TRADITIONAL PAYMENTS VERSUS RADICAL CHANGE

WHERE TO FOCUS?

INNOVATION PROCESS AND SOUNDING BOARD

SHARING INSIGHTS, INSPIRING MINDS,

CREATING FUTURES

HOW BANKS CAN MAKE PAYMENTS PAY

DEVELOPING NEW PAYMENT PRODUCTS

THAT OFFER CUSTOMERS ADDED

VALUE

SINGLE EURO PAYMENTS AREA

THE INS AND OUTS OF THE FINNISH

MIGRATION TO SEPA

sharing insightsEquens magazine | 03 | July 2012

Trendwatcher Peter Hinssen states that we shouldn’t Trendwatcher Peter Hinssen states that we shouldn’t concentrate too much on payments themselves, concentrate too much on payments themselves, as it is their context which is undergoing a radical as it is their context which is undergoing a radical change. Payments have become a commodity. change. Payments have become a commodity. Digital is the norm and technology is fading into Digital is the norm and technology is fading into the background.the background.

© Equens 2012. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form by any means, electronic, mechanical, photocopying, recording or otherwise, without prior permission of Equens.

The Finnish decision to migrate to SEPA was The Finnish decision to migrate to SEPA was made collectively by the entire banking, business, made collectively by the entire banking, business, consumer and governmental community in consumer and governmental community in Finland. What lessons can be learned from their Finland. What lessons can be learned from their National SEPA Forum? EQ visited OP-Pohjola National SEPA Forum? EQ visited OP-Pohjola in Finland and offers some interesting insights.in Finland and offers some interesting insights.

TRENDS – OPPORTUNITIES IN THE DIGITAL WORLDTRENDS – OPPORTUNITIES IN THE DIGITAL WORLD

THE BULLS IN THE CHINA SHOP

Exciting and challenging times! On the one hand, the SEPA end date is rapidly approaching. On the other hand, technological developments and new customer needs are offering a wide variety of opportunities for the European payments community. The challenge is to fi nd the right balance, as compliance and innovation are not a matter of ‘whether – or’, but of ‘and – and’! In the new edition of our EQ Magazine, this dilemma is being dealt with by several authorities from various coun-tries, as well as some of my Equens colleagues. With our EQ Magazine, we want to offer a platform for debate and exchange of ideas. This underlying principle is that we will only be able to take advantage of challenging times if we adopt an open innovation process and draw on each other’s strengths. At Equens, we have started a promising programme in this respect. But also in other areas, collabo-ration can bear fruit. This is refl ected in the approach Finland and Estonia adopt towards SEPA compliance, as explained in inspiring interviews with our friends from OP-Pohjola and the Bank of Estonia. It is obvious that investment and management capacity are needed for compliance and innovation. The Dutch bank F. Van Lanschot Bankiers is an example of how such capacity can be created by adopting a fresh view on the old ‘make or buy’ question regarding core payment processing activities. That the market offers suffi cient scope for following your own strategy is proven by the different ways Belgium and the Netherlands deal with today’s requirements regarding card payments, as is explained by the top representatives of the domestic card organisations. We are going through a period of accelerating change. The changes involved are both fundamental and exciting, as you can read in the inter-view with trendwatcher Peter Hinssen. At Equens, we are convinced that if we respond in the right way and collaborate on the relevant activities, we will be able to benefi t fully from the wide range of opportunities the future of payments holds for us all.

I wish you a pleasant and inspiring read, and if you have any questions or comments, please do not hesitate to contact me.

Michel Stuijt, General Manager Market Management, Equens SEmichel.stuijt@nl.equens.com

The balance between compliance and innovation

EDITORIAL CONTENT

COLOPHON

REPORT – FINLAND SEPA COMPLIANTREPORT – FINLAND SEPA COMPLIANT

THE BLESSINGS OF A COLLECTIVE

DECISION

2

General Manager Frans Mannaerts of Van Lanschot Bankiers explains why the bank focuses on its core activities of asset management & control for private individuals and institutional clients and outsources the processing of its payments.

EQ ManagementEquens SEEsmée BurgerPaul JennekensAnnemieke LambregtsEditorsSPJ Financiële CommunicatieSiebrand van der PloegTranslationTechText bv

Concept and designTotal IdentitySieds de BoerJulius van der WoudePhotographyAatjan RendersEva Persson, Hollandse HoogteKaupo Kikkas, Hollandse HoogteIllustrationsJulius van der WoudeMarkus Ölhafen

PLUS

4 RECONSIDERING THE TRADITIONAL WAY OF WORKING IN PAYMENTSAs payment services become a commodity, margins keep declining. In an attempt to keep their margins up, many banks focus on the costs of their core payment-processing activities. But the real challenge is to develop new payment products that offer customers added value.

6 UNLEASHING THE CREATIVITY OF CLIENTSWould it not be wonderful if we could unleash the creativity of our clients, our partners and industry experts?

8 SEPA AND THE SACRED COW OF SETTLEMENT SPEEDWith the migration to SEPA, the Bank of Estonia had hoped to leave the retail payment activities to the commercial banks. However, under the current circumstances this would have implied a considerably reduced settlement speed.

10 CARTASI LAUNCHES SOCIAL MARKET PLACEIn CartaSi organised an innovation contest across several industries. Combining the best proposals of some of the participants resulted in a new concept with several interesting features for consumers, merchants and CartaSi’s banking partners under Gruppo ICBPI.

13 CLOSING THE GAPS FOR CYBER CRIME IN PAYMENTSOne of the major challenges in payments is combining maximum convenience with maximum security. Covenience is a matter of competitive differentation by service providers. Maximum security, however, is a matter of intensive cooperation between various stakeholders.

14 CARD PAYMENT SCHEMES: DOMESTIC OR GLOBAL?Belgium and The Netherlands have made different decisions ont this important subject. What are their motives to respectively choose for continuing to develop the domestic card scheme, and seeking to join a global scheme?

22 THE BUMPY ROAD TO MOBILEIt’s clear: with the tremendous market penetration speed of the smartphone, everything will move to mobile. And when the smartphone becomes life’s remote control, mobile payment will by necessity be integrated into the world’s mobile lifestyle.

27 COMPANY PROFILE & KEY FIGURES 2011Company profi le and key fi gures Equens SE.

INTERVIEW – VAN LANSCHOT BANKIERS

LEADERS IN WEALTH PLANNING,

FOLLOWERS IN PAYMENT PROCESSING

3

“FOR BANKS, THE FUTURE

DOES NOT LIE IN CORE PAYMENT PROCESSING.”

MICHAEL STEINBACH CEO, EQUENS

4

HOW TO MAKE PAYMENTS PAY

RECONSIDERING THE TRADITIONAL WAY OF WORKING IN PAYMENTS

As payment services become a commodity, margins keep declining. In an attempt to keep their margins up, many banks focus on the costs of their core payment-processing activities. But the real challenge is to develop new payment products that offer their customers added value. At Equens, we have ideas about how to create the right conditions in order for this to happen.

Naturally, it is always necessary to examine possibilities for decreasing costs. But it is at least as important, and also far more satisfying, to increase margins with services that address the issue of convenience and bring added value to customers. This requires an external focus from payment departments, as well as innovative investments. Given the current climate, this sounds almost utopian. However, this is not the case, as outsourcing the core payment-processing activities will reduce costs and complexity, and at the same time free up resources for client focus and product development.

Cost-cutting only brings temporary benefi tsDespite growing transaction volumes, payment margins continue to drop. This is due to several factors. Customers are increasingly demanding, banks face the challenge of increasing regulation and standardisation, and have to invest in ever-advancing technologies. Furthermore, competition – also from non-banks – is increasing. When it comes to the traditional sources that yield the margins, the picture is also fairly bleak. Currently, payment margins consist of a combination of unprecedented low interest rates, spot dates only one business day from the trade date, and fees which have shrunk due to increasing price competition. Many banks seek relief by restructuring their core payment-processing activities and building their own payment hub. However, this requires investments which are only feasible with suffi cient volume – and very few banks can play the volume game. Moreover, cost-cutting will only bring temporary and limited benefi ts.

