uninvited guests - verdict...country snapshots. emerging fintechs and . traditional players are...

INSIGHT ANALYSIS COUNTRY SNAPSHOTSEmerging fintechs and traditional players are

forming a new ecosystem

Already a smartphone staple, can biometrics make

a breakthrough to cards?

Market data and highlights for card payments in Peru,

Ukraine and Israel

UNINVITED GUESTS

ATM HACKING AND BLACK FRIDAY LEAVE CONSUMERS AND MERCHANTS EXPOSED

Issue 561 / November 2018w w w. c a r d s i n t e r n at i o n a l . c o m

CI November 2018 561.indd 1 26/11/2018 12:46:19

2 | November 2018 | Cards International

contents

NEWS

05 / EDITOR’S LETTER06 / DIGEST• Chase Offers launched to provide

deals to customers• PointsBet collaborates with EML to

offer reloadable card• FIME secures Mastercard biometric

accreditation• Visa takes minority stake in Billdesk• EU credit card surcharge ban

increases transaction volume• RBS enables customers to freeze lost

cards• Wirecard to support Mastercard

prepaid services• Amex introduces virtual corporate

cards• PNC launches commercial credit

cards in Canada• EMV cards fail to allay US retailer

fraud fears• IndusInd Bank launches interactive

credit card• Revolut unveils new AI technology

12, 14

this month

Editor:Douglas Blakey

+44 (0)20 7406 [email protected]

Senior Reporter: Patrick Brusnahan


Junior Reporter:Briony Richter


Group Editorial Director: Ana Gyorkos


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Publishing Assistant: Mishelle Thurai

+44 (0)20 7406 6592 [email protected]

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+44 203 096 [email protected]

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SECURITYCOVER STORY

follow CI on twitter@Payments_News

08

CI November 2018 561.indd 2 26/11/2018 12:47:10

www.cardsinternational.com | 3

contents

16

november 2018

INDUSTRY INSIGHT22 / SIX PAYMENT SERVICESAs new fintechs emerge and traditional banking and payment institutions adapt to new technologies and higher consumer demands, the payment ecosystem is rapidly evolving, writes Andrej Eichler

10 / FASTPAYDanske Bank has launched FastPay, its new wearable offering. Given the cashless uptake in the Nordic region, the offering should perform well – but do local consumers really need another option? Patrick Brusnahan writes

11 / BIOMETRIC CARDSBiometric technology is mainstream on smartphones, but is yet to break through onto cards. However, recent research suggests that most UK consumers would use a biometric payment card. Patrick Brusnahan reports

12 / ATM HACKINGThere has been a sharp rise in ATM fraud, with cybercriminals worldwide planning highly co-ordinated attacks that can be completed in minutes. Briony Richter explores the vulnerabilities that are leaving ATMs exposed

13 / ATM NETWORKSAnother month, another form of distribution’s death is predicted. This time it is the turn of the ATM, with some predicting that as cash usage goes down, the cashpoint will inevitably disappear. Patrick Brusnahan reports

14 / BLACK FRIDAYBlack Friday is one of the biggest days of the year. In fact, it is now an entire period of the year, bringing with it a multitude of payments and a wave of problems. Patrick Brusnahan speaks to experts on how to survive

PRODUCTS ANALYSIS

FEATURE

16 / PERUGrowth in Peru’s prepaid card market was supported by the government’s financial inclusion policy, which aimed to draw the country’s significant unbanked population into the formal banking system

18 / UKRAINEUkraine’s economy was severely affected by the global financial crisis of 2008. The payment card market was also affected, and the total number of cards in circulation was broadly unchanged between 2013 and 2017

20 / ISRAELIsrael is one of the most developed payment card markets in the Middle East and Africa. Israelis are prolific card users, with frequency of card use for payments standing at 148 in 2017, the highest rate in the region

COUNTRY SNAPSHOTS

14

13 10

CI November 2018 561.indd 3 26/11/2018 12:47:21

Key Issues

l Open Banking and the main results of the first stage implementation

l How Millennials are shaping the future of payments

l Artificial intelligence and machine learning, Innovation in branch transformation

l Digital security and cyber crime

l RegTech - Leveraging technology innovation to comply with regulation

l Optimising customer experience in today’s competitive environment

l Technophiles v Technophobes - meeting the needs of different customers

SHAPE THE FUTUREOF RETAIL BANKING

For more details please contact Hannah Leigh on [email protected] or call +44 (0) 20 7936 6689

Retail Banking London 2019 brings together high-street banks, new market entrants, financial professionals and industry disruptors in an active discussion

of the key issues facing the industry: new regulation, digitalisation and tech innovations that are shaping the future of retail banking.

Retail Banking London 201924th April 2019 l London

Headline Sponsor Silver Sponsors

1118Timetric_RBI_Ad.indd 1 26/11/2018 10:17


editor’s letter

Digital-only banks kick-start innovative card design

Get in touch with the editor at: [email protected]

Douglas Blakey, Editor

The number of online and digital-only banks promoting a unique brand marketed as a standalone solution continues to mushroom.

I am not talking here about the growing number of digital sub-brands of established, incumbent banks such as DBS’s successful digibank, Bank Leumi’s Pepper, Chase’s Finn or Emirates NBD’s impressive Liv proposition. I have in mind the digital neobanks marketed as an alternative to branch banking, and there are now more than two dozen that merit attention.

Two common themes jump out, irrespective of the market in question: card design has been given a kick-start by the neobanks. Secondly, Mastercard is beating Visa hands down in terms of the card programme giants, with a few exceptions.

One notable exception in the Visa camp is Chime. Its customer numbers now exceed two million, serviced from its HQ in San Francisco. With only around 100 employees and relatively modest venture-capital backing to date of about $100m, it has grown impressively.

Varo is also in the Visa camp, but is very much in start-up mode and its app is not yet available on Android devices. Varo is launching with a 1.75% rate for deposits, one of the highest on the market for a mobile-only outfit, and so will attract early press attention. In Australia, Xinja and Pelikin are both on the Visa platform, but that is about it – elsewhere Mastercard dominates.

Moven, in the Mastercard camp in the US, is eyeing up opportunities across Latin America, Asia-Pacific, Africa and Europe to complement its partnerships with TD in Canada and Westpac in New Zealand. Aspiration in the US, also on Mastercard, has attracted around one million customers since launching in 2015. It continues to attract attention as a result of its ‘pay what is fair model’, enabling customers to decide what they pay for its products, even if it is $0. Elsewhere, Koho (Visa) in Canada and Nubank (Mastercard) in Brazil merit close attention going forward for any success in gaining market share away from the incumbents.

But it is to Europe in general, and the UK in particular, where the majority of the successful online digital startups are based. Denmark-headquartered Lunar Way has a foot in both camps,

via a Mastercard travel card and a Visa-branded credit card. But Bunq, Fidor, Monese, Monzo, N26, Starling and Tandem are all in the Mastercard camp. At Revolut – three million customers and counting – both Visa and Mastercard branded cards are on offer.

