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Richard Sanders
DISRUPTORS IN PAYMENTS September 2013
Confidential 1
ConfidentialMEETS THE CHALLENGE OF CHANGE 2
Agenda
1. The Current Marketplace
2. The Disruptors in the Payments Industry
•...
THE CURRENT MARKETPLACE
TRENDING TO THE NEW REALITY
Source: Citi
THE DISRUPTORS IN THE PAYMENTS INDUSTRY
THE DISRUPTIVE FORCES ON THE PAYMENTS INDUSTRY
Almost all disruptive innovations do one of two things (or both)…
1. They p...
THE DISRUPTORS IN THE PAYMENTS INDUSTRY –
BIG DATA
ConfidentialMEETS THE CHALLENGE OF CHANGE 8
What is Big Data?
• Evolved from “Big Science” which described the rapid cycle...
ConfidentialMEETS THE CHALLENGE OF CHANGE
What is Big Data?
9
• The power of “Big Data is it provides a more personalised
...
ConfidentialMEETS THE CHALLENGE OF CHANGE 10
Big Data is Important Because Those Who Make
Sense of It Will Win in Competit...
ConfidentialMEETS THE CHALLENGE OF CHANGE 11
Big Data is Important Because Those Who Make
Sense of It Will Win in Competit...
THE DISRUPTORS IN THE PAYMENTS INDUSTRY –
SOCIAL NETWORKS
THE NEW ENTRANT
DISRUPTORS
BIG NUMBERS
SOCIAL MEDIA – THE NEW
REALITY
ConfidentialMEETS THE CHALLENGE OF CHANGE
Social Network Myths Banks Believe
• Myth banks need to stop believing: It‟s for...
THE DISRUPTORS IN THE PAYMENTS INDUSTRY –
THE INTERNET OF THINGS
ConfidentialMEETS THE CHALLENGE OF CHANGE
What is the Internet of Things
• Connectivity for anyone from any
time and any p...
ConfidentialMEETS THE CHALLENGE OF CHANGE
The challenge of the Internet of Things
• Technological architecture and standar...
THE DISRUPTORS IN THE PAYMENTS INDUSTRY –
MOBILE
ConfidentialMEETS THE CHALLENGE OF CHANGE
Mobile Payments and eCommerce will Comprise an
Increasingly Larger % of Payments...
TRADITIONAL PARADIGMS FOR
PAYMENTS ARE CONVERGING IN MOBILE
Source: Visa
Mobiles Impact on the Customer Experience
ConfidentialMEETS THE CHALLENGE OF CHANGE 24
The Disruptive Influences – Mobile
Mobile is transformational
• Moving people...
ConfidentialMEETS THE CHALLENGE OF CHANGE
The Disruptive Influences – Mobile
25
• Why?
• Phone is a more powerful device t...
THE DISRUPTORS IN THE PAYMENTS INDUSTRY –
COMMERCE PLATFORMS
THE NEW ENTRANT
DISRUPTORS
ConfidentialMEETS THE CHALLENGE OF CHANGE
The Disruptive Forces – Amazon
• Amazon
-Have launched the Amazon Coin, tied to ...
ConfidentialMEETS THE CHALLENGE OF CHANGE
The Disruptive Forces – Google
• Strengths
– An experienced disruptor!
– Heavily...
ConfidentialMEETS THE CHALLENGE OF CHANGE
The Disruptive Forces – Google
• BGC - The challenge is for Google to reignite r...
ConfidentialMEETS THE CHALLENGE OF CHANGE
The Disruptive Forces – Apple
• Apple
– Has a wallet product – Passbook – based ...
ConfidentialMEETS THE CHALLENGE OF CHANGE
The Disruptive Forces – Apple
Already has an impressive track record of disrupti...
ConfidentialMEETS THE CHALLENGE OF CHANGE
The Disruptive Forces – PayPal
An alternative network and enemy to all things tr...
ConfidentialMEETS THE CHALLENGE OF CHANGE
The Disruptive Forces – PayPal
An alternative network and enemy to all things tr...
THE DISRUPTORS IN THE PAYMENTS INDUSTRY –
THE CLOUD
ConfidentialMEETS THE CHALLENGE OF CHANGE
What is the Cloud ?
• Cloud computing
– Integrated and networked hardware, softw...
