Paying for stuff is, unfortunately, something we do every day! Be it with cash, cards, mobile phones or with our fingerprints and faces, we send money from one account to another. Globally speaking, cash is still king, but the payment experience is undergoing radical disruption which for the time being especially involves the act of payment more than the processing that goes on behind it. This presentation provides a description of payment processes and the new trends that are slowly but surely re-shaping the way we pay money. The authors are Philippe Collombel, Nico Valenti Gatto and Tanguy Confavreux who all work for Partech Ventures, a global venture capital fund with offices in San Francisco, Paris, Berlin and Dakar.
2. 2
Note from the authors :
This presentation was prepared by Partech Ventures in the last quarter of 2017. As the payment industry is in
constant evolution, we expect there will have been some, yet not fundamental, updates in the figures and
statements by the time you read this.
Philippe Collombel - Nico Valenti Gatto - Tanguy Confavreux
3. 3
Cash is still king: 85% of transactions on a global average.1
Payment innovations affect end user experience more than back-end
processes: ID authentication over payment processing.
2
PSPs look to provide value added services for merchants that go
beyond the act of payment: fraud detection and prevention, credit,
CRM, marketing tech.
3
In this context, the many forms of mobile payment offer the most
adopted customer interface and reliability in terms of security for non-
cash transactions.
4
Card schemes (eg. Visa/MasterCard) are still very strong and seem
hard to replace as infrastructure providers at this point.
5
EXECUTIVE SUMMARY
PAYMENT OVERVIEW
4. 4
Macro economic trends influencing payments
Payment today
New payment trends
Where VCs are investing
A brief history of payments
SUMMARY
PAYMENT OVERVIEW
5. 5
What is a payment?
Compensation, discharge or performance of an obligation, or
reimbursement, by giving over something that is of satisfactory
value to its recipient, such as money.
A definition that has stood the test of time
6. 6
LIVESTOCK PRECIOUS METAL
COINS
BARTERING PRECIOUS METAL
COINS
SHELLS
SHEKEL
5000 BC 3000 BC 1200 BC 1000 BC 700 BC6000 BC
A BRIEF HISTORY OF PAYMENTS
PAYING IS SOMETHING HUMAN BEINGS HAVE HAD TO DEAL WITH SINCE THE DAWN OF TIME
7. 7
PAPER MONEY
CREDIT CARDS
LEATHER CHARGE CARDS
GOLD BACKED
US DOLLAR
GOLD STANDARD
806 1816 1913 1920 1950118 BC
A BRIEF HISTORY OF PAYMENTS
PAYING IS SOMETHING HUMAN BEINGS HAVE HAD TO DEAL WITH SINCE THE DAWN OF TIME
9. 9
8000
YEARS
20
YEARS
Moved from bartering to
bank notes in:
Moved from online
payment to biometrics
in:
A BRIEF HISTORY OF PAYMENTS
STAGGERING SPEED OF INNOVATION IN THE LAST TWO DECADES
10. 10
Macro economic trends influencing payments
Payment today
New payment trends
Where VCs are investing
A brief history of payments
SUMMARY
PAYMENT OVERVIEW
11. 11
CONSUMER HABITS ARE RESHAPING RETAIL
FORMAT LANDSCAPES, AND PAYMENT WILL HAVE
TO ADAPT.
• Market share for Europe’s traditional hypermarkets could
erode to less than 59% by 2025 down from 70% today.
• Internet penetration rate is 51.7% in the world with a 976.4%
annual growth.
• Mobile penetration rate is above 80% everywhere in the
world.
PEOPLE ARE MORE AND MORE ON THE MOVE AND
NEED TO PAY EVERYWHERE.
• In 2015, 244 million people were living outside of their nation
of origin.
• In 2016 1,235 million (+ 3.9% ) international tourist arrivals
were registered.
• Cross-border payment revenues are expected to double
over the next decade from $144 billion to $280 billion.
DEMOGRAPHICS AND URBANISM TRENDS CHANGE PAYMENT CONTEXT
PEOPLE ARE GOING TO BE MUCH MORE URBAN, SHOP DIFFERENTLY AND TRAVEL A LOT
Sources : UN,Wolrd Toursim Organisation, Wavestone, Internet world stats
ONLINE SALES AS % OF TOTAL CATEGORY SALES (WESTERN EUROPE)
12. 12
CUSTOMERS ARE ALL CONNECTED TO THE INTERNET AND USE THEIR MOBILE
PENETRATION RATES OF INTERNET AND MOBILES WORLDWIDE SHOW THE POTENTIAL OF ONLINE AND MOBILE PAYMENT
NORTH
AMERICA
71% (+8%)
106% (-0,3%)
SOUTH
AMERICA
68% (+8%)
115% (-0,3%)
EUROPE
76% (+3%)
131% (-0,1%)
ASIA
PACIFIC
46% (+15%)
96% (+4%)
AFRICA
29% (+4%)
81% (+1%)
MIDDLE
EAST
60% (+15%)
127% (+5%)
Source: Hootsuite, Digital 2017
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WE PAY FOR SOMETHING EVERY DAY
AN EXAMPLE WITH THE EURO AREA IN 2015
• €1 trillion of cash was in circulation everyday
• This represents €2,941 per capita
• That’s 417 transactions per capita in one year
CASH (66% of transactions)
• 73 100 million transactions were made
• That’s 215 transactions per capita in one year
• €148,1 trillion were paid
• €2,026 in an average transaction
NON-CASH (34% of transactions)
EURO ZONE POPULATION : 340 MILLION
Source: European Central Bank, McKinsey, Capgemini
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AND CASH IS STILL GOING STRONG AROUND THE WORLD
STILL A LONG WAY TO GO FOR NON-CASH PAYMENTS
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• Still common means of payment – in last 20
years, total amount of U.S. currency in
circulation >3x to $1.4 trillion.