Resources for improved customer focusFor banks, the future does not lie in core payment-processing activities. Given all the concerns about advancing technology and standardisation require-ments, this raises the question whether they should continue to focus on it. In addition, there are the many advantages and economies of scale that can be achieved by outsourcing the core payment processes – entirely or partly – to a party that is able to offer low prices due to its high processing volumes. This, in turn, frees up resources for improving customer focus and developing new products and services that immediately benefi t the customer. In my view, the future lies in new products that create and reinforce relationships with customers. This is the most important condition for growth and improved margins, as I am sure that customers are willing to pay more for innovative services that will bring them convenience and added value.

Initiatives are blossomingThe challenge for banks is to fi nd out which services offer the most added value. Worldwide there are many blossoming initiatives. Take the many kinds of payment apps for smartphones, such as Bill Pal, which ensures that users pay their bills on time. Another example is Mint, which helps users with their monthly budgeting, Blueprint, meanwhile, by Chase Card Services, helps users manage their debts more effectively. A useful tool in the current economic climate is GasBuddy, which enables users to fi nd the cheapest petrol station. For consumers in the US, there is ING Compare Me, which enables them to compare their savings and debts against those of similar consumers. A pure payment tool, on the other hand, is MoneySend by MasterCard, which enables private users to send money to each other via their smartphones. Then there are the tre-mendous possibilities mobile banking presents among the unbanked populations in developing countries, based on prepaid instruments. These instruments have already been available for a number of years in some developing countries: SMART Money and GCash in the Philippines, WIZZIT South Africa, and the economy-changing M-PESA in Kenya. In my view, these are interesting and inspiring examples directly or indirectly linked with payment services. Naturally, some ideas turn out to be no more than hypes, but this is inherent in creative processes. The main thing is that things get moving!

5

ALLIDEAS

BUILDING NEWBUSINESS MODELS

New opportunities in market

LET OTHER INNOVATORS TAKE PART IN YOUR DEVELOPMENT

LET IDEAS INTO BUSINESS MODEL

EXTERNALIDEAS

EXPERTISE & BACKGROUND IN SOUNDING BOARD

EXTERNAL RESEARCH

INTERNALPRIORITISATION

INTERNALIDEAS

MARKET DEVELOPMENTS

TOP 15RESULTS

UNLEASHING UNLEASHING THE CREATIVITY THE CREATIVITY OF CLIENTSOF CLIENTS

INNOVATION PROCESS AND SOUNDING BOARD

Since users hacked the iPhone and forced Apple to establish the now hugely successful ‘App’ store and model, it has become clear that it is better for a company to be open, rather than try to maintain walled gardens and pretend that they can do everything themselves. The App stores – now successful not only with Apple, but also Windows, Nokia, Facebook, Android – show what amazing creativity is unleashed when an external community is allowed to develop solutions based on a standard infrastructure. This process is called ‘Open Innovation’.

RadarBeing aware of these huge benefi ts, Equens has set up a process to harmonise, channel, funnel and prioritise the new innovation activities. These ideas are collected inter-nally on our ‘radar’ of all possible topics. Than we have to prioritise the hundreds of gathered ideas into a list of good topics to be pursued.

“Would it not be wonderful if “Would it not be wonderful if we could unleash the creativity we could unleash the creativity of our clients, our partners and of our clients, our partners and industry experts to make many industry experts to make many new applications possible on new applications possible on our standard card and SEPA our standard card and SEPA processing services?”, says Michael processing services?”, says Michael Salmony, Executive Adviser, Salmony, Executive Adviser, Equens.Equens.

The two main challengesInitiatives also show that banks all over the world are looking for new strategies. I only wish this development were quicker and the approach more comprehensive, as I think brand new banking concepts are necessary in order for future demand to be met. The challenge is twofold: fi rst, creating conditions under which the necessary management attention and capital can be provided, and second, directly identifying the most promising direction. With respect to the fi rst part of the challenge, Equens can help create these conditions by taking over the core payment-processing activities. For the second part of the challenge, we are doing preparatory work by setting up an Innovation Sounding Board with a group of clients, partners, European organisations and industry experts. The objective is to start a process of ‘open innovation’ with initiatives that have the highest probability of success (see next article).

Customer-orientated and fi nancially feasibleThis combination of knowledge of customers’ needs in all pos-sible market segments has already yielded a top fi fteen of potential new services across the four paths of innovation that the pay-ments industry is following: mobile payments via smartphones, e-commerce payments on the internet, business intelligence on payment data, and e-invoicing. Concrete ideas vary from remote mobile payments, the mobile phone as a POS, and e-Vouchers, to biometric authentication and an electronic mandate service. All these services are perceived as promising business cases. This is important, as there are also many ideas that sound highly innovative, but are too exotic to be fi nancially feasible. After all, we are aiming to improve real margins in payments, aren’t we? This is exactly what the Innovation Sounding Board is about. It is a forum for discussing purely content-related matters, free from any internal political restraints. The participants – which include representatives of large banks – told us that this is the Board’s specifi c value. By discussing goals in groups, the participants are able to open their minds and determine which developments should and should not be given priority. The Board enables them to share their views, ideas, doubts and observations of trends, and make concrete proposals in ‘co-opetition’. As is the case with core payments, Equens can provide a common, shared, outsourced back end (e.g. for mobiles) for the innova-tion, with each bank offering a competing product in the market (with a different brand, pricing and functionality). The partners fi nd this an exciting process, due to the wide range of disciplines involved. One participant even remarked that he truly believes the collaboration model is as important as the subject of innova-tion. I agree wholeheartedly!

“THE FUTURE LIES IN NEW PRODUCTS THAT CREATE

AND REINFORCE CUSTOMER RELATIONS.”

MICHAEL STEINBACH CEO, EQUENS

6

ALLIDEAS

BUILDING NEWBUSINESS MODELS

New opportunities in market

LET OTHER INNOVATORS TAKE PART IN YOUR DEVELOPMENT

LET IDEAS INTO BUSINESS MODEL

EXTERNALIDEAS

EXPERTISE & BACKGROUND IN SOUNDING BOARD

EXTERNAL RESEARCH

INTERNALPRIORITISATION

INTERNALIDEAS

MARKET DEVELOPMENTS

TOP 15RESULTS

INNOVATION PROCESS AND SOUNDING BOARD

CriteriaIn order to ensure that no single aspect dominated the discussion, an objective set of criteria on what makes a ‘good’ new service were established. Only if a potential new service is equally within our area of competence, has the potential to produce revenue, and will extend our value chain, thereby integrating us better into our customers’ solutions, will it rank highly in our evaluation. After many days of intensive cross-departmental discussions on how well the many potential new services on the radar ‘score’ with respect to the criteria, we emerged with a set of top innova-tions that all departments across the company jointly recommended for further development.

Sounding Board In order to validate our internal fi ndings with the out-In order to validate our internal fi ndings with the out-side world, we set up an Equens Innovation Sounding side world, we set up an Equens Innovation Sounding Board (EISB). The EISB consists of valued clients Board (EISB). The EISB consists of valued clients (ING, Rabobank, DZ BANK etc.), partners (e.g. (ING, Rabobank, DZ BANK etc.), partners (e.g. SWIFT), European organisations and associations (e.g. SWIFT), European organisations and associations (e.g. ABI, EACB) and industry experts (e.g. the head of the European Commission’s eInvoicing Expert Group, a consultant with close links to PayPal/Amazon/Google, a professor engaged in fi nancial innovations), an ex-banker now close to the role-model automobile industry – and even a ‘sceptic’ to keep our new-world enthusiasm real. The EISB members were extremely positive about this new-style process (which we believe is an innovation in itself ), and also fully approved the top-priority list.

