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Digital Payment in 2020 - Kurt Schmid, Netcetera

Which solution and technologies will prevail?

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Digital Payment in 2020 - Kurt Schmid, Netcetera

  1. 1. Swiss Payment Forum 2019 Kurt Schmid, MD Digital Payments Which solutions and technologies will prevail? Digital Payment in 2020
  2. 2. Agenda Challenges: GAFAs, regulations, changing user behaviors…. New developments in eCom payments: • Merchant Tokenization • SRC How to implement convenient payments? Convergence between in-store & eCommerce payments 2
  3. 3. Challenges 3
  4. 4. Top Challenges Bank / Merchant New (digital) challengers Cost for Regulation / Legacy Changed User Behavior GAFAs 4
  5. 5. Poll What are the biggest challenges for your bank / company / organisation? • New challengers • Costs for regulations & IT, changing business model • Changed user / customer behavior • GAFAs • Internal resistance to change • Other 5
  6. 6. New Challengers – The rise of NEO-Banks… Source: MC Study – “UK state of Pay (Sept 2019)” 6 13% of new accounts opened from Jan – June 2019 were digital only banks 1 in 8 people 15% of 25 to 34-year-olds hold an account with a neo bank 1 in 3 people in the greater London area is considering to opening a digital-only bank account Bank / Merchant New (digital) challenge rs Cost for Regulation / Legacy Changed User Behavior GAFAs
  7. 7. … and impact 7 In 2025, Fintechs cut banks by 14 percent of total revenues In the future, banks will lose up to $280 billion of their revenue from payment transactions according to a study conducted by Accenture. As a consequence, Fintechs would have a share of 14 percent of industry turnover1. “The digital boom will mean banks have to fundamentally change the way they think about their revenue composition” “Channels that once made the banks billions of dollars will cease to exist”2 Source: t3n1 & Reuters2
  8. 8. Costs for regulation / Legacy 8 Costs for regulation are equally distributed to all (in theory) … BUT … PSD2 has less legal burdens to AISP and PISP than banks Costs for (legacy) IT are increasing Bank / Merchant New (digital) challengers Cost for Regulation / Legacy Changed User Behavior GAFAs
  9. 9. Changed User Behavior 9  Mobile First  Always online  Less loyal (traditional values decreasing)  Instant results needed  Demanding on modern UX Bank / Merchant New (digital) challengers Cost for Regulation / Legacy Changed User Behavior GAFAs
  10. 10. GAFAs embrace payment & banking 10 Bank / Merchant New (digital) challengers Cost for Regulation / Legacy Changed User Behavior GAFAs
  11. 11. A Theoretic Threat? 11
  12. 12. E-Commerce Landscape 12
  13. 13. E-Commerce Checkouts Even stronger growth for m-commerce and in-app payments Source: Mastercard, Worldpay, BCG Majority (61%) is Card based, thereof 29% is Cards-on-File (CoF) 19% Guest Checkout 13% Digital Wallets “Global e-commerce payment market is expected to grow from US$ 24.26 Bn in 2017 to US$ 64.69 Bn by 2025 at a CAGR of 13.1% between 2018 and 2025.” Direct Transfer By entering Account 22% Others Other 11%
  14. 14. Concerns and Challenges in E-Commerce Payments Source of figures: Mastercard, Worldpay, BCG Lost transactional revenues through abandonments and declines ISSUER CONCERNS Risk/fraud through different attacks Cost of customer care PSP / MERCHANT CONCERNSLost revenues through abandonments and declines Low conversion rates especially on mobile channelsRisk/fraud through different attacks Higher transactional costs for CNP versus CP Abandonment & Decline rate when 3DS (1.0) is used24% Decline rate when 3DS is not used17% Higher fraud rate of CNP compared to CP4-10x
  15. 15. How to Solve This 15 Cards-on-file 29% Replace PAN by token to reduce risk Improve security to CP level (where a cryptogram is used) Cards in Guest Checkout 19% Same as above plus Improve usability for consumer eCommerce Checkout Types Secure Remote Commerce
  16. 16. Here Are The Four Main Use Cases Of eCom Tokenization 16 ENROLL: Add card manually or tokenize from card on file DISPLAY CARDS Card art coming from token service (user sees his real card image TRANSACT Generate EMV cryptogram (can be used for one or more transactions) LIFECYCLE Issuer account update
