Europe's anti-money laundering battleplan
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August 2016 Issue 350 www.electronicpaymentsinternational.com
Europe’s anti-money laundering
battleplan
•Review: The Digital Banking Club Debate
•Comment: Mobile money Afghanistan
Analysis: MasterCard & VocaLink
•
•Country Surveys: China, Russia, Vietnam
EPI 350.indd 1 16/08/2016 10:00:23
Multichannel
digital
solutions
for financial
services
providers
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IE RBI final design.indd 1 05/05/2016 10:36:41
NEWS
EDITOR’S LETTER
CONTENTS
Now a ‘fully fledged chicken’,
NEWS
just how far will Zapp go?
3: DIGEST
FEATURE After the speculation came the deal, then the system with ‘request to pay’ functionality, capable
flurry of media coverage. What next for VocaLink, of handling big data.
6: ANTI-MONEY LAUNDERING
under MasterCard? And is it really all good news? At present in the UK we only have a real time
Europe is beginning to crackdown on money
laundering schemes through newer, digital The potential is far-reaching, with Master- credit system, not an open system standard.
options such as blockchain and prepaid Card’s global footprint and VocaLink’s world Before it reaches these shores, in less than five
cards. Patrick Brusnahan writes on the new class real time payments innovation, to mention years’ time, it will most likely have been launched
regulation from the European Commission
but two lucrative resources the scheme and system in other countries, says Yates.
7: M&A operator now share. “The hottest markets for us right now are all
Patrick Brusnahan reports on the much-
anticipated deal between MasterCard and
The next thing to mention is of course Zapp. the way across South East Asia; the SEPA zone has
VocaLink, which was acquired for $920m. MasterCard provided the spark needed to get determined they wish to have a real time clearing
This is a great deal for both parties involved, Zapp off the ground. As David Yates, CEO system for euro payments. Obviously the US has
but how will it affect the consumer?
VocaLink and now on the management com- already gone. The other markets in the Americas
8: MOBILE MONEY mittee team at MasterCard, says, “It had been a are looking as well. This is pretty much a global
Afghanistan remains a hugely cash-based chicken and egg scenario; the banks saying ‘show phenomenon, everybody is looking at this ques-
economy, but the government, mobile
network operators and many more are trying me the merchants and the merchants saying show tion.”
to encourage the usage of mobile money. me the banks’. Well, I now have a fully fledged VocaLink and MasterCard together couldn’t be
Robin Arnfield investigates chicken and the banks are jumping on board.” better placed to deliver.
10: THE DIGITAL BANKING CLUB Yates confirms said chicken was indeed going The burning question is what’s to stop
Are fintech firms friends or foes of the to be deployed globally, subject to re-branding. MasterCard hiking up the cost to access the
incumbent banks? The latest TDBC debate,
The Link name will not be used in any way at all; system a little further down the line? Given the
sponsored by Mitek, is set to answer that
very question. Jessica Longley reports VocaLink will remain a brand but the Zapp brand Payment Systems Regulator’s (PSR) mandate
will be reinvented. to democratise the UK’s payments scene, many
SURVEY “We will have to think carefully about how might argue that endorsing VocaLink’s sale to a
to reposition that,” Yates adds. He feels the key company such as MasterCard veers in the oppo-
13: CHINA differentiator for Zapp is the real time billing and site direction of the commitment, not promising
14: RUSSIA invoicing capability. And the e- and m-commerce much by way of keeping the system competitive
offering. for all system users. Yates, however, repudiates this
15: VIETNAM
Zapp is the focus going forward, being the ser- wholeheartedly.
COMMENT vice that can be deployed on the fast and open pay- “We have made it clear to the PSR that we
ments system VocaLink has developed and honed know and expect that there will be a competitve
2: INAUTH in key advanced markets such as Singapore, Swe- process, the chance of this being an environment
16: CXPARTNERS
den, Thailand and the US. There was a time when in which you could even dream of increasing the
their UK Faster Payments system was best in class; prices is just not realistic.”
well, fast forward five years and Faster Payments In the meantime, we eagerly await Zapp's
will be brought up to speed, as it were. And this launch .<
straight from the horse’s mouth.
The all new, souped up version will be, as in
the other four aforementioned markets, an ISO
20 022, open standard real time credit and debit ANNA MILNE, anna.milne@uk.timetric.com
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www.electronicpaymentsinternational.com August 2016y 1
EPI 350.indd 1 16/08/2016 10:00:27
COMMENT
INAUTH Electronic Payments International
How mobile devices support PSD2 regulations
Traditional browser-based online banking will eventually lose market share to mobile devices with the
ability to peform real-time transactions. While cash is currently the most direct way of paying for products
and services, it could soon be a thing of the past. Michael Lynch, Chief Strategy Officer at InAuth, writes
T
he terms PSD2 , EBA , 2FA , and phishing and malware. device IDs, security enhances the customer
A rticle 97 might appear at first In an effort to stay ahead of fraudsters, experience rather than deterring it. What
g lance to be t y pical reg ulator y modern security standards follow more makes this possible is that the mobile device
jargon, but make no mistake; they stringent requirements that rely less on tem- itself can serve as a unique identifier.
have huge implications in the world of porary identifiers and knowledge that can be When handled in this fashion, we can look
digital payments. guessed. Instead they use more permanent at cybersecurity as a transaction enabler that
What do they all mean? The European attributes associated with users that cannot enhances customer service, rather than as an
Banking Authority (EBA) is poised to issue a be easily changed, altered, or guessed. existing as a barrier. The two no longer have
new round of regulations and requirements The highest form of 2FA security includes to be mutually exclusive. In the future, cyber-
in their annual Payment Services Directive the use of biometrics such as finger print or security will aid and assist in the comfort of
(PSD2). This edict regulates payment services eye scans to ensure the 100% authentication the user by remaining in the background,
and payment service providers throughout of users. However, since this technology is quietly greasing the wheels of the transaction.
