Hanno Bender, a lawyer and journalist (since May 2014 head of the department “Law and Politics” at the newspaper Lebensmittel Zeitung), used the holidays “between the years” to look into the “really important questions in life”. On 7 January, he was ready to produce his work and published his “100 questions to the payment industry 2019” on his “hobby project” called BargeldlosBlog (cashlessblog). It is his hope that this year the payment market may provide “an answer or two” to these questions. In anticipation of this, we decided to make a start: Susanne, Christian and I took Hanno’s “100 questions to the payment industry 2019” and provided some answers – not all of them intended to be taken seriously.
Have fun! 🙂
100 questions to the payment industry 2019 – how it all began
100 questions to the payment industry 2019
Published on 7 January 2019 by Hanno Bender
What will 2019 bring for the payment industry? No idea, but there certainly are enough questions that need to be asked. 100 – indiscriminate and not always serious – questions for the payment market to answer over the next twelve months. They are unstructured, and there is no guarantee they are complete. This work is mainly speculation.
Our answers to Hanno’s 100 questions to the payment industry 2019.
Apple Pay & Co. …
- Will Apple Pay provide the “breakthrough for mobile payment” in Germany? If so, what will this “breakthrough” look like?
Frank: Apple Pay will drive mobile payment forward on the whole, including Android-based processes. This is due to the unparalleled media hype that Apple has been creating for years. Since its launch in Germany, things are starting to change. For example, recently, I have begun to notice that people don’t look at you quite so disdainfully anymore when you hold your watch to the terminal. Looking at other countries, however, we see that while mobile payment has been pushed by Apple Pay, this cannot be called a real breakthrough yet.
Susanne: iPhones have a market share in Germany of less than 20%. The majority can therefore be better serviced with Google Pay. However, Apple’s ‘halo effect’ should not be underestimated as Apple is often a trendsetter. On the other hand, Germany’s population is a bit older and many here don’t (want to) have a smartphone. I therefore believe that the “breakthrough” for mobile payment will take longer than we think. But those who don’t participate now or don’t have enough stamina will be left behind in the long run.
- Will the savings banks and the cooperative institutions bow to the pressure and also offer Apple Pay to their customers?
Frank: I assume that individual savings banks and cooperative institutions will have to join in. The transaction-based data is very valuable if you know what you want to do with it. At the POS, I only still pay with girocard if the terminal is not NFC-ready (which is hardly ever the case in cities anymore), or if only “EC cards” are accepted (which is unfortunately still more often the case). In eCommerce I pay with PayPal, Apple Pay or directly with my credit card. My account bank (still a savings bank) therefore hardly gets any more transaction data from me. For me, paying with Apple Pay, especially with the watch, is fun and convenient. The savings banks will have to bow down to consumer demands in order not to lose them.
The real question, however, is whether savings banks and cooperative institutions will also release the girocard for Apple Pay. Due to the low margins for the girocard, Apple is likely to skim off most (if not all) of the margin. From an economic point of view, this would therefore be unattractive. On the other hand, the savings banks and cooperative institutions would at least continue to receive the users’ transaction data. For more on this topic, FinTech-Podcast #183 by Payment & Banking is well worth listening to. In it, my esteemed colleague Siegert provides a much more in depth assessment of the future of Apple Pay than I can.
Susanne: I don’t think they will change their minds. There are (unfortunately) too many reservations about innovations and the belief that one’s own customers actually don’t want that either.
- Are the reported figures correct, according to which Apple demands 20 or 30 million euros from the large institutions or groups of institutions for onboarding alone?
Frank: I don’t know enough details to answer this.
Susanne: This would be a question for the next Apple AGM, wouldn’t it? 😉
- Will the German Savings Bank and Giro Association (DSGV) file a cartel complaint in Brussels or Bonn on the basis that Apple does not open the NFC interface for other mPayment solutions?
Frank: I am certain the DSGV is getting good legal advice. If a complaint has a chance of success, I can imagine that the DSGV is thinking about it. However, looking a bit further one can also see that Apple also knows how to defend itself. I refer to the legal disputes in Australia.
