps, contactless can be combined with complementary technologies to offer a path directly into the consumer’s pocket to influence purchasing decisions. Drawing on data gathered from spending habits, targeted offers can be pushed to the consumer’s mobile phone. The consumer can be directed to your nearest outlet to avail of the offer and, with the convenience of NFC, they can use the same phone to purchase your product at the self-service checkout or point of sale.  This drives “smart” revenue opportunities to your outlet reducing the cost of customer engagement and providing a more convenient experience for your consumer.

Consider the growth in our couponing culture spearheaded by Groupon and Living Social. Consumers have demonstrated an appetite for receiving focused “deal promotions”. NFC technology allows consumers to redeem loyalty offers they scan at QR codes or NFC tag enabled posters or magazines, and to receive loyalty points or virtual currency at the point of sale. Contactless payments can give the consumer the choice of participating in lifestyle offers at a time and place most suitable and relevant to them, in a more convenient way. In the future, for instance, if you combine Geo-fencing technology, where services are triggered using the location of your mobile, with NFC payment technology, there are a multitude of further possibilities for the retailer. These include pre-loading of customer data, automatic start up of the retailer’s mobile app or auto-filling of favourites in your basket as you enter the retailer’s premises.

So, while contactless is valuable in its own right as a payment method, it is the added value as an enabling component that makes its adoption really compelling in a retail strategy. If adopting contactless payments, retailers need a strategy that utilizes it to generate an uplift in purchases, increased consumer loyalty, more targeted mobile marketing, and cost savings from queue-busting. With the right strategy in place, you can drive real value from contactless payments. In fact, the potential reward is far greater than just providing a more convenient way to pay.

Why are traditional payment methods such as cash and cheques proving so difficult to dislodge? Last October, in our post What the future of Cheques means for innovation in payments, we discussed the efforts of the UK Payments Council to eradicate cheques by 2018. This was met by significant opposition for many social and convenience reasons, and the plans were subsequently abandoned. Despite the best efforts of the Payments industry and Governments, most of us still like to have the choice to use cheques or cash to make daily payments. And, for many of us, electronic methods still fall short in replicating the functionality offered by these antiquated but proven instruments. According to MasterCard, 85% of retail payments world wide are still made with cash. You can’t force people to use alternative methods if they aren’t fulfilling peoples needs in the same way as cash – or the cheque – does. In his report, Peter makes a good point that cash will not be eradicated but will need to become competitive with other payment systems. Even at a fundamental level, many countries are now upgrading bank notes from paper to polymer materials which will improve durability and security. At the same time, and this may be the crux of the matter, other payment systems need to become competitive with cash. This could mean one very good mobile payments system but it is more likely to be a combination of fit-for-purpose offerings including Internet payments, contactless cards, mobile payments, virtual currencies, and so on.

Governments are working hard on the problem. In one example Canada has just launched mintchip, its own digital currency.

Whilst branding mintchip as “better than cash”, the Royal Canadian Mint has also simultaneously recognized the need to incentivize the payments industry to develop ways in which mintchip can be deployed to emulate cash with a high profile $50,000 contest. Interestingly – at the same time as this announcement – Canada is stopping the production of pennies which, apparently, each cost 1.6 cents to produce.

In any discussion on displacing cash, the “last mile” problem is never too far away. Although the majority of consumer payments worldwide are still cash this is often because it’s the final interaction, or “last mile” in the payment chain that requires cash in paper form. This is true of ATM transactions, cash back at the Point of Sale transactions, and even cash withdrawals at the bank. In any payments ecosystem someone, somewhere in the payments chain, will want to get cash out or put cash in. Identifying these cases and how they can be addressed is often the key to an effective ‘cashless’ business model. There are also opportunities for electronic payment methods to combine with cash to provide the benefits, and eliminate the drawbacks, of both to business and consumers. A case in point is the cash back facility which allows retailers to reduce the cost of holding cash floats and overnight cash depositing by offering cash back to consumers who use a payment card for purchases. Similarly, cash fuels Mobile P2P payment services with cash deposits to mobile accounts via an agent or a retail point of sale, allowing more commerce and facilitating people who don’t have a bank account.