ConfidentialMEETS THE CHALLENGE OF CHANGE
Cloud Issues for Payments
• Integration and business relationship of Cloud-based...
THE DISRUPTORS IN THE PAYMENTS INDUSTRY –
G(LOCAL)
ConfidentialMEETS THE CHALLENGE OF CHANGE
(G)local
• A combination of the words "global" and "local" used to describe
a pr...
THE DISRUPTORS IN THE PAYMENTS INDUSTRY –
BUSINESS MODELS
NEW PAYMENT PLAYERS APPLY NEW REVENUE MODELS
TO ENTER THE MARKET
Source: McKinsey and Co
THE NEW COMPETITORS AND THE NEW
PAYMENTS LANDSCAPE
THE DISRUPTORS IN THE PAYMENTS INDUSTRY –
OTHER DISRUPTORS
REGULATION
Financial Services Bill 2012
ConfidentialMEETS THE CHALLENGE OF CHANGE
The Disruptive Forces – Merchants
• More stores moving into the digital space or...
THE DISRUPTIVE INFLUENCES –
CONSUMERS
ConfidentialMEETS THE CHALLENGE OF CHANGE
The Disruptive Forces – Digital Wallets
• “The Term Wallet was used so Old Peopl...
THE DISRUPTIVE FORCES – LOYALTY –
UBIQUITOUS AND USED REGULARLY Source: WorldPay
Conclusion: low disruptive threat – unles...
ConfidentialMEETS THE CHALLENGE OF CHANGE
The Disruptive Forces – Biometrics
• Not yet a clear winner of the one to
use – ...
ConfidentialMEETS THE CHALLENGE OF CHANGE
The Disruptive Forces – BitCoin
• Violent fluctuations in value an issue
• Being...
CONCLUSIONS
WITH ALL THIS DISRUPTION IT IS
NO LONGER CLEAR WHO OWNS
THE CUSTOMER
Source: Visa
BUT THE CUSTOMER MAYBE HAS MORE POWER
THAN EVER BEFORE - THE ULTIMATE DISRUPTOR
Source: Visa
ConfidentialMEETS THE CHALLENGE OF CHANGE
The Disruptive Influences
54
• Big data, Cloud and mobile are the key to the imp...
ConfidentialMEETS THE CHALLENGE OF CHANGE 55
The Impact of the Disruptive Influences
on Players in Payments
• Banks – must...
ConfidentialMEETS THE CHALLENGE OF CHANGE 56
The Impact of the Disruptive Influences
on Players in Payments
• New players ...
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  • Transcript of "Disruptors in Payments Webinar "

    1. 1. Richard Sanders DISRUPTORS IN PAYMENTS September 2013 Confidential 1
    2. 2. ConfidentialMEETS THE CHALLENGE OF CHANGE 2 Agenda 1. The Current Marketplace 2. The Disruptors in the Payments Industry • Big data • Social networks • The internet of things • Mobile • Commerce platforms • The cloud • (G)local • Business models • Other disruptors 3. Summary and Conclusions
    3. 3. THE CURRENT MARKETPLACE
    4. 4. TRENDING TO THE NEW REALITY Source: Citi
    5. 5. THE DISRUPTORS IN THE PAYMENTS INDUSTRY
    6. 6. THE DISRUPTIVE FORCES ON THE PAYMENTS INDUSTRY Almost all disruptive innovations do one of two things (or both)… 1. They provide a new benefit 2. They solve an existing problem
    7. 7. THE DISRUPTORS IN THE PAYMENTS INDUSTRY – BIG DATA
    8. 8. ConfidentialMEETS THE CHALLENGE OF CHANGE 8 What is Big Data? • Evolved from “Big Science” which described the rapid cycle of changes that occurred in scientific disciplines during and after WW2. • Term first used in the late 1990s to describe massive information volumes which increase as more digital records created every day e.g. 3,000+ photos uploaded to Facebook every second (300 million a day) • Google – “5 exabytes of information (1,000,000,000,000,000,000 bytes) created by the entire world between the dawn of civilization and 2003. That same amount is now created every two days.” • Organizations are drowning in data – which will increase through unlimited bandwidth and storage, with device ubiquity and cheap chips.