- Will Apple voluntarily open the NFC interface? Will hell freeze over?
Frank: Apple will only open the interface if it is legally required to do so. Why should Apple voluntarily sacrifice part of its “holy cow”? Apple’s devices are stable and there are much fewer IT (security) problems than with devices from other manufacturers. This is mainly due to the fact that hardware and software come from a single source. As a long-time Apple user, I can say that I haven’t had a single IT (security) problem.
As a user I would still like to see a partial opening of the NFC interface. Providers such as Authada GmbH offer a very simple and quick solution to identify yourself via eID. This solution uses NFC technology. As an Apple user I therefore cannot use the eID solution and I think that’s a pity. Would I therefore switch to Android? No, it’s more likely that hell will freeze over! 🙂
- When will Apple ignite the next rocket stage of Apple Pay and distribute its own acceptance agreements for Apple Pay?
Frank: I don’t think it’s likely that Apple will become an acquirer in the short term. The (regulatory) effort connected with this would probably outweigh the advantages of being an acquirer yourself. But who knows? The sales figures for the new iPhone are below expectations and Apple will sooner or later have to look for other sources of income. However, these are more likely to be in the content/streaming area. Apple has allowed itself to be left behind by Spotify and Netflix. I’m sure that Apple would like to and will make up some ground here.
- When will Apple eliminate superfluous parts from its value chain?
Frank: Here, too, I would like to refer to Podcast #183 by Payment & Banking. Jochen Siegert warns that the brands of the cards in the Apple Wallet are still visible. However, this visibility could decrease over the coming years. This can lead to the brand diminishing and fading into the background. If you ask people exactly how they paid, they will probably answer: “with Apple Pay” and not “with the debit / credit card of XYZ bank”.
- Will the antitrust authorities take action against Apple’s “digital highway robbery”?
Frank: “Digital highway robbery,” is a bit too strong for me. Apple (as well as other technology companies) uses the new technologies to simplify existing processes and solve or simplify “problems” the customers are facing. Apple Pay uses the authentication method known as Consumer Device Cardholder Verification Method (CDCVM). This method uses a fingerprint scanner or camera to verify a person’s identity, thereby eliminating the need to enter a PIN. This is also the key difference to a plastic card, for which I need to enter the PIN for anything above 25 euros (making me as a user wonder about the sense and nonsense of contactless payment if I then have to touch the terminal again anyway…).
I can’t predict whether the antitrust authorities will take action against Apple or not. I would need to know more details.
- Will “girocard mobile“ be successful?
Frank: I am an Apple user, so not for me.
- Is there even a future for national card systems or payment solution?
Frank: Only if they open up their services and offer the use of new technologies to their customers.
- Will the “doom of domestic schemes“ start in 2019?
Frank: Looking at this from a global perspective, this probably happened a few years ago. However, for Germany and the girocard I don’t believe that (yet). The EC card goes back a long way and is deeply rooted in Germany (if I’m not mistaken, there are about 100 million EC cards in circulation). Apple Pay and Google Pay will not be able to topple the girocard in 2019. Nevertheless, girocard, like all other local schemes, will find it difficult in the medium to long term to assert itself against global schemes. Customers are looking for simple, convenient and cost-effective solutions – also in the payment area.
In order for a scheme to be successful in the long term, it has to solve, or at least simplify, a problem faced by users. The girocard is cost-effective. But so is every other card for me as a user. I now ask myself: What problem does the girocard (mobile) solve for me as a user? I no longer want to touch terminals or have to enter PINs. The fact that the merchant has lower costs for girocard transactions is of no interest to me as a user. Especially as the merchant will not pass on the lower transaction costs to me. As a user, I would be happy if I could deposit my savings bank girocard in the Apple Wallet. I would also be prepared to pay a moderate monthly fee for this, as is the case with boon, for example. If my savings bank doesn’t provide this option, I will (have to) switch to another bank in the medium term which does give me this option.
- Who benefits from the new partnerships? Everyone? Win-win-win-win?