Four streamsAfter this encouraging start, we explored the idea of ‘Open Innovation’ with this panel. We all felt that we should ‘dig down’ into a few of the top subjects together and see what concrete results we could come up with. Four streams were defi ned for this purpose: – Mobile payment (see separate article on the issue

on page ) – E-commerce payment on the internet (a topic that

is exploding!) – Business intelligence on payment data (which needs

to be treated very sensitively but has absolutely massive potential)

– E-invoicing (an invoice being the initiator of a payment).

In each of these streams, interested parties from the EISB are working together with Equens to see if we can make something creative ‘happen’ in these areas.

eInvoicing eInvoicing (beyond VDS)

Mobile as POS

Biometric Authentication

European online/web ePayment

Business Intelligence

Track & Trace/mgtm Track & Trace/mgtm Cockpit

Mobile Remote payments

eVoucher

eID Remittance Payments mTopUp in Europe

Payment/info/alerts via SMS

EL. Mandate Service

PSP

eMandate

ABI Commerzbank

UNRAE

RPGC Group

Tieto

Bank of America

S.W.I.F.T.

ING UniCredit

Automobile

IBI University

DZ BANK

Rabobank

The European Association of Cooperative Banks

7

SEPA AND THE SACRED COW

OF SETTLEMENT SPEED

BANK OF ESTONIA

“I wouldn’t call settlement speed a sacred cow directly. But after Estonia joined the euro area, it would have been hard to tell our population that it was good to join but that we now needed more time to settle pay-ments”, explains Mihkel Nõmmela, Head of the Clearing and Settlement Department at BoE.

As a result of this, BoE will continue to provide interbank retail payment services for the time being. This illustrates the challenge migrating to SEPA represents for a country with a relatively advanced payment infrastructure. “It is hard to sell when the number of settlements decreases from ten per day to one or two, or even to next-day settlement if a payment cannot fi nd a good path between different SEPA service providers”, Nõmmela explains.

With the migration to SEPA, the Bank of Estonia (BoE) had hoped to leave the retail payment activities to the commercial banks. However, under the current circumstances this would have implied a considerably reduced settlement speed.

Need for better cooperation between PSPsNõmmela stresses that BoE is playing the role of both a catalyst and coordinator in the preparations for SEPA. “The commercial banks and the Estonian Banking Association are in the lead. But when they invited European service providers to Estonia to support the migration to SEPA, Estonian banks came up with two or three different preferences. The differences were such that maintaining our current effi cient settlement cycle appeared to be impossible. This underlines that there is a clear need for better cooperation between different SEPA retail payment service providers. These companies mustn’t see each other only as competitors, but also as partners by providing smooth-running channels between themselves.” In the procurement process, BoE has now assumed its coordinating role as a strategic partner which is able to provide the required functionalities. “The smaller and medium-sized banks are very happy that we are taking care of their wishes,” says Nõmmela. “But for the subsidiaries of the big foreign banks, it remains to be seen whether the outcome will be in line with their groups’ preferences.”

Secure interbank payment systemThere are fourteen banks operating in Estonia. Most of them are subsidiaries and branches of large European banking groups. Four banks represent more than % of the payments market. The banks’ customers are used to modern methods of payment: approximately % of all bank payments are initiated electron-ically. Banks settle in-house payments in real time hours a day, seven days a week. Interbank payments are settled over two systems, operated by the Central Bank: TARGET2 Estonia and ESTA. The latter was launched in and settles retail payments in ten periods during TARGET2 working hours. This means everyday payments are settled in to no more than minutes. Nõmmela: “This is similar to the Equens cycle of nineteen peri-ods.” In ESTA, payments are % guaranteed by paid-in cash collateral. Every batch of payments is checked immediately, and if the cash collateral is insuffi cient, it is rejected. When a batch is accepted, the positions of the banks are recalculated immediately. So when a payment is delivered, a bank can credit its customer without any liquidity or credit risk. Nõmmela: “We designed this procedure fi fteen years ago, when the young Estonian banking community was facing some bankruptcies and other problems. We thought it would be better to isolate a bank with problems as quickly as possible so that other banks wouldn’t have to suffer.” Estonia joined the EU in . As of , banks started to offer SCT and SEPA card services. An intermediary solution for SDD will not be developed. The domestic direct debit will remain in use until the fi nal migration to SEPA. This product will need adaptation because the Estonian version has a different (creditor) mandate fl ow. Nõmmela: “This needs extra explanation and careful planning.”

8

Cooperation between all stakeholdersCurrently, only % of all domestic payments are SEPA payments. “So it is a real challenge to be ready for the end date in time”, says Nõmmela. “Today, only banks really understand what the change to SEPA means. But also companies and consumers will have to adapt. It will be especially challenging to convince consumers and small and medium-sized businesses to use IBAN in the future and adapt forms and invoices. Today, only % of all domestic payments use IBAN. In that respect, we believe that software providers, for instance of accounting software, are fl exible and ready to support the change. But I hope that there will be a general readiness for change and that our legacy systems are not too much of a burden for us.” Nõmmela is fairly positive about the changes, provided that they yield clear benefi ts. “Estonians have a positive attitude towards technological innovations and new solutions, for which our country – with its population of only . million – is an excellent test fi eld.” And BoE is actively encouraging cooperation between the various stakeholders. Together with the Ministry of Finance and the Estonian Banking Association, it has established the Estonian Payment Forum. In this Forum, which had its fi rst meeting this spring, all of the relevant stakeholder groups are represented. Furthermore, the SEPA action plan – now ready for the banking community – will be developed for all other relevant areas, and communication will be sig-nifi cantly intensifi ed. Nõmmela: “We have deliberately named it Payment Forum and not SEPA forum, as we want to maintain it for the long run. SEPA is only one aspect of payment infrastructure, and we want this to be everybody’s business.”

“I HOPE THAT THERE WILL BE

A GENERAL READINESS FOR CHANGE.”

MIHKEL NÕMMELA BANK OF ESTONIA

9

“IT IS PUTTING TOGETHER THE CONCEPT OF

A SOCIAL NETWORK AND THE CONCEPT

OF OFFERING DEALS.” MARIO PERINI MARIO PERINI CARTASI CARTASI

10

CARTASI LAUNCHES SOCIAL MARKET PLACE

CROSS INDUSTRY INNOVATION IN ITALY

Mario Perini, VP of Marketing and Communications, is responsible for innovation at CartaSi. “A couple of years ago we realised we had to focus on innovation to have a better market proposition. After carrying out a couple of innovation projects, we set up a specifi c organisation within Marketing; Marketing Services and Innovation. At fi rst we had an innovation department outside the operational business, but that did not work well, so we placed it within Marketing. It is much more effective to have innovation close to the daily operation and the medium term strategic issues with a horizon of one to two years, because you need operational involvement for feasible proposals.”

Round the beginning of this autumn, CartaSi will launch a new social market place in Italy. Schumpeter would have appreciated the innovation process, because it was really a question of making ‘neue Kombinationen’. In CartaSi organised an innovation contest across several industries. This resulted in a new concept with interesting features for consumers, merchants and for CartaSi’s banking partners under Gruppo ICBPI.