• Cash in circulation in EU has increased 357%
since 2002.
• Most EU countries have now imposed maximum
cash payment limits to fight tax evasion (e.g.
France – €3000).
of global consumer transactions
still use cash.85%
Number of Euro banknotes in circulation
Every
banknot
e
NO WIDESPREAD CASHLESS INFRASTRUCTURE AND CULTURAL BARRIERS
“CASH IS KING” STILL APPLIES
16. 16
NON CASH PAYMENT MEANS LANDSCAPE BEING REDEFINED
EURO ZONE STATISTICS SHOW CHANGES IN PAYING DYNAMICS
* A direct debit or direct withdrawal is a financial transaction in which
one person withdraws funds from another person's bank account.
INCREASE / DECREASE IN NUMBER OF
TRANSACTIONS
Source: European Central Bank
2012 2013 2014 2015
Cheques -6,37% -7,04% -6,39% -10,39%
Direct Debits * +2,19% +2,10% -7,78% -
Card Payments +6,20% +7,54% +5,91% +9,86%
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CARDS ARE THE LEADING NON-CASH PAYMENT INSTRUMENT
CARDS ARE THE MOST IMPORTANT IN TERMS OF NUMBER OF TRANSACTIONS AND HAVE THE FASTEST GROWTH
18. 18
59%
transactions are
non-cash in
Sweden.
Swish: the number one
payment app in Sweden
Sweden: an almost
cashless society
CASHLESS SOCIETY: THE EXAMPLE OF SWEDEN AND SWISH
SWEDEN IS A PIONEER MARKET IN THE WAY OF A CASHLESS SOCIETY
• Stockholm’s Metro does not accept cash payment.
• Fun fact : In 1661, Stockholms Banco, the precursor to
the Swedish central bank, issued Europe’s first
banknotes.
• Funded in 2012 as a common initiative from
Swedish banks.
• 5,29M users, 93% of Swedish population.
• Swish is even accepted in street-markets, church
offerings and even by street performers.
Source: European Central Bank, les Echos, Tracxn, the Guardian MORE DETAILS IN VIDEO (CNN)
19. 19
Macro economic trends influencing payments
Payment today
New payment trends
Where VCs are investing
A brief history of payments
SUMMARY
PAYMENT OVERVIEW
21. 21
Issuer (or issuing bank): bank or financial institution that issues cards
to consumers on behalf of card networks (Visa, MasterCard). The issuing bank
is also known as the credit or debit card company. Acts as middle-man for
consumer and card network by contracting with cardholders for terms of
repayment of transactions.
Acquirer (or acquiring or merchant bank): bank or financial
institution that processes credit or debit card payments on behalf of merchant.
The term acquirer indicates that the merchant accepts or acquires credit card
payments from card-issuing banks within an association.
Paid to whoever issued the card.
Varies based on whether card was present or not,
type of good or service being bought, debit or credit
card or corporate card, international transaction…
Set by scheme (Visa or MC).
Interchange fee:
In US are an average of 2% of the transaction value,
in EU are now capped at 0.2% for debit cards and
0.3% for credit cards.
CARDS: THE FOUR PARTY MODEL
THE BASIS OF CARD PAYMENTS
22. 22
Merchant discount fee – fee paid to acquirer bank (e.g. 1,99% + $25c/transaction).
Acquirer keeps – $2.24 (this is the merchant discount fee)
Merchant receives – $100 - €2.24 = €97.76
WHAT IS THE FEE PAID BY MERCHANT?
01
Interchange fee – fee paid to whoever issued card, set by scheme
(e.g. 1.65% + $15c/transaction).
Issuer keeps – $1.80 (this is the interchange fee)
Issuer owes – $98.20 to other participants in 4 way party model
Amount for scheme+acqurer – $98.20 - $97.76 = $0.44c
WHAT IS THE FEE PAID BY ACQUIRER?
02
Interchange fee – Assessment – $0.44c - $0.11c = $0.33c
HOW MUCH DOES ACQUIRER KEEP?
04
Assessment – fee kept by scheme (e.g. 0,11%)
Scheme keeps – $0.11c
Scheme owes – $98.09
HOW MUCH DOES SCHEME KEEP?
03
CARDS: THE FEES INVOLVED
EXAMPLE: $100 TRANSACTION FROM CARD HOLDER – A VERY SIMPLIFIED VISA DEBIT, ISSUED BY A US BANK
ISSUER RECEIVES MOST FEES BUT ACQUIRERS AND SCHEMES HAVE VERY STICKY BUSINESS MODEL THANKS TO VERY LOW FEES + HUGE TRANSACTION VOLUMES.