Striking card designsThe Revolut card design is arguably one of the better new breed of cards, but is up against stiff competition. Take Dutch challenger Bunq for example. It is in the news for its partnership with Transferwise, but also merits a mention for one of the more striking card designs of the digital challengers.

The Bunq card looks great, but any shortlist for card design of the year would have to include Starling. Its new card is simple and sleek and designed to function as a natural extension of its app. The card strips everything back, with the card details on the back and colour scheme inspired by the indescent blue-green tones of the Starling bird’s plumage.

But arguably, the simplest marketing innovation in card design is the original N26 transparent card. Now live in the UK – following its expansion to Denmark, Norway, Poland and Sweden, and with a US launch planned for 2019 – N26 wants to hammer home its message of transparency of fees. A semi-translucent card design is a pretty good marketing device to get that message over in new markets. <

Revolut Starling

BunqN26

CI November 2018 561.indd 5 26/11/2018 12:47:27

News | Digest

news digest


Chase Offers launched to provide deals to customersChase debit and credit customers can now receive offers from popular merchants following the launch of Chase Offers.

Available on Chase’s mobile app, the US-based lender describes the feature as “a way to find deals and earn statement credits”. Already launched, Chase Offers features deals from more than 150 merchants, such as restaurants and retailers. Customers add offers through the app and utilise them through eligible credit or cards. There is no need for registration, coupons or vouchers.

Merchants also benefit from direct access to Chase customers via the app

which, according to the bank, has more than 32 million active users. Personalised deals will be sent via email and, from December, will also be available in the Chase Pay app.

“We are making paying with Chase more rewarding and simpler for our customers so they can keep more of their hard earned money when they shop at popular merchants,” said Abeer Bhatia, president, card marketing, pricing and innovation at Chase Card Services.

“For merchants, it is an easy way to engage customers with great deals, while keeping checkout straightforward.” <

PointsBet collaborates with EML to offer reloadable cardOnline bookmaker PointsBet has collabo-rated with EML Payments USA to launch a reloadable card programme in New Jersey, that will operate under the PointsBet brand.

The reloadable card offered under the multi-year agreement will enable PointsBet users to deposit funds into their gaming accounts, and access winnings instantly.

EML Payments MD and group CEO Tom Cregan said: “We are excited that PointsBet has elected to lead the US market with a

payments card that will launch in the 2019 financial year. We believe it brings unrivalled convenience to their customers and is testa-ment to the constant innovation taking place in this industry.

“We look forward to working closely with the PointsBet team, who are all proven lead-ers within the betting industry.”

The programme is pending regulatory approval in New Jersey, and the bookmaker intends to gradually expand the programme

to other US states where sports betting is currently legal.

PointsBet group CEO Sam Swanell said: “We’re thrilled to integrate EML into the PointsBet platform. Our payments card partnership with EML will deliver tangible benefits for PointsBet clients.

“It delivers a reliable deposit method in a market where gambling deposits have been a challenge, and allows customers to access and use their winnings immediately.” <

FIME secures Mastercard biometric accreditation

FIME, which offers consultancy, certification and testing services to the payments sector, has been accredited by

Mastercard to offer fingerprint biometric authentication testing services.

Through the testing, mobile, wearable and sensor manufacturers will be able to evaluate the performance of fingerprint sensors. Mastercard will offer hardware performance testing to assess the quality of solutions’ matching engines. The aim is to enable financial services businesses to assess hardware and software integration with payment solutions.

FIME cited a report by Goode Intelligence that predicts that the number of users of such systems will reach 2.6 billion by 2023.

FIME’s vice-president of services, Stephanie El Rhomri, said: “Biometrics have taken the payments world by storm

in recent years, delivering consumers greater convenience and security. But in a post-PSD2 and GDPR world, players across mobile and payments are increasingly understanding the importance of performance and quality to ensure customer adoption of new secure authentication solutions.

“We’re proud to be championing this evaluation programme, the first of its kind to be fully ISO-compliant, as we continue to support the ever-expanding role of biometrics in payments.”

Earlier this year, FIME obtained accreditation to conduct testing for the Discover Global Network Contactless Reader and the EMV C-6 specifications at its Japanese laboratory. <

CI November 2018 561.indd 6 26/11/2018 12:47:39

News | digest


Visa takes minority stake in BilldeskVisa has acquired a minority stake in Indian payments processor Billdesk.

BillDesk, which processes over $60bn in electronic payments each year, plans to use the new capital to launch new products for payments and loyalty businesses, and expand into other markets.

Visa’s Asia-Pacific regional president, Chris Clark, commented: “As a leading payments player in India, BillDesk has been a long-time business partner to Visa.

“Having worked with BillDesk’s founders over the years, the Visa leadership has been consistently impressed with their vision, market knowledge and execution capabilities, as well as alignment on values. This investment further reinforces our long-

term commitment to India’s digital payments growth story.”

Visa said the transaction, which is pending statutory approval, will have no direct bearing on its operations. Financial terms of the deal or the size of the stake acquired were not revealed.

BillDesk co-founder MN Srinivasu said: “We now look forward to building new products and solutions that benefit merchants as well as consumers. Visa, with its deep network and strong relationships, is a great partner, as well looking to offer our services in other markets.”

Visa has previously invested in fintechs such as Paidy, Behalf, Marqeta, Payworks, Klarna, LoopPay, Square and Stripe. <

RBS enables customers to freeze lost cardsRoyal Bank of Scotland (RBS) has introduced a new service that enables clients to temporarily ‘freeze’ a lost or misplaced credit card.

All Mastercard credit card customers can use the lock/unlock feature in the RBS mobile app to instantly freeze misplaced cards. Customers can reactivate the cards if they are found, the bank said.

Other UK-based banks, including Barclays, HSBC, Monzo and Metro bank already offer the service, which aims to reduce the number of cancelled cards, and eliminate the need to wait for a replacement card to arrive by post. It will also prevent misuse of a card when not in the customer’s possession.

RBS’s head of short-term borrowing, Martin Wise, said: “This new service gives customers even more control in managing their credit card. It will not only be more convenient for customers, but will help reassure that a card is safe and secure even when out of sight.”

Mastercard’s head of card issuing, Kelly Devine, said: “We all lead such busy lives and it’s easy to sometimes mislay your card. That moment when you realise your card is missing is worrying, even if you know that it hasn’t been stolen.

“We wanted to help customers address those security fears and give more convenience, so we are helping Royal Bank deliver functionality that will resonate with customers.” <

EU credit card surcharge ban increases transaction volume

Mastercard vice-chair Anne Cairns, in an interview to the Press Association, has said that the EU’s ban on credit card surcharges has increased the number of card transac-tions, adding that she believes the ban has helped both consumers and credit card companies.

In January, the EU implemented a regu-lation preventing companies from charging consumers for using credit and debit cards, or PayPal.

“The elimination of (surcharges) has been fantastic for consumers, and we’ve seen more transactions. It’s been hugely positive,” Cairns told the news agency. She also expressed confidence that the ban will continue in the event of a no-deal Brexit.

Technical papers recently released by the UK government stated that the ban on surcharging will cease on cross-border pay-ments between the UK and Europe, if Brexit ends with no deal. However, Cairns said: “Consumers would make their preference heard.”