So we’re agreed that cash will probably continue as an important payment mechanism for quite some time. It still has a major role to play for the majority of the world’s consumers. There are many battles yet to be fought in the war on cash and much work is still needed to identify electronic payments method that offer sufficiently compelling alternatives to win the hearts and minds of cash-loving consumers.

For many years, the US payments sector resisted growing pressure for the adoption of EMV, the chip card payments standard created by Europay, MasterCard and Visa in the 1990s. But a tipping point in global adoption has been reached with over 1.3 billion EMV payment cards in global circulation and more than 20 million terminals active worldwide, according to EMVCo. Now, the EMV standard is set to be introduced to the US market at last following recent announcements by Visa and by MasterCard with details of mandates for EMV migration starting in 2013.

The EMV standard was created as a means to authenticate a card and the cardholder to reduce the instances of fraud by using an embedded chip in the card and encryption software. The use of an EMV chip to power payments transactions is a dramatic departure from the magnetic stripe. It places authentication intelligence on the card, fundamentally changing the nature of the end-to-end payment transaction. It changes the authentication method, the role of the terminal, and the nature of the data transmitted during each transaction, all of which creates expense in implementing EMV chip cards for the first time and maintaining them going forward. But this cost can be offset by a significant reduction in the cost of fraud and in the cost of expensive anti-fraud measures such as compliance with the Payment Card Industry Data Security Standard (PCI DSS), also known as PCI compliance. EMV chip also opens up possibilities for application intelligence on the card. This, in turn, creates significant commercial opportunities to offset the expense of migrating to EMV. The EMV standard also enables global interoperability. This will address problems US travelers sometimes encounter when using their magstripe cards overseas in a global chip card environment, a problem that has been growing as the rest of the world moves to EMV chip.

For US  card issuers, acquirers and merchants, the reality is that EMV is coming. The challenge is to learn from the experience of migrating to EMV in other countries and transition to EMV with the minimum of fuss while maximizing the commercial potential of this new standard.

When is EMV going to happen in the US?

According to Visa, effective 1 April 2013, acquirers and payment processors will be required to support merchant acceptance of EMV chip transactions. And, in October 2015 a liability shift will saddle merchants with losses for fraudulent transactions that could have been prevented if the merchants had installed EMV terminals. Gasoline retailers have two additional years to comply.

Visa’s plans include requirements for acquirer processors to support EMV chip acceptance and the introduction of US liability shift policies. In this case, chip acceptance includes support for near-field communications (NFC) contactless payments. Visa’s plans incentivize merchants to upgrade to EMV dual interface terminals (chip and contactless) by saving on PCI compliance costs. In fact some see the drive by Visa for EMV in the US as being as much about supporting contactless payments as trying to ensue greater payment transaction security.

Planning for EMV migration

Now that EMV has been mandated by two of the main payment schemes for 2013, US payments firms need to start planning for it. The first stage is to build awareness of the step change between EMV and magstripe in your card business. An EMV infrastructure contains more interactions, nuances and options for features than magstripe.  These include Online and Offline Authentication and Authorization, multiple Cardholder Verification Methods (CVM), requirements for global interoperability, and options to deliver multiple applications on the card. The next thing to recognize is that US firms face a different migration path to other countries. Unlike other countries, the US won’t have a gentle run-in to EMV as a result of years of piloting and working towards the goal of deploying EMV so it will be a much steeper learning curve. However, there are opportunities to learn valuable lessons from other countries who have already implemented EMV. These lessons can help to define scope, reduce cost, and ensure a more seamless transition to EMV. Finally, the US is the most advanced card market still using magstripe. It’s implementation of EMV will be unique selecting EMV configuration options that leverage the strength of existing online communications infrastructure available in the country and taking advantage of opportunity for a parallel implementation of contactless technology. In the view of the Smart Card Alliance, “The U.S. may evolve to a hybrid combination of options to best support venue, transaction type, and compatibility with the rest of the world.”

We examine the question of the US migration to EMV in more detail in our free guide, “What EMV Migration means for US Payment Firms“.

Click here to download Bayberry