Combining social network and offering dealsCartaSi recognised the importance of coop-eration with partners to ensure that inno-vations fulfi l market demand. Therefore it organised a contest for leading companies in various industries: mobile, media, internet software, but also publishers. As CartaSi services some million cardholders and , merchants, the contest met with great enthusiasm and led to the participation of – among other – MicroSoft, Vodafone and Rizzoli, a leading Italian publisher. Perini: “All ideas raised were related to social commerce, so we decided to combine them into a new concept of a social market place and to continue with the four win-ners to explore the idea further. This has resulted in a mixture of social webs such as Facebook – very popular in Italy – and Twitter, TripAdviser-like sites and deal-of-the-day websites like Groupon and Groupalia. We will not only offer special deals, but also the possibility to rate offers and to post comments and share experi-ence. So it is putting together the concept of a social network and the concept of offering deals.”

Really differentCartaSi is working mainly on its own customer base, which is huge with over % market share in the acquiring busi-ness. But also with existing websites that offers deals. Perini: “When we start, we obviously want to have a initial number of deals on offer.” The service will not only be available for CartaSi cardholders, but also for other cardholders and issuers, although CartaSi will be able to benefi t from specifi c offers related to its loyalty programme, for instance earning extra bonus points for special advantages. “This, plus the rating possibilities and the social functionality are the main differences with existing sites”, explains Perini.

11

Extra value for cards services“The service is interesting for merchants as it offers them a huge potential customer base”, continues Perini. “And we are con-sidering to let our merchants make use of the comments and analyse the trends in them. Not only related to their own goods, but also what’s going on in other businesses. We also want to aggregate the data to marketing information and provide merchants with information they can develop their offering with. Also for banks there are clear benefi ts. The service is not only a tool to increase the usage of our cards online, but as CartaSi we are also providing a tool to the banks to produce extra value for their cards services. It leads to more loyal relationships between banks and merchants.”

Discuss process and pricing with banksTo ensure continuous focus on the interests of its customer banks, CartaSi has begun organising a series of workshops for banks twice a year as a forum for discussion. Perini: “It is a very good way to interact. We usu-ally present the banks with a new idea we want to develop. Then their views are discussed in round-tables and we summarise the outcomes to report them to all of the banks. In the workshops at the beginning of this summer, we will discuss the social marketplace and see how we can cooperate to get as many merchants on board as pos-sible. Together with the banks, we will discuss the best process, as well as the best pricing.” In addition to the workshops, CartaSi has launched a professional website featuring new offers, interviews and discus-sions on the business of CartaSi. Banks can also post comments, so it is a kind of exclusive social network.

“THE SERVICE IS INTERESTING FOR

MERCHANTS AS IT OFFERS THEM A HUGE POTENTIAL

CUSTOMER BASE.” MARIO PERINI CARTASI

Professional customer care The social market place concept is primarily developed for the Italian market. Having learned the lessons from comparable innovative concepts, CartaSi will focus strongly on customer service even if a product is not directly linked to it. After all, it has to keep up a reputation. Perini: “We will be an active endorser by provid-ing our professional customer care. For instance customers have access to the market place via the CartaSi website and they can use a toll free number for inquiries.” When the concept works, CartaSi will need more international exposure and cooperation with other acquirers and issuers. Perini: “Then we’ll surely want to get in touch with customers of Equens’ to exchange ideas.”

12

ECTF

CIDEQUENS

EUR

OP

OL

PROSECUTOR

police

LSP

National Skimming PointCyber crime is being monitored sharply in the Netherlands. Various advanced techniques are applied in order to prevent fraud and track down perpetrators. A vital tool of the public-private partnership in these activities is the National Skimming Point (Landelijk Skimming Point), which was set up at the end of . The purpose of the Skimming Point is to centralise all information on skimming (the illegal copying of cards) with the Dutch police. Apart from the police, the Public Prosecutions Department and Equens’ Fraud Control department are participating in the project on behalf of the banking industry. The expert team cooperates intensively with the Electronic Crimes TaskForce (ECTF) of the national police, the interregional bureau for money and value traffi c, the criminal investigation department, and Europol. Equens has a natural coordinating role thanks to its knowledge and experience in the fi eld of prevention and in rendering support to solve fraud cases.

Knowledge platformThe National Skimming Point needs to develop into the central platform for sharing all knowledge concerning skimming. Consequently, for analytical purposes as much information as possible is being collected on skimming surveys. The National Skimming Point will also examine skimming cases to establish whether they have any connec-tion with current investigations. Furthermore, the team will assess the possibility of criminal prosecution of groups of perpetrators. Finally, it will exchange information and expertise with counterparts abroad.According to the Director of Public Prosecutions, Marc van Nimwegen, collaboration and the sharing of information, methodology and knowledge are important success fac-tors for a public-private approach. Combating cyber crime in payments is important due to the undermining nature of this criminal activity. Thanks to the National Skimming Point, the Public Prosecutions Department has a number of criminal investigations in progress into the activities of skimming groups.

One of the major challenges in payments is combining maximum convenience with maximum security. Convenience is a matter of competitive differentiation by service providers. In the Netherlands, ensuring maximum security has taken shape in a unique Dutch model of public-private partnership between the police, the Public Prosecutions Department and Equens.

CLOSING THE GAPS FOR CYBER CRIME IN PAYMENTS

“Sharing information is a necessary condi-tion for effective cooperation and intelligent public-private action. Consolidation of expertise leads to enormous clout”, says Erik Akerboom, National Coordinator for Counterterrorism and Security. “The National Skimming Point is a good exam-ple of how banks, the police and Public Prosecutions Department are cooperating to ensure securer digital payments. It is also about consolidating information and expertise in order to make them available nationally and internationally. Accordingly, a results-orientated approach to cyber crime benefi ts from an effective network which enables the parties con-cerned to tackle problems jointly, preferably with private stakeholders who also possess extensive expertise. Another important reason is the fact that in critical situations many talk about taking action, but only a limited number of experts have the ability to actually to make a difference. For this reason, I don’t believe you necessarily have to have every capability in house. However, I do think you do need to organise things in such a way that you have those capabili-ties at your disposal when you need them.”

Ralph Nagelkerke, Project Leader at LSP:“With the implementation of the National Skimming Point, the days when banks and the police and Public Prosecutions Department pointed the f inger at one another have now permanently come to an end. Experience has taught us that public-private collaboration pays off. The mutual confi dence this inspires forms the foundation for jointly and effectively combating new threats to payments posed by cyber crime in the future.”Through their Programme Against Cyber Crime, the Board of Police Chiefs, Public Prosecutions Department and banking industry have been working towards public-private combating of cyber crime in pay-ments. In addition to the National Skimming Point, this has, among other things, yielded a long-term scientifi c research programme into this phenomenon.

13

CARD PAYMENT SCHEMES DOMESTIC OR GLOBAL?

Card payments are developing at a rapid pace. Systems need to be more secure, faster, cheaper and SEPA compliant. What is the best strategy? To continue developing the domestic card scheme, or seek to join a global scheme?

Banks in Belgium have decided to make Bancontact/Mister Cash SEPA compli-ant. With billion transactions, they believe the scheme is suffi ciently relevant and solid to play an important role. After explosive growth and a record volume of . billion pin transactions, the Netherlands completely switched to the new debit card payment system with the brands Maestro and V PAY, based on the EMV (Europay/MasterCard/VISA) chip standard, as from April . Two key players expressed their point of view: Kris De Ryck, CEO of Bancontact/Mister Cash in Belgium, and Piet Mallekoote, CEO of Currence in the Netherlands, owner of the domestic schemes PIN, Chipknip, Acceptgiro, Incasso/Machtigen and iDEAL.

What were the considerations in continuing to use Bancontact/Mister Cash, rather

than switching to Maestro, V PAY or another international alternative?