In 2015, overall cross-border card charges amounted to £166m ($214m), according to the UK Treasury.

Cairns also expressed concerns about recent increases in IT failures in the financial industry. Blaming old technology and upgrade failures, Cairns said she believes the industry is gradually improving. She added that Mastercard invests a “huge amount” every year to prevent cybercrime. <

CI November 2018 561.indd 7 26/11/2018 12:47:45

News | Digest


Amex introduces virtual corporate cards

A new American Express virtual card has been launched to help mid-sized and large companies manage expenses for employees who do not have corporate cards.

The new American Express Go virtual payment card can be used for both online and mobile purchases, and includes an option to print virtual numbers on companion plastic cards to enable in-person payments.

American Express Go will allow freelancers and project-based workers

to use company funds for business transactions, eliminating the need for a reimbursement process. The solution is expected to improve control and visibility over spending, with companies able to set pre-authorised spend and timeframe limits.

Clients will also be able to track and reconcile charges with information such as names, cost centres and accounting codes.

Vice-president of global B2B products at American Express Global Commercial Services, Gint Balodis, said: “Mid-sized and large companies are operating with a new, dynamic workforce, as they increasingly employ freelancers and contractors who previously had to wait for several weeks to be reimbursed for business and travel purchases.

“American Express Go was created to alleviate customer pain points faced by companies and their changing workforce by combining the control and flexibility of virtual cards with the convenience of a physical card that can be swiped on the go.”

The American Express Go card can also be linked to a company’s existing corporate payments programme. <

Wirecard to support Mastercard prepaid servicesWirecard and Mastercard have partnered to expand the global issuance of prepaid cards and card programmes, to cater to emerging digital prepaid payment market.

As part of the agreement, Wirecard will leverage its expertise in digital financial technology and issuing services to support Mastercard Prepaid Management Services.

The partners intend to extend the reach of both existing and new prepaid solutions, including offering controlled payment func-tionality to employees of travel agencies and airlines, governments and SMEs.

Wirecard CPO Susanne Steidl said: “Our ambition within this co-operation is to shape the future of the international payment market with tailor-made solutions for the specific industries. Mobile wallets are set to become the payment solution of choice worldwide and we are already enabling this kind of technology today.”

Mastercard Prepaid Management Services president Fabrizio Burlando said: “As con-sumers, businesses and governments come to terms with the limitations and cost of cash, our focus is on providing real payment choice and convenience to audiences who

have not been well serviced for their pay-ment needs, and often resorted to using cash by default. To support our initiatives, we will leverage Wirecard’s long-standing expertise and international market knowledge in issuing services.”

Mastercard Prepaid Management Services currently has more than 20,000 selling locations with active programmes in 23 countries. Wirecard stated that the alliance will help consumers, businesses and organi-sations to benefit from prepaid solutions. <

PNC launches commercial credit cards in CanadaPNC Bank Canada Branch has introduced commercial credit cards to support domestic and as well as US companies with operations in the country.

The PNC Bank commercial credit card aims to optimise purchases of goods and services, and allow easy capture, tracking and visibility into card spending. Companies will also be able to customise card limits based on spending policies.

The card includes fraud monitoring, employee misuse loss cover, travel protections, and emergency services and support.

PNC Treasury Management’s executive vice-president and head of product, Chris Ward, said: “These new cards streamline the purchase of goods and services to reduce the time and costs associated with the traditional purchasing process and make it easy to monitor and manage employee spend.

“In addition, our experienced implementation team can help clients create a customised programme quickly.”<

CI November 2018 561.indd 8 26/11/2018 12:47:53


News | Digest

EMV cards fail to allay US retailer fraud fearsCard fraud remains a primary concern for US retailers, despite the country’s switch to EMV cards three years ago. Fraudsters have since moved their activities online, a new study by the National Retail Federation (NRF) and Forrester has found.

The EMV cards were introduced as a measure to significantly decrease fraud; however, it remains a top payment-related concern for 55% of the retailers who participated in the survey.

A separate study by Forrester reported a 13% rise in online fraud last year, while another report by Federal Reserve showed that it increased from $3.4bn in 2015 to $4.6bn in 2016.

The NRF/Forrester report noted: “In a post-EMV world, fraud is shifting from in-person to e-commerce channels, so retailers have been busy bolstering their defences to mitigate the increasing costs and risks of e-commerce fraud.”

Merchants who participated in the survey said better authentication is required to tackle payment card fraud.

Nearly 33% of retailers deployed the 3-D Secure system to authenticate online transactions.

Around 51% of the respondents indicated that biometric authentication would be best for in-person purchases,

while 53% favoured smartphone-based approaches such as fingerprint or facial recognition.

Almost half (46%) of retailers were of the opinion that personal identification numbers would be most favourable. Around 95% said PINs would enhance security, and 92% said they would implement them if available.

NRF senior vice-president and general counsel Stephanie Martz said: “If we want to stop card fraud, we need a better way of authenticating users and it should be one that’s affordable, easy and safe.

“With no signatures, no PIN and no biometrics, what we have right now is no authentication at all.”

Almost all EMV credit cards issued by US banks have been chip-and-signature, with PIN available only on debit cards. Furthermore, most major credit card companies have made signatures optional.

The study also found concerns over the cost of accepting payment cards, including swipe fees charged by banks. <

IndusInd Bank launches interactive credit card

India’s IndusInd Bank has introduced an interactive credit card, said to be the first of its kind in the country.

The IndusInd Bank Nexxt credit card offers customers a choice to pay with credit, equated monthly instalments (EMIs) or reward points at the POS. Customers can select their chosen option using the button on the interactive card, which indicates the available options using LED lights.

The MasterCard credit card has been developed in alliance with US payment card business Dynamics.

IndusInd Bank’s head of consumer bank-ing, Sumant Kathpalia, said: “With this card, our aim is to give the customer multiple options on how to make a payment using their credit card. The power of choice moves completely to the customer.

“For us, customer experience is the key touchstone. Our objective is to always elevate and enhance customer experience with our innovative products and service propositions.”

The IndusInd Bank Nexxt credit card also features benefits such as concierge services, lounge access and fuel surcharge waivers. The card is also connected to the Nexxt Reward Points programme.

IndusInd said that cardholders need not call the bank or log in to a banking channel to convert POS transactions into EMIs or redeem rewards points.

Mastercard’s division president for South Asia, Porush Singh, said: “Using this card, they can shop, take credit and also use re-wards at a merchant terminal, making it the most innovative product to date.

“Mastercard has always put its customers first, and our innovations are focused to-wards providing better shopping experiences and conveniences for our cardholders.” <

Revolut unveils new AI technologyRevolut has unveiled an AI platform that uses machine learning and computational techniques to tackle card fraud.

The machine learning systems analyse customer behaviour to develop deep insights and predictions to detect card fraud patterns in real time, avoiding the need for manual intervention. The systems apply complex mathematical models to large data sets to detect anomalies, increasing decision-making accuracy.

Revolut has separately introduced a machine learning technology to detect money laundering. The dynamic mathematical model was developed to calculate a risk score for each user, based on their activity history.