    9. 9. ConfidentialMEETS THE CHALLENGE OF CHANGE What is Big Data? 9 • The power of “Big Data is it provides a more personalised approach – Leveraging structured and unstructured data to increase cross-selling opportunities – Creating the customer segment of one , reducing marketing spend but increasing customer engagement – Creating the insight that informs the decision that delivers a customer experience
    10. 10. ConfidentialMEETS THE CHALLENGE OF CHANGE 10 Big Data is Important Because Those Who Make Sense of It Will Win in Competitive Markets • Technology players e.g. Amazon, Apple, Google and Facebook – See leverage of data as the product – Know how to sift data and make sense of it which is why banks fear them. – Understand your social activities, financial transactions, lifestyle etc as a competitive weapon and have partners to offer real-time deals/alerts • The bank‟s biggest weaknesses are: – Their heritage and organizational structure as they separate data functions from product functions by holding data separately in silo divisions. This does not allow them to leverage data and weakens their ability to use it to deepen relationships and compete. This is the big opportunity for new entrants.
    11. 11. ConfidentialMEETS THE CHALLENGE OF CHANGE 11 Big Data is Important Because Those Who Make Sense of It Will Win in Competitive Markets • One bank CEO recently stated “Our peers I can handle. They‟re in the same boat. If Google opens a bank, with their data – we‟re in trouble.” • And Eran Fiegenbaum, the director of security for Google Apps, has already made it clear that Google is “a bank for your data.” • Conclusion: medium disruptive threat
    12. 12. THE DISRUPTORS IN THE PAYMENTS INDUSTRY – SOCIAL NETWORKS
    13. 13. THE NEW ENTRANT DISRUPTORS
    14. 14. BIG NUMBERS
    15. 15. SOCIAL MEDIA – THE NEW REALITY
    16. 16. ConfidentialMEETS THE CHALLENGE OF CHANGE Social Network Myths Banks Believe • Myth banks need to stop believing: It‟s for young people only which stems from the stereotype that new, hip, cool technology is for those who adapt the fastest. It's not: – Its for people who want to communicate on-line – It's for those who enjoy that technology improves their lives – Facebook and Twitter have more users over the age of 25 than under • Most social media users are wealthy, educated, in employment and mature - the bank‟s target audience for CRM. • Social media as a medium for financial transactions is still treated with caution due to reasons like information security/hacking etc and lack of awareness created among customers. • Conclusion: medium disruptive threat
    17. 17. THE DISRUPTORS IN THE PAYMENTS INDUSTRY – THE INTERNET OF THINGS
    18. 18. ConfidentialMEETS THE CHALLENGE OF CHANGE What is the Internet of Things • Connectivity for anyone from any time and any place with anything! • A wireless network, usually self- configuring between objects like household appliances -Wikipedia. • By embedding short-range mobile transceivers into gadgets and everyday items new forms of communication between people and things, and between things themselves will emerge. • The term "Internet of Things" has come to describe a number of technologies and research disciplines that enable the internet to reach out into the real world of physical objects.
    19. 19. ConfidentialMEETS THE CHALLENGE OF CHANGE The challenge of the Internet of Things • Technological architecture and standardization in most areas are still fragmented curtailing interoperability. • Connections between the real and virtual worlds • Managing and fostering rapid innovation is a challenge for governments • Privacy and security • Absence of governance, naming, identity, interfaces • How to convincing users that the IoT technology will protect their data and privacy when tracking • Potential solutions – Education and information – Legislation limiting the scope of the Internet of Things • Conclusion: currently low disruptive threat
    20. 20. THE DISRUPTORS IN THE PAYMENTS INDUSTRY – MOBILE
    21. 21. ConfidentialMEETS THE CHALLENGE OF CHANGE Mobile Payments and eCommerce will Comprise an Increasingly Larger % of Payments Volumes • Ovum believe mobile is top of • most Banks investment priorities • Why? • Phone is a more powerful device than the PC – Knows who you are – Knows when you are in/near store – Knows your purchase/search history – Delivers instant gratification • 5x more phones than PCs • In store sales are still 19x greater than eCommerce SOURCE: Yankee Group, Dec 2010; Press search; McKinsey Global Payments Map 2010 Global Payment Flows : $516T eCommerce Flows: $1,700B Mobile Payment Flows: $10B 2015 Global Payment Flows: $780T eCommerce Flows: $3,420B Mobile Payment Flows: $545B CAGR: +122% CAGR: +9% Total Flows: CAGR: 15%