$97,76
$1,80
$0,33
$0,11
Merchant
Issuer
Acquirer
Scheme
23. 23
Proposes a product/ Service
In a Store
Online
The activities of a
company associated with
buying
Wants to be paid:
Needs to accept different
means of payment
Wants it to be fast &
secure
Wants to retain customers:
CRM
Data
Merchant
Wants a product/ Service
In a Store
Online
Is willing to pay for it
Wants the process to be:
Fast
Easy
Secure
Consumer
THE BASIS OF CASHLESS PAYMENT
IT ALL BEGINS WITH CONSUMERS AND MERCHANTS
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POS / PSP
Connects Consumer’s
payment details to the
card schemes
Merchant
Accepts payment for the
good or service
Visa / Mastercard
Provide safe & fast communication
infrastructures between
stakeholders
Consumer
Provides money for a
good or service through
payment details
POS – hardware device providers, allow merchants to accept card payments in store.
PSP – service provider that allows online merchants to accept multiple payment methods (including cards cards, direct debits…).
Card scheme – Visa and MasterCard are examples of schemes. These are payment networks linked to payment cards (e.g. debit/credit cards). Eligible
financial institutions (e.g. banks) can become members of the scheme, allowing them to issue or acquire cards operating on the networks of that scheme.
CASHLESS PAYMENT PROCESSES OVERVIEW
CONSUMER AND MERCHANT INTERFACE IS EITHER A POS (POINT OF SALE) OR PSP (PAYMENT SERVICE PROVIDER)
25. 25
CASHLESS PAYMENT PROCESSES OVERVIEW
POS (POINT OF SALE) OR PSP (PAYMENT SERVICE PROVIDER) CAN HAVE DIFFERENT FORMS LEADING TO DIFFERENT UX
Consumer
Merchant
Chip & Pin
M-POS Online
Payment
Mobile
Payment
Contactless
NFC
POS / PSP
26. 26
CASHLESS PAYMENT PROCESSES OVERVIEW
TRANSACTION INVOLVES STAKEHOLDERS OTHER THAN SIMPLY CONSUMER AND MERCHANT: BANKS AND CARD SCHEMES
Consumer
Provides money for a good or
service through his payment details
Point of sale (POS)
or PSP (Payment
System Provider)
Connects Consumer’s payment
details to the card schemes system
Merchant
Accepts payment for the good or
service
Issuer
Takes responsibility for the credit
worthyness of the Consumer and
funds guarantor
Acquirer
Takes responsibility for the merchant
to accept card payment
Card Schemes
Provide safe & fast communication
infrastructures between
stakeholders
27. 27
CASHLESS PAYMENT PROCESSES OVERVIEW
POINT OF SALES AND PSP ALLOWS THE CONNECTION WITH CARD SCHEMES
Consumer
Point of sale (POS)
or PSP (Payment
System Provider)
Merchant
Issuer
AcquirerCard Schemes
Consumer pays by providing
payment details
01
POS /PSP passes details to
the acquiring bank
02
Card not present (CNP) is jargon, refers to purchases consumers make without physically presenting credit/debit card at time of purchase. Easier to
think of as “cardholder not present” from merchant’s perspective. CNP transactions often online, without in-store card swipe. Very convenient for
consumers, allow e/m-commerce. Card fraud more common, need for online fraud solutions.
The Consumer inserts card and enters
Pin number: old fashioned but almost
100% secure
CHIP & PIN
Every payment in which PIN is not
requested: simpler but needs to be
secured
> Gateways, Tokenization
CARD NOT PRESENT
28. 28
CASHLESS PAYMENT PROCESSES OVERVIEW
BANKS INTERACTIONS
Acquiring Bank requests
authorization to Issuer Bank
through card schemes
system
03
Enough credit in the account?
Card stolen?
Ok with the transaction circumstances?
Consumer
Point of sale (POS)
or PSP (Payment
System Provider)
Issuer
AcquirerCard Schemes
Merchant
29. 29
CASHLESS PAYMENT PROCESSES OVERVIEW
Enough credit in the account
Card not stolen
Ok with the transaction circumstances
Acquiring Bank passes
authorization to merchant’s
POS/PSP
05
Issuing Bank authorizes the
payment through card
scheme system
04 Transaction is authorized
and product/service is
delivered
06
LEVERAGE DATA ANALYTICS AND PREDICTIVE MODELLING TO PROVIDE SERVICES AND SOFTWARE
Consumer
Point of sale (POS)
or PSP (Payment
System Provider)
Issuer
AcquirerCard Schemes
Merchant
30. 30
CASHLESS PAYMENT PROCESSES OVERVIEW
LEVERAGE DATA ANALYTICS AND PREDICTIVE MODELLING TO PROVIDE SERVICES AND SOFTWARE
Transaction settled
Issuing Bank sends the funds
to the Acquiring Bank
through card schemes
07
Acquirer Bank credits the
funds to the merchant
08
% fees
% fees
Consumer
Issuer
Acquirer
Card Schemes
% fees
Merchant
31. 31
PSPs offer shops online services for accepting electronic
payments by a variety of payment methods including:
• payment cards
• direct debits and bank transfers
• online banking
Saas model and form a single payment gateway for their clients
(merchants) to multiple payment methods.
