THE NEW PAYMENTS ECOSYSTEM: FAST, OPEN, SECURE AND DISRUPTIVE

FAST! Immediate payments and their impact on payment intermediaries

FOREWORD BY DAREN WEDGE AND JOEL VAN ARSDALE

BENEFITS AT A GLANCE

PLATFORM INDEPENDENCE FOR LOWER TOTAL COSTOF OWNERSHIP

ENTERPRISE-CLASS PAYMENTS SOLUTION

DELIVER REAL-TIME, IMMEDIATE PAYMENTS

PAYMENTS IN THE CLOUD

Digital payments, open APIs and real-time account to account transactions are driving change across the payments landscape. As a result, consumers, businesses, merchants, and financial institutions present a growing list of fast-changing demands. By aligning business models with today’s evolving payment trends, payment intermediaries have the opportunity to securely grow their offerings and boost top-line revenue. ACI partners with all types of payment service providers from around the globe to help them adapt to the new payments ecosystem, improve efficiencies, create new revenue opportunities and shield against increasing fraud risk.

FAST or immediate payments represent one of the biggest opportunities for processors and FinTechs to thrive. Daren Wedge, SVP Sales, Payment Intermediaries, ACI Worldwide

Everything in life is getting faster. Payments are no exception. Consumers and merchants both expect real-time, frictionless payment services. New technologies such as mobile applications and new ecosystems such as Immediate Payments and Open Access enable payments to become faster. The challenge for processors, networks and FinTechs is to fully embrace these new possibilities to be FAST while remaining focused on the needs of customers and exploiting the benefits of working with partners. Joel Van Arsdale, Partner, First Annapolis Consulting

2.

Source: digitaltrends, Ipsos, Statista

Immediate - Everything we do is increasingly realtime:

• Value (money or other) can be transferred instantly through a broader choice of exchange methods.• Our decisions are increasingly driven by

real-time data (e.g., tracking shipments in real time).• Non-card, with over 12 domestic retail payment

schemes already to real time.

On demand - Personal and business needs are fulfilled anytime, anywhere:

• Streaming and ordering services are driven by consumer demand for instant, 24/7 provision.• Streaming revenues have doubled in the last

two years (2013: $1.1B; 2015: $2.3B).• On demand requires robust business infrastructures free

of bottlenecks.

Connected - It has never been easier to connect to people and things:

• We’re constantly online with mobile phones, tablets and laptops.

• Our devices are becoming increasingly connected: Internet of Things spend in 2015 was estimated at $698B.

Global + local - Acceleration is a global trend but its success still

requires localization:

• FinTech leaders think and act globally but localized selling (languages, currencies, payment types) is key to success.

• Today, only 35% of all merchants adapt their payment methods to local nuances.

• Over 360 methods of payments are available globally.

OUR EVERYDAY LIFE IS BECOMING FASTERAcceleration is a universal trend.

In today’s highly connected, complex and 24/7 world, instant has become the norm.

3.

Source: Harvard Business Review, marketingcharts.com, CBInsights

BUSINESS IS ALSO MOVING FASTERThe competitive environment is changing.

4.

Investment markets:• Financial investors are investing more

money and time in payments and Fintechs, hubs and accelerators.

• Real-time information is feeding investment markets, causing investors to react quickly to signs of success or failure.

• Capital is in limited supply: Do you have a FAST strategy for leveraging capital and investments?

Start-ups: • Start-ups are driven by the idea of

displacing incumbents by responding to market needs more quickly.

• They also fail fast and pivot more easily than bigger companies.

• Competitors are evolving: Are you investing in or learning from start-ups?

Land of the unicorns:

• There are currently 20 FinTech unicorns (valuation >$1b).

• These companies reached $1B valuation faster than any of their predecessors (6 years on average).

• Valuations are driven by the potential for disruption and the speed at which customers can be accumulated.

• High valuations only accelerate development: Are you being followed or are you doing the following?

Shared economy:• The Shared Economy is growing

exponentially.• Almost half of Americans visited a

leading space-sharing site between Jan-Jun 2016.

• The number of visits to financial sharing sites jumped 329% in the last two years.

• The Shared Economy shows the importance of ecosystems: What is your partnership strategy?

On-demand services: • The on-demand industry attracts >22.4m

consumers annually with a total spend of $58B (U.S. only).

• Largest categories of spend include:• P2P eCommerce • Transport • Delivery

• Where consumers go, businesses will follow: Are your services easily available on-demand?