Frank: The user in any case. Mastercard and Visa always win. In all likelihood Apple also earns a lot of money from this. Non-partners will have to live with losing customers in the medium term. Nobody wants to be excluded. If other banks offer a better package, then I, as a customer, would rather go there. Available data after the launch of Apple Pay already shows that Apple Pay partners have recorded large increases. I don’t remember the last time I went to a savings bank branch to take out a mortgage or to take advantage of their consultancy service. Even when it came to financing the construction of my house, the savings bank was very inflexible, so I went to a private bank. In light of this, customers ask themselves what they should be paying current account fees for.
- Will Google Pay be successful?
Frank: I don’t have much to say much about that since I don’t use Google Pay. In a guest article on Payment & Banking, Klaus Igel dealt with the mobile payment solutions in detail. Definitely worth reading. Android does have the largest market share in Germany. There are therefore some indications that Google Pay could achieve a certain significance.
Susanne: This will depend on how good the user experience is. Simple onboarding? Easy to use? High acceptance and therefore relevant in everyday life? If all this applies, I believe that Google Pay will be a success. I can’t say whether all this is the case (I am an Apple user).
- Who will benefit from Google/Mastercard/PayPal/old-economy-style partnerships at the end of the day?
Susanne: The best negotiator?
No, I think the problem is that you cannot predict how the payments landscape will develop. Example: Does strategic cooperation with the schemes make sense because we will soon be living in a card payment world? Does this approach still make sense if it results in the provider itself suffering financial losses while remaining relevant? Or will open banking lead to a revival of the bank account and cards will become more irrelevant? Those who chose to concentrate on partnerships with the schemes may then have bet on the wrong horse.
Frank: Everyone will benefit as long as they are open to new paths and learn from each other. The losers will be those players who invest money in the preservation of the status quo and who don’t go with the market.
- If cooperation is the key to success in the digital era, then who will switch off whose light in the end and lock the door forever?
Susanne: The global players will do this to the national ones.
Frank: Global players come and go. Technologies come and go. In the long term, players who are courageous enough to cannibalise themselves in order to serve new growth markets will be successful. Many global players have already disappeared. Apple and Google are not immune to this either. National players will disappear more quickly from the scene if they do not open up.
- If all bank accounts are held with Apple, Amazon or Google, will John of us still allow us to order QualityLand, The Circle, 1984 and/or Brave New World?
Susanne: Yes, I think so. Because as soon as this is not the case anymore, interesting competitors will immediately appear who would allow payments outside the “circle”.
Frank: It won’t get to the point where all bank accounts are held with GAFA (Google, Amazon, Facebook, Apple). I also doubt that this is what GAFA wants. The current setup is much more attractive for GAFA: The cost- and compliance-intensive accounts are provided by others. GAFA simply place their products between banks and customers and thereby not only skim off margins, but also receive valuable user data. Even if GAFA were to hold all accounts, it would not be the end of the world. As long as we have a functioning market economy, innovative companies will conquer the market with the help of new technologies and ensure competition in the market.
- Will bluecode be successful?
Susanne: If bluecode delivers added value to its customers and meets a need? Yes. As long as it’s just about being against something (non-American), that won’t be enough. That already didn’t work for paydirekt.
Frank: Counterquestion: What added value does bluecode offer compared to Apple Pay and Google Pay?
- How many mobile payment solutions can the market take? The checkout staff?
Susanne: This depends on the integration. As long as the checkout software does everything automatically, it does not matter how the card / token is offered.
- Can I see cash one more time?
Susanne: According to Bundesbank statistics from February 2018, almost every second person in Germany still pays with cash at the checkout. Even if the trend is towards less cash, it will still be around in 2019.
Dear Hanno, just ask the people in front of and behind you in the checkout queue. I am sure they will show it to you one more time. 🙂
Frank: I hope not. But we won’t get rid of annoying cash quite that quickly. At the same time, merchants will lose customers if they only offer cash.
Christian: Yes, you can see cash one more time: if you ask the average German. 103 euros, to be precise (November 2017; https://de.statista.com/infografik/11997/bargeldbestand-der-bevoelkerung-in-der-eurozone/)
… about instant payments…
- Will instant payments already play a bigger role in 2019? In what use cases?
