Regulation & Legislation

• The key European announcement of the month came from the European Parliament on 8 October with the formal adoption of the second Payment Services Directive (PSD2). Whilst the Directive has still to be signed off via the EU Council of Ministers, this was a key stage towards adoption of the Directive across EU Member States by the end of 2017. The text of the press release can be read here. From this point, the emphasis will now shift to how Financial Institutions will adopt its requirements; in particular, the provision of access to customer accounts (XS2A) and the need for common minimum API and Security standards to facilitate this.
• Following the UK Payment Community event that took place on 17^th September, the first meeting of the UK Payment System Regulator’s (PSR) Payment Strategy Forum took place on 8^th October. As part of the meeting, they considered Strategy Setting principles and priorities including an initial set of items reviewed and weighted at the Community event. All papers for the Payments Strategy forum are available on the PSR’s website here.
• In the US, 1^st October marked the date when retailers and businesses either utilised chip-enabled Credit Cards or became liable in the event of card-presented fraud if they accepted EMV based cards without EMV enabled terminals.

Central Banks

• A key announcement from the world of Central Banks and their interaction with the wider Payment eco-system came from the Peoples Bank of China on 8^th October with the launch of CIPS (China International Payment System). Operated by The Cross-border Inter-bank Payment and Clearing (Shanghai) Corporation, the system will provide clearing and payment services for cross-border and offshore Renminbi transactions. 19 banks were selected to be Direct Participants at launch. 38 domestic and 138 overseas banks are also participating on an Indirect Basis. Further information can be found at the PBoC website.
• On 15 October, the Bank of England issued two consultation papers aimed at the further strengthening of the UK Financial system through structural reform. One paper was on ring-fencing and the other on operational continuity. The consultation closes on 15 January 2016. The backing Bank of England news release can be viewed here.

Immediate / Faster / Mobile Payments

• On 14^th October EBA Clearing published an updated Blueprint setting out the basic principles which would back a pan-European instant payment infrastructure. Over 230 parties contributed to the consultation which sets out a roadmap through to the delivery of the infrastructure in 2018. The text can be downloaded via a form located at this link. Earlier in the month, EBA Clearing also announced it was launching a Request for Proposal (RPF) for the delivery of the infrastructure.
• On 13^th October, STET (a SEPA based Clearing House) announced in Paris that it also planned to create an Instant Payment Infrastructure for European Payment Service Providers. This will be offered to the French Banking Community for early adoption. The announcement can be read here.
• Just 24 hours earlier, Vocalink announced the signing of a letter of intent with NITMX (Thailand’s main Interbank Payments Provider) for a joint study into options for the delivery of mobile payment services in Thailand). The backing article can be read here.
• On 30^th September, NACHA – The Electronic Payments Association announced the release (via its Payments Innovation Alliance) of a white paper entitled “Real Time in Real Life: The Impact of a Real-Time Payments System on its Users”. The paper aims to “provide clarity on what a real-time payment is by exploring what real time means, outlining the challenges to implementing real time, and identifying major use cases and user impact”. A link to download the report can be found here.

Payment Liquidity enhancements

• Earlier in October, two of the UK Payment Schemes (Bacs and the Faster Payments) announced the launch of their respective pre-funding initiatives. Designed to eliminate both intra-day and out of hours liquidity risk, the initiatives work by Direct Participants lodging (via committed interest bearing accounts held at the Bank of England), sufficient liquidity to cover their intra-day netted exposure. This will assist Faster Payments in its ambition to raise its current system imposed maximum limit of £100K per transaction.   At the same time as this announcement, Faster Payments also announced the commitment of three Challenger banks to join the system in 2016.

Standards / ISO 20022

• SWIFT used the opportunity of Sibos to announce the publication of is ISO 20022 Harmonisation Charter. Backed by the cooperation of 20 key Financial Market Infrastructures, the charter seeks to formalise a consistent approach to ISO20022 adoption via the sharing of information around its adoption. The backing document can be downloaded here.

Distributed Ledgers / Blockchain

• Against the backdrop of multiple announcements of Corporate and Fintech investment in Distributed Ledger and Blockchain technology came the announcement from the UK Government of its investment of £10m to launch a research initiative in distributed Ledger Technology. This announcement came as part of a speech given on 14 October by the UK Economic Secretary ahead of the launch of the Alan Turing Institute next month.   The text of the speech can be read here.
• As most know, one of the key challenges around Blockchain technology is its potential capacity limitations. SETL’s announcement on 12 October that it had cracked a billion transactions per day in a test environment was therefore particularly noteworthy given this is approximately the number of worldwide payment movements per day.

Other Publications

Two further research reports with specific reference to Payments have been published in recent weeks:

• The first (jointly published by RBS and Cap Gemini) is the “2015 World Payments Report” examines developments in the global payment landscape. It has a dedicated website that can be linked to here.

• The second (published by McKinsey) is entitled “Global Payments 2015: A Healthy Industry confronts disruption” and can be found here.

One well known retail chain here in the U.S. had just introduced “chip and pin” to its point of sale terminals. This appeared to cause some confusion to a number of customers queuing in front of us who had been used to signing the sales slips for so many years before. Moving on a few hours to the restaurant we ate at in the evening, the transaction was paid for again via credit card but, on this occasion, I was presented with both the merchant and customer paper receipts onto which I had to manually add the tip and provide a new total.   This would then require further work behind the scenes for the correct amount to be entered into the restaurant’s merchant system so that the (hopefully) correct amount will be charged to my card.

In contrast, the TV channels here in the U.S. are busy showing adverts for Applepay and the Tech headlines are highlighting the race between Google and Samsung to launch the next mobile Payment software; one for Android and one for Samsung devices. At present, Applepay is only available on the iPhone 6 and above and the iWatch. However, over the next eighteen months many more people will become “eligible” to use this new method of paying as their maturing mobile contracts allow users to upgrade from their iPhone 4’s and 5’s. Ditto, presumably, for where Samgung and Google Android will be heading.

However, seeing where things currently stand in the U.S. retail arena, I could not help wonder how many Companies will upgrade their Point of Sale terminals/merchant systems in the same timescale to use this latest technology?   Some will, but I would lay money (either crypto or physical) on many not having done so given the slow pace of adoption of earlier technology.   Will these businesses then lose ground to more tech-savvy competitors?   Similarly, can the combination of Apple/Samsung and Google Android provide the necessary pressure in terms of the total population of mobile users who would want this functionality to force change at Point of Sale?   I am very conscious that, with all new technology, there is a rash of early adopters.   However, will the silent majority also move sufficiently to force the pace of change?

Broadening the topic further, for some markets, this also then highlights the disparity between those mobile payment mechanisms that can simply be used to pay for something via the credentials of consumer’s physical cards being loaded onto the device versus those that are bespoke to Banking institutions for the transmission of and receipt of customer funds.   Until a mobile payment system can do “everything” will it sufficiently appeal to the wider population to adopt it as opposed to the tech-savvy minority?

Turning finally to the Eurozone, I wonder whether PSD2 and XS2A could be the key towards the full enablement of mobile technology. In a few years’ time, could the purchase of a smartphone enable a consumer to fully link the proprietary mobile payment software embedded within it to all of their accounts held across a variety of banking institutions as well as to their debit and credit cards?   That would then provide a single and straightforward authenticated “portal” to all payment services plus the ability to pay for anything, anywhere and at anytime (either with funds permitting or credit being offered).

As a closing thought, could regulation therefore be the mechanism that finally confirms the full arrival of Mobile Payments and therefore generate the necessary force to bring alignment at point of sale?