Source: Gartner, Statista

FAST IS DRIVEN BY NEW TECHNOLOGIESNew technologies impact the delivery of payments.

5.

Service-oriented, modular software:

• Object-oriented programming allows for better design and interoperability.

• Software is developed faster and can be more easily configured.

• Payments still often run on legacy software and mainframes, but this is changing.

• Payment formats show greater standardization (ISO 20022).

Mobile and ‘appification’ of services:• Everything we do, can be recast as an app, with

convenience at the core.• The shared economy is being designed around the

appification of business services.• Payments are also being “appified”, allowing

for improved customer experience and better commerce integration.

• The future of payments is invisible. Payments rendering is expected to be seamless.

• Move from mobile first to mobile only.

Blockchain:

• Singular, central exchanges may give way to distributed networks.

• Blockchain will change the way in which value is exchanged.

• Data will become more transparent, although security must remain a focus for blockchain development and regulation.

Internet (of Things):• The Internet has transformed our lives and

businesses. This change will accelerate with the Internet of Things (IoT).

• By 2020, over 50B IoT devices are expected to be online.

• The IoT will bring new business opportunities (e.g., remote surveillance, home automation services, etc.).

• ‘Payments Inside’ is a key component of the IoT.

Distributed networking and cloud-based services: • Hardware is no longer a constraint when additional

nodes are easy to add. New data infrastructures create new possibilities for cloud-based payments.

• In 2015, cloud computing related services generated more than $200B in revenue.

• Distributed networking/computing allows companies to expand across borders, FASTer.

PAYMENTS HAVE BECOME A HOTBED FOR INNOVATIONEmbracing new technologies can be disruptive.

6.

Digital identification Our identities are increasingly digital and payment providers must rely upon these

digital identities for establishing and validating trust (e.g., authentication by Jumio).

Instant payments Use cases are increasingly built on instant payments, which require infrastructures

and systems to operate in realtime (e.g., apps for instant money transfers, 5 second clearing cycles for bank transfers in the Netherlands).

Social Payments are increasingly initiated from and imbedded into social networks and interactions, and “inside payments” are becoming the norm (e.g., send/receive funds using Facebook Messenger).

Real-time infrastructure The days of batch processing are fading, giving rise to real-time processing opportunities (e.g., various instant payment networks globally rising).

Mobile form factorsMobile payments are not restricted to any one technology:

NFC, bluetooth, Wi-Fi, and many other technologies can all deliver payments data(e.g., Apple/Android/Samsung Pay).

Smart, data drivenPayment services are increasingly data driven and intelligent, requiring few or no manual processes (e.g., payment for an Uber ride).

GENERATE NEW TYPES OF PAYMENT SERVICES, PROVIDING CONSUMERS WITH MORE CHOICE AT MORE COMPETITIVE PRICE POINTS

Cross-border payments are faster than ever, resulting in reduced transaction costs.

Mobile apps make payments virtually

effortless.

Real-time clearing and immediate payments enable new product

platforms and payment business models.

Frictionless checkout, both online and

in-store.

Regulations, such as PSD2, encourage

competition and innovation.

Real-time payment networks are

becoming more open and offer access to

new market entrants.

PAYMENT SERVICES PROVIDERS ARE MULTIPLYINGRegulation is promoting openness in payments.

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FINTECHS DIFFERENTIATE BY

ENABLING A FAST CUSTOMER EXPERIENCE

PROCESSORS MUST ENABLE THEIR CLIENTS

TO DELIVER A FAST CUSTOMER EXPERIENCE

CONSUMERS EXPECT REAL TIMEPayment providers must deliver a real-time and frictionless experience.

FAST sign-up • Neobanks, like N26 or O2 Banking,

market speedy services, claiming an 8-minute sign-up process.

• KYC is facilitated by laptop, webcam or mobile phone cameras.

• Services like Capify or Kabbage provide small loans to merchants in 60 seconds.

• Loanhero provides app-based consumer financing with instant approval.

FAST servicing

• Customers want to be FAST and in control and will self-serve if given the right tools.

• According to Forrester, 53% of online shoppers abandon purchases if they can’t find fast answers to their questions.

• Accompanied browsing allows virtual shop assistants to provide instant support to customers shopping in online stores. Payments need to be on par with this service.

FAST experience• P2P payment apps aim to provide

effortless money transfers (e.g., Pingit).

• The same experience is now applied to deliver a FASTer experience online and at the POS.

