executive grapevine

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The future of payments not know they could pay for items using their mobile phone and 34% said they would not or did not use mobile payments because of security concerns. For the digital wallet revolution to really take hold, collaboration and partnership is key to delivering mobile banking, between the mobile operators, transaction facilitators and financial institutions. Inter- bank apps that work are pivotal and an increasingly social media-savvy consumer base will, in the near future, see this facility as an essential offering not a nice-to-have. You only have to look at the success in the Far East of the FeliCa contactless payment system to reinforce this point. So, what are the scenarios, themes and trends that banks are being forced to consider? First is the realisation they increasingly no longer own the customer, merely provide them with a choice of channel. Second, 2.7billion people in the world have a mobile phone but no bank account. The previously ‘unbanked under-class’ can now be reached efficiently and brought into the fold. Third, Near Field Communications (contactless payment) is ‘sticky’ and addictive – it has been researched to prove that after a handful of experiences a consumer is likely to become a frequent user. Fourth, proprietary systems are outmoded, illogical and too costly to run. To have a voice, market enablers such as banks will have to seek alliances and partnerships with end user contact channels like retailers and mobile operators. Fifth, legacy systems from another age, whether credit cards from the 1950s or automated correspondent banking from the 1970s now need dismantling and unlearning. These systems were only ever conceived for domestic payments whereas mobile payments have been international from the off. End- user consumers can keep their wallets in their pocket, on their mobile phone, or in the cloud. Sixth, and given the above, the potential implications for HR Business Partners and Senior Resourcing teams will be significant. Do banks currently have the right talent to help them navigate around the future of payments: strategists, system architects, marketers, channel managers and so on? The answer is almost certainly no, so the quest for such talent must commence now. A further area of interest for banks is the harmonisation of part of a bank’s traditional Global Markets product set (e.g. FX flows) with its Transaction Banking products (payments, liquidity, cards) as this is still a relative bastion of hidden revenue opportunities. Regulators are also helping level the playing field, with changes like the EU’s Payment Services Directive removing legal obstacles to non-bank institutions offering payment services, and allowing non- traditional enablers to sneak a lead for 1:1 and 1:few consumer segments. Furthermore, the new E-Money Directive will allow mobile phone operators to offer electronic money services. Considerations around security, education and, of course, investment cost, will all be instrumental in the advent and consumer acceptance of the ‘Digital Wallet’. Assuming such considerations are dealt with, perhaps within five years we can say goodbye to much of the paper, bricks and mortar and existing proprietary systems and infrastructure. Consumers’ plastic will start to melt away, and we will be ready to welcome commerce in all its facets, whether e-Com, m-Com, social media, clouds, wallets, or otherwise. Who’d have thought the sleepy old world of payments would be entering its fifteen minutes of fame? Forget chip n’ pin, the payments world now shares more with the science of cybernetics than anything else. You still need product, you most certainly need fast 1:1 channelling and as always, you certainly need consumers to be financially viable. Just one of the challenges facing banks today is do they need you? Ken Burns, Global Head of Treasury & Transaction Banking at HB International For more information please visit www.hbinternational.co.uk or email Ken Burns at: [email protected] Banks have to understand and work to their digital channel capability and grapple with understanding what it will mean in terms of regulatory, infrastructure, and education cost and where the related new revenue streams may unfold The future of payments March 2012 | askGrapevine HR 55 54 askGrapevine HR | March 2012 Since the early noughties, and the arrival of the internet as an effective payment method, the UK payments landscape has remained largely unchanged. There has been much talk of the potential for making payments through all manner of devices (notably, mobile phones) but relatively little action to date. Is this about to change? Equally, do banks currently have the ‘fit for purpose’ human capital needed to move with the times? The old adage ‘Cash is King...long live the King’ may be about to change forever. A silent revolution is upon the payments industry. In 2010 UK shoppers spent £26billion more through debit cards than using cash; the first time cash spending has been surpassed, according to the Payments Council. Further, a report by GP Bullhound in June 2010 estimated that the mobile payments sector would increase at a compound annual rate of 56% between 2010 and 2014, with the value of transactions rising from $108billion to $633billion, while the number of mobile internet users is set to overtake those using desktops by 2014. Research by Gartner, meanwhile, suggests the number of worldwide mobile payment users will hit 141.1million in 2011; a 38% increase from 2010. Much of this is down to companies finally investing in this space. According to Martin Wilson, CEO of mobile payments provider Luup, consumers and businesses alike have woken up to the possibility of making payments through their mobile phones. “Consumers are saying they can go online and interact with their friends, they can also shop and send emails from a handheld device, so why can’t they make payments and manage their financial affairs?” he asks. “In the corporate world, SMEs are saying they need to be out on the street, meeting their customers and growing their businesses, and they want to be able to raise invoices and make payments from their handheld device”, he adds. According to the UK Payments Council, there are now around 16.3million contactless-enabled cards in the UK and 66,500 point-of-sale terminals that accept contactless payments. Over the next few years, the lines between mobile and online payments are likely to become increasingly blurred. For those old enough to remember, we could be about to witness a battle for supremacy similar to the battle between Betamax & VHS. Can they both, enduringly survive and operate together or will one payment method prevail? So, just as the banking fraternity gets close to understanding and executing successfully on e-Com channels somebody has moved the goal-posts. The digital media train has reached the station and now banks have to understand and work to their digital channel capability (whether m-Com, social media, wallets, or clouds), and grapple with understanding what it will mean in terms of regulatory, infrastructure, and education cost and where the related new revenue streams may unfold. Sometimes it pays to be a market laggard. For example, with its general lack of banking infrastructure, Africa has more to gain or less to lose by embracing m-Com payment technology and so find they are growing this payment channel around 42% faster than their regional friend Europe. In this respect, the so-called developed world perhaps can learn from their poorer regional cousins. The payments sector’s time has come. Faced with new competition, the banks have to respond or do they? There are, however, lingering concerns about the widespread adoption of such new technology. The decision by the UK Payments Council to abandon plans to eliminate cheques by 2018 should go some way to allaying concerns that no-internet users or micro-enterprises could be left behind but consumer fears, around security for example, remain. Maybe we shouldn’t get too excited. A recent Gemalto survey found that 31% of respondents did The future of payments Banks will need experts in new payment technologies