3 TYPES OF PSPs:
PAYMENT SERVICE PROVIDERS’ KEY ROLE FOR ONLINE MERCHANTS
THE ENABLERS OF E-COMMERCE
Remove technical burden for e-commerce merchants by
building/maintaining connections to different payment methods. Online
stores able to accept many payment methods. Usually choice for
merchants who only offer a few payment options.
DISTRIBUTOR
S
Accept payments, collect funds for and contract with individual payment
methods. ≠ collectors, contract with payment company on behalf of
multiple merchants; ≠ distributors, also collect funds, negotiate payment
terms, settle merchant’s bank account. For merchants who offer many
payment methods, prefer not to contract with financial institutions, banks,
other payment method companies.
AGGREGATOR
S
Streamline settlement for all accepted payment methods, payment
reconciliation is simplified. Without a collector, merchants would receive
separate settlements for every payment method they accept. For
merchants who offer lots of payment options.
COLLECTORS
32. 32
Paypal
San Jose,
California
Online payment and money
transfer service that allows
people to send money via email,
phone, text message or Skype.
Offers products to both
individuals and businesses alike,
including online vendors, auction
sites and corporate users.
1998
Stripe
San Francisco,
California
Stripe is an online and mobile
payment transaction processor. It
provides APIs to help businesses
accept various modes of
payments from customers.
2010
Ayden
Amsterdam,
Netherlands
Global provider of international
and omni-channel payment
solutions. Adyen holds full
acquiring licenses for Visa,
MasterCard, American Express,
Diners, Discover and Union Pay
schemes enabling its platform to
process payments from any sales
channel including online, mobile,
and point-of-sale.
2006
PAYMENT SERVICE PROVIDERS’ KEY ROLE FOR ONLINE MERCHANTS
3 BIG PLAYERS
34. 34
Is the phone the only
hardware?
Contactless NFC
Mobile-POS
Where is the
secure element ?
MOBILE PAYMENT IS AN UMBRELLA TERM
MAP OF ALL ACTIVITIES COMMONLY - AND NOT ALWAYS CORRECTLY - REFERRED TO AS MOBILE PAYMENT
Mobile Commerce
Card Payment
Source: European Central Bank
Carrier Billing Bank Transfer Wallets
SF, 2009
Mobile point of sale solution,
allowing merchants to accept
payments on their mobile
using a small, square shaped
card reader attachable to the
mobile-jack.
SF, 2014
Payment platform that allows
wearable device manufacturers
to add contactless payment
capabilities to their products.
35. 35
Paying for goods or
virtual goods with an
app
SMS/INTERNET
In app
payment
Using a mobile device
as a payment mean at
a cash desk in store
NFC
Cash desk
payment
Paying for something
with a mobile device
without need of a cash
desk
NFC
In store
payment
Shopping and paying
for something directly
on a mobile device
SMS/INTERNET
Mobile
commerce
DIFFERENT MOBILE PAYMENT SYSTEMS BEAR DIFFERENT UX
THERE ARE MANY DIFFERENT TYPES OF POSSIBLE TRANSACTIONS WITH MOBILE DEVICES
Distance Mobile Payments Proximity Mobile payment
36. 36
Pace of penetration of new technologies is still slow leaving SMS a huge opportunity for the future.
As a low-tech but very convenient solution, uptake will be greater in developing countries.
The SMS-based transaction market is expected to grow from $4 billion in 2014 to $22 billion in 2019, at a CAGR of 41.1%.
Despite today’s advanced technology, this simple method for facilitating mobile payment transfers is still the most popular mobile
payment type, globally.
SMS PAYMENTS
MARKET SIZE
(USD Billions)
North America
South America
Middle-East & Africa
Asia - Pacific
Europe
Source: Payvision
MOBILE PAYMENT WITH SMS
SHORT MESSAGE SERVICE WAS THE ORIGINAL MOBILE PAYMENT
MobiKwik is a digital wallet service in India
37. 37
High level of consumer engagement and omni-channel facilitation.
In terms of growth, m-payment is the most promising tech.
M-commerce is expected to grow from $2 billion in 2014 to $16 billion in 2019, at a CAGR of 51.4%.
Examples of m-commerce include transactions on ecommerce platforms such as Amazon via a mobile device, a retailer mobile
application purchase or an in-app ordering service such as Uber, Deliveroo.
MOBILE
COMMERCE
MARKET SIZE
(USD Billions)
North America
South America
Middle-East & Africa
Asia - Pacific
Europe
Source: Payvision
ONLINE MOBILE PAYMENT - INTERNET
THIS CAN INCLUDE IN-APP PAYMENTS OR BROWSER PAYMENTS
JudoPay is an in-app
gateway API provider – UK based
38. 38
• NFC chips allow contactless payments and while cards take the
larger share with this tech, mPOS – boosted by Apple Pay,
Samsung Pay and Android Pay – are also gaining traction in the
market.
• The mPOS transaction market size is expected to grow from $1.8
billion in 2014 to $13.7 billion in 2019, growing at a CAGR of
50.5%.
THE GLOBAL ADOPTION RATE IS NOT REALLY
CONVINCING YET
63% of Chinese consumers have used
Alipay or WeChat Pay to pay with mobile
phones in merchant locations.
19% of US consumers use mobile phones
at merchant locations to make payments.