De Ryck “Bancontact/Mister Cash is an excellent product in terms of function-De Ryck “Bancontact/Mister Cash is an excellent product in terms of function-De Ryckality and effi ciency. This is confi rmed by cardholders as well as by merchants. In the early days of SEPA, there was the valid issue of whether Bancontact/Mister Cash could remain competitive in terms of scale. Now, several years later, we have thoroughly reassessed the market and updated our business case. This has clearly shown that the Bancontact/Mister Cash scheme is perfectly equipped to absorb the SEPA investments without impairing our strong competitiveness. There is therefore no economic reason to withdraw the scheme from the market. Nor is security. Bancontact/Mister Cash has always been ‘chip & PIN’ with a security level that is equivalent to EMV.”

Which parties were involved in the decision to make the scheme SEPA compliant,

and how was the decision ultimately made?

De Ryck “Two years ago, the shareholders of Bancontact/Mister Cash reviewed De Ryck “Two years ago, the shareholders of Bancontact/Mister Cash reviewed De Ryckthe SEPA case. Prior to this, all of the stakeholders (issuers – acquirers – merchants) were consulted. After careful consideration, in early the decision was made within regular governance to make the scheme SEPA compliant.”

Were there any considerations in favour of

switching to another scheme? If so, what were

they?

De Ryck “Around ‘scale’ was a genuine concern. Europe seemed to be well on the way towards replacing all of its ‘domestic’ schemes with a duopoly. Fortunately, people realised in time that in order for there to be true competition there have to be more players. Looking at the present landscape, Bancontact/Mister Cash, with more than billion transactions, is suffi ciently important and solid to play an important role.”

What changes will there be for banks, merchants

and consumers as a result of the changes?

De Ryck “In terms of infrastructure, the most De Ryck “In terms of infrastructure, the most De Ryckimportant change is the evolution from the current single-processor setup to a multi-processor setup. Our clients – consumers and merchants – will not be affected by this. In the future, merchants will have more freedom in their choice of payment terminals, because of the use of the European standards (EMV, chip & PIN). Furthermore, increased competition among the different market players may result in a more diverse offering.”

Does the fact that the ‘countries’ are now SEPA

compliant mean that newcomers can enter the

market? What do existing participants think of

this, and what do you think the outcome will be?

De Ryck “We have noticed a lot of active inter-De Ryck “We have noticed a lot of active inter-De Ryckest in our project, and we are therefore hopeful for the future. The entry of new players will enhance the internal dynamics of the scheme and improve our competitive position.”

New participants often have other working

methods and use other processors. What are

people’s views in this respect in terms of stability

and continuity, and what actions are being taken

to manage this?

De Ryck“Bancontact/Mister Cash is all about reliability and stability. We do not want to make any concessions in this respect. The strict condi-tions and rules of admission are and will remain strict. We cannot afford any experiments. Our clients expect Bancontact/Mister Cash to con-tinue to look after their money in the future.”

14

What is the role of Currence in the switching process?What is the role of Currence in the switching process?

Mallekoote “Currence was the owner of the PIN brand in the Netherlands. In that capacity, the banks have asked us to manage the migration process In that capacity, the banks have asked us to manage the migration process from PIN to EMV (Maestro and VPay) as their facilitator.”from PIN to EMV (Maestro and VPay) as their facilitator.”

What was the reason for the banks to switch to EMV?What was the reason for the banks to switch to EMV?

Mallekoote “Despite two billion transactions and continued growth, the banks believed the Dutch market was too small for investments in the banks believed the Dutch market was too small for investments in new applications and PIN security. The main advantage of switching new applications and PIN security. The main advantage of switching to EMV is that it allows them to benefi t from the innovation and tech-to EMV is that it allows them to benefi t from the innovation and tech-nology of MasterCard and VISA. Even in countries with much larger nology of MasterCard and VISA. Even in countries with much larger payment volumes than the Netherlands, there were doubts as to whether payment volumes than the Netherlands, there were doubts as to whether a domestic scheme would be viable in the long term.” a domestic scheme would be viable in the long term.”

What does the retail market think of the switch?What does the retail market think of the switch?

Mallekoote “Initially, retailers were worried, mainly due to the fear of cost increases. But in of cost increases. But in , the banks and the retailers concluded a covenant on the switch to EMV. Some businesses already had a contract covenant on the switch to EMV. Some businesses already had a contract for Maestro or VISA. The agreement was made that, irrespective of the for Maestro or VISA. The agreement was made that, irrespective of the brand, the rates and conditions would remain the same for a minimum brand, the rates and conditions would remain the same for a minimum of fi ve years. Additionally, retailers would retain a of fi ve years. Additionally, retailers would retain a cent discount. In return, they would commit to meeting the deadlines of the new debit return, they would commit to meeting the deadlines of the new debit card payment system. At that point, banks were able to make the fi nal card payment system. At that point, banks were able to make the fi nal decision to switch to the new system.”decision to switch to the new system.”

What consequences did the switch to EMV have?What consequences did the switch to EMV have?

Mallekoote “It involved two migrations: from strip to chip and the renewal of the agreements. The EMV project was completed within a renewal of the agreements. The EMV project was completed within a year. It all went so well because replacement of the year. It all went so well because replacement of the million cards and ,, terminals had already begun in . Prior to this, Currence had been working for several years to ensure that businesses would, at the been working for several years to ensure that businesses would, at the end of the life cycle of a POS terminal, switch to a new, EMV-based end of the life cycle of a POS terminal, switch to a new, EMV-based equivalent. In other cases, businesses were encouraged to purchase a equivalent. In other cases, businesses were encouraged to purchase a new system earlier by being offered a discount. As a result, on new system earlier by being offered a discount. As a result, on % of terminals the software can be updated remotely. These changes were terminals the software can be updated remotely. These changes were implemented around the summer of implemented around the summer of . Additionally, the banks had a busy time last year renewing approximately a busy time last year renewing approximately , contracts. The public was informed by promotional material and campaigns, and public was informed by promotional material and campaigns, and quickly got used to the new debit card payment system.”quickly got used to the new debit card payment system.”

What will the role of Currence or Betaalvereniging Nederland be after the What will the role of Currence or Betaalvereniging Nederland be after the

migration to Maestro and V PAY?migration to Maestro and V PAY?

Mallekoote “Our role is, amongst other things, to ensure that the payments chain remains operational. We perform common, non-payments chain remains operational. We perform common, non-commercial duties in the area of communication, fraud prevention commercial duties in the area of communication, fraud prevention and infrastructure. This role of facilitator and coordinator between and infrastructure. This role of facilitator and coordinator between stakeholders, including newcomers, has been assigned to the recently stakeholders, including newcomers, has been assigned to the recently established Betaalvereniging Nederland. Betaalvereniging Nederland established Betaalvereniging Nederland. Betaalvereniging Nederland has therefore taken over the responsibilities of Currence with regard has therefore taken over the responsibilities of Currence with regard to debit card payments.”to debit card payments.”

GLOBALDOMESTIC

15

“SO WHEREAS WE THOUGHT THE

PAYMENTS MARKET HAD SLOWED DOWN SOMEWHAT,

THIS IS ACTUALLY A SLOWED DOWN SOMEWHAT,

THIS IS ACTUALLY A SLOWED DOWN SOMEWHAT,

VERY EXCITING AND INTERESTING PERIOD!”

PETER HINSSEN ACROSS GROUP

16

Interview with Peter Hinssen ((( ), entrepreneur, adviser, lecturer and writer of The New Normal and Business/IT Fusion. One of Europe’s most sought-after thought leaders on the impact of technology on society and business, Peter Hinssen is co-founder of Across Group, a Belgian based consultancy fi rm.

THE BULLS IN THE CHINA SHOP

TRADITIONAL PAYMENTS VERSUS RADICAL CHANGE

We shouldn’t concentrate too much on payments themselves, as it is their context which is changing radically. Digital is the norm, technology is fading into the background. New market parties in particular are running through traditional payments like a bull in a china shop.