the European Union. In short, it is a big deal. not yet widely commercially available, 2FA is
As written, PSD2 extends and accelerates expected to be made up of the next best thing Positioning for the cashless economy
many of the existing trends in European – a combination of inalterable attributes asso- Organisations that comply by using mobile
banking and online retail. This includes ciated with the users’ electronic device. as a secure 2FA token will be far better posi-
regulations encouraging non-traditional This change represents a major opportuni- tioned for the cashless economy. The chal-
parties to participate in payments and accel- ty for mobile technology because the unique lenge will be dealing with the elimination of
erates competition within the banking com- identifiers associated with a mobile device the lag time that has traditionally been in
munity through multi-banking. In this new can be combined to form security that is place for suspicious transactions. Electronic
PSD2 system, users will interface with banks stronger than a browser on a PC. Fraudsters payments have typically required a manual
through portals that consolidate all of their just can’t fake it. review of potentially fraudulent transactions.
banking accounts, thereby forcing the banks This unique identifier can then operate That will no longer be the case.
into commodity-style competition. as a secure token, authenticating the user’s Clearly, a move to faster payments is
These trends are good news for consumers true identity, adding a layer of security that something everyone – consumers, business-
but have got security professionals on edge. protects the organisation—as well as their es, financial institutions, and governments
The pros know a network is only as secure as respective customers—during any customer – wants to happen. While cash has always
its weakest link and the introduction of third- transactions on the device. been the most immediate form of payment,
party portals could potentially compromise it it is an expensive instrument. The US spends
for everyone. With this in mind, Article 97 of Strong security enables frictionless $200bn to keep its cash system working and,
PSD2, due out in a few months, is expected Financial institutions and online retailers according to the European Central Bank, the
to require strong two-factor authentication have a conflicted relationship with these pre- total cost of cash in the European Union is
(2FA) on all online transactions. dicted changes in security regulations. On 1% or more of GDP.
the one hand, they realise PSD2 is a good Stronger authentication models put in
The importance of strong 2FA mechanism for reducing fraud. On the other, place now are key to enabling faster pay-
2FA is a method of confirming a user’s they expect the new regulations and height- ments, eliminating the processing lag and
claimed identity by using a combination ened security will negatively affect their abil- executing the transaction in real-time. Many
of two different components. These com- ity to create a frictionless experience for their of the anti-fraud tools and processes used by
ponents may be something the user knows, customers. banks are either performed manually, or are
possesses, or an attribute that is inseparable Based on past experience, this fear of slow- geared around having a built-in time delay.
from the user’s identity. Using a combination ing down transactions is understandable. To These slower payments processes give insti-
of two components from this list forms the many organisations, tighter security means tutions more time to detect and prevent pos-
backbone behind strong security. more forms for customers to fill out, more sible fraud.
A good example of 2FA in everyday life challenge questions, and more passwords for Customers won’t be satisfied with delays.
is withdrawing of money from an ATM. them to remember. Financial institutions and Strong device authentication and risk assess-
Only the correct combination of a bank card retailers know their customers don’t want ment is necessary.
(something the user possesses) and a PIN these barriers; they just want their transac- Many experts, including the consulting
(something the user knows) allows the trans- tion processed. Slowing the process down firm Deloitte, are predicting that cash, while
action to be carried out. However, this form unnecessarily is an irritation for customers still the fastest way to pay for something,
of 2FA constitutes relatively weak security that puts the entire transaction in jeopardy. could become a thing of the past, with real-
and is ineffective against modern threats like In this new paradigm of using permanent time payments as its successor. <
2 y August 20166 www.electronicpaymentsinternational.com
EPI 350.indd 2 16/08/2016 10:00:27
NEWS
Electronic Payments International DIGEST
MOBILE
Apple Pay now available in On the Apple Pay France website, Apple 2, and both iPad Pro models. It does not
France and Hong Kong said Boon and Orange will also start sup- require Apple Pay-specific contactless pay-
porting the service very soon. ment terminals, and can work with existing
Tech giant Apple has launched its mobile In Hong Kong, MasterCard, Visa, Ameri- contactless terminals.
payment system Apple Pay in France and can Express payment cards issued by banks When a consumer adds a credit card to
Hong Kong. The service is now available in HSBC, Bank of China (Hong Kong), Hang Apple Pay, the actual card numbers are not
eight countries. Seng, DBS and Standard Chartered will sup- stored on the device, or on Apple servers.
In France, the mobile payment service port Apple Pay. Instead, a unique device account number is
will be compatible with Mastercard and The service allows customers to make assigned, encrypted and securely stored in
Visa credit and debit cards issued by Carre- purchases at participating stores with their the secure element on the device. Each trans-
four Banque and Ticket Restaurant as well iPhone 6, iPhone 6 Plus, iPhone 6s, iPhone action is authorised with a one-time unique
as Banque Populaire and Caisse d'Epargne. 6s Plus, Apple Watch, iPad mini 4, iPad Air dynamic security code.<
DIGITAL REGULATION DISTRIBUTION
South African lender Absa Number26 rebrands and Mobile banking usage surges
introduces MasterPass digital re-launches in UK as banking via websites
wallet slows
South African financial services giant Customers used mobile banking apps
Absa has launched MasterCard’s digital more than 7,610 times a minute, or four
payment platform MasterPass to enable billion times a year, the Way We Bank
its clients to make online payments via a Now report found.
virtual wallet. The Germany-based start-up bank, Internet banking log-ins dropped 4.3 mil-
Called Absa MasterPass, the app can Number26, has received a full banking lion a day in 2015 compared with 4.4 mil-
be used to make online purchases wher- license from the Federal Financial Super- lion in 2014, the report says. Mobile apps
ever MasterPass is accepted. visory Authority and the European Cen- were used 11 million times a day in 2015,
Absa, a wholly owned subsidiary of tral Bank. As a result, it has changed its up from seven million a day in 2014.