Christian: Instant payments will already play a bigger role in 2019. The main use cases will be payments between businesses where fast payment execution is of particular importance (e.g. when the payee has to provide some kind of consideration that depends on the payment being received by it).
Frank: Instant payment will not be relevant at the POS for the time being, as they are (still) too slow compared to card payments.
- Will the fees for IP decrease to an acceptable level?
Christian: In the B2B environment, competitive pressure will lead to a reduction in IP fees. In the B2C environment, fees will remain at a high level as credit institutions will become more profitable in the area of payment transactions. This will not be successful, as IP will not play a major role for consumers.
Susanne: …unless a startup with a killer app enters the scene which allows IP at the POS and in eCommerce. Then it could become relevant. However, the major problem is that it is not yet offered by all banks. If IP was rolled out across the board, it could become a card competitor.
Frank: I agree with Christian: instant payment makes sense in the B2B environment. It will not be relevant in the B2C environment. At the POS it will not become relevant as the authorisation of the payment transaction takes much longer compared to card payments.
- Will the ”merchant-based instant payments at the POS” (Happy HIPPOS) rise into the sky?
Christian: In 2019, HIPPOS will not rise into the sky as there is no reason for customers to suddenly use another payment instrument that has no advantages but only disadvantages for the customer. HIPPOS can be a success if retailers give customers a reason to use them.
Frank: …and this is exactly the reason why HIPPOS will fail. Retailers will not pass on price advantages to the end customers. The days when you could get price advantages by not paying by card but in cash instead are gone.
- Can hippos fly?
Christian: Yes, of course. Preferably backwards (http://www.spiegel.de/panorama/mobilitaet-nilpferde-fliegen-rueckwaerts-a-125163.html).
- How does the pilot of a thought model feel? Will instant payments fly at all? At the POS? Who will bear the costs of the transactions? Who will takes care of the marketing, rules & regulations, service hotlines, charge backs for the new IP schemes?
Christian: That is a lot of questions at once: Instant payments will, at least in the near future, be a product primarily for corporate customers. For this reason, the scheme rules have to come from a source that (conservative) companies trust. These are (at least for the time being) the banking industry and the state. The costs are borne by those who profit from instant payments. In any case, this will not be the consumer.
- Can the ECB, with backing from Brussels, push a payment scheme into the market or open a competitive framework that provides space for such procedures? Or will all this remain on the drawing board – as a thought model?
Susanne: The process has been started. And IP came faster than expected. Two years ago there were only plans, now they are reality. This actually developed surprisingly fast. What is missing, is a relevant application. For the consumer, this would have to be as convenient and cool and simple as a card and for the merchant a bit cheaper than a credit card payment (POS and online). Ideal would then be if a large retailer, such as Amazon, offered the system. Then we would have credit card competition as the ECB would like it. But do the banks actually participate in this? Or do they earn more from the credit card fees than from their own system, even if it would render the current account more relevant again?
Frank: That might work in a planned economy. Instant payment does not solve a single problem for the customer. In eCommerce, many buyers value the buyer protection offered by PayPal. If you want to send money to friends, you can do this via PayPal (via Siri and hopefully soon via Apple Pay Cash). Consumers are not charged any fees. So why should consumers use IP in eCommerce? Do you still want to touch the terminal, especially during flu season 😉 ? I don’t.
An IP transaction at the POS is likely to take at least 8 seconds (for account-to-account booking) plus any processing time until the account-to-account booking is confirmed at the POS. Do you really want to do this to yourself after you have already waited in the checkout queue? Finally, IP would need to function smoothly from a technical point of view. But this would only work if the scheme comes from a single source. I don’t think the latter can be implemented in Germany.
- Who, other than retailers and the GAFA + Alibaba & WeChat will bring a new payment system to customers?
Christian: There will be many who will try. However, the question is who will be successful with this. At least in Germany it will be difficult for companies other than those already established and the retailers. Maybe we will also see some local payment systems (e.g. city cards), which do not need authorisation under certain conditions.