• Knowing your customer and associating your customer with digital identities is key to driving frictionless use cases (e.g., central registry for a seamless KYC process, Keypasco).

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Easy sign-up • New businesses want to interact digitally.• Paper-based processes will disenfranchise them.• Payment providers can pre-upload customer

information via web services such as NetVerify.• A simple, digital process results in more completed

sign-ups.

Instant response • Customers want payment request responses in seconds

or sub-seconds.• They don’t want to wait for approvals.• Data flows must be built for speed to reduce latency.• FASTer payments result in more transactions.

Same-day funding or instant credit • Businesses want their money FAST; this includes credit.• They don’t want clearing times to impact their

cashflows, purchasing, or payments.• Real-time clearing makes instant funding effortless.• Instant payments drive loyalty in business customers.

Real-time data • Business want access to real-time data for smarter

decision making.• They don’t want to miss customer trends or fall behind

competitors who spot them earlier.• Give merchants smart data in a timely manner and they

will reward you with loyalty.• This can become a strong revenue stream for

processors and FinTechs.

Seamless integration • Businesses want their payments integrated into broader

eCommerce platforms.• They don’t want payments to exist in isolation.• Solutions such as First Data’s Clover provide seamless

integration and ease of payment.• Integrated solutions provide the opportunity for

cross-selling.

BUSINESSES WANT SEAMLESS AND REAL-TIME PAYMENTS TOO

There is ample opportunity for FinTechs and processors to enhance merchant services.

FASTER PAYMENTS HELP TO MEET THE REAL-TIME NEEDS OF BUSINESSES

10.

AGILITY IS KEY TO BEING FASTPayment processors can learn how to become more agile from FinTechs.

Agile technology design, culture and product development• IT design must be:

• Modular - Configurable and open, delivering more personalized payment types and channels.

• Lower Cost - Move to less expensive platforms or to a SaaS delivery model.

• Scalable - Driving higher transactions on lower cost platforms and reduced cost per item.

• IT environment must:• Have a culture that is adaptive to change (as

employees are a major part of this journey).

EMBRACE CHANGE FROM THE TOP DOWN

Agile organization and structure• Payment providers must evolve from utilities to become

agile product companies. • Rebuild your organization to become FAST:

• Eliminate decision-making bottlenecks.• Introduce flat hierarchies.• Forster innovation and new ideas.• Be a culture of minimal viable product instead of

“release all at once”.• Utilize cross-functional teams.• Expect failure and learn.• Introduce innovation tsars and flexible, project

oriented teams.

THIS IS A JOURNEY, NOT A SWITCH

FinTechs are agile but can improve• FinTechs are generally built for agility.

• Adopt flexible teams and working practices and flatten hierarchies.

• To become FASTer and SMARTer, FinTechs must leverage lessons learned.

• Find the right partners to navigate the regulatory.• Know when to reinvent and when to use established

assets.• Use the capital and momentum of high valuations to

attack the marketplace:• Buy or partner for the right solution components.• Buy or partner for distribution and market access.

BUILD AND IMPROVE ON SUCCESSFUL FINTECH ATTRIBUTES

11.

Immediate payment via real-time clearing is an ecosystem designed for FAST.

Real-time clearing

Networks must fulfill the transaction FAST to avoid a breakdown in the exchange of value between ecosystem participants.

Instant authorization

Responding to payment requests in realtime is the key to conversion in digital commerce.

Instant authentication

Payments must be authenticated FAST so that customers don’t abandon their transactions. Instant identification

New customers need to be identified FAST (e.g., via mobile technologies) to initiate a payment.

STARTCustomer

onboarding

Payment authorization

Payment initiation

Immediate funds transfer

Funds receipt

FAST PAYMENTS REQUIRE A FAST ECOSYSTEMThe growth of faster payment infrastructures provides alternative payment solutions.

12.

Processors, networks and FinTechs can

all benefit from working

together.

REAL-TIME CLEARING AND OPEN ACCESS WILL TRANSFORM PAYMENTS

Immediate payments will allow payment processors, service providers and FinTechs to move FASTer.

Payment processors must adapt to new modelsImmediate payments will change processing models:1. Separation of schemes and processing

(MIF and other).2. Different delivery models for network and

processing services (i.e., software, managed service, etc.).3. Decentralized networks replacing

centralized ACH (supported by blockchain).4. Dual-message formats migrating to single-

message data and settlement.5. Front-end services (e-invoices, mobile apps)

complementing infrastructure.6. Digital identities replacing physical.7. …and more.