“I feel the market is very much on the move and that all the movement at the forefront could revolutionise

the industry, with the entry of many new market parties and the creation of a large number of opportunities. The ironic thing is that merchants thought there would be a decrease in the number of currencies. They expected consolidation, which only the two or three strongest players would survive. But the number of currencies is actually on the increase, thanks to new innovations such as Facebook Credits. The more traditional merchants are critical, and wonder what they should do with all of these new products. By contrast, new merchants run at them like a bull in a china shop. So whereas we thought the payments market had slowed down somewhat, this is actu-ally a very exciting and interesting period!”

“Many merchants would prefer to keep things more or less the same. They are already faced with so many

things they have to adapt to, but they do not have the right to hold back change. It is the will of the consumer. There are also merchants who embrace the changes as an opportunity to adopt an entirely different approach. One example is Tesco, the fast-growing British supermarket chain. Previously, Tesco had a joint venture with the Royal Bank of Scotland. In the wake of the crisis, Tesco became the sole owner and has renamed the company Tesco Bank. As a retailer, they knew – thanks to the purchasing behaviour of their clientele, the online shop and the loyalty card scheme – exactly what their customers would want to buy. Consequently, they now also know what customers have the means to buy, and can inform them about those products. Tesco is even considering establishing its own currency. This way, they will play an even more important role in the purchasing behaviour of their customers than they already do.”

What changes are merchants

noticing in payments?

How are they responding

to the changes?

17

“Tesco has an extremely broad range of products, ranging from bicycles to groceries and insurance. The major

difference compared with the past, however, is the new approach to business. Nowadays it is considered ‘old-school’ to try to integrate components and systems, such as the supply chain, accounting and POS systems. There is a shift towards the integration of customer information, based around customer centricity. The rest is experience. Tesco has set up two pilot stores in order to test the full range of technologies, from pre- and post-shopping connectivity to in-store advertising and payments. The underlying philosophy is to give the customer the feeling that they are receiving a fully personalised service. Web traders have already perfected this. In the coming years, this change is also going to manifest itself in actual store environments. Payments need to be integrated into these adapted environments in a non-intrusive manner.”

“Naturally, these are highly sophisticated procedures. They involve large investments that demand certain

economies of scale that small-scale merchants cannot afford. This, however, is not necessary. Small-scale merchants will try to enhance their relevance by focusing on human contact, such as premium value. For certain segments, speed and convenience will also be important factors. Take, for instance, newsagents and kiosks at railway stations. For boutiques in provincial towns, however, this is much less important. Payments are transactional and con-sist of facets that can be optimised, simplifi ed and accelerated. Integration with mobile payments is also becoming an important part of this change. Incidentally, the limited success of mobile payments thus far is, in my opin-ion, a generation issue. As part of her upbringing, we’re trying to teach our thirteen-year-old daughter how to use a debit card. Our generation fi nds this easy, but she is not interested, as she thinks she should be able to do it using her iPhone.”

“Yes, and a lot of headway is being made. Personally speaking, I really admire PayPal. After coming out

of nowhere only ten years ago, they were laughed at by the banks following the takeover by eBay, but they’re now one of the top fi ve fi nancial service providers. Naturally, in the US they are able to take advantage of the large gap in the market created by the lack of development in payment transfers. In Europe, we of course enjoy the benefi ts of home banking and the effi ciency generated by SEPA. We would be blind if we failed to recognise a gap in our approach that could be fi lled by a newcomer. PayPal, for instance, are heavily promoting mobile banking, whereas banks are showing little interest; for them, the main priority is customer loyalty. By way of another example, a retired banker told me about a data center he set up years ago. With all of its equipment and staff, the processing capacity of the center at that time was a quarter of that of his current iPhone. We still associate payments with a heavy infrastructure. But take Square with its app and miniature credit card reader, which you can plug into your smartphone or tablet and

What does this mean

for consumers?

How can small-scale merchants

remain afl oat in this storm of

technological changes?

So the customer

really has the fi nal say!

18

be your own merchant – it’s magnifi cent in its simplicity. At the moment, it is still only an enabler for credit cards, but we should perhaps ask ourselves if plastic is still the ideal means of accessing our money. If you were to put Square in a Facebook-type community, the world would suddenly be a very different place!”

“It would be wrong to view payments outside of their broader context, as there is a highly interesting devel-

opment in progress. On the one hand, merchants are zooming in on their customers, but on the other, customers want a better insight into their expenditure. They want to know what they are paying and what for. Imagine – and this is entirely possible – if one of those customers were to want to share this knowledge. Not with everyone, but with friends who tell each other why they purchased items in a certain shop, only to fi nd out that they paid too much because another shop is cheaper. This creates a whole dif-ferent world, in which payments are not transactional, but informational. People share all manner of things with one another – photos, experiences, purchases, where and what they eat – so why would they not tell each other what they spend their money on?”

“Yes, old marketing principles are being turned on their head. Traditionally, merchants adopt the funnel

principle. In other words, you start big with a large population, which you push through the funnel by means of a wide variety of promotion. In this way, this group is narrowed down to qualifi ed prospects before the eventual moment of truth – the purchase. But these days, things only start after the moment of truth for the consumer. Naturally, they investigate the various options thoroughly before making a purchase, but it is only afterwards that they properly discuss it. A perfect example of this is a survey conducted in the cosmetics industry. From the survey, it emerged that consumers spend even more time discussing their purchase online than they do investigating the various options beforehand. This establishes a positive fl ow of feedback providing extensive information which can also be extremely useful to merchants.”

“If you look at the development of payments, it is, among other things, regrettable that it is not coupled to the

fl ow of information. Whilst a record containing interesting information is made of every payment, this information is never used. This is an unbelievable waste. Take the purchase receipts from a large furniture chain. Despite the useful information printed on them, after three months the ink is unreadable. It would otherwise be easy for the customer to order an additional shelf for the cupboard they have purchased, or replace a broken chair leg. Wouldn’t it therefore make sense for the merchant to provide a service to the customer by keeping a record of the receipts? As a payment service provider, you would be almost blind not to see this! There are countless possibilities in the digital world to interconnect things much more cleverly. So don’t concentrate too much on payments, but focus on the changing context!”

Payments as social media?

This creates new opportunities,

but also new challenges!

What new role can

payments play in this?

“THIS CREATES A WHOLE DIFFERENT WORLD,

IN WHICH PAYMENTS ARE DIFFERENT WORLD,

IN WHICH PAYMENTS ARE DIFFERENT WORLD,

NOT TRANSACTIONAL, BUT INFORMATIONAL.”NOT TRANSACTIONAL, BUT INFORMATIONAL.”NOT TRANSACTIONAL,

PETER HINSSEN ACROSS GROUP

19

LEADERS IN WEALTH PLANNING

FOLLOWERS IN PAYMENT PROCESSING

VAN LANSCHOT OUTSOURCES PAYMENTS

The Dutch private bank Van Lanschot has decided to outsource the processing of its payments. “We want to free up capacity in order to be able to focus on our core activities of wealth planning and asset management for private individuals and institutional clients”, says General Manager Frans Mannaerts. “When it comes to payment processing, we are followers. We expect Equens to be able to fulfi l this role well.”

Established years ago, Van Lanschot is the oldest independent bank in the Netherlands. From its offi ces in the Netherlands, Belgium and Switzerland, it serves entrepreneurs and wealthy private individuals with freely investible assets of euro , or more. In terms of product development, Van Lanschot focuses primarily on wealth planning. Mannaerts, who is also responsible for Payment Processing and Facility Management: “We want to distinguish ourselves in this area, but with payment processing we want to remain close behind the leaders. This means we also need to offer innovative online services and mobile and contactless payments. We expect Equens to keep us abreast of the market.”