- Will instant payments – thanks to the political backing – become much more significant than anticipated? The norm? Will IPs herald the end of credit cards?
Susanne: This would be possible but I don’t see it yet. What is also missing, in addition to what has already been mentioned above, is global orientation.
Frank: No, see above.
… traditional payment systems …
- What was the development of the turnover percentage of the different payment methods at the POS in 2018?
Christian: Probably not much different to 2017. Hugo Godschalk from PaySys can provide more details on this 🙂
- What will become of the electronic direct debit procedure (EDDP) if the customer increasingly uses the contactless option for payments and “big boats” such as Kaufland, Rewe and Aral give in to the siren songs of the banks and switch from the mixed system EDDP/girocard to pure girocard acceptance?
Christian: Payment by direct debit at the POS will not change significantly in the near future. Sales volumes for contactless payments are currently simply too low. Additionally, many contactless payments are also settled by direct debit (e.g. Payback Pay or Google Pay) in the end. The question is rather: How exactly will we define EDDP in the future? Is Google Pay a credit card payment (due to the fact PayPal gave me a virtual credit card without me noticing it) or a direct debit payment (because my Google Pay bank account is always debited via direct debit)?
The girocard will not kill EDDP in 2019 either.
- Does the proportion of credit cards increase as everyone is now using mobile payment systems?
Christian: If everyone used mobile payment systems, the proportion of credit cards would increase. As long as this is not the case, there will be no significant change. In addition, the question arises as to what payment method (direct debit, credit card) is assigned to the various mobile payment solutions.
- Will there be more EDDP/contactless payments than before?
Christian: More than before in any case 😉
- What will happen to the EDDP experts in ec-cash network operation when EDDP becomes a dinosaur?
Christian: I don’t think we have to worry about the good people from the payment industry.
- Will Intercard and Verifone be happy with each other?
- Nets and Concardis?
- Ingenico with BS Payone?
- Where will we hear the next wedding bells? Who will pay the endowment, party and family therapists?
Susanne: As we are family therapists, we cannot comment on these questions. 😉
… about miscellaneous topics …
- Will online shops be reprimanded in 2019 for violating the Geoblocking Regulation because they do not offer purchase on account or other payment methods to customers from other EU countries? Do the recitals of the Geoblocking Regulation override the SEPA Regulation in this regard?
Christian: It may be that there will be warning notices for violations of the Geoblocking Regulation. But I don’t think that many of those warning notices will be successful regarding purchase on account. If customers from other countries are not offered purchase on account, this is usually not due to them coming from another country, but because it is not possible to get credit information about them. A German customer about whom no credit information can be obtained is not offered purchase on account either. Online shops would be well advised to communicate this in this way.
- Who will win the “Golden Transaction 2019“?
Christian: I think it would be time for an identity service provider to be among the winners. In my opinion, the new payment service providers (PIS and KID) are also missing on the winner’s list.
- Will the Supreme Court of England and Wales make a ruling in the proceedings brought by Sainsbury’s, Morrison’s & Co. against Mastercard at the end of this year?
Christian: Before court and at sea you are in God’s hands. An answer to this question would therefore be blasphemy. 😉
- Why did Deutsche Bahn, Metro & Co. agree to a settlement with Mastercard? What did they agree on?
Christian: If I knew this … I would not be allowed to divulge this information.
- What does Brexit mean for the payment sector?
Christian: If it comes, not much will change for the user. Some providers will obtain licences in other member states (Benelux, Ireland, Lithuania and maybe also Germany).
Frank: As a European, I still hope that a historically grave mistake will actually not happen.
- When will we get something like Swish in Germany?
Christian: As soon as Stockholm becomes our capital.
- Will anybody still be talking about Paydirekt in 2019?
Christian: At the very least, the relevant industry bodies.
- How will the Berlin Regional Court decide on the antitrust claims for damages brought by Jet petrol stations, Rossmann and other dealers against the German credit industry for allegedly cartel-related excessive Girocard fees?
Christian: See the answer to question 39.