8% of them use Apple Pay.
8% of French smartphone owners have
used in-store mobile payment.
MOBILE PAYMENT WITH NFC
NEAR FIELD COMMUNICATION IS THE TECHNOLOGY POWERING CONTACTLESS PAYMENTS
Sources : Payvision
MOBILE
COMMERCE
MARKET SIZE
(USD Billions)
North America
South America
Middle-East & Africa
Asia - Pacific
Europe
39. 39
EXAMPLE: CHINA MIGHT BE THE BIGGEST PLAYER
MOBILE PAYMENT HAS BECOME UBIQUITOUS IN CHINA THANKS TO THE BAT AND TO THE STATE
Sources : CNBC, iResearch, People’s Bank of China, Payment and Clearing Association of China
Mobile payment in China is 50 times more important than in the
USA.
The amount of mobile payments in China doubled to €5 Trillion in
2016.
The data provided by mobile payments and cashless payments is
of great interest to the Chinese government which supports these
systems.
The biggest banknote available is a 100 Yuan (15€) banknote.
Al Jazeera video report on Mobile Payment usage in China
40. 40
Can handle a lot of tasks such as
booking doctor appointments,
paying for utilities, checking social
security information, filing for tax,
paying at gas stations, parking
tickets, and mails and packages.
QR code based.
963 million active users in 2017.
175 million of payments every day.
QR code based.
450 million active users in 2017.
40% of mobile payment amount in
China in 2017.
54% of mobile payment amount in
China in 2017.
Alipay, 2004 by Alibaba Wechat Pay, 2013, Tencent
EXAMPLE: CHINA MIGHT BE THE BIGGEST PLAYER
MOBILE PAYMENT HAS BECOME UBIQUITOUS IN CHINA THANKS TO THE BAT AND TO THE STATE
41. 41
• You upload card details in the app
• Contactless NFC
• Touch ID secured (Biometrics)
• Tokenization
APPLE PAY ALLOWS YOU TO PAY IN STORE WITH YOUR IPHONE
01
• 75% of NFC payment in the USA
• Accepted by 11M POS in 9 countries
NUMBERS
02
• 40% of iPhone owners are concerned about fraud risks with Apple Pay
• Only 13% of iPhone owners use Apple Pay
• Apple Pay takes 0,15% when Android Pay is free
HOWEVER
03
Source: Apple, Les Echos
EXAMPLE : APPLEPAY, ANOTHER MAINSTREAM SOLUTION
USES NFC TECHNOLOGY WITH TOKENIZATION
43. 43
Verified Transactions
All Bitcoin transactions verified by
a massive amount of computing
power managed by miners.
No Physical
No physical bitcoins, only balances
kept on a public ledger in the
cloud.
Public & Private Keys
Needs public and private keys to
make and receive payments.
Digital Currency
Digital currency created in 2009.
Decentralized
Operated by a decentralized
authority, unlike government-
issued currencies.
Lower Transaction Fees
Offers the promise of lower
transaction fees than traditional
online payment mechanisms.
BITCOIN IS STILL A NICHE PAYMENT OPTION
THE MOST IMPORTANT CRYPTOCURRENCY
BIG BUBBLE IN 2013, BUT THERE IS A COMEBACK…
Source: CoinMarketCap
44. 44
Underlying blockchain technology growing in
credibility. Vehicle for smart contracts and
pegged services in financial services.
Higher prices add value to cryptocurrency system.
Chinese investors have used bitcoin to get money
out and are seen as helping drive prices higher.
REASONS:
Leading world banks (e.g. Citibank, Fidor) exploring
use of technology and ledger system to develop
clearing and settlement platform for cross-border
payments.
BITCOIN IS GROWING AGAIN THANKS TO BLOCKCHAIN APPLICATIONS
WHY COULD THIS COMEBACK STICK?
Source: Capgemini
46. 46
TOKENISATION ADDS SECURITY IN CARD NOT PRESENT PAYMENTS
RELIEVES MERCHANT FROM BURDEN OF PAYMENT CARD INDUSTRY DATA SECURITY STANDARD (PCI DSS) COMPLIANCE
Source: Payvision
Issuer
Consumer
Payment Service
Provider
Merchant
Card Schemes
Acquirer
Card Details &
authorization request
PSP passes info to acquirer and
creates a unique token for
transaction. Token is stored in PSP’s
token vault.
When authorization is received from
acquirer, PSP sends token to
merchant, who doesn’t have to store
the card details.
Confirmation code
47. 47
Promote online and mobile payments.
Standardise, integrate, improve payment in EU.
Better protect consumers when paying
online.
Payment Services Directive II (PSD II), aim:
Incorporate, provide clarity on use of emerging
payment methods (e.g. online, mobile).
REGULATION IS FOLLOWING THE PACE OF INNOVATION
GDPR AND PSD II ARE AIMING FOR CONSUMER PROTECTION AND IMPROVEMENTS IN END USER EXPERIENCE
Create equal playing field for payment service
providers (enable new players to enter).
Harmonise pricing of payment processing across
EU.
Increasing demand for consumer privacy and data security – GDPR will come into effect from 25th of May 2018.
Arrival of non-traditional financial institutions pushes regulators to define guidelines that ensure level playing field.
Demand for innovation to add value to consumers.