    22. 22. TRADITIONAL PARADIGMS FOR PAYMENTS ARE CONVERGING IN MOBILE Source: Visa
    23. 23. Mobiles Impact on the Customer Experience
    24. 24. ConfidentialMEETS THE CHALLENGE OF CHANGE 24 The Disruptive Influences – Mobile Mobile is transformational • Moving people from having to go somewhere to do something to having connectivity in their pocket/purses 24x7. • Gives 7 billion people the ability to communicate wirelessly, globally and socially one-to-one, person-to- person, peer-to-peer. • Most affluent consumers change their mobiles every 18 months • Provides a transactional infrastructure that was non-existent just a few years ago. Africa has seen the most rapid transformation through mobile, with e.g. M-PESA in Kenya • Allows geo-locating to locate anyone, anywhere, anytime and say at the point of retailing: “here‟s the deal”. • U.S. bank BBVA Compass - Banks that fail to invest in mobile risk being swept away by a wave of disruptive innovation
    25. 25. ConfidentialMEETS THE CHALLENGE OF CHANGE The Disruptive Influences – Mobile 25 • Why? • Phone is a more powerful device than the PC – Knows who you are – Knows when you are in/near store – Knows your purchase/search history – Delivers instant gratification • 5x more phones than PCs • In store sales are still 19x greater than eCommerce
    26. 26. THE DISRUPTORS IN THE PAYMENTS INDUSTRY – COMMERCE PLATFORMS
    27. 27. THE NEW ENTRANT DISRUPTORS
    28. 28. ConfidentialMEETS THE CHALLENGE OF CHANGE The Disruptive Forces – Amazon • Amazon -Have launched the Amazon Coin, tied to the US$ that can be used to buy apps for the Kindle, and cannot be exchanged for other currencies. -Are aggressively offering loans to small businesses, but the proceeds can only be used to purchase items from its sites. -Is focused on its own businesses and unlikely to disrupt the payments landscape in the short term. • Conclusion: low disruptive threat
    29. 29. ConfidentialMEETS THE CHALLENGE OF CHANGE The Disruptive Forces – Google • Strengths – An experienced disruptor! – Heavily promoting its wallet, which it is offering for free – Launched a credit card in the U.S. and U.K. (with MasterCard) – Offering loans for purchasing AdWords – Dangerous because it gives valuable things away for free. For the – Currently focused on advertising, not payments. • Weaknesses – Marketers targeting smartphone and tablet users – Drop in shares price blamed, in part on mobile marketing. – The average cost per click dropped as mobile marketing took budgets away from traditional desktop advertising.
    30. 30. ConfidentialMEETS THE CHALLENGE OF CHANGE The Disruptive Forces – Google • BGC - The challenge is for Google to reignite revenue growth as their existing businesses start to mature and slow down. • Google, like the rest of the online world, is realizing the power of mobile marketing is greater than predicted, and an evolution will be required in order to be able to keep up with the changes that it demands. • Conclusion: medium disruptive threat
    31. 31. ConfidentialMEETS THE CHALLENGE OF CHANGE The Disruptive Forces – Apple • Apple – Has a wallet product – Passbook – based on QR technology – Was expected to add NFC to the iPhone5 but did not. Now rumours of an iWatch for payments linked to an Passbook- enabled iPhone . – Acquired biometric scanner maker AuthenTec in 2012 – Has the world’s largest database of consumer payment information (from iTunes) – Already has products being used as POS devices Already has an impressive track record of disruption
    32. 32. ConfidentialMEETS THE CHALLENGE OF CHANGE The Disruptive Forces – Apple Already has an impressive track record of disruption – Apple has all the necessary pieces and a HUGE motivation for disruption as it could save a lot of $ as the cost of the current payment system to them is huge. Expect them to do something about it. – They have it all: an established customer relationship, a trusted brand, payment information, purchase and POS devices, a channel, and deep pockets. • Conclusion: high disruptive threat