Barclays Africa Group, said that its cus- name to N26. The volume of payments using mobile
tomers will also soon be able to do in- One and a half years after launch, the apps was 347 million in 2015, up 54% or
store shopping using Absa MasterPass. digital-only N26 now has regulatory 122 million from 2014. Payments using
Introduced in 2013, MasterPass approval to conduct banking operations internet banking stood at 417 million in
securely stores consumers’ credit, debit across Europe. It plans to launch real- 2015, an increase of 2% or nine million
or cheque card information, and ship- time credit, increased security through from 2014.
ping and billing address details in a secure artificial intelligence and expense sharing The annual use of contactless cards
data centre at the issuing bank and sends over the next twelve months. also rose by 250%, with £1.1bn ($1.4bn)
cardholder information to the merchant Currently holding 200,000 custom- spent in March 2016 alone. Banks issued
during the payment process. ers across eight European countries, its 15 million contactless cards in last year, a
To pay, users open the app and scan the different features include CASH26 (cash surge of 54% compared with 2014.
quick response (QR) code on the website, withdrawals at retailers) and Money- The study, supported by EY, also
select the card they wish to use, and enter Beam (money transfers via SMS or email found that over 13.8 million apps were
their PIN number. in seconds). downloaded in 2015, a jump of 25%
MasterCard launched the digital pay- Whether this encourages more custom- compared with the year ago figures.
ment service in South Africa in July 2014. ers to sign up or not remains to be seen. BBA CEO Anthony Browne said: “Our
Currently, MasterPass is accepted at N26 received some negative press earlier influential Way We Bank Now report
Vodacom, Forever Resorts, Lancet Labs, this year for cancelling several hundred shows a staggering increase in people
Lottostar, South African Airways, and bank accounts without notice. This was using mobile apps, proving it’s now easier
Takealot. attributed to excessive ATM withdrawls. than ever to interact with your bank.
Willie van Zyl, head of card issuing, Currently, N26 customers can make “We are in the midst of a consumer-led
Absa Retail and Business Banking, said: three free withdrawals a month, five for revolution in the way we do our day-to-
“We are seeing a huge change in the way primary customers, with a €2 (US$2.20) day banking. Customers love the new
our customers shop and pay for things charge for withdrawals outside this limit. technology that is allowing us to bank
and the Absa MasterPass App is another Valentin Staff, founder and CEO of round the clock.
step on our mobile banking journey as N26, said: “This banking license is an “You can set up standing orders while
we respond to the changing needs of our important additional step for us to sus- standing in the queue for the bus and
customers. It also gives them access to a tainably change the value chain in retail check your balance while checking in at
smooth shopping experience – from start banking. This will allow us to significant- the airport. The choice now on offer from
to finish and in real time. It allows people ly enhance the diversity of our product banks, from state-of-the-art branches to
to conduct the transaction of their choice portfolio. For our customers, that means cutting edge apps, has put customers
through the channel of their choice – any access to the best financial products, right firmly in the driving seat on the way we
time and in any place.”< on the app.”< bank.”<
www.electronicpaymentsinternational.com August 2016y 3
EPI 350.indd 3 16/08/2016 10:00:30
NEWS
DIGEST Electronic Payments International
RESEARCH
Indian digital payments market
to be worth $500bn by 2020 consumers, are 90% as likely, to use digital ments is undergoing rapid transformation
payments for both online as well as offline and is set to grow four times in value by
The size of digital payments industry in transactions. 2020. India is on an even more exponential
India will be $500bn by 2020, account- By 2020, more than 60% of digital pay- growth trajectory. The smartphone explo-
ing for 15% to the country’s gross domes- ments value will be accounted for by offline sion will usher in a new era in digital pay-
tic product (GDP), according to a report points of sale such as unorganised retail, ments in India over the next few years that
by Google and Boston Consulting Group eateries, and transport. will see digital payments exceed $500bn by
(BCG). Google vice-president for SEA & India 2020 and non-cash transactions exceed cash
Non-cash contribution in the consumer Rajan Anandan said: “Spurred by smart- transactions by 2023.”
payments segment will double to 40% by phone penetration, and supported by pro- The study, based on Nielsen’s qualitative
2020. Non-cash includes cheques, demand gressive regulatory policy, the digital pay- and quantitative research with over 3,500
drafts, net-banking, credit/debit cards, ments industry is at an inflection point and respondents, also highlighted that micro-
mobile wallets and UPI. is set to grow 10 times by 2020. It is telling transactions will form a substantial portion
The report noted that 81% of exist- that half of India’s internet users will use of the industry, with over 50% of person-to-
ing digital payment users prefer it to any digital payments and that the top 100 mil- merchant transactions expected to be under
other non-cash payment methods. Online, lion users will drive 70% of the GMV – a INR100 ($1.40).
shopping, payment of utility bills and buy- clear indicator of the growing importance The report predicts that the value of
ing movie tickets emerged as the three top of the digital consumer.” remittances and money transfer that will
things that a user primarily interacts with. BCG senior partner and managing direc- pass through alternate digital payment
The report further revealed that Indian tor, Alpesh Shah, said: “Global digital pay- instruments will double to 30% by 2020.<
MOBILE
One Horizon unveils new device. the world, thereby increasing our attrac-
cashless payment service for One Horizon will manage both tiveness as a cashless payment provider.
mobile telcos banking relationship and custom- Simplifying payments for both the customer
ers interface management, and remit and the operator allows the operator to con-
70% of the payment directly to the centrate on the promotion of the app and
One Horizon Group, a developer of carrier- operator. the customer is secure in the knowledge that
grade VoIP solutions, has launched a new One Horizon added that its solution will they can securely pay anytime, anyplace,
Android mobile wallet for mobile operators. never store user’s credit card data either on anywhere."