The technology processes live transactions and statistically calculates money-laundering probability based on a user’s profile and other features. The data is then fed into the algorithm to output a unique score for each user. If the value is above a certain threshold, the customer is required to submit documentation to justify the activity.<

Stephanie Martz, NRF

CI November 2018 561.indd 9 26/11/2018 12:48:01


products | fastpay

Wearable technology is all the rage, and with Fitbit Pay and Garmin Pay available across

multiple markets, payments have entered the space – not to mention smart watches from Apple, Samsung and other tech giants.

Danske Bank has decided to enter the ring: FastPay, the lender’s new payment solution, lets the user wear a payment chip in a wristband, keyring or watchstrap. It allows contactless payments without the customer having to rummage through their pockets to find their card. Launched in Denmark, Norway and Sweden from October 2018, it wants to be a supplement to Danske’s other solutions, such as MobilePay.

WEARABLESCash is now used in less than 20% of Swedish retail payment transactions, according to the Riksbank, Sweden’s central bank.

Cash now accounts for just 2% of total payment transactions, and many Swedish retailers and transport companies refuse to accept it. Around 900 of Sweden’s 1,600 bank branches no longer hold cash or accept cash deposits, and many branches – especially in rural areas – do not offer ATMs.

There are several success factors in Sweden’s move to digital payments. These include the widespread adoption of Bank ID, a bank-based digital identification and signature system that currently has 7.5 million users

in Sweden. Denmark and Norway have similar Bank ID coalition digital ID schemes that are used for e-commerce, banking and government transactions.

Morten Schwaner, head of card and mobile payments at Danske Bank, believes wearables have a bright future. Speaking to CI, he says: “We see an opportunity. Contactless has been moving quickly in the Nordic markets, especially in Denmark. People are very keen on trying new ways of paying.

“The solutions we have, such as the different wallet solutions, all require technical health in some way in the form of a technical device. This form of wearables is free for everybody to use; it doesn’t require a specific technical device. Then, of course, there is the ease and the fast way of paying.”

FastPay is currently only in its pilot stage, but Schwaner is optimistic about its chances.

He explains: “We are starting out with a pilot to whom we will invite a couple of thousand customers to try it out. We will gather insights and hear about how they feel about the solution, and then we can see what is good and what we need to improve on before we go live in the market with the final product.”

While this product could be branded towards younger, more technologically savvy consumers – as is often the case for a lot of new technology – Schwaner thinks its potential is much larger, and there is no need to limit its target market.

“We actually think that this could be available for any type of customer, from children to the elderly,” he explains. “That’s one of the things we are very keen on trying out in the pilot, to have people of different age groups testing it out. We don’t have a particular segment in mind.”

One thing that is not yet decided about FastPay is pricing; at the moment, it may depend on what type of customer is using it. However, it may also be packaged together with other products.

Similar products have been launched in the UK. Barclaycard’s wearable brand, bPay, was trialled in 2012. Three years later, it launched three payment products: a fob, a wristband and a sticker. Since then, it expanded into fashion, jewellery and expensive timepieces. However, usage was limited.

There are other options out there, so what will help FastPay stand out? And surely, as Scandinavia is a nearly totally cashless region anyway, most customers will already have a preferred solution. Is it too late for Danske?

Schwaner concludes: “We’ve had Fitbit Pay for almost a year now [in Sweden] and Garmin Pay since February, and we haven’t seen a large number of customers using it. We don’t think there are that many that are using these solutions yet. That’s why we think that opening something that is available for everybody is worthwhile.” <

danske fastpay: will the nordic market bear a new wearable?Danske Bank has launched FastPay, its new wearable offering. Given cashless’s strong uptake in the Nordic region, the offering should perform well – but do local consumers really need another option? Patrick Brusnahan writes

CI November 2018 561.indd 10 26/11/2018 12:48:03


analysis | biometric cards

According to digital security firm Gemalto, 54% of UK consumers would use biometric payment cards

if their bank offered them.Conducted by market research business

GfK, the survey also found that traditional debit cards could be replaced by the tech. Biometric payment cards would become the preferred method of payment, according to 82% of respondents.

The innovative cards use fingerprint readers to authorise payments, as an alternative to the PIN, similar to authorisation with biometrics-enabled smartphones. Power would not be an issue either: the cards do not rely on batteries, using power drawn from the payment terminal instead.

So why are UK consumers interested in biometric cards now? Speaking to CI, Howard Berg, SVP banking and payment at Gemalto, believes the rise in consumer awareness has been a long time coming.

“Firstly, you have to look at the whole area of biometrics. If you look four years ago, you’d think of fingerprints and you’d think of criminals,” he says. “Of course, biometrics are now good friends with phones, both fingerprint and facial biometrics. I think we’re getting more used to things like electronic airport gates with facial recognition.

“What we’re seeing is biometrics suddenly being seen as acceptable, as opposed to something only seen by policemen; that’s a massive quantum change.”

SECURITYWhile interest is high, there are some caveats. Most UK consumers – 88% of them – need biometrics solutions to be more secure than the one they currently have. In addition, 79% need them to be provided by a trusted bank, while 69% need the process to be easy and 60% want it to simplify their life.

Why are big banks not offering it already? Clearly there is interest – if perhaps somewhat limited. “I think it will grow,” Berg explains. “We see a massive growth on this in the next few years. It’s a relatively new technology. We had to firstly make sure that it worked and it was secure.”

On the other hand, some consumers held reservations. In particular, 41% were afraid that their fingerprints would not work all the time, while 37% expressed concerns that their details could be compromised.

Berg adds: “One of the things we’ve tried to avoid is a central database. The fingerprint is loaded by the individual to their card. That’s one of the concerns we picked up: can it be used for any other purpose? The technology has to be ready.

“People are getting more aware of the needs of security in all forms of payment,” he continues. “They’re aware how valuable data is – and not because the paper keeps telling you about various data breaches. They’re suddenly thinking: ‘The value for me is if I can keep my data secure, both face to face and online.’

There’s a lot of work online, but in the physical world, we’re relying on a four-digit number – half the time written on the back of a card or somewhere – that has to be remembered. People see this and wonder if it is really the right security for 2018.”

Consumers can ease their fears by with the knowledge that biometrics can be backed up with a PIN; in addition, Berg describes the rate of false-positive authentication as “exceptionally low”.

Fingerprint data is also stored securely on the card. It is never sent to a bank’s server or to a bureau that can be hacked.

INCLUSIONAnother benefit of fingerprint authentication is inclusion. Stan Swearingen, CEO of Idex Biometrics, says: “Advances in biometric fingerprint authentication mean consumers can be linked directly to their card by their fingerprint alone.

“There is no need for traditional government identification in this case, as individuals will be personally linked to their card, thus providing a solution to the 1.1 billion people worldwide without official identification. This method of authentication will mean that financial institutions can be confident that the person they are extending credit to is the person intended, as ultimately nothing is more secure, or personally identifiable, than a fingerprint.”