    33. 33. ConfidentialMEETS THE CHALLENGE OF CHANGE The Disruptive Forces – PayPal An alternative network and enemy to all things traditional in the bank’s view • PayPal is already in the payments business. It: – Is an acquirer – Has banking licenses. If it became a bank it would be the largest in the world – Has 230 million accounts and moves more than $2 million every hour!. – Facilitates transactions via multiple methods (and discriminates between them) – Is moving from an online payment processor to a one-stop-payment- shop: online, offline, and mobile – Has made deals with offline retailers like Starbucks, Home Depot, etc. – Has arrangements with Discover (Cards) and NCR (POS equipment ) – Has 110 million active users
    34. 34. ConfidentialMEETS THE CHALLENGE OF CHANGE The Disruptive Forces – PayPal An alternative network and enemy to all things traditional in the bank’s view • PayPal is an ambitious player with a good brand, a wide reach, a reputation for agility, and deep pockets. Unlike Apple, it born in the payments industry. • This IS their core business. • Conclusion: high disruptive threat
    35. 35. THE DISRUPTORS IN THE PAYMENTS INDUSTRY – THE CLOUD
    36. 36. ConfidentialMEETS THE CHALLENGE OF CHANGE What is the Cloud ? • Cloud computing – Integrated and networked hardware, software and Internet infrastructure (called a platform) hiding complexity via simple GUI or API – Digital model so customers can access from anywhere they like, anytime. – Provides always on, on- demand services, anywhere, anytime, any place. – Allows customers (consumers, business) to pay for use as needed. • Benefits – Efficiency - large scale at a lower cost to IT, operations etc – Software not tied to a particular piece of hardware – Enables dynamic provisioning to handle peak loads – Provides IT responsiveness or temporary resources e.g. for year end – Speed to Market – Improved service to customers through more consistent uptime and integration their cloud based applications/services
    37. 37. ConfidentialMEETS THE CHALLENGE OF CHANGE Cloud Issues for Payments • Integration and business relationship of Cloud-based services – Legacy and the Cloud – Ability to integrate into IT and application framework – In-house vs. external staffing – Resources vs. experience • Regulation – Regulators in key markets, particularly in finance regulate that data must be held on bank premises. – Compliance all the way through the chain • Security – How the Cloud provider protects the data, where they are located, the standards used etc – Encryption will also make data more secure, as well as an enterprise architecture that is built for security and needs approval from regulators – How to undertake fraud detection in the Cloud? • Conclusion: high disruptive threat
    38. 38. THE DISRUPTORS IN THE PAYMENTS INDUSTRY – G(LOCAL)
    39. 39. ConfidentialMEETS THE CHALLENGE OF CHANGE (G)local • A combination of the words "global" and "local" used to describe a product or service that is developed and distributed globally, but is also fashioned to accommodate the user or consumer in a local market. • In the business world the idea was adopted to refer to global localization • Basics: A global company designing products for a local community. • Conclusion: low disruptive threat at this time because idea needs more development
    40. 40. THE DISRUPTORS IN THE PAYMENTS INDUSTRY – BUSINESS MODELS
    41. 41. NEW PAYMENT PLAYERS APPLY NEW REVENUE MODELS TO ENTER THE MARKET Source: McKinsey and Co
    42. 42. THE NEW COMPETITORS AND THE NEW PAYMENTS LANDSCAPE
    43. 43. THE DISRUPTORS IN THE PAYMENTS INDUSTRY – OTHER DISRUPTORS
    44. 44. REGULATION Financial Services Bill 2012
    45. 45. ConfidentialMEETS THE CHALLENGE OF CHANGE The Disruptive Forces – Merchants • More stores moving into the digital space or let customers to buy online and pick up in store. • Have to ensure they offer all the channels the customer wants to use for payment • Will have to upgrade their POS terminals – Tesco are yet to take contactless cards • Must respond to threats like geo-location – not offering a signal in their stores is not a solution • Could the US MCX model emerge in EMEA ? • Need more functionality from their acquirers Conclusion: Some have the ability to be major players because they have banking licences, mobile offerings, greater data, on-line channel and loyal customers : high disruptive threat
    46. 46. THE DISRUPTIVE INFLUENCES – CONSUMERS