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Page 1: Executive Grapevine

The future of payments

not know they could pay for items using their mobile phone and 34% said they would not or did not use mobile payments because of security concerns.

For the digital wallet revolution to really take hold, collaboration and partnership is key to delivering mobile banking, between the mobile operators, transaction facilitators and financial institutions. Inter-bank apps that work are pivotal and an increasingly social media-savvy consumer base will, in the near future, see this facility as an essential offering not a nice-to-have. You only have to look at the success in the Far East of the FeliCa contactless payment system to reinforce this point.

So, what are the scenarios, themes and trends that banks are being forced to consider?

First is the realisation they increasingly no longer own the customer, merely provide them with a choice of channel.

Second, 2.7billion people in the world have a mobile phone but no bank account. The previously ‘unbanked under-class’ can now be reached efficiently and brought into the fold.

Third, Near Field Communications (contactless payment) is ‘sticky’ and addictive – it has been researched to prove that after a handful of experiences a consumer is likely to become a frequent user.

Fourth, proprietary systems are outmoded, illogical and too costly to run. To have a voice, market enablers such as banks will have to seek alliances and partnerships with end user contact channels like retailers and mobile operators.

Fifth, legacy systems from another age, whether c r e d i t c a r d s f r o m t h e 1 9 5 0 s o r a u t o m a t e d correspondent banking from the 1970s now need dismantling and unlearning. These systems were only ever conceived for domestic payments whereas mobile payments have been international from the off. End-user consumers can keep their wallets in their pocket, on their mobile phone, or in the cloud.

Sixth, and given the above, the potential implications

for HR Business Partners and Senior Resourcing teams will be significant. Do banks currently have the right talent to help them navigate around the future of payments: strategists, system architects, marketers, channel managers and so on? The answer is almost certainly no, so the quest for such talent must commence now.

A f u r t h e r a r e a o f i n t e r e s t f o r b a n k s i s t h e harmonisation of part of a bank’s traditional Global Markets product set (e.g. FX flows) with its Transaction Banking products (payments, liquidity, cards) as this is still a relative bastion of hidden revenue opportunities. Regulators are also helping level the playing field, with changes like the EU’s Payment Services Directive removing legal obstacles to non-bank institutions offer ing payment services , and al lowing non-traditional enablers to sneak a lead for 1:1 and 1:few consumer segments. Furthermore, the new E-Money Directive will allow mobile phone operators to offer electronic money services.