Swearingen continues: “Fingerprint authentication will also remove the barriers that face those with literacy challenges, or face difficulty with memory, as card payments will no longer be about what you know, or what you can remember, but who you are. Biometric authentication will be a simple, secure and convenient solution, eradicating the need for passwords and PINs as a form of authentication.”

One question remains: is it too little too late for cards? Many consumers are moving to mobile payments which already provide biometric security.

Berg believes cards still have a future as an instrument of payment. “People used to say that cards would disappear by 2016, but here they are,” he notes. “For us, the card is a form factor that has benefits. At the moment, we are still seeing the huge majority of payments in the UK on card.”

Berg concludes: “If you go forward a few years, you can’t realistically see PIN as being a solution for identity verification for much longer. I think it’s had its day.” <

biometric cards: uk wants them, but will their time ever come?Biometric technology has become mainstream on smartphones, but is yet to break through onto cards. However, recent research suggests that the majority of UK consumers would use a biometric payment card. Patrick Brusnahan reports

CI November 2018 561.indd 11 26/11/2018 12:48:04


A recent report by Positive Technologies stated that 69% of tested ATMS were vulnerable to

‘black box’ attacks.It highlighted that criminals could connect

‘black box’ devices to the cash dispenser of an ATM, from where the device is programmed to send the command to dispense banknotes. Shockingly, the entire attack – connecting the device to the ATM, bypassing security and collecting the cash – can take just 10 minutes, and this applies to various ATM models.

Positive Technologies experts tested NCR, Diebold Nixdorf and GRGBanking ATMs. Working together, they identified the level of risk for banks and customers.

Globally, ATM vulnerabilities have been a significant concern. In January 2018, the US Secret Service, alongside Diebold Nixdolf and NCR, issued urgent warnings about the threat of attacks on ATMs. These warnings were notable because of the nature of the threat. The Secret Service stated that criminals are planning to plant malware into ATMs or connect special devices to control cash dispensing. These ‘logic attacks’ require intense technical skill, and put the hacker at an advantage as the methods are quieter and the risk of being caught is therefore substantially reduced.

The first reports of ATM malware attacks date back to 2009, with the discovery of Skimer, a Trojan able to steal funds and bank card data. According to NCR, Black Box attacks were uncovered in Mexico in 2017,

and spread to the US in 2018.Furthermore, the Positive Technologies

ATM vulnerabilities report noted that 85% of ATMs tested were poorly protected against hacker attacks, such as spoofing the processing centre. As a result, a criminal could interfere with the transaction-confirmation process and fake a response from the processing centre in order to approve every withdrawal request or increase the number of banknotes dispensed.

THE VULNERABILITIESFor those looking to carry out an attack, the parts of an ATM on which they primarily

focus are the computer, the network equipment and the main peripherals, in particular the card reader and cash dispenser.

Attacking through these components allows hackers to intercept the card details being processed and interfere with the actual transaction.

Leigh-Anne Galloway, cybersecurity resilience lead at Positive Technologies, says: “Our research shows that most ATMs have no restrictions to stop connection of unknown hardware devices. So an attacker can connect a keyboard or other devices to imitate user input.

“On most ATMs, there is no prohibition on some of the common key combinations used to access OS functions. What’s more, local security policies were frequently misconfigured or absent entirely. On 88% of ATMs, application control solutions could be bypassed due to poor whitelisting and vulnerabilities – some of them zero-day – contained in this very same application control software.”

According to the report, a number of vulnerabilities were found in testing. Of the ATMs tested, 96% showed inadequate protection of communication with the main peripherals. Furthermore, a staggering 88% had insufficient local security policies.

Most of the ATMs allowed freely connecting USB and PS/2 devices. This essentially means a hacker could connect their own device and imitate user input.

The report also noted: “Vulnerabilities allowing access to the hard drive file system are caused by weaknesses in authentication for BIOS access and lack of disk encryption. Malware can communicate with the cash dispenser as the result of poor protection of peripherals, specifically a lack of authentication and encryption between the OS and devices.” It found that 92% of ATMs had insufficient authentication when accessing BIOS.

Card fraud is rife across the world. According to Financial Fraud Action, £768.8m ($1bn) was lost to fraud in the UK in 2016, with 80% of this through payment cards.

Banks and ATM operators have invested heavily to combat these types of crime. Security devices, such as improved card slots, are being fitted to cash machines to prevent both skimming and card tapping. However, as hacking technology becomes increasingly sophisticated, the best way for the financial sector to manage it is to work out how to move even quicker than the hackers. <

analysis | atm hacking

atm hacking: vulnerabilities open the door to wider crimeThere has been a significant rise in ATM fraud in the past couple of years, with cybercriminals around the world planning highly co-ordinated attacks that can be completed in a matter of minutes. Briony Richter explores the vulnerabilities that are leaving ATMs exposed

ATM HARD DRIVE VULNERABILITIESInsufficient protection of communication with peripherals 96%

Lack of HDD encryption 92%

Insufficient authentication when accessing BIOS 35%

Source: Positive Technologies

ATM CONFIGURATION VULNERABILITIESInsufficient protection with peripherals 96%

Use of outdated or vulnerable application and OS versions 92%

Vulnerabilties or improper configuration of application control 88%

Insufficient local security policies 85%

Unauthorised exit from kiosk mode 85%

Connection of arbitrary USB and PS/2 devices 81%

Source: Positive Technologies

CI November 2018 561.indd 12 26/11/2018 12:48:07


ATMs have had a rough year, and a lot of this is down to interchange.

On 1 July 2018, ATM interchange dropped from £0.25 ($0.32) to £0.20. While this may not sound like much, it could lead to multiple ATMs or cash machines shutting down.

The UK ATM operator has proposed a 5% reduction in the interchange rate from 1 July 2018, which would bring it down to £0.24 from £0.25. This is the first of four annual reductions of 5%; however, each will be subject to further review. This is part of Link’s overall plan to reduce interchange fees from £0.25 to £0.20 over the next four years.

The change has been sudden and drastic. According to Statista, 4,735 ATMs vanished from the UK between July 2017 and June 2018; this averages out to 394 cash machines

closing every month. Also, certain areas, such as Edinburgh, Glasgow and Cornwall (see table), have suffered more branch closures than others. As a result, some communities are finding it almost impossible to get cash.

Expert Market, a B2B comparison site for card payment systems, has similar insight. The firm predicts that ATMs will disappear in 19 years, while bank branches will survive for 23.

However, Expert Market also thinks this is not disastrous due to the diminishing relevance of cash. While there were 14.3 billion card payments in 2016, this is forecast to rise to 21.9 billion by 2026. In contrast, only 8.7 billion cash payments are predicted for 2026, a sharp 43% drop over 10 years.

With regards to ATMs, 3,600 are set to disappear each year until there are none left at all by 2037. By 2041, Expert Market predicts all bank branches will be gone as well. However, in terms of branches, CI has the count for the end of 2018 to be 7,456, while Expert Market gives the total as 9,279.

Speaking to CI, lead researcher Jared Keleher at Expert Market believes cash’s day might be over. He says: “As our study shows, it’s clear that cash is on its way out. Thousands of ATMs are vanishing from UK high streets every year and businesses that are slow to adapt to the cashless trend risk losing out on valuable customers.