  17. 17. ToPay eCom Token Connector Architecture 17 Merchant Website Merchant App PSP ToPay eCom Token Connector Acquirer SDK Scheme Network Token Service Provider (TSP) and Token Vault AETS MDES VTS Token Enrollment & Transaction API Token Notification API Merchant Management API TSI* TSI* TSI* Issuer
  18. 18. Comparing Scheme Tokenization with PSP Tokenization 18 Better approval rates Higher security and less risk Card data cannot be stolen Possibility to show cardart to user Life cycle management, E2E connection merchant - issuer Complies to PSD2 SCA, basis for delegated authentication Users can push and manage cards for merchant (within issuer app) Less Scheme Fees or Interchange (depending on situation) Will be pushed also by SRC Expected to be mandated by schemes Expected to be mandated by schemes Advantage compared to PSP proprietary tokenization
  19. 19. Secure Remote Commerce 19
  20. 20. Key points of the EMV® Secure Remote Commerce Framework “SRC” 20  Defined by EMVCo (  Scheme agnostic to help interoperability  Pay securely via single SRC checkout button  Will be scheme-neutral successor of MasterPass & Visa Checkout starting 2019 / 2020  Will support card tokenization  Demonstrator available from Netcetera, training courses coming as soon as specification out
  21. 21. What are the various roles in SRC? 21 Merchants’ Shopping Pages/Apps DPAs SRCI (Payment Service Provider, Merchant, Acquirer or Gateway) DCF (Payment Network, Browser or Merchant) SRC System Payment Network SRC PI Issuer
  22. 22. First-time enrollment during shopping DPA SRCI DCF DSA
  23. 23. Card retrieval if customer is not recognized DPA SRCI DCF DPA
  24. 24. Enrolled and returning user & device is recognized DPA SRCI/DCF DPA
  25. 25. Pillars for Increased Conversion 25 Customer friendly UX Tokenization 3DS Security / Risk Wallet with OOB features / Push & Pull Provisioning Secure Remote Commerce Delegated Authentication
  26. 26. White Label Issuer Wallet 26
  27. 27. Issuer Wallet / Card App 27 Account / Card / Transaction Management Onboarding / Authentication / Biometric support Payments (NFC, P2P, PSD2 compliant 3DS Auth) Card controls VAS,… + Push Provisioning Features
  28. 28. OEM Payment Activation 28 Offers OEM payment activation (super green path) with fast time-to-market • Push Provisioning • In App Verification • Card & Token Management • Status & Lifecycle Features
  29. 29. Push Provisioning (from Issuer App to Merchant Apps) 29
  30. 30. Delegated Authenticion 30
  31. 31. Checkout Today 31 Merchant App Issuer App (3DS) Merchant App
  32. 32. Checkout Tomorrow (Based on Delegated Authentication) 32 Merchant App
  33. 33. 33 Delegated Authentication and PSD2  Two factors to be compliant to PSD2 SCA : – Payment Card Token bound to a device – Authentication in the merchant app, proven to the schemes by e.g. a FIDO Auth Token  Initial binding with 3DS NPI transaction required  Supported by Mastercard (Authentication Express) and VISA’s Cloud Token Initiatives – Technical and legal framework
  34. 34. Use Case Convergence Purchase in a shop using an eCommerce Checkout (CNP Trx @POS) Payment in a merchant app by a wallet using a registered payment instrument (Remote Payment CP Trx) 34 Borders are dissolving
  35. 35. Resulting CNP to benefit from CP-like Mechanisms 35 Manual Communication between Payment Instrument and Point of Acceptance (PSP Software) Transaction not secured (only based on knowledge) Cardholder Validation with 3DS Step-Up Digital Communication between Payment Instrument and Point of Acceptance (Terminal) Transaction secured by Cryptogram (Possession) Cardholder Validation traditional with PIN, on devices also by biometry (CDCVM) Card Not Present (CNP) Card Present (CP) Tok. Deleg. Auth Prov. / SRC
  36. 36. Outlook Digital Payment in 2020 Banks can defend the customer interface by offering payment management and value added services around the payment eCommerce payments will become more convenient and secure UX will improve: • Instead of manual enrollment Push & Pull provisioning • Instead of burdensome authentication easy OOB authentication respective already delegated authentication in merchant app 36
  37. 37. Europaplatz4 4020Linz Austria +43664 11211 00 Kurt Schmid Managing Director Digital Payment