This enables users to purchase call credit app or on servers and will be transported "Our revenue model is simple; we charge
using only their debit or credit card for the using the highest internet security standards for 30% of the purchase and making the
transaction. available. purchase as simple to follow as possible is
The company said that its new cashless One Horizon Group CEO Brian Collins the key.
payment service will enable mobile opera- said: "Continuing to drive innovation inside “Users love it, operators love it and the
tors to take credit and debit card payments our R&D teams means that we expand our One Horizon bottom-line loves it too," Col-
from their subscribers on any Android commercial offerings to operators around lins added.<
SECURITY
Payments Association of South The Payments Association of South Afri- MasterCard division president for South
Africa launches new biometrics ca (PASA) – working in partnership with Africa Mark Elliott said: “Through this
standard for payments MasterCard and Visa – has announced a new interoperable biometric verification stand-
standardised specification for facilitating bio- ard in South Africa, we can connect a com-
metric authentication on payment cards. plicated web of players who operate with
The new technology framework, which different rules and technologies.
has been developed to ensure interoperable “Together, we can drive ubiquity, safety,
solutions, will support biometrics. and utility of biometric payments, while
MasterCard and Visa have designed helping to accelerate the number of smart
fingerprint biometric systems that can be and secure biometric payment solutions
securely accepted by a biometric reader, available to consumers on these platforms.”
encrypted, and then validated. Visa country manager for South Africa
PASA CEO Walter Volker said: “As an James Simpson said: “To support the adop-
industry we are proud to have facilitated tion, it is equally important that solutions
w
the world’s first truly interoperable biomet- are scalable and based on open standards.
ric specification that will unlock the benefits Building on the current standards, this pro-
of biometric verification and make it avail- vides a common, interoperable foundation,
able to an open community in a way that is as well as encourages innovation in cutting-
affordable, reliable and secure.” edge biometric solutions.”<
4 y August 20166 www.electronicpaymentsinternational.com
EPI 350.indd 4 16/08/2016 10:00:35
Digita
NEWS
Electronic Payments International DIGEST
DISTRIBUTION
Visa to open new office in chant solutions. creation of digital commerce solutions.
Silicon Valley Visa believes that the new facility will “Our new Palo Alto office allows us to
widen its operations in the San Francisco draw on the diversity of the Bay Area talent
Visa has unveiled plans to open a new facil- Bay Area, adding to the company’s existing pool and build an even stronger connection
ity in Silicon Valley to accelerate digital Foster City and San Francisco locations. with the Silicon Valley community of data
commerce internationally. Visa executive vice-president of technol- scientists, engineers, entrepreneurs.”
Situated in Palo Alto, the new 5,760m2 ogy Rajat Taneja said: “We continue to The company has had a presence in Sili-
office will have space for nearly 300 expand our research and development capa- con Valley since the early 1970s and cur-
employees focused on technology research, bilities globally and are investing in facilities rently has more than 3,500 employees in the
business intelligence, data security and mer- that enable our teams to collaborate in the San Francisco Bay Area.<
DISTRIBUTION
WePay forays into UK market WePay, a provider of payments-as-a-service process for companies that offer payments.
for online platforms, has expanded its ser- By partnering with WePay, platforms can now
vices into the UK to expand its reach into integrate once and immediately offer the same
the white label payment sector including level of payments service on both sides of the
crowdfunding and other marketplaces. Atlantic, safely and seamlessly.”
The company also extended its fraud risk To support this expansion as well as
protections, compliance and support offer- the company's growth in North America,
ings to new UK business. WePay opened new offices in London and
The company worked closely with Providence, Rhode Island.
numerous UK and EU regulators, banking The London office will focus on overseas
partners, and the credit card associations to business development, while the Providence
enter the UK market. office will deliver customer support during
WePay CEO Bill Clerico said: “Going inter- UK and US business hours, the company
national has traditionally been a frustrating said.<
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EPI 350.indd 5 16/08/2016 10:00:38
Digital touch briefings ad copy - CI 18042016.indd 1 18/04/2016 11:17:37
FEATURE
ANTI-MONEY LAUNDERING Electronic Payments International
Cracking down on money laundering
There is a common cycle in financial security. A criminal adapts to security protocols and regulation, the
regulator adapts to combat the development and this repeats ad infinitum. The European Commission’s
(EC) anti-money laundering (AML) division is making progress, however. Patrick Brusnahan reports
T
h re at s as so c iated w it h instrument.”
money laundering, which Furthermore, anonymous pre-
can lead to terrorist paid cards issued outside the EU
financing, are constantly will only be used in the union
evolving. T he EC has stated where they can be shown to com-
that recent terrorist attacks in ply with requirements equivalent
the European Union (EU) and to the ones presented in this regu-
beyond, as well as the 'Panama lation.
Papers' scandal, have brought Monaco said: “As far as pre-
this issue further into the fore- paid cards are concerned, the
ground. fact that the European Com-
In May 2015, the EU adopted mission proposal indicates that
the Anti-Money Laundering Pack- anonymous prepaid cards issued
age, a significant step forward in outside of the Union will only
combating money laundering. be used in the Union where they
Just over a year later, amendments can be shown to comply with
have been made to Directive (EU) monitoring as other financial institutions. requirements equivalent to the
2015/849 on preventing the use of financial Monica Monaco, Founder and Manag- ones in 4AMLD, clearly shows that for UK
system for money laundering or terrorist ing Director of TrustEu Affairs, said: "It is issued prepaid cards - whether after Brexit
financing. interesting that virtual currency exchange the UK gets a EEA status or starts a bilat-
platforms and custodian wallet providers eral agreements negotiation with the EU-
Digital currencies are becoming obliged entities and that defi- prepaid cards issued in the UK will need to
A key measure added to the regulation nitions of custodian wallets and exchanges comply with EU regulation equivalent to be
regards digital and virtual currencies. Vir- are in the proposal; this is the first time that used in the EU.”