Source: Capgemini
48. 48
Aim is to protect all EU citizens from privacy and data breaches. Main points of new directive (original one dates to 1995):
• Will come into effect in May 2018.
• Extended jurisdiction, applies to all companies processing personal data of data subjects residing in EU, regardless of company’s
location. Will apply to processing of personal data by controllers and processors in EU, regardless of whether processing takes
place in EU or not.
• Will also apply to processing of personal data of data subjects in EU by controller or processor not established in EU, where
activities relate to: offering goods or services to EU citizens (irrespective of whether payment is required) and monitoring of
behavior that takes place within EU.
• Non-EU businesses processing data of EU citizens will also have to appoint a representative in EU.
• Organizations in breach can be fined up to 4% of annual global turnover or €20M (whichever is greater). This is maximum fine for
most serious infringements, e.g. not having sufficient customer consent to process data or violating core of Privacy by Design
concepts.
• Request for consent must be given in intelligible and easily accessible form, with purpose for data processing attached to
that consent. Consent must be clear and distinguishable from other matters and provided in intelligible and easily accessible form,
using clear and plain language.
• It must be as easy to withdraw consent as it is to give it.
MORE DETAILS ON GDPR
UPDATED GDPR DIRECTIVE VASTLY EXPANDS GEOGRAPHICAL SCOPE OF JURISDICTION AND INCREASES FINES
Source: eudgpr.org
49. 49
• Was introduced in October 2015.
• Allows retailers to ask consumers for permission to use bank details. Once permission is given, retailer will receive payment
directly from consumer’s bank with no intermediaries.
• Direct connection between retailers and banks will be enabled using APIs. This enables companies to connect to financial
institutions directly.
• Multi-banked consumers currently have to access each bank website separately. PSD2 introduces Account Information Service
Provider (AISPs); allow consumers to view all multi-bank details on 1 portal.
• This means new providers, not necessarily banks, can consolidate consumer account information in 1 place and acquire
insightful data about consumers. This offers lucrative cross selling opportunities for these new providers.
• Introduction of third party payment service providers (TPPs):
o Payment Initiation Services Providers – PISP;
o Account Information Service Providers – AISP.
• Unconditional right of refund for direct debits under SEPA CORE scheme.
• A strong customer authentication system (2 factor authentication).
• Ban on surcharging (additional costs) for card payments.
• Improved consumer protection for payments made outside of EU or in non-EU currencies.
MORE DETAILS ON PSD II
PSD II CONTINUES TO AIM FOR SIMPLER, SAFER, FAIRER, MORE EFFICIENT PAYMENTS IN SINGLE EURO PAYMENTS AREA (SEPA)
Source: sepaforcorporates.com
50. 50
Macro economic trends influencing payments
Payment today
New payment trends
Where VCs are investing
A brief history of payments
SUMMARY
PAYMENT OVERVIEW
51. 51
Aiming for software solutions that provide
payment functionality on lower-cost
hardware (e.g. tablets, dongles…).
POS Providers
Making new range of financial services
available to merchants. Cloud POS
solutions offer lower up-front installation
costs, subscription pricing, remote
services.
PSPs
POS + PSP CONSUMER
Services
POS AND PSPS EXTENDING THEIR STAKE IN THE PAYMENT VALUE CHAIN
LEVERAGE DATA ANALYTICS AND PREDICTIVE MODELLING TO PROVIDE SERVICES AND SOFTWARE
Membership rewards
Loyalty programs
Segmentation based offerings
Inventory management
Sourcing and shipping
Customer acquisition
Retail payment services
Corporate payment services
52. 52
Lets customers spread cost of any
purchase over a period of time while
merchant gets paid in full right away
– installments as a service.
Alternative credit scoring from
personal data and social media.
Data-driven payment processing
platform for e-commerce, reduces
drop-out.
• New software and services: Fully featured POS – functionalities expand beyond payment acceptance.
• Loyalty/CRM: payment becomes a commodity included in wider POS services for customers.
• Financial services: disruptive approach is to offer alternative methods for loans, payments, customer profiling.
mPOS and pocketable POS
solutions.
Mobile payment services for
businesses and individuals.
POS terminal hardware and mobile
applications for merchants.
NEW MERCHANT SOFTWARE AND SERVICES ENRICH PAYMENT VALUE CHAIN
PAYMENT SEEN AS PART OF A WIDER, INTEGRATED, CUSTOMER EXPERIENCE PROCESS
54. 54
• Just as browsers replaced desktopOS in late 90s,
messaging bots/invisible apps now capable of replacing
apps.
• Old paradigm of “OS + apps” is fading.
• Opportunity for invisible apps/bots mostly refers to very
close and intimate customer engagement.
• Today opportunity can be valuable but need to be careful
not to damage rather than help brand.
• Messaging growth has just begun, an estimated 1.1bln new
users will onboard by 2018.
TWO TYPES OF BOTS BUSINESSES APPEAR TO BE
PROMISING:
• Bots focusing on very specific industry/topic, with deep
understanding and relevant dataset, even with standard
algorithm or platform.
• Companies targeting a precise platform problem, e.g.
analytics, promotion.