- How will the UK competition authority decide on 21 May regarding the takeover of iZettle by PayPal? How does the Competition and Markets Authority (CMA) define the “omni-channel payment market”? Will the decision affect other (European) markets? Not only on the market for mobile acceptance devices (PayPal Here, iZettle)?
Christian: See the answer to question 39.
Susanne: I think the decision will be in favour of PayPal. The CMA argues that iZettle was a “market-leading rival” of PayPal. In what market? This can only be the market for mobile card acceptance. And this is a market in which almost every acquirer and alternative provider is active (see Sum Up and Concardis OptiPay, to name just two). PayPal Here does exist in the UK, but PayPal’s home market is still not the offline market. There is also no link that someone who accepts PayPal online then has to use iZettle and cannot use another provider.
The CMA’s further argument is that this would result in less competition for PayPal in the “omni-channel payment market”. What is an “omni-channel payment market”? Are all payment service providers who offer solutions for online and offline payments grouped together there? So this would include all banks, because direct debit works both online and offline? And the argument that iZettle hasn’t yet made any online payments, but could have done so, doesn’t really convince me either.
If I’m wrong and the CMA decides against PayPal, then the decision could indeed have big implications, because then there might be a new market definition that could make acquisitions difficult, especially for banks offering online and offline services in their group. If, however, there will be a hard Brexit, the decision of the CMA may not be quite as relevant.
- Will there be bottlenecks in the supply of cash in the next few days if the German trade union Verdi continues supporting the striking money and valuable transport employees? Has anyone ever noticed the strikes at Amazon? (These two questions were answered before the editorial deadline, but are still counted.)
Susanne: The good thing about the strike is that it shows that cash also costs something. The complaints about the expensive payment methods compared to cash always disregard the fact that someone has to get, bring and keep the money safe (and make a living from this).
… all the way to the two-factor authentication.
- Will the “strong customer authentication” which will be required for electronic payments from 14 September 2019 under PSD2 change the ePayment market? In what way? And more specifically, in what way for merchants, customers, service providers and the financial sector?
Susanne: My pessimistic view is that there will be cuts for everyone. Dealers will have problems with the conversion rate because customers will cancel purchases. Service providers and the financial industry need to introduce and implement strong customer authentication. Customers will look for payment methods without strong customer authentication. This will only change once very simple and good methods for strong customer authentication have been found and implemented.
- Will two-factor authentications (2FA) become the standard for payments online / mobile payments?
Susanne: For mobile payments yes, as the implementation is quite easy thanks to the biometric option. On the internet in general, it is more complicated as the second factor will be more difficult to implement there.
- What type(s) of 2FA will prevail?
Susanne: Biometric and behavioural data, but it is still not clear what the latter can look like and what will be accepted.
Frank: It will be a mixture of different data and it will be offered to the user via a convenient solution and tokenisation in the background. The risk of a transaction, particularly the creditworthiness of a customer, will also play a role here.
- Does PSD2 help players such as PayPal, Amazon and/or credit card organisations in this regard? Or is it the purchase-on-account and direct debit providers who are laughing with an ace up their sleeve?
Susanne: PSD2 may help Amazon (due to whitelisting) and the purchase-on-account and direct debit providers.
- Will whitelisting prevail?
Susanne: Yes, if there is an online process for it.
- Biometric processes?
Susanne: Yes, they are already standard. More recent is behavioural data (how does a user hold their mobile phone, how does someone type, what do they buy and how?).
- Will PSD2 lead to increased competition and innovation in the payment and banking industry?
Susanne: In the long term yes, but not in 2019.
- Could somebody explain to me how you can properly position images in the text with the new WordPress editor “Gutenberg” and why the images are then (again) displayed in a larger size when clicking on them?
Isabella: Unfortunately not (yet) – if one of our readers knows how to do this, Hanno and I would be grateful for some tips. 😉
- Why are updates always annoying?
Susanne: Because changes are always exhausting.
Isabella: Because programmers are extremely malicious people who enjoy torturing their users? Or because us users are simply lazy? 😉
- Was that 100 questions?
Susanne: No. But to make up for that, they were all very good questions.
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