tual currency exchange platforms and wal- virtual currencies exchange platforms and However, David Parker, founder and
let providers have been added to the list of custodian wallets are defined under Euro- CEO of Polymath Consulting, believes this
obliged entities to regulation. This means pean law and I think this comes with a very new regulation to be unnecessary.
that, as gatekeepers, they are the first step clear message from the European Commis- Speaking to EPI, he said: “How many
for the public to enter the marketplace and sion, that they embrace and value technol- terrorists are really going to wander about
need to be monitored. ogy as long as the prevention of anti-money buying gift cards to use when the limit is
This means the sector is now obligated laundering and terrorism financing can con- already so low? Will lowering the limit by
to undergo the same level of regulation and tinue and improve" €100 really affect the use of these products
by terrorists or just provide a nice headline
The Nine New Measures
Tackling the anonymous within prepaid for politicians? I would contest that a gift
• Designate virtual currency exchange platforms Two propositions were put forward with card of €250 is still only half a European-
(and wallet providers) as obliged entities regards to prepaid instruments. Firstly, issued €500 note that really is totally anony-
• Tackle the use of anonymous prepaid instru- lowering the amount, from €250 (US$277) mous.”
ments to €150, for non-reloadable prepaid instru- He was even harsher on the measure for
• Give new powers to FIUs to request informa- ments to which Customer Due Diligence prepaid instruments issued outside of the
tion from any obliged entity (CDD) applies. Secondly, to suppress CDD EU.
• Enable FIU and competent authorities to iden- exemptions for the online usage of prepaid Parker continued: “Totally unenforce-
tify holders of bank and payment accounts cards. able in the real world. How will a merchant
• Harmonise the EU approach towards high-risk The intention is to better serve identifica- know to decline the transaction from a card
third countries tion purposes and widen customer verifica- issues in, let's say, Mongolia? If the acquirer
• Improve transparency: new rules on access to tion requirements. has to decline, they will need a list of what
beneficial ownership information In a factsheet, the EC stated: “Limiting programmes to not meet the AML require-
• Interconnection on national central registers the anonymous use of prepaid instruments ments. Who provides this? Who vets it?
• Additional technical clarifications will provide a clear disincentive for use Who says it falls short?
• Earlier transposition for terrorist and criminal purposes. Pre- “This is a great political statement that
paid cards will continue to be an accessible cannot be practically enforced.”<
6 y August 2016 www.electronicpaymentsinternational.com
EPI 350.indd 6 16/08/2016 10:00:41
FEATURE
Electronic Payments International M&A
VocaLink finally captured by MasterCard
MasterCard’s acquisition of VocaLink bolsters confidence in Britain remaining an attractive destination
for international investors. It’s been argued that the sale will improve competition in the UK banking
industry, but will it deliver a new payments proposition? Patrick Brusnahan writes on the deal
A
f t e r m o nt h s of s p e c u l at io n , sumers.
MasterCard has entered into a Dunne believed this to not be the case:
£700m (US$920m) agreement to “We have contracts in place to run the core
acquire VocaLink. VocaLink’s service for 4–5 years and those contracts
investors could also receive a potential were fixed at the time of renewal. There
£169m earn-out if performance targets is no additional cost or fee to the end con-
are met. sumer. Consumers benefit from most of
Under the agreement, a majority of these services for free anyway and that’s the
VocaLink’s shareholders, primarily UK- nature of the payments ecosystem.”
based banks, will retain 7.6% ownership One of VocaLink’s more promising prod-
for at least three years. ucts is Zapp, also known as Pay by Bank
The sale process effectively kicked off in think we can take it to many more. app. It has had a turbulent time with launch
February this year when the UK Payment “In addition, there are a bunch of new delayed more than once and its CTO, Ian
Systems Regulator Hannah Nixon recom- value added services that VocaLink have Sayers, leaving to join Danske Bank. How-
mended the UK’s biggest banks sell their added which, given where MasterCard is in ever, Barnett remains enthusiastic.
stakes in VocaLink. She argued that such a the UK, makes it really important to scale “Zapp is a fantastic e- and m-commerce
sale would help to improve banking com- that bit of business in the UK.” solution. It reverses the logic of a payment
petition in the UK and deliver clear benefits Barnett isn’t the only one pleased with so consumers push a payment rather than
to challenger banks, fintechs, UK consumers the deal. The UK’s finance minister, Philip getting pulled. MasterCard can bring that
and small businesses. Hammond, said: “MasterCard’s decision to solution to the POS market. We have 40
Nixon said: “There needs to be a funda- buy VocaLink shows that Britain remains million acceptance locations globally. Com-
mental change in the industry to encourage an attractive destination for international bine those two things and I think you have
new entrants to compete on service, price investors. Britain is and continues to be an a new payments proposition which is cheap,
and innovation in an open and transparent open and globally facing country in which secure, simple, and smart. It is a real innova-
way.” to do business.” tion,” Barnett said.
Italian payments group, SIA, and a num- With the banks losing a huge chunk of That’s a lot of expectation, but Dunne
ber of private equity firms had also been their stake in VocaLink, there are worries believed that ‘people will be using this very
linked with possible bids for VocaLink prior that this will lead to increased costs to the soon’, even as early as the beginning of next
to MasterCard’s successful bid. banks, which would be moved onto con- year.<
In an investors’ call following Master-
Card’s acquisition of VocaLink, VocaLink Group Editor, Douglas Blakey’s Comment: VocaLink is a great deal for MasterCard
CEO David Yates claimed that the compa-
ny had ‘outgrown its UK bank shareholder For MasterCard, the VocaLink deal looks a good bet. 4% or so. Expect that to rise in the medium term as
base’. MasterCard will target new revenue by trying to shift
Speaking to RBI, Chris Dunne, director of The £700m ($920m) cash deal to acquire a 92.4% UK banks debit card portfolios away from Visa.