NEW CONSUMER ENGAGEMENT FORMATS ARE EMERGING
CHATBOTS ARE STILL VERY EARLY, BUT END USER ENGAGEMENT ALREADY BEING AFFECTED
55. 55CHATBOT CONSUMER APPLICATIONS LEAD TO NEW PAYMENT BEHAVIORS
A MORE DIRECT AND INTIMATE CONNECTION WITH END USERS
Virtual companions
that provide answers
to non-specific
questions, entertain,
keep company
Chat-based personal
finance and
accounting assistant
Virtual assistants
that provide info and
fulfilment for
multitude of requests
through chatbot
interface
Finance Concierge
Chat-based
shopping assistant
ShoppingVirtual companion
Travel assistance
through booking
tickets and
answering questions
Travel
AI + human based, automatic conversational assistant for consumer use cases
Conversational Commerce
56. 56
Reduces decision fatigue.
In turn reduces costs (less choice,
less cost).
Faster than using native apps or
mobile websites.
Immediate and intimate contact
with customers.
Perform tasks that are simple and
repetitive, very quickly.
Common application is emulation
of human responses – chat bot.
BOTs – software applications that
run automated tasks (scripts) over
the internet.
Can therefore be used by service
providers to engage with end users.
BOTS AND CONVERSATIONAL COMMERCE DISRUPT IN APP PAYMENT
MORE PERSONAL AND ENGAGING RELATIONSHIP WITH END-USERS INVOLVES PAYMENT IN UX
Advantages
57. 57
Behavioral biometrics:
The wearable heartbeat authenticator
Facial recognition: Pay-by-selfie
Facial recognition app
Fingerprint or heartbeat:
Technology allowing secure fingerprint authentication
NEW APPLICATIONS IN BIOMETRICS TECH IMPACT PAYMENT EXPERIENCE
CONSUMER EXPERIENCE AND POS/PSP SECURITY ARE STARTING TO BE DISRUPTED
Alibaba
Authenticate a user via
photo or video
Amazon
Key feature is Face Id
and applies to Apple
Pay
Apple Iphone X
Identity and access management based on in-app and on-site behavior
58. 58IOT BECOME A PAYMENT ENABLER
RANDOM HARDWARE HAS THE POTENTIAL TO BECOME CONSUMER PAYMENT TOUCHPOINTS
Smart utilities meters
PAYG off-grid market in Africa, leapfrogs petrol fueled for bottom of pyramid population.
Connected cars
POC for connected car to test mobile/online purchases using Visa Checkout and Pizza Hut beacons.
Connected white goods:
Groceries by MasterCard, app that enables to order directly from Samsung fridge.
Random screens
Any screen becomes payment enabled.
DAWNING AWARENESS FOR “MOBILE”
PAYMENTS AS A BRANCH OF IOT.
MOBILE DEVICES WILL NO LONGER ONLY
REFER TO A PHONE OR A TABLET…
60. 60
HOWEVER CARD SCHEMES ARE NOT (YET) BEING REPLACED
MOST INNOVATIONS CONCERN IDENTIFICATION, POS AND PSP BUT INTERACTIONS BETWEEN
BANKS STILL WORK WITH TRADITIONAL CARD TRANSACTION DETAILS
POS /PSP passes details to
the acquiring bank
02
(Chip & Pin, Online Payment, Mobile
Payment, NFC, Biometrics, Wallet,
etc…)
NO MATTER WHAT THE
PAYMENT METHOD IS ….
… IT STILL GOES
THROUGH CARD
SCHEMES!
Consumer
Point of sale (POS)
or PSP (Payment
System Provider)
Merchant
Issuer
AcquirerCard
Schemes
Consumer pays by providing
payment details
01
62. 62
Integrates with this subscription management software company.
STRONG NEW PLAYERS ARE RAISING THE BAR
PARTNERS DIRECTLY WITH CONSUMER FACING BUSINESSES WORLDWIDE TO BECOME PSP OF CHOICE
Partners to enable payments for Demandware e-commerce platform.
Partners with European airline service provider.
Partners (Napster in EU) to enable payments in Brazil.
Partners with menswear shopping service provider.
Partners with Italian e-commerce service platform.
Collaborates to offer an alternative payment method.
Enables payments for Russia based Qiwi Wallet.
Expands collaboration to enable payments in Morocco.
Deployed as payment partner.
Partners to enable payments in Europe.
Partners to enable multi-currency, single click payments, integrated checkout.
63. 63
INDIE HACKERS
Acquired: Online community for
entrepreneurs. Enables entrepreneurs to
connect with other fellow entrepreneurs,
share experiences, seek feedback, ask
questions, support each other in
entrepreneurial journey. Provides users
with inputs and interviews of established
entrepreneurs and hosts podcast.
Acquired by Stripe in
March 2017.
TEAPOT
Acquired: APIs for identity verification
using social profiles, connections for
new-user signups, KYC, anti-fraud
applications. Has built deep technology
to aggregate social profiles of users
including via real-time graph databases
and face recognition technology.
Acquired by Stripe in
October 2016.
RUNKIT
Acquired: RunKit (ex Tonic) notebooks
are interactive javascript playgrounds
connected to a complete node
environment in the browser. Helps
developers with full set of tools for
prototyping, analytics, monetisation.
Acquired by Stripe in
September 2016.