Considerations around security, education and, of course, investment cost, will all be instrumental in the advent and consumer acceptance of the ‘Digital Wallet’.

Assuming such considerations are dealt with, perhaps within five years we can say goodbye to much of the paper, bricks and mortar and existing proprietary systems and infrastructure. Consumers’ plastic will start to melt away, and we will be ready to welcome commerce in all its facets, whether e-Com, m-Com, social media, clouds, wallets, or otherwise.

Who’d have thought the sleepy old world of payments would be entering its fifteen minutes of fame? Forget chip n’ pin, the payments world now shares more with the science of cybernetics than anything else. You still need product, you most certainly need fast 1:1 channelling and as always, you certainly need consumers to be financially viable. Just one of the challenges facing banks today is do they need you?

Ken Burns, Global Head of Treasury & Transaction Banking at HB International

For more information please visit www.hbinternational.co.uk

or email Ken Burns at:[email protected]

Banks have to understand

and work to their digital

channel capability and grapple with

understanding what it will

mean in terms of regulatory,

infrastructure, and education

cost and where the related

new revenue streams may

unfold

HB International logos scaleable vector

Option 1Full Bluebackground

Option 2 Section Bluebackground

The future of payments

March 2012 | askGrapevine HR 5554 askGrapevine HR | March 2012

Since the early noughties, and the arrival of the internet as an effective payment method, the UK payments landscape has remained largely unchanged. There has been much talk of the potential for making payments through all manner of devices (notably, mobile phones) but relatively little action to date. Is this about to change? Equally, do banks currently have the ‘fit for purpose’ human capital needed to move with the times?

The old adage ‘Cash is King...long live the King’ may be about to change forever. A silent revolution is upon the payments industry. In 2010 UK shoppers spent £26billion more through debit cards than using cash; the first time cash spending has been surpassed, according to the Payments Council.

Further, a report by GP Bullhound in June 2010 estimated that the mobile payments sector would increase at a compound annual rate of 56% between 2010 and 2014, with the value of transactions rising from $108billion to $633billion, while the number of mobile internet users is set to overtake those using desktops by 2014.

Research by Gartner, meanwhile, suggests the number of worldwide mobile payment users will hit 141.1million in 2011; a 38% increase from 2010. Much of this is down to companies finally investing in this space.

According to Mart in Wilson, CEO of mobi le payments provider Luup, consumers and businesses alike have woken up to the possibility of making payments through their mobile phones. “Consumers are saying they can go online and interact with their friends, they can also shop and send emails from a handheld device, so why can’t they make payments and manage their financial affairs?” he asks.

“In the corporate world, SMEs are saying they need to be out on the street, meeting their customers and growing their businesses, and they want to be able to raise invoices and make payments from their handheld device”, he adds.

According to the UK Payments Council, there are now around 16.3million contactless-enabled cards in the UK and 66,500 point-of-sale terminals that accept contactless payments.

Over the next few years, the lines between mobile and online payments are likely to become increasingly blurred. For those old enough to remember, we could be about to witness a battle for supremacy similar to the battle between Betamax & VHS. Can they both, enduringly survive and operate together or will one payment method prevail?

So, just as the banking fraternity gets close to understanding and executing successfully on e-Com channels somebody has moved the goal-posts. The digital media train has reached the station and now banks have to understand and work to their digital channel capability (whether m-Com, social media, wallets, or clouds), and grapple with understanding w h a t i t w i l l m e a n i n t e r m s o f r e g u l a t o r y , infrastructure, and education cost and where the related new revenue streams may unfold.

Sometimes i t pays to be a market laggard . For example, with its general lack of banking infrastructure, Africa has more to gain or less to lose by embracing m-Com payment technology and so find they are growing this payment channel around 42% faster than their regional friend Europe. In this respect, the so-called developed world perhaps can learn from their poorer regional cousins.

The payments sector’s time has come. Faced with new competition, the banks have to respond or do they? There are, however, lingering concerns about the widespread adoption of such new technology. The decision by the UK Payments Council to abandon plans to eliminate cheques by 2018 should go some way to allaying concerns that no-internet users or micro-enterprises could be left behind but consumer fears, around security for example, remain.

Maybe we shouldn’t get too excited. A recent Gemalto survey found that 31% of respondents did

The future of paymentsBanks will need experts in new payment technologies