    47. 47. ConfidentialMEETS THE CHALLENGE OF CHANGE The Disruptive Forces – Digital Wallets • “The Term Wallet was used so Old People Understand what the application delivers” DMUS Conference Sept 12 • Most of the big players are on the wallet bandwagon (card companies, telcos, Apple, Google, industry consortia…) • Different varieties: NFC (Google Wallet), QR (Apple, LevelUp) • Cool factor: keeps the card in the pocket. In some systems, even the phone stays in the pocket (Sum up and Pay with Square) • Great opportunity for added services (for consumers and merchants), targeted marketing, consumer tracking, couponing, loyalty, etc. • Innovative e.g. Tesco‟s shopping wall in South Korea • But… slower adoption than expected: so far, digital wallets have more „bark than bite‟. Widespread adoption (NFC, QR) might change that. There will be winners and losers depending on the walletments system. • Conclusion: low disruptive threat – for now
    48. 48. THE DISRUPTIVE FORCES – LOYALTY – UBIQUITOUS AND USED REGULARLY Source: WorldPay Conclusion: low disruptive threat – unless exploited by other disruptors
    49. 49. ConfidentialMEETS THE CHALLENGE OF CHANGE The Disruptive Forces – Biometrics • Not yet a clear winner of the one to use – fingerprint, voice, vein • Face recognition is the latest from the Nordics • May not be one global solution • Likely slow adoption rate – but it is already rolling out • Conclusion: low disruptive threat currently, but could increase
    50. 50. ConfidentialMEETS THE CHALLENGE OF CHANGE The Disruptive Forces – BitCoin • Violent fluctuations in value an issue • Being accepted in e.g. some U.K. pubs and independent stores • Now on Regulators radar • Conclusion- low disruptive threat – for now
    51. 51. CONCLUSIONS
    52. 52. WITH ALL THIS DISRUPTION IT IS NO LONGER CLEAR WHO OWNS THE CUSTOMER Source: Visa
    53. 53. BUT THE CUSTOMER MAYBE HAS MORE POWER THAN EVER BEFORE - THE ULTIMATE DISRUPTOR Source: Visa
    54. 54. ConfidentialMEETS THE CHALLENGE OF CHANGE The Disruptive Influences 54 • Big data, Cloud and mobile are the key to the impact of the disruptors as they bring this all together and are required for delivery. • The Cloud provides the ability to analyse unlimited amounts of data for any purpose. It is the antidote to big data which is all about drowning in exabytes of bytes, while Cloud provides the capability to gain access to unlimited power and storage to analyse that data. • New Payment platforms and business models can harness these without having to move from legacy systems • So these are centrifugal forces of change in 2014, as they are massively complementary. • Mobile allows anyone to socialise with anyone on the planet, whilst the cloud allows companies and government agencies to sift through the massive amounts of data that the mobile, social world is creating.
    55. 55. ConfidentialMEETS THE CHALLENGE OF CHANGE 55 The Impact of the Disruptive Influences on Players in Payments • Banks – must get consumer trust back and expect more mergers in some markets. BUT have to adapt and get to grips with the disruptive influences – especially mobile, Cloud, new competitors and big data. The clock is ticking! • Acquirers …vulnerable in a mobile world and to new competition • Card Schemes need to up their game and fully integrate the acquisitions they have made – and stop squabbling – e.g. Izettle • Telcos …power if they choose to use it, but do they have the appetite, consumer trust, the cash or the customer service ? Geo- locating is a key change but targeting requires massive analytical capability of data to target what is relevant to whom and when • Equipment vendors …in for a bumpy ride as e.g. dongles multiply and add functionality • Merchants are frustrated and feel constrained by the current system. Their costs are high and unpredictable. They want a stronger relationship with their customers and to add services.
    56. 56. ConfidentialMEETS THE CHALLENGE OF CHANGE 56 The Impact of the Disruptive Influences on Players in Payments • New players commerce platforms and social networks – the real unknown – some have the power/cash to cause real disruption – others less so. Its all about appetite • Consumers are generally satisfied…they trust the current system, they know how it works, they see it as inexpensive and convenient. BUT, they are starting to see the real costs; they want more information and services faster; and are more open to alternatives (the iPhone effect). So they are the ultimate disruptor • Conclusions – Most players in payments need the banks but are not loyal to them. If they see something cheaper and better (or free), they will jump. That is the threat the new acquirers bring. – The current system will survive, with changes. The winners and losers will be unequally distributed. Regulation (especially SEPA) will have a role to play and could be seen as unfair to the banks.
    57. 57. www.aciworldwide.com
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