market development at VocaLink, expanded stake in VocaLink will have a negligible effect on VocaLink has enjoyed international success with
on Yates’ point. MasterCard earnings, reducing earnings per share by the expansion of its real-time network and has
He said: “I think David was talking about an estimated $0.05 per share for a couple of years. licensed its technology to support faster payments
the success that VocaLink has been having For VocaLink’s UK banks owners: RBS for example systems in the US, Sweden, Singapore and Thailand.
recently in other markets. We have won a will no doubt find it handy to book a £150m pre-tax MasterCard will no doubt look to cash in on the
number of contracts to take the technology gain; ditto Barclays (£104m) and Cooperative Bank growing international demand for interbank infra-
that we’ve been running here in the UK into will surely find a good use for the £22m that it will structure services.
other markets, such as Singapore.” pocket. If, however, MasterCard looks to recoup the pur-
Mark Barnett, president of MasterCard In a conference call, MasterCard’s chief financial chase price through increased connectivity and
UK and Ireland, explained the reasoning for officer Martina Hund-Mejean said that the deal was transaction fees, the VocaLink deal may not look
the acquisition. an ‘important component of our strategy to actively quite such a good deal for all stakeholders in a few
He said: “The best real-time ACH plat- participate in all types of electronic payments and years’ time.
form in the world is VocaLink’s. They payment flows’. As MasterCard ramps up its cash displacement
proved they can take it internationally to a The deal will do more than that. MasterCard’s cur- strategy, how long can UK consumers expect over
few markets and, with our global reach, we rent share of the UK debit card market is a miserable 97% of all LINK ATM transactions to be free?
www.electronicpaymentsinternational.com August 2016y 7
EPI 350.indd 7 16/08/2016 10:00:43
FEATURE
MOBILE MONEY Electronic Payments International
Mobile money takes off slowly in Afghanistan
Afghanistan hasn’t seen the levels of mobile money adoption that Kenya has with M-Pesa. Mobile money
is still embryonic and Afghanistan remains a cash-based society. But the government, mobile network
operators (MNOs), and NGOs are working to foster adoption of mobile money, Robin Arnfield reports
A
fghanistan is one of the least and has ordered government agencies to use going for hundreds of years and is in all the
banked countries in the world, non-cash payments, or electronic money, villages.”
with the World Bank estimating whenever practical.
that only 10% of the population “The Government of Afghanistan fully Regulations
aged over 15 had a bank account in 2014. supports the implementation of mobile Mobile money or e-money services pro-
However, around 72% of the population money, and the Ministry of Communication vided by non-financial institutions such as
have mobile phones in 2016, according and Information Technology has started MNOs have to comply with Afghanistan’s
to GSMA Intelligence. Around 90% of working on biometric registration of SIM Electronic Money Institution (EMI) regu-
the population have mobile communica- cards, which will make mobile money regis- lations, which are under the control of the
tions coverage. tration much easier,” Abdul Razaq Wahidi, Central Bank of Afghanistan (Da Afghani-
“Currently, there are a total of 16 banks Minister of Communication and Informa- stan Bank).
operating mostly in the capital, Kabul, tion Technology, said in October 2015. Four types of e-money account are per-
as well as Herat, Nengarhar and Balkh,” “It’s still a novelty for Afghans to use mitted: a cash card, a debit card, a mobile
says the Better Than Cash Alliance report: mobile wallets, but eventually they will wallet, and a stored-value account card.
Building a Gateway to Digital Payments in get accustomed to them and like their con- Prior to the introduction of the EMI regu-
Afghanistan: The World Food Programme’s venience,” says Katrin Fakiri, author of the lations in October 2011, e-money service
E-Voucher Initiative. “There are over 400 Building a Gateway to Digital Payments in providers needed to have a Money Service
full-service and limited-service bank branch- Afghanistan: The World Food Programme’s Provider licence.
es across the country.” E-Voucher Initiative study and a consultant The EMI legislation is specifically for
on financial inclusion. non-financial institutions. Afghan banks
Mobile money services “The President’s vision is for all Afghan and deposit-accepting microfinance institu-
While Afghanistan’s banks are based in the civil servants to be paid via mobile wallets, tions (MFIs) are allowed to offer e-money
major cities, the majority of the population starting with the Police and Military.” services under the regulations governing
lives in rural areas. Because the penetration banks and non-bank financial institutions.
of mobile phones in Afghanistan is so high, Savings The EMI regulations state that e-money
mobile is a tool for providing financial ser- So far, mobile wallets are primarily used as must be fully deposited in the banking sys-
vices to the unbanked. transactional vehicles, not for savings. “To tem in a trusteeship account, “the benefi-
With the support of United States Agency get people saving money in mobile wallets, ciaries of which are the individual custom-
for International Development (USAID), you need incentives,” Fakiri says. ers of the EMI licence-holding entity that
three of Afghanistan’s four-largest MNOs, “It’s probably a few years away before deposits the funds.”
Afghan Wireless Communication Company Afghans starting saving in mobile wallets. In addition, the trustee of the account
(AWCC), Etisalat, and Roshan, have rolled Currently, the leaders in South Asia for must be the EMI entity depositing the
out mobile money services. mobile money are Bangladesh, India, and e-money. Recipients of an EMI licence are
Roshan’s service is M-Paisa, while Pakistan, all of whom are more advanced required to have minimum capital equiva-
AWCC’s service is My Money, and Etisalat’s than Afghanistan.” lent to $1m.
is M-Hawala. The other leading Afghan Traditionally, Afghanistan has been a Consumer-to-consumer mobile transfers
MNO – MTN – has yet to launch its mobile cash-based economy. In common with other are limited to 10 transactions a day with a
money service. countries in the region, Afghanistan has an maximum limit of AFN15,000 ($220) per
Three international money transfer com- informal cash-based value transfer system transaction. There are no limits for con-
panies provide remittances to Afghanistan called Hawala (Arabic for transfer). sumer-to-business, business-to-business,
from abroad: MoneyGram; Western Union, Based on trust relationships between or business-to-consumer transactions. The
which offers cash payouts at over 350 senders, recipients and money brokers, maximum amount that can be held in an
Afghan agent locations; and TransferTo, a Hawala has no documentation and no audit e-money account is AFN150,000 ($2,200).
global airtime remittance and mobile money trial. “While an e-money account can receive
transfer platform owned by Ingenico. “In Afghanistan, the real competition incoming remittances from abroad, it can-
to mobile money is Hawala,” says Fakiri. not be used to send money outside Afghani-
Afghan government “My view is that mobile money schemes stan.
