This month I was privileged to be one of the keynote speakers at Lafferty’s exquisite London event, The World E-Commerce Summit. This thought-leadership driven event included a hand-picked group of speakers, representing the movers, shakers and innovators across the payments ecosystem. From IBM to Visa to Tufts University, there was an interesting mix of diverse speakers.
For someone who found the payments space a few years earlier during a trek up Mount Kilimanjaro (that story is for a separate and later blog), speaking at an event was a dream come true. I wanted to share the broader themes of this intimate event, enjoy!
- Traditionalists vs Disruptors: The Incumbent Empire is Striking Back!
From panel discussions to individual conversations, the following was crystal clear to all attendees. Traditional payment providers and financial institutions are here to stay and will not be easily dislodged in respect to Fintech disruption. The traditionalists strike back at disruptors in any and every way possible. In addition, they will aggressively innovate as PSD2 attempts to disintermediate the EU-wide banking market.
Visa and MasterCard along with others like Western Union and IBM made it clear that they have no intention of stalling innovation while Fintech companies attempt to capture market share. Massimiliano Alvisini openly declared that if Western Union is not the preferred partner for P2P money remittance – due to disruptors entering the market – they will come up with alternative solutions to stay relevant, including possibly outsourcing white label compliance services. The whole room laughed.
You are probably wondering: Does a giant like Western Union need to be worried that a disruptor could develop both the knowledge base and infrastructure surrounding a complex and sophisticated compliance system?
Well this ‘concern’ may have something to do with the staggering number of companies that are entering this market. Emerging Payments Association’s Rich Wagner provided attendees with a 360° view of just how many disruptors are populating this space. Between alternative lenders to digital banks, Rich pointed out at least 50 companies in the UK alone, and the figure continues to climb on an international level. He further explained that due to tighter regulations, risk appetite and legacy systems on the traditionalists’ side, these ‘alternative payments’ disruptors were born. Yes, it makes more sense as to why traditionalists feel the need to strike back.
- Payment Methods: Cash is Here to Stay, Localization & Cultural Preferences Matter
There were quite a few speakers who addressed payment methods, here are the highlighted ‘Fast Facts’:
- Cash is Still King… Well at Least Prince: It was unanimous – everyone agreed that cash and cards are here to stay and forever.
- Europe: Local, Cultural Differences: Of course, we cannot stamp one method of payment as the winner for cross-border online payments. The reason is that each country tends to have preferred, inherited and familiar methods of payment, which cultures will not shift from easily.
For example, PayDirekt noted that in Germany, only 10% of trade comes from e-commerce, and over 80% of Germans trust their bank as provider of a suitable payment solution. Payment behavior breaks down to: credit cards – 35%, prepayments – 12%, and invoicing a whopping 80%.
After listening to the panelists, the question that remained was whether the regional and more focused financial institutions and payment methods will supersede the credit card space in the next 50 years. Conclusion: There was a general sense and belief that in the long run, regional and focused payment products and financial institutions will prove more successful than organizations that attempt to take on too many non-core activities.
- Security: No Event is Complete without a Dose of ‘Fraud’ and Security Reality
Security is always a key topic at industry events, and this gathering was no exception. We heard from various speakers that discussed both sides of the coin:
- Actual fraud threats
- Numerous technological, operational & regulatory solutions to prevent or at least reduce these fraud threats
Let me share a few key points that addressed both sides of the above coin. According to the Nilson Report, fraud losses incurred by card issuers, merchants and acquirers reached $16.31 billion in 2014, up 19%. Chartis predicts 2016 global expenditure on Financial Crime Risk Management (FCRM) technology to reach $18.6 billion – quite a big number.
Interestingly, it was noted that despite new security measures being put into place on the Card Present side (in other words, EMV, rule-based fraud filters, etc.), there’s a rise of fraud on the CNP side vs. POS. Friendly fraud is on the rise due to a number of factors including the evolution of contactless payments, rushed dispute management by banks, and in the CNP world, consumer and merchant relationships are pretty much non-existent.
There were solutions discussed to this ever-growing problem:
- Standardization: As all industries, gas to oil to FX, standardization is becoming an absolute necessity.
- Man vs. Machine: There were discussions around the ‘man vs. machine’ debate. We debated if machines alone will replace humans from making decisions in real time to accept payments that have suspicious characteristics. In the end, it was agreed that a far better approach than man vs. machine would be to use a combination.
Humans are only human, we get tired. Machines can detect patterns and can provide humans with a tool to make decisions based on data and monitoring. The combination is powerful, and the AI Cooperation’s CEO Mark Goldspink really hammered this point home.
As you can see, the Lafferty event touched upon many lively themes that are sure to shape the future of payments. For a taste of Credorax’s participation in the event, I encourage you to take a look at our presentation about the challenges Payment Service Providers (PSPs) face and why choosing the right acquirer is essential to a PSP’s successful global expansion strategy.