20

Highest bulwark “Our clients expect us to provide them with a full-service concept. Accordingly, we provide a complete package for both the business and private market. With their current accounts, private customers control their assets and have access to their stocks and shares. For our business banking clients, smooth payment processing may even be more important. We provide them with services such as collection, giro collection forms, point-of-sale terminals and an advanced online banking package with a layered authorisation struc-ture. Combined, this amounts to approximately million transactions a year. Our clients need to be assured that eve-rything will work fl awlessly. Of all our activities, payment processing therefore has one of the highest bulwarks. In this respect, Equens needs to guarantee us maximum security.”

A close relationship with clientsFor Van Lanschot, payment processing is an essential part of maintaining an up-to-date profi le of its clientele. The bank also offers payment packages tailored to specifi c groups of clients, such as business professionals. As a private bank, its added value lies in its service. Mannaerts: “Our scale means that there are short lines of communication between our front and back offi ce. The staff have a close relationship with our clients, and assess matters independently. For instance, recently one of our back-offi ce employees received a pay-ment order which he correctly deemed important. In order to obtain approval, he needed to contact the relationship manager. However, the relationship manager was out with a client. To solve the problem, he went and collected the approval from the relationship manager in person. This is of course unusual, but typifi es our culture.”

Entries and approvals in-houseIn order to preserve this culture, Van Lanschot has not opted for traditional business process outsourcing. Mannaerts: “We are going to have our own people use Equens’ processes and systems, but we will continue to do the entries and approvals ourselves. This also applies for the account administration and statements. After all, in addition to current accounts clients have savings accounts and stock accounts. Irrespective of the importance of having a comprehensive profi le of our clients, we want their statements from Van Lanschot to be as recognisable as possible to them. Once the outsourcing process has been completed, when a client logs into their Van Lanschot portal to make an electronic payment, they must be automatically redirected to the system at Equens. This is where the processing and clearing & settlement will take place, while we take care of the approvals and client reporting.”

No further transfers of activitiesFor Van Lanschot, outsourcing is an obvious choice, because remaining up to date requires extensive knowledge of schemes, protocols and so forth. “Such knowledge is scarce”, admits Mannaerts. “It would demand too much of our attention, as well as investments we would prefer to make elsewhere. Equens has the expertise and the scale, so it makes much more sense to outsource these activities to them. What’s more, we have many years of experience of Equens as a CSM. They have a proven track record with SEPA and cross-border payments. These criteria were an important part of the selection process for a reliable and fully certifi ed partner. Naturally, we had a variety of parties to choose from for processing and clearing & settlement, but partly from a risk point of view we wanted to avoid further transfers of activities during the process.”

Requirements for outsourcingNaturally, Van Lanschot expects a consummate operational performance from the outsourcing partner. Mannaerts: “Moreover, they must closely follow the European legislation and apply it to their operations. With a party like Equens, we should even be able to expect that they have an infl uence on the European legislation. We also think Equens should be leaders in security and think Equens should be leaders in security and the prevention and combating of fraud. Clearing houses are the junction where payment fl ows meet. Accordingly, they are where payments should be monitored to establish whether they are compliant with the various legislation gov-erning sanction screening and other practices. Last but not least, Equens must be prepared to invest in new technologies, which will enable us to rapidly bring new payment products onto the market. It is good to have a partner who is a leader in each of these areas.”

“PAYMENT PROCESSING HAS ONE OF THE

HIGHEST BULWARKS.” FRANS MANNAERTS VAN LANSCHOT

21

THE BUMPY ROAD TO MOBILE

Not even in JapanMuch is expected from the advanced contactless technology NFC (Near Field Communication). In , a new NFC pilot was started every other day somewhere in the world. However, solutions have only met with lim-ited commercial success. Some believe that the Japanese NTT DoCoMo’s Osaifu-Keitai is a living example of the multi-functional model of the future, since it combines NFC technology with smartphones in a region where the population is very technologically aware, and where there is signifi cant cash to be displaced. But although the functions are impressive, and the number of devices and terminals is huge, with . contactless retail transactions per month per end-user device or . transactions per day per POS, it is not a suc-cess story. It is easy to explain why. The hassle of downloading, confi guring and activating applications, holding the phone the right way round, push-ing the appropriate menu buttons, simply in order to pay for a can of Coke, stands in no relationship to the simple act of taking a contactless smart card and holding it in front of the vending machine. Thus, also in the advanced Japanese arena, mobile payments will only be commercially successful with a solution that is convincingly better than what was available before, and when there is a convincing business case for all stakeholders.

With the tremendous market penetration speed of the smartphone, everything will clearly move to mobile. And when the smartphone becomes life’s remote control for everything from entertainment to communication and business, mobile payment will by necessity be integrated into the world’s mobile lifestyle and experience.

While smartphones already enable users to carry their bank around in their pockets or handbags, initiatives aimed at replacing cash with mobile payments still meet with mixed success. Two examples by Michael Salmony, Executive Adviser, Equens.

22

‘Everyone is a Merchant’But employing some out of-the-box crea-tivity, convincing new solutions may be possible. Consider, for example, turning the classic NFC model – a card embedded in a phone to be touched on a contact-less POS terminal – on its head. Using a mobile phone as a card terminal instead of a contactless card opens up a huge new market of ‘merchants’ who previously had no cheap and easy means of accepting card payments: fl ower shops, corner shops, plumbers, market stalls, taxis, tour guides, repay friends. Just as the success of PayPal was largely based on allowing anyone to accept card payments online (‘Everyone is a Merchant’), so will this mobile solution allow anyone to accept cards in the real world. In the US, Square offers a hugely successful solution, but only with magnetic stripe cards; here in Europe, we are begin-ning to see similar solutions (e.g. iZettle) for EMV-compliant chip-based cards. The convenient, cheap and paradigm-changing revolution of accepting physical card pay-ments on a normal smartphone has a huge potential to displace cash payments in the largest section of the European economy, that of the small and private merchant. Thus, the door to phone-based card acceptance by everybody – and severe competition to banks’ card business – is almost open.

iZettle EMV-compliant chip-based iZettle EMV-compliant chip-based cards readercards readercards readercards reader

PayPal card readerPayPal card reader

Google Wallet and POS terminalGoogle Wallet and POS terminal

Mobile NFCMobile NFC

23

“IN FINLAND IT IS A DEEPLY ROOTED

PRACTICE TO MAKE PAYMENTS

IN DUE TIME.” PETRI AALTO OP-POHJOLA

24

OP-Pohjola is a Finnish fi nancial services group that serves over four million customers. It provides its corporate and institutional customers with a diverse range of banking, non-life insurance and asset management services, and private individuals with an extensive range of non-life insurance and private banking services.

THE BLESSINGS OF A COLLECTIVE

DECISION

FINLAND SEPA COMPLIANT

For other euro countries, the migration to SEPA in Finland must be a source of envy. The decision to migrate was made collectively as early as , resulting in SEPA compliance at the end of November .

Software providers played a central supporting role in the standardisa-tion process and other technicalities. The process greatly enhanced the mutual understanding between all of the parties involved, resulting in the establishment of a Finnish National SEPA Forum. Each of the parties was represented in the forum, which convened monthly. “I would recommend all other countries to do the same, and as early as possible”, says Petri Aalto(right), Vice President of Payments & Cards at OP-Pohjola Group. Together with his col-league Jussi Snellman (left), Vice President of Cash Management, he was actively involved in the entire migration process.