STRONG NEW PLAYERS ARE RAISING THE BAR
HELP COMPANIES BUILD APPLICATIONS, ONLINE BUSINESSES – VERY EARLY CUSTOMER ACQUISITION
64. 64
Acquired in November
2015. Payment as a
Service provider in
Germany.
INTERCARD
Acquired in October
2015. Taxi and car-for-
hire e-hail, payment and
media business in
U.S.A.
CURB
Acquired in January
2016. Provider of
payment gateway and
switching solutions for
large merchants in
U.S.A. and Canada.
AJB SOFTWARE
Acquired in February
2015. M-commerce
solutions for retailers.
DOUBLE BEAM
HOW ESTABLISHED PAYMENT SERVICE PROVIDERS ARE ADAPTING
ACQUISITIONS, MOSTLY U.S.A. BASED, EXPAND SERVICES AND GAIN ACCESS TO CONSUMERS
65. 65HOW ESTABLISHED PAYMENT SERVICE PROVIDERS ARE ADAPTING
INTERESTING INVESTMENT IN AI APPLIED TO FRAUD
Invested in April 2016. Improve credit scoring and identity security with AI and
social media, especially for sharing economy and online stores.
Acquired in November 2014. Accelerates strategic shift to multi-channel payments
integrator.
Acquired in April 2014. Further strengthen global reach - Brazil, Argentina,
Colombia, Chile, Mexico.
66. 66
• Still quite an early technology, AI needs large volumes of data to prove it works.
• Tough go to market (long sales cycles, competitive, prove technology works).
FEATURES OF BEST IN CLASS TECHNOLOGIES
• Accurate, keep learning, multiple data entry points.
• Simple to implement (APIs, avoid huge training).
• Offer on premise and cloud alternatives.
• Reduce false positives to a minimum.
• Verification of source hardware (PC, mobile…).
• Continuous behavioural profiling during navigation and
purchase/payment.
• Be as omni-channel as possible.
• Possibly focus on a vertical (insurance, banking…).
• Possibly best if paired with predictive marketing for e-
commerce.
• Also take on the risk of fraud as an insurance.
PSPS ARE LOOKING TOWARDS AI TO FIGHT FRAUD
GREATER PAYMENT FREEDOM LEADS TO HIGHER RISK OF FRAUD. AI TECHNOLOGY IS BEING APPLIED TO REDUCE RISK
CIRCLED, SOME EXAMPLES TO LOOK OUT FOR IN THIS SPACE
67. 67
ANTI-FRAUD SOLUTION
• Human accuracy combined with machine scalability.
• Detects fraud by using artificial intelligence without using
any pre-defined segments, models or rules.
• Technology has no limitations in terms of volume as it
doesn’t rely on manual reviews.
• Sales process is to target PSPs who resell product to their
merchants.
No fraud losses
Increased sales
Focus on business
Merchant benefits
First full insurance for
e-commerce merchants
Fraud Free
Additional revenues
Increased loyalty
Stay competitive
PSP benefits
NEXT GENERATION FRAUD PREVENTION SERVICES TAKE ON RISK
FRAUGSTER TAKES OVER FULL LIABILITY FOR EVERY ONLINE PAYMENT TRANSACTION
68. 68
Macro economic trends influencing payments
Payment today
New payment trends
Where VCs are investing
A brief history of payments
SUMMARY
PAYMENT OVERVIEW
69. 69
PAYMENT IS AN APPROVED INNOVATION SECTOR
COMPANIES HAVE BEEN RAISING MONEY CONSTANTLY SINCE 2010
Source: Tracxn
NUMBER OF COMPANIES FUNDED
Drop in
companies
funded due to
follow-on
investments
70. 70
VCS ARE MORE AND MORE INTO PAYMENT
NUMBER OF ROUNDS HAVE BEEN GROWING IN THE PAST DECADE
Source: Tracxn
NUMBER OF ROUNDS AND TOTAL FUNDING
71. 71
INNOVATIVE PAYMENT COMPANIES ARE NOT MATURE YET
THE MARKET IS STILL DOMINATED BY RELATIVELY SMALL PLAYERS
Source: Tracxn
NUMBER OF ROUNDS BY STAGE
72. 72
INNOVATIVE PAYMENT COMPANIES ARE NOT MATURE YET
THE MARKET IS STILL DOMINATED BY RELATIVELY SMALL PLAYERS
Source: Tracxn
POS SUITE PAYMENT CARDS
PAYMENT GATEWAYS SECURITY
73. 73
Atlas
US
Provides smart banking and
payment services for the 2.5
billion unbanked adults in
the world. Uses blockchain
technology to give people
access to mobile banking.
Seed (2015)
Toss
Korea
P2P money transfer service,
allows users to send money
directly from bank account
to receiver via finger print
authentication. No need to
have the app on the
smartphone to receive
money.
Ventures (2017)
Xfers
US
Online payment and money
transfer service to support
e-Commerce transactions in
Southeast Asia. Payment
happens in less than 2
minutes.
Seed (2015)
PARTECH VENTURES’ PORTFOLIO AND EXITS
WHAT WE’VE DONE SO FAR
Source: Tracxn
Compte
Nickel
France
A current account service
accessible to all in which
the physical outlets are
newsagents. Provides end
users with debit cards.
Acquired by
BNP (2017)