“Millennials are especially keen on the ease of contactless cards, and as their buying power grows, companies must adapt to their demands to stay relevant and profitable.” <

analysis | atm networks

atms: are they a thing of the past?Another month, another form of distribution’s death is predicted. This time it is the turn of the ATM, as some predict that as cash usage goes down, the cashpoint will disappear. Patrick Brusnahan reports

DISAPPEARANCE OF DISTRIBUTION

year ATMs branches

2017 69,600 9,690

2018 66,000 9,279

2019 62,400 8,868

2020 58,800 8,456

2021 55,200 8,045

2022 51,600 7,634

2023 48,000 7,223

2024 44,400 6,811

2025 40,800 6,400

2026 37,200 5,989

2027 33,600 5,578

2028 30,000 5,166

2029 26,400 4,755

2030 22,800 4,344

2031 19,200 3,933

2032 15,600 3,521

2033 12,000 3,110

2034 8,400 2,699

2035 4,800 2,288

2036 1,200 1,876

2037 0 1,465

2038 0 1,054

2039 0 643

2040 0 231

2041 0 0

Source: Expert Market

BRANCH CLOSURES 2015-2018

local Authority closures

Edinburgh 50

Cornwall 46

Glasgow 38

Westminster 37

Birmingham 35

Manchester 34

Sheffield 29

Leeds 27

Highland 25

Wiltshire 25Source: Paymentsense

CI November 2018 561.indd 13 26/11/2018 12:48:13


feature | black friday

Sales during the Black Friday season are substantial. According to GlobalData, spend during the period

(19-26 November 2018 inclusive) in the UK will be 3.1% higher than during the same time in 2017. This is expected to account for 10.5% of total fourth-quarter-2018 spend at a whopping £10.4bn ($13.3bn).

In addition, GlobalData surveyed 2,000 people to see their shopping intentions around this time, with 39.9% indicating that they were hoping to buy something in the Black Friday period. Also, 55.8% were delaying a purchase to potentially benefit from a reduced price.

While traditionally thought of as an ‘American’ thing, given that it falls on the day after Thanksgiving, Black Friday has a global reach. In fact, German firm Wirecard expects the average UK consumer to spend more than their US counterpart this year: UK consumers are expected to spend $76 on average during Black Friday, compared to just $73 in the US. UK consumers will also have a higher share of desktop spend (37%) compared to US consumers.

Globally, 39% of respondents said they planned to shop on Black Friday. The figure was highest in Brazil (67%), followed by the

UK (40%), Germany (40%) and the US (38%).

Markus Eichinger, executive vice-president – group strategy at Wirecard, says: “Today’s consumers are willing and able to shop around and compare offers before buying, and are also open to trying new brands if they meet their needs.”

CONVENIENCEAstoundingly, 82% of consumers globally said they were either likely or very likely to combine various channels during the purchasing process – with Malaysia proving particularly fond of cross-channel shopping (96%), followed by Brazil (92%). Price comparison was the main motive, with over half of consumers (51%) stating this as their top answer.

Overall, 68% of consumers planned to buy online – either via a desktop site, mobile app or mobile site – while 18% planned to shop in traditional stores, with 22% of US respondents planning to shop in a physical outlet, but only 8% of German consumers intending to do so.

Convenience and experience are both crucial in finalising a purchase. It is easy to

get someone into a store or clicking on a website, but making sure the customer buys is a different task.

Oscar Nieboar, chief marketing officer at Paysafe, says: “During these big retail events, merchants should ensure they’re well positioned to capitalise on such a golden opportunity. A study carried out among small to medium-sized retailers showed that they believe 9% of purchases are abandoned at checkout. While 28% believe this reflects successful fraud checks, 33% say abandoned transactions have a major impact on business performance, and on a Black Friday weekend this would be more painful than ever.

“Notably, 15% of merchants believe purchases are abandoned purely because of a lack of payment options at the checkout phase. With so many choices available, such as pay by invoice, online cash solutions, and digital or mobile wallets, it’s essential that retailers stay on top of their game and work with payment providers and solutions that can help them thrive in a competitive environment. Understanding developing consumer preferences in payment trends can give merchants the boost they need to capitalise on these big events in the retail calendar.”

black friday a survival guide for merchants

Black Friday is one of the biggest days of the year for retailers. In fact it is no longer even a day; it is an entire period of the year. With this brings a multitude

of payments – and a wave of problems. Patrick Brusnahan speaks to experts on how to survive

CI November 2018 561.indd 14 26/11/2018 12:48:30


Ralf Ohlhausen, business development director at PPRO Group, agrees that having a number of payment options is a must. He says: “For most countries you have to offer four or five different payment methods to reach 80%-plus of online shoppers, and each country has usually their own most popular local – often called alternative – payment methods. Outside the US and UK it is very rare to reach more than 25% with credit cards alone. So, make sure your PSP has the relevant methods on offer and that you can present these to your shoppers depending on their home country or IP address and in the right order.”

UK shoppers, according to PPRO, are increasingly looking abroad to make purchases. Some 70% of UK shoppers are buying goods from overseas, compared to 53% four years ago. Most frequently, goods were bought from the US, China and mainland Europe.

On the other hand, customers found major hurdles when looking at online merchants, with 64% reporting that the payment process halted them from completing a transaction. Reasons behind this were preferred options not available (22%), complicated processes (16%) and lack of trust (9%). In addition, 75% would be more likely to buy good if it

became easier to use payment methods with which they are familiar.

SECURITYWith so many payments going though in a season, security becomes of utmost importance. Cybercriminals see the period as peak time to commit fraud, and the UK may be particularly vulnerable.

Richard Anton, co-founder and partner at growth capital firm Oxx, warns on the UK’s preparedness for cyberattacks. “The joint committee on the national security strategy has offered a stark reminder that we cannot be lax when it comes to implementing fit-for-purpose cybersecurity protections in the face of the growing cyber threats from around the world,” he explains.

“These threats are becoming more numerous and increasingly complex, and it’s a national priority to respond accordingly.”

ACI Worldwide has predicted a 14% rise in fraud attempts for Black Friday 2018 compared to last year, expecting 1.36% of all purchase attempts to be fraudulent. In addition, 1% of all Cyber Monday purchases will also be fraudulent. These will have an average ticket price of $243, a 17% increase on last year.

“The first step to fighting fraud is knowing what you’re up against,” says Erika Dietrich, global director – payments risk at ACI Worldwide.

“Fraudsters prepare for peak holiday season just as much as merchants and consumers do. By anticipating the increase in fraud during the holiday shopping season, and being aware of where fraudsters may be lurking, consumers and merchants can get ahead of fraudulent activity and protect themselves.

“As more consumers purchase big-ticket items like smartphones, TVs and other electronics, we expect the attempted fraud average ticket price to be higher this year than in previous years.

“Fraudsters will also keep an eye on items that have limited inventory as it gives them an additional opportunity to steal and sell those items on the dark market for a higher price; consumers and merchants alike must be vigilant in such cases.”