Afghan President Ashraf Ghani Ahmadzai shouldn’t try to beat Hawala but join it
has stated that a cash-only system is risky, and get the Hawala agents to become their Roshan
inefficient, and vulnerable to corruption, mobile money agents. Hawala has been Roshan, which has 6.5 million total sub-
8 y August 2016 www.electronicpaymentsinternational.com
EPI 350.indd 8 16/08/2016 10:00:47FEATURE
Electronic Payments International MOBILE MONEY
scribers compared to Etisalat’s five million, to the unbanked population of Afghanistan, accountability among mobile money opera-
was the first Afghan mobile operator to leading to greater financial inclusion.” tors and their agents and merchants.
launch a mobile money service. It formed Provided an M-Paisa customer has a “These amendments were approved by
a partnership with Vodafone Group to bank account with one of Roshan’s partner the Central Bank’s Supreme Council in July
launch M-Paisa in November 2008, based banks, they can link their bank account to 2011, and implemented in October 2011,”
on the UK-based telco’s M-Pesa platform. their M-Paisa account by visiting one of says Qadeer. “So far, the Central Bank has
Paisa means cash in both of Afghanistan’s their bank’s branches. “At the bank, they issued EMI licenses to Roshan, followed by
national languages Dari and Pashto. will be issued with a PIN, and their two Etisalat and AWCC.”
In April 2011, Roshan received an EMI accounts will be linked within 24 hours,” Mobile money initiatives supported by
licence for M-Paisa from the Central Bank the Roshan spokesperson says. USAID/FAIDA include the World Food Pro-
of Afghanistan, marking the first issuance of M-Paisa allows its users to send money to gram’s (WFP) program to pay food aid via
this type of licence in Afghanistan. Roshan customers of other Afghan service provid- mobile money, which involves partnerships
had been operating under a Money Service ers, but M-Paisa users are unable to receive with AWCC and Etisalat; electricity bill
Provider licence since introducing M-Paisa funds from them, says the Roshan spokes- payments via AWCC, Etisalat and Roshan;
in 2008. person. “We call this feature: send money to private-sector salary payments via AWCC,
“M-Paisa has over 100,000 customers, non-registered customers,” he says. Etisalat and Roshan; government salary
and processes over $4m per month,” says “In terms of the number of M-Paisa payments via AWCC; and microfinance
a Roshan spokesperson. “M-Paisa has transactions, buying airtime top-ups is the loan repayments via Roshan.
over 350 active agents across Afghanistan largest transaction type, followed by salary As of June 2016, the WFP has over 77,000
who provide cash withdrawal services to payments, cash-in/cash-out, P2P transfers, registered users of its monthly mobile ben-
M-Paisa customers. Of these agents, 132 are bill payments, and merchant payments,” he efit payment service, while 78,000 people
branches of the country’s four major banks continues. are making bi-monthly mobile electricity
– Afghanistan International Bank (AIB), “M-Paisa has proven to be an effective payments.
Afghan United Bank (AUB), Azizi Bank, tool in fighting corruption; it was used in a In addition, 41,000 people are receiving
and First Micro Finance Bank (FMFB).” pilot to pay salaries to around 1,300 Afghan monthly private-sector salaries, 11,000 are
Customers open an M-Paisa account at a National Police officers in 13 provinces and receiving monthly government salaries, and
registered M-Paisa agent’s location by pro- districts from 2009 to 2014. 5,600 people are making monthly microfi-
viding their Roshan SIM card and mobile “In some cases, the officers receiving their nance loan repayments.
number, their national ID card, and a colour salaries through M-Paisa saw an immediate “Normally, each month around $170,000
photo of themselves. increase of 30%, which came about because is disbursed via mobile money on the above
The spokesperson explains M-Paisa the middlemen were eliminated, so the offic- projects,” says Qadeer. “This amount varies
works on all GSM-based mobile phones, ers received their salaries in full.” on the size of electrically bills.”
from the most basic to the most advanced,
as it uses Unstructured Supplementary Ser- The role of USAID National payments switch
vice Data (USSD). USAID’s Financial Access for Invest- Switzerland-based BPC Banking Technolo-
After dialing a USDD number, customers ing in the Development of Afghanistan gies has supplied its SmartVista software
can select the necessary options on an IVR- (FAIDA) program says it ‘works with the for Afghanistan’s national payments switch,
based menu in Dari, Pashto, and English. Afghan government and the private sec- which went live in 2016.
“As M-Paisa can be used with any type of tor to develop a robust financial services “SmartVista is being used as the nation-
phone via USSD, we don’t have a mobile industry, as well as to develop a finan- al cards and mobile payment switch in
web interface or a phone app as yet,” the cial services legal framework and market Afghanistan to provide interoperability and
spokesperson says. infrastructure’. is intended to interconnect all banks, mobile
USSD is a protocol which enables GSM- “USAID/FAIDA is working to harness wallets, third-party aggregators, etc.,”
based cellphones to communicate in real- the power of technology for mobile money, says Zaheer Bawar, Managing Director of
time with a service provider's computers. branchless banking and electronic payments Afghanistan Payment System.
