Regulation, Technology or a Security Obsession: What is Holding the Payments Industry Back?

By Madhvi Mavadiya | 5 April 2016

The happiest country in the world is where the payment industry will come alive this week as Denmark’s capital Copenhagen hosts Money2020 and bobsguide are proud to be at the centre of change and development in the fintech ecosystem. However, with change, for businesses, there is a desperate need for adaptability, especially in the financial industry - because digital transformation moves fast. At Money2020, there were many discussions about whether or not regulating bodies are hot on the heels of technology and if threats can be kept to a minimum as new fintech representatives emerge.

Read our Payments R(E)volution magazine with more content from Money2020 Europe here.

Lord Mayor of Copenhagen, Frank Jensen, highlighted how Copenhagen is the easiest place to do business in Europe and therefore, the perfect place for fintech to thrive. With the city’s flexible labour market and adapted business policy, Jensen pledged to increase GDP by 5% by 2020 and he believes that the best way to do this is through innovation, as well as creating a smart city environment. “This is the best condition for startups, investors and fintechs.”

50% of people in Denmark use mobile payments and this statistic puts Europe and especially the Nordic region far ahead in this area than any other continent. bobsguide spoke to CEO of Auka, Daniel Döderlein, about how his Nordic payments platform has become a pioneer in the mobile space. As the first financial company to be fully licensed to be hosted on the Google Cloud Platform, Döderlein explored how, contrary to popular belief, Google is not a black box and they want to tap into the digital finance space.

After the European Parliament’s approval of the second version of the Payments Services Directive, banks will have to use third party payments providers in order to operate in this area, and companies such as Auka already have services that are compliant with PSD2 ready to go; perhaps others should follow the example. Although, Döderlein knows that however prepared one is, PSD2 is going to disrupt the market. “It’s not just about complying with requests to provide their API, but building the kind of sticky, high-frequency use services that they can then plug their rivals’ API’s into, ensuring that they are the brand that customers have facetime with.”

Branding is another setback that the Nordic region has picked up on: consumers like unbranded mobile payments applications, according to Döderlein and that is why the number of people using the tech is so high, in comparison to other regions. While Denmark is spearheading the mobile space, NFC based transactions are less popular because, for example, with Apple Pay, “you need a certain type of phone and a certain type of card. Also, not everyone has an iPhone,” Döderlein said. What this realisation resulted in was the creation of products like MobilePay and mCash, which were unbranded applications that made banking easier for the customer and also helped traditional banks become more digitally savvy.

While the Nordic region is booming in relation to fintech, MasterCard’s President of International Markets, Ann Cairns, explored how every human being has a right to financially included. The message here was that it is important to stay connected and the future lies in the Internet of Things, but when those in developing countries do not have a passport, many remain unbanked and without a digital identity. But, there are barriers to the statement of “how do I get people to put a couple of dollars into their mobile banking account if they only get a couple of dollars?”, as Cairns said and MasterCard are helping to remediate this problem by partnering with banks in these countries.

As financial inclusion for all is crucial in this day and age, those discussing the new EU data protection and privacy framework thought that data economy is an essential part of how technology is governed. Hogan Lovells’ Mac MacMillan lead the conversation in pushing forward how the GDPR will become essential as individuals should have more right over their personal data. Stuart Lacey from Trunomi agreed and added that transparency and choice should be respected, which should in turn, elevate consumers so that they engage. “Legislation is an indicator of fundamental change, but what can I do to give the consumer more choice? We should be looking at the solutions available, rather than having legislations just for the legislation’s sake,” Lacey said.

Vocalink’s Tim Ensor-Clinch put across that both established players and banks sit on mountains of data and both will need to embrace the new transparency rules when this standard is put into place. But, however much industry players discuss this subject, consumers really don’t care about the ins and outs, as Marc Allsop from Aimia mentioned. “Customers do not have the mind space to think about how to build relationships. We should get it set up right the first time as we are increasingly seeing customers who are deleting applications if the data is not used in the right way.” The rise of deletist consumer has begun.

On the subject of brand, Lacey commented on how startups cannot survive without a brand and banks should work with them in a cooperative manner, but this is hotly debated. Tony Craddock from the Emerging Payments Association, on the other hand, believes that we are at a crossroads for the banking industry. “This is a profound time for us. Banks are currently enjoying having the larger part of the market share, but will PSD2 force banks to become innovative? Or will this be an opportunity for fintech startups to take the majority of the market share. The jury is still out.

In one of the final keynotes of the day, CEO of Visa Europe, Nicolas Huss explored how we might be living with a “security obsession” and how a “tidal wave of regulation is battering the traditional banking landscape”. Huss, like many of the speakers here, enforced the idea that regardless of what is happening internally at a financial organisation, the customer always comes first. “We should force ourselves to look beyond regulation and focus on the consumer. We should help clients capture opportunities.”

Read our Payments R(E)volution magazine with more content from Money2020 Europe here.

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