SDD traffi c is % cross-border“In Finland, the software providers traditionally have a very active role in payments”, says Aalto. “Thanks to that, we had had very clearly defi ned national standards for quite some time. So we had a fi rm foundation from which to move on to new standards.” All credit transfers in Finland are now % SEPA compliant. Although the SCT Rulebook only concerns the bank-to-bank sphere, OP-Pohjola has extended it to corporates. They are now able to deliver their payments in ISO format. For SDD, the country has fulfi lled all of the requirements on the debtor side. Aalto: “It is now up to the creditor banks to start using SDD, but volumes are still very low because all banks still offer domestic products. SDD traffi c is % cross-border.” Automated e-Invoicing offers a much-utilised alternative for domestic direct debit, which accounts for less than % of all non-cash payments. Snellman: “Because of the combination of SCT and e-invoicing, there is less urgency to replace direct debit with a version of SDD for domestic use. Also, according to the Finnish national migra-tion plan, domestic DD will primarily be replaced not by SDD, but by services utilising SCT and e-invoicing, tailored to also suit customers not using internet banking.”

25

Additional optional servicesThanks to the participation of all of the various user groups and software providers in the migration process, there is no loss of functionality. There are even two Additional Optional Services (AOSs). Aalto: “In Finland, it is a deeply rooted practice to make payments in due time. Therefore a payment date function has been added to SCT. The second AOS is enhanced remittance information. So . percent of all functionality is available in SEPA, and for some customers even a little more.”

Surprisingly few questions on IBANFor consumers, the actual migration was very easy. Aalto: “The vast majority are fully accustomed to internet banking, so they only had to familiarise themselves with the use of IBAN, which was used alongside the old BBAN in internet banking applica-tions and account statements. Even when the longer IBAN was introduced, we received surprisingly few questions. The differ-ence isn’t that big anyway, because Finnish national bank account numbers consist of fourteen characters, while the new IBAN consists of eighteen. Moreover, as banks we have made sure that there are very few instances in which you have to remember your bank account number. With e-invoices and paper invoices, you don’t have to worry about it at all, as the number is stated on them. And since , it has been compulsory to provide your IBAN to government benefi ts agencies like the Social Insurance Institution of Finland (KELA).”

Critical eye on processing before migratingFor the corporate customers, the changes were more pronounced, especially in relation to card payments. Merchants had to upgrade their terminals and were confronted with a different fee struc-ture. Aalto: “Actually, the latter created the single most heated debate within the SEPA Forum.” Technically, the migration process was completed without any major problems. A help desk provided support for all kinds of questions, and testing facilities were made available for the large corporate customers and the software providers. Snellman: “One of the messages we tried to hammer home throughout the process – especially for corporate customers – was to examine their own processing and software systems with a critical eye before the migration. Many compa-nies took this message very seriously and, in my view, they are the ones that got the most out of it. They are in a much better position to utilise the converted product and benefi t from more streamlined processing.”

More bandwidth required“For a successful migration process, it is essential for a bank to have as much as technical knowledge about your customer as possible”, stresses Aalto. “Know what software they are using, how their internal processes are organised, and how they are linked with your banking systems. You cannot start early enough with gathering this information.” Another lesson learned was the necessity to have the technical capabilities in order. Snellman: “It is very important for banks and clearing houses to look at the process change very carefully. SCTs require more capacity in terms of bandwidth. In the beginning, we didn’t foresee this and experienced a couple of bottlenecks. With the end date of February approaching, the number of SCTs will increase tremendously. This will be a major test for the whole infrastructure, and should not be underestimated.”

“FOR A SUCCESSFUL MIGRATION PROCESS,

IT IS ESSENTIAL TO HAVE MIGRATION PROCESS,

IT IS ESSENTIAL TO HAVE MIGRATION PROCESS,

EXTENSIVE TECHNICAL KNOWLEDGE ABOUT YOUR

CUSTOMER.” PETRI AALTO OP-POHJOLA

26

Company Profile & Key Figures 2011

With clients and partnerships in multiple European countries,

we offer pan-European market coverage from offi ces in fi ve

countries – the Netherlands, Germany, Italy, Finland and United

Kingdom. Furthermore, we have a strateg ic partnership

with the Federal Reserve Banks in the United States for the

processing of intercontinental payments.

Equens was established in 2006 as Europe’s fi rst pan-

European payment processor. This followed the merger of

Europe’s two large payment processors: the Dutch Interpay

Nederland B.V., and the German Transaktionsinstitut für

Zahlungsverkehrsdienstleistungen AG. Initially operating as a

holding company, Equens was formed in July 2008 as Europe’s

fi rst Societas Europaea payment processor. The company

extended its geographical coverage in the Mediterranean

region through the establishment of Equens S.p.A.

Our activities in a nutshell

Get ready for SEPA Enjoy the benefi ts, outsource the challengesThe European payments market calls for card and payment

processors with a pan-European vision. Equens supports the

development of SEPA and is the outsourcing partner for a fast-

growing number of European banks that appreciate our knowl-

edge of local markets. We are transforming your domestic

payments into SEPA payments, processing SEPA transactions at

a competitive price, and developing additional services in order

to maintain and upgrade current service levels.

Smart sourcingOutsourcing the right processes at the right timeWith over forty years of experience in the cards and pay-

ments industries, a complete service portfolio, expertise in

the interbank and intrabank environments, local and European

expertise and clients throughout Europe, we can be your

smart sourcing partner.

Smart sourcing: where your needs and our expertise in

payment processing meet.

Many possibilities, one processing partnerMake the most of your next-generation payments New markets and new technologies lead to rapid develop-

ments in the fi eld of m-commerce, e-commerce, contactless

payments and biometrics. Equens has in-depth knowledge of,

and vast experience in, the processing of new types of pay-

ments. We can advise and support you – from the design phase

to the permanent integration within your existing processing

environment.

In the Netherlands PaySquare B.V. is one of the Benelux’s larg-est acquirers of MasterCard, Visa, JCB, China UnionPay, Maestro and American Express payments.

InterEGI B.V. issues Prepaid Chipknip cards in the Netherlands.

In Italy Equens S.p.A. is Italy’s primary provider of end-to-end issuing, acquiring and payment processing services.

In Germany DZ Service GmbH is a service provider for payment trans-actions and document processing. Providing transaction and business process outsourcing services to more than 400 banks, DZ Service is one of the major service providers in this segment.

montrada GmbH is a fullservice acquirer and network service provider of consultancy services, terminal installations and customer support.

Key Figures 2011

Transactions

9.9 billion payments processed

4.1 billion ATM and POS transactionsPro-forma, including 100% of Equens S.p.A. transactions and full year montrada GmbH transactions.

Other fi gures

12.5 % market share in Europe

1,505 staffFull-time equivalents in absolute numbers as on 31 December 2011 including all fully owned subsidiaries.

Terminals and Cards

21,000 ATMs connected

799,000 POS terminals connected

60 million credit and debit cards under management

Consolidated key fi gures

Revenue ¦ 372,094,000

Results ¦ 25,307,000

Net profi t ¦ 19,433,000Figures as of 31 December 2011

Strong foothold in EuropeEquens Head Offi ceEquens SE Offi ceCountries with clientsCountries with CSM partnersCountries with clients & CSM partnersCountries with clients & CSM partnersCountries with clients & CSM partnersOther EU countries

Subsidiaries (all fully owned)

27

www.equens.comSound solutions, solid results

SEPAOutsource your processing to a solid partner

The Single Euro Payments Area offers you all the benefits of an open European market. But first you will have to get ready for the end date. That means getting to know the SEPA rulebooks, allocating time and resources for the migration, and developing new SEPA-proof services. By outsourcing SEPA processing to a dedicated and experienced partner, you can enjoy the benefits while outsourcing the challenges. Equens is this outsourcing while outsourcing the challenges. Equens is this outsourcing

partner for a fast-growing number of European banks that appreciate our knowledge of local markets. We are transforming their domestic payments into SEPA payments, processing their SEPA transactions at a competitive price, and developing additional services in order to maintain and upgrade current service levels. Outsourcing your SEPA processing by insourcing Equens could definitely be an attractive option for you.Equens could definitely be an attractive option for you.