In 2012, Roshan signed an agreement as service delivery mechanisms through APS is a consortium of financial institu-
with TransferTo under which Afghans living partnerships with the Afghan government tions funded by the Afghan Central Bank
abroad can send mobile money to Roshan and between banks, MNOs, MFIs, and val- through the World Bank, which aims to
subscribers in Afghanistan. ue-added service providers,” says Maseehul- develop the Afghan retail banking market
“Recipients can use this money for what- lah Qadeer, Better Than Cash Team Leader by providing interoperable electronic and
ever purpose they like, for example buy- at USAID/FAIDA and Technical Advisor to mobile payment services.
ing airtime or paying utility bills,” says the the Afghan President’s Policy Coordination “For mobile wallets to scale, there has to
Roshan spokesperson. Unit. be interoperability between the schemes and
“As more customers sign up for M-Paisa, These initiatives include helping the Cen- a good agent network,” says Fakiri.
we have been using more features includ- tral Bank to make several key amendments “Now that there is interoperability in
ing banking services, money transfers and to the previous provisions of the Money Ser- Afghanistan, it’s possible to send mobile
purchasing goods and services,” says the vice Provider license. money from one scheme to another and
spokesperson. These include KYC registration, AML, from one bank to another.
“M-Paisa users can link their bank and Counter-Terrorism Financing provi- “But Afghan mobile money agents are
accounts to their M-Paisa accounts to trans- sions; stricter regulations and enforcement proprietary to a specific scheme for the
fer funds between the two. This feature has for suspicious transaction reporting; and most part, and my hope is that the agents
effectively expanded the frontier of banking measures to improve transparency and will become interoperable.”<
www.electronicpaymentsinternational.com August 2016 y 9
EPI 350.indd 9 16/08/2016 10:00:47FEATURE
THE DIGITAL BANKING CLUB Electronic Payments International
Fintechs: Friend or foe to FS firms?
London has gained a reputation as a leading fintech hub, hosting more and more innovative technology
start-ups but can they be considered as friends or enemies of financial services? This is exactly what the
latest debate from the Digital Banking Club (TDBC) set to find out. Jessica Longley reports
H
osted at the prestigious Law Society tive models can find great synergy in working
in London, and sponsored by global together rather than bending over backwards
leader of mobile capture and iden- to accommodate banks.”
tity verification software Mitek, Not only can fintechs survive without
June’s TDBC debate took a slightly more banks, they are also threatening banks’ prof-
traditional approach. easier to experiment under a new brand than its as they start to encroach on the end-to-end
Sophie Guibaud, George Depastas and Jon under a 100-year-old brand.” value chain.
Hall argued for the motion against a team She illustrated that ‘the P2P lending part- According to Cadbury: “The opposition
comprising Simon Cadbury, Roy Vella and nership between Zopa and Metro Bank is a might argue that only a small percentage of
David Parker. The motion: fintech, friend or perfect example of fintechs and banks work- revenue is migrating to fintechs, but it should
foe? Guibaud, vice-president of European ing together hand in hand. Zopa offers Metro be the potential that is concerning them.
expansion at Fidor, kicked off the debate in Bank clients a service that the bank itself Experts believe that 40-60% of global bank-
support of the motion. would not be able to offer’. ing profits worth $1trn are at risk.”
She argued that in spite of a rocky start, the Cadbury expressed his fears that tradition-
relationship between fintechs and banks have The end of the ‘toothbrush era’ al banks are ‘having their no-frills moment,
evolved and continue to evolve – with the In response, Simon Cadbury, director of strat- just like the national airlines in the 1990s.
arrival of PSD2 – into a more symbiotic one. egy and innovation at Intelligent Environ- They’ve had to accept lower profitability and
ments, made his case against the motion with remodel their proposition’.
Fintechs and banks, a symbiotic relationship? five concise points. He considered that banks are unprepared
Guibaud explained how fintechs were born, Basing his arguments on research from PwC to face the second stage of advancement of
painting a picture of a change in consumer and McKinsey, he stated that fintechs are dis- fintechs. Indeed, the future of fintechs is
behaviour over the past 20 years with the arriv- ruptive, steal profits, do not need banks and expected to be propelled by the proposition
al of the internet and smartphones, allowing are a threat to the future of banking. As a of a launch that will create a central hub for
customers to be permanently connected. result, the traditional players are left unde- fintechs called the marketplace bank.
This led to the emergence of new agile com- cided and unsure of how to proceed. Cadbury explained: “The marketplace
panies as banks struggled to keep up with the He said: “We’re undergoing a natural evo- banks will compete directly with the tradi-
change. lution. You can describe the previous two or tional banks on core banking services with-
“Banks took a while to adapt as quickly to three years as the ‘toothbrush era’, where out the need to build all the products. And on
change as other sectors for a few reasons such fintechs have been taking one function and this model, there’s a very good chance that
as legacy and strict regulation. Organisations performing it considerably better than any- they will actually scale much more quickly
have a strong hierarchy and are not used to one else.” than we’ve seen historically.”
listening to what customers want. Cadbury clarified: “Fintechs are typically As Cadbury’s speech came to an end, it
“For fintechs, it is easier to swiftly develop bound to be light, free from the burden of was the turn of George Depastas, the head of
new products and respond to customer needs meddlesome systems and have smart unbun- product and real-time analytics at Barclays,
because of their new business model and bet- dled business models. The fintechs’ disrup- to point out the inaccuracies and supposedly
ter customer experience,” Guibaud explained.
She further outlined the banks’ and fintechs’
need for each other. On one hand, banks
depend on fintechs to better connect with their
customers and improve their understanding
of their customer base. On the other, fintechs
need the investment and brand that banks
offer to assert themselves in the market.
Partnerships between the two entities can
come in the form of affiliations or through the
banks’ use of fintechs’ already-developed-and-
tested technology.
Guibaud clarified: “Investments are a way
for fintechs to reach out to other audiences
that are not their main target audience.
“It is also a way to experiment as it’s always
10 y August 2016 www.electronicpaymentsinternational.com
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