Black Friday is an opportunity waiting to be taken. However, with the risk of cart abandonment and fraud in the air, the window could be missed. Retailers and merchants need to think carefully about the consumer. If they do, there is a chance that they may actually keep them for longer than 24 hours. <

feature | black friday

CI November 2018 561.indd 15 26/11/2018 12:48:36


country snapshot | peru

PERU

country snapshot: peru

Use of cash for retail purchases remains prevalent among the majority of Peruvians, especially the

rural population.

This is primarily a result of a combination of generally low public awareness of other instruments, and limited access to banking infrastructure. However, the

Central Reserve Bank of Peru has taken a number of steps to improve this situation. The National Financial Inclusion Strategy adopted in July 2015 aims to provide

0

100

200

300

400

500

600

20132016

2021f2017e

$bn

value of credit tRanSfers

Source: Central Reserve Bank of Peru, GlobalData

Financial inclusion initiatives fuel growth in prepaid

0

30

60

90

120

150$bn

20132016

2021f2017e

value of payment cards


0

5

10

15

20

25$bn

20132016

2021f2017e

value of cheque payments


CI November 2018 561.indd 16 26/11/2018 12:48:46


country snapshot | peru

access to formal financial accounts to at least 75% of the population by 2021. The strategy promotes access to savings, insurance and financing, consumer protection, financial education and electronic payments.

An agent banking model is also being used to provide financial access in remote areas. It was first introduced in 2005 following a change in regulation that allowed banks to use third-party agents to provide financial services to consumers.

Rising bank penetration is expected to drive demand for products such as bank accounts and debit cards. Changing lifestyles, growth in the economically active population, rising disposable incomes and the popularity of online shopping all supported payment card growth between 2013 and 2017.

The ongoing transition to EMV cards and the advent of contactless technology are likely to support growth in the Peruvian payment card market.

FINANCIAL INCLUSIONNearly 65% of Peruvians are unbanked. In addition to government financial inclusion programmes, banks offer low-cost products with a number of benefits.

The First Account offered by Banco de Credito del Peru can be opened with no minimum balance and has no monthly fees. Account holders can use ATMs, internet banking and mobile banking free of charge. BBVA Continental, Scotiabank, Interbank and Banco Financiero offer accounts with similar benefits.

PAY-LATER GROWTHWhile the number of credit cards in circulation fell marginally during the last five years, their transaction volume and value recorded CAGRs of 11.6% and 9% respectively.

Most Peruvian banks offer specific benefits to attract new customers. Banco Ripley offers Mastercard Classic, Mastercard Gold, and Visa Silver credit cards with no annual fees.

Many banks provide reward programmes, cashback and discounts to increase card use. Banks also offer credit card loans in addition to the credit limit on the card. Banco Ripley, as an example, offers loans to credit card holders at preferential rates depending on the customer’s profile.

E-COMMERCE E-commerce registered significant growth from PEN1.8bn ($546m) in 2013 to $4.05bn in 2017, at a CAGR of 65.1%, mainly supported by rising internet penetration, the presence of e-commerce sites and malls, and the availability of convenient payment methods.

Government bodies are making efforts to promote online transactions. In April 2017, the Lima Chamber of Commerce organised Cyber Peru Day 2017, which saw 37 companies offer discounts on certain products.

PREPAID MARKET GROWINGPrepaid market growth was supported by the government’s financial inclusion policy, which aimed to draw the unbanked population into the formal banking system.

To improve access to financial services for the unbanked, the Peruvian government

introduced e-money regulations in May 2012, allowing banks and financial companies to offer e-money services.

Many issuers offer prepaid cards specifically for Peru’s unbanked population. NovoPayment offers the Latodo Mastercard, providing access to modern payment infrastructure without a bank account. The card can be reloaded at 2,200 merchants, including supermarkets, pharmacies and grocery stores.

POS TERMINALS The number of POS terminals recorded a CAGR of 6.6% between 2013 and 2017, and is forecast to reach 241,065 by 2021.

To increase uptake of POS solutions, Peruvian acquiring and processing firm Procesos de Medios de Pago started providing EMV-enabled mobile POS terminals in 2014, which can be used by merchants to accept chip-and-PIN card payments from consumers worldwide. <

BBVA Continental25.8%

Others23.3% BCP

35.9%

Scotiabank14.9%

Debit card shares by issuer

Source: GlobalData

Mastercard31.7%

Visa68.3%

Debit card shares by scheme

Source: GlobalData

Others45.2%

BancoFalabella

21.7%

Interbank14.0%

Banco Ripley19.0%

pay later shares by issuer

Source: GlobalData

Visa52.9%

Others8.4%

Mastercard38.7%

pay later shares by scheme

Source: GlobalData

CI November 2018 561.indd 17 26/11/2018 12:48:50


country snapshot | ukraine

UKRAINE

Ukraine’s economy was severely affected by the global financial crisis of 2008 and the political crisis

of 2013–2014, which had a significant impact on the country’s banking industry. As a result, over 90 banks were declared insolvent between 2014 and 2017. The payment card market was also affected, with the total number of cards in circulation remaining broadly unchanged between 2013 and 2017.

To improve this situation, the Ukrainian government has undertaken several initiatives to foster growth in the banking sector in the form of financial inclusion programmes, modernising the payment infrastructure, and the adoption of

country snapshot: ukraineDebit cards dominant as government limits use of cash

0

10

20

30

40

50

20132014

20162017

20182019

20202021

2015

m

debit cards in circulation

Source: GlobalData

0

1.0

2.0

3.0

4.0

5.0

20132014

20212017

bn

50

100

150

200m

Debit cards (left axis)Credit cards

payment card transaction volume

Source: GlobalData

CI November 2018 561.indd 18 26/11/2018 12:49:01


technologically advanced payment cards. These efforts led to a rise in the overall banked population, with the proportion of the Ukrainian population aged 15 or above with a bank account standing at 62.5% in 2017 – up from 49% in 2013.

The government also introduced restrictions on the use of cash for both individuals and businesses, to reduce dependence on cash and promote electronic payments. Banks are also encouraging card use through reward programmes, discounts and cashback offers.

DEBIT CARDS PREFERREDDebit cards dominate the overall payment card market, accounting for 96.6% of total card transaction value in 2017.

However, debit card use is mostly restricted to ATM cash withdrawals rather than payments, with ATM transactions accounting for 61.1% of the total debit card transaction value. This implies that Ukrainian customers are most comfortable making payments with cash.

Despite this, increased financial awareness, restrictions on cash transactions, and rising card acceptance are helping boost debit card payments. The introduction of contactless cards will also support this trend.

CARD-TO-CARD TRANSFERSElectronic fund transfers via cards are popular in Ukraine, with domestic scheme Prostir, and Visa and Mastercard offering card-to-card fund-transfer services.

Visa offers Visa Direct, a money transfer service that allows Visa cardholders to transfer funds to other Visa cardholders using their 16-digit card number. Transfers can be carried out via ATMs, mobile phones, online and POS terminals. Similarly, Mastercard offers the MoneySend service, which allows cardholders to make fund transfers using the recipient’s mobile number.