FinTechs can realize new opportunities Immediate payments enable FinTechs and PSPs to openly exploit payment networks to improve stakeholder use cases:1. Enabling digital identities and trust between

payers and payees.2. Modernizing legacy processes in B2B

payments and cash management.3. More deeply embedding payments into

commerce and ERP platforms.4. Combining loyalty and payments.5. Reducing friction and costs in cross-border

payments.6. …and more.

13.

INTEROPERABILITY WILL BE KEY TO FAST AND EFFICIENT SERVICES

There is not one FAST payments ecosystem; there are and will continue to be many.

CROSS-BORDER, REAL-TIME PAYMENTS WILL BECOME MAINSTREAM

New Payments Platform (NPP)

Real Time Clearing (RTC)

National ITMX and VocaLink collaboration

Fast and Secure Transfers (FAST)

Interbank Banking Payment

System (IBPS)

Zengin System

Interbank Home/Firm Banking Network HOFINET

Transferencias en Línea (TEF)

Funds Transfer System SITRAF

Sistema de pagos electronicos

interbancarios (SPEI)

Multiple initiatives are taking place

Instant Payments (NIP)

ICBPI Realtime 24/7

Immediate Payment Service

(IMPS)

Retail Payment System (RPS)

Express Elixir

Nets Realtime 24/7

Payments in Real-Time (BIR)

Instant Payments NL

Faster Payments

ECB Instant Payments

ECB Instant Payments

Stet CSM

BBVA Compass

Swiss Interbank Clearing (SIC)

Instant payment platform (Established) Instant Payment platform (in development)

14.

FAST MEANS CHANGING THE EQUATIONProcessors that embrace FAST will help their customers succeed in the modern

payments world.

= + +Processors must help financial institutions to become FASTerFinancial institutions need support from their processing and network partners to:• Move faster.• Develop new products for

the immediate payments ecosystem.

Embracing new networks and means of paymentProcessors must embrace the new:

• Payment methods (i.e., social).

• Payment networks such as UK Faster Payments and SEPA Inst.

Faster to technically develop and integrateProcessors must:• Embrace ‘open’

technology tools such as APIs.

• Leverage increasingly open network connectivity options such as access to Faster Payments.

Faster to adapt product and business modelsProcessors must take advantage of instant payments:• Adapt existing products

and business models to the modern payments world.

• Develop agile product development, measured in weeks rather than years.

FAST LEADS TO NEW OPPORTUNITIESImmediate payments will facilitate disruptive innovation in the payments industry.

New customers and partners • For payment processors,

FAST presents new customers opportunities:

• FinTechs (alternative payments, neobanks, commerce apps, etc.)

• Merchants (direct)• PSPs• Enables bank innovation

• For FinTechs, FAST presents new partnership opportunities:

• Banks• Processors• Networks

New products• Alternative (card or non-card)

means of payments and networks.• Instant credit and financing.• Transaction reconciliation.• Information aggregation and

analytics.• Third Party Payment service

providers (TPPs) under PSD2.• Digital identities.• Smart authentication.• “Intelligent” loyalty schemes.

New commercial models• Open API and pay-for-use (only).• SaaS rather than licensed and

installed.• Business venturing, not just vendor

outsourcing.• New network constructs – bespoke

payments.

“ACI IS ACCREDITED BY THE UK FASTER PAYMENTS SCHEME LTD”

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Instant confirmationPerson to person in cases where immediate recognition is useful (e.g., sharing meal bills).

Micro-businessesPayments to micro-businesses who struggle

to enable cards (e.g., the plumber).

Bespoke instant paymentsPayment for services in which immediacy

is helpful (e.g., payment for a bespoke hourly job).

IncompatibilityAnywhere, anytime commerce via

mobile phones, as new payment formats often lack interoperability.

Bill paymentThe satisfaction of seeing immediate

confirmation for bill payments.

Emergency paymentsReceiving an immediate payout during an

emergency (e.g., an insurance payout).

B2B discountsEnhanced cash management and capture of

supplier discounts as a function of faster payments.

Cash or card dilemmaSupport the growth of eCommerce

in low card-based economies.

THERE ARE MANY UNDERSERVED AREAS IN TODAY’S PAYMENT MODELS

Think about how you can improve these areas with use cases for immediate payments.

INVOICE

P2P & P2BInstant mobile-to-mobile (P2P or P2B) transfers.

Mobile billsMobile enabled bill payment –

anytime, anywhere.

Automatic paymentsReal-time procure-to-pay ecosystem

(e.g., auto payment immediately upon receipt of goods).

ReturnsInstant payout of in-store returns.

E-InvoicingPayments which are integrated into e-invoices to enable easy reconciliation for corporates.

Time-critical paymentsImmediate urgent payouts

with SMS or mobile banking acknowledgement.

17.

MANY NEW SERVICES CAN BE DEPLOYED WITH FASTImmediate payments offer new revenue streams for payment processors, FinTechs and others.

18.

FAST HAS SERIOUS IMPLICATIONS FOR PAYMENT SERVICES PROVIDERS

The slow movers in the new payments ecosystem will be left behind.

Payment networksShould embrace openness, new

customers, broader connectivity and new information services.

ProcessorsShould embrace modular/cloud-based

technologies, on-demand servicing models, new network models and

new means of payment.

EveryoneShould find ways to make

the customer and partner experience FASTer.

FinTechsShould continue to focus on customer

needs looking for opportunities to improve and disrupt (commerce integration, digital IDs, IoT, etc.).

Be FAST or be dead: FASTer payments are here!

19.

THOSE THAT EMBRACE DISRUPTION TO MOVEFASTER WILL WIN

Disruption is not a threat, it’s a challenge and an opportunity.

BIG DATA

Data is both open (freely available) and

packaged into effective services for end-user

clients.

SELF-SERVICE

Let your customers and partners help themselves with

automated processing and network

infrastructure.

REAL-TIME INFRASTRUCTURE

Instant money makes day-to-day life easier;

realtime, not batch processing and

settlement, is the way of the future.

COMMUNITY

Foster a community of stakeholders in order to embrace, not run from

disruption.

DIGITAL IDENTITIES

Digital identities are the form factors of the future and the

way consumers and businesses will be

authenticated.

NEW MEANS OF PAYMENT

Payment methods and the rails on which they run are fragmenting, not consolidating –

embrace them.

LOCAL + GLOBAL (INTEROPERABLE)

Localization remains key to end-service

delivery (e.g., as mobile payment apps), but so too is interoperability

for regional and global networks.

DISRUPTION

20.

APPENDIX I: ABBREVIATIONS AND REFERENCE BOOK

TERM

BLE (Bluetooth Low Energy)

Currency

Floor limit

Internet of Things

Neobank

NFC (Near Field Communication)

Unicorn

TPP (Third Party Payment Service Provider)

EXPLANATION

BLE is a technology to send signals up to 10 meters (it can be limited by design). In contrast to standard Bluetooth technology, it consumes less energy. Often used by alternative payment schemes as the preferred technology as NFC can’t be used by 3rd party Apps on Apple devices.

All fiscal figures in this document are U.S. Dollars.

The floor limit is a certain amount of transaction value, where no cardholder verification method (such as signature or PIN) is needed if the transaction is below that limit. The limit differs from country to country (e.g. Europe: € 25 (with higher exceptions in some countries), U.S.A. $ 25 (with higher exceptions at some merchants).

The internet of things is the integration of physical devices to the internet. Enriched with internet connectivity, these devices can interact with other devices, services or humans. Examples include, but are not limited to, security systems, irrigation systems, traffic surveillance, etc.

A neobank is a non-traditional financial institute, serving its customers mainly through mobile devices. Their claim is to be more customer-centric and to reduce hassle when banking. Notable examples are Moven, N26 (number26) and O2 Banking.

NFC is a standard to transmit data over a short distance (4cm/2inch). Often used for contactless payments.

A unicorn is a start-up venture that’s valued at least $1 billion.

A TPP will have an IT and Operations platform meant to take care of all back-office activities for processing transactions.

21.

© Copyright ACI Worldwide, Inc. 2016ACI, ACI Worldwide, ACI Payment Systems, the ACI logo, ACI Universal Payments, UP,the UP logo, ReD and all ACI product names are trademarks or registered trademarks of ACI Worldwide, Inc., or one of its subsidiaries, in the United States, other countries or both. Other parties’ trademarks referenced are the property of their respective owners.

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www.aciworldwide.comAmericas +1 402 390 7600Asia Pacific +65 6334 4843Europe, Middle East, Africa +44 (0) 1923 816393

The last millennium experienced steady incremental innovation in payments with card the principal disruptive element. Today, regulators and consumers

are demanding FAST, OPEN and SECURE payments causing the pace of innovation to accelerate and payment models to become fragmented.

Welcome to a new era of DISRUPTION in payments!