E-COMMERCE GROWTHE-commerce in Ukraine registered significant growth from UAH19.6bn ($693.7m) in 2013 to $2bn in 2017 at a CAGR of 29.9%.

Rising internet and mobile penetration, and growing consumer preference for

online shopping supported this growth. PrivatBank, Ukraine’s largest bank, responded by launching the PrivatMarket marketplace in April 2016.

The availability of virtual payment cards and alternative payment solutions such as Visa Checkout, Masterpass and PayPal for online purchases is anticipated to further drive the e-commerce market.

CARD ACCEPTANCE RISES Ukraine’s card-acceptance network is growing thanks to increased POS adoption by smaller merchants.

According to the central National Bank of Ukraine, by September 2017, the number of businesses accepting payment cards had increased by 13.1% compared to the beginning of the year. Card payments are also being accepted for payments at metro stations and for parking.

In September 2015, the Kiev Municipal State Administration introduced contactless

payments at the city’s subway turnstiles, enabling Kiev metro passengers to pay public transport fares with Mastercard contactless cards.

In August 2017, Kyivtransparkservis restricted cash payments for car parking in Kiev, with payments now only accepted electronically, including by bank card.

PREPAID STRATEGIESThe prepaid card market registered robust growth in terms of both the number of cards in circulation and transaction value in the last five years.

The prepaid card transaction value rose from $0.6m in 2013 to $14.2m in 2017 at a CAGR of 124%.

Many banks promote prepaid cards designed for festive events. Oschadbank, for example, offers the Atlas Weekend card, which includes benefits such as free entrance to the Atlas Weekend festival and free drinks. <

country snapshot | ukraine

PrivatBank53.7%

RaiffeisenBank 5.7%

Others27.3%

Oschadbank13.4%


Source: GlobalData

Visa72.9%

Mastercard25.3%

Others1.8%


Source: GlobalData

PrivatBank54.6%

Oschadbank17.9%

Others21.3%

RaiffeisenBank 6.3%


Source: GlobalData

Mastercard35.8%

Visa51.6%

Others12.5%


Source: GlobalData

CI November 2018 561.indd 19 26/11/2018 12:49:06


Country snapshot | israel

Israel is one of the most developed payment card markets in the Middle East and Africa. Israelis are prolific users of

payment cards, with frequency of card use

for payments standing at 148 in 2017, the highest rate in the region.

The country’s payment card market is unique in that it was developed as a

deferred payment market, unlike debit and credit card markets elsewhere in the world.

Charge cards accounted for 86.3% of total payment card transaction value in

0

50

100

150

200

250

300

350$bn

20132016

2021f2017e

value of cheque payments

Source: Bank of Israel, GlobalData

0

300

600

900

1,200

1,500$bn

20132016

2021f2017e

value of credit transfers


0

20

40

60

80

100

120$bn

20132016

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value of payment cards

country snapshot: israelCharge cards the preferred type for one of the region’s leaders

ISRAEL


CI November 2018 561.indd 20 26/11/2018 12:49:13


Country snapshot | israel

2017, and have been the main driver behind the payment card market’s growth. However, the government has launched various initiatives to promote the adoption of debit and credit cards in the country.

The introduction of a cap on cash transactions and a reduction in interchange fees are some of the key regulatory measures the central Bank of Israel has undertaken to drive electronic payments.Robust growth in e-commerce, the adoption of EMV technology and the emergence of digital-only banks are other important trends.

DEBIT CARDSDebit cards accounted for a minimal share of 8% of the overall payment card market by transaction value in 2017.

Traditionally, debit cards are not very popular in Israel due to bank charges associated with these cards, limited merchant acceptance, and the strong consumer preference for charge cards.

The government has taken several steps to promote debit card adoption and use, such as making it mandatory to issue debit cards free of charge or at reduced cost, reductions to interchange fees, and enabling consumers to open bank accounts without visiting branches.

CHARGE CARDS PREFERREDCharge cards remain the preferred type of payment card in Israel, accounting for 86.3% of overall payment card transaction value in 2017.

In Israel, most pay-later cards are offered in the form of charge cards, which are linked directly to the customer’s bank account, with the full outstanding amount charged to the cardholder’s bank account on the due date.

Revolving credit card facilities are also available, but these are generally offered only on request. The steady decline in interchange fees is also driving use of charge cards.

CROSS-BORDER E-COMMERCEE-commerce registered significant growth from ILS15.5bn ($4.4bn) in 2013 to $7bn in 2017, at a CAGR of 12.0%.

Israel’s e-commerce market is dominated by cross-border transactions, with over three-quarters of online shoppers making

purchases on foreign sites such as Amazon and AliExpress.

The availability of exclusive cards for online shoppers, and the emergence of alternative payment methods such as PayPal and Masterpass are also supporting e-commerce growth.

PREPAID CARD ISSUERSIn Israel, prepaid cards are mostly used as alternatives to cash, and are targeted mainly at unbanked or underbanked individuals.

The prepaid card market registered robust growth in terms of both the number of cards in circulation and the total transaction value between 2013 and 2017. The prepaid card transaction value rose from $0.3bn in 2013 to $0.7bn in 2017, at a CAGR of 19.5%.

Prepaid cards in Israel are also distributed and marketed through third-party companies. Imagen distributes

Mastercard-branded payroll, travel and businesses prepaid cards issued by Bank of Jerusalem. Similarly, Expay distributes the Mastercard-branded EX-CRD prepaid card, which can be used for purchases online and at merchant stores, as well as for cash withdrawals at ATMs. The card is issued by TBI Credit.

EMV STANDARDSThe government made it mandatory that new POS terminals installed by new or existing merchants should be EMV-compliant with effect from August 2017.

However, to provide sufficient implementation time for all stakeholders, the liability shift mechanism date was delayed from August 2017 to 1 January 2018.

In August 2017, Israel-based grocery chain Shufersal partnered with POS solutions provider Verifone to install EMV-compliant POS terminals at its stores. <

Others9.8%

Isracard 90.2%


Source: GlobalData

Mastercard15.8%

Visa76.3%

Others100%


Source: GlobalData

Bank Leumi32.5%

ICC CAL16.4%

Isracard51.1%


Source: GlobalData

Others27.3%

Mastercard28.0%

Visa44.7%


Source: GlobalData

CI November 2018 561.indd 21 26/11/2018 12:49:15


industry insight | SIX Payment Services

Established banks no longer view fintech companies as competitors, but as partners, where collaboration

can help them build upon one another’s strengths and lead to future growth.

Fintechs can assist banks by extending their payment platforms, enhancing their value chains and securing new revenue streams, which increases their appeal to customers.

Now, as an era of Open Banking dawns, banks and fintechs aim to deepen this relationship and offer customers technologically advanced solutions based on the innovation and collaboration that Open Banking encourages.

While consumers have spotted the many new opportunities inherent in fintech, retail banking can be slow to adapt. So, traditional banks are turning to fintechs to update their processes and usher in new business models.

In the coming years, an ever-larger proportion of consumer payments will take place via Internet of Things applications, from watches to bracelets, cars and white goods. These payments will have to be processed in secure, reliable and timely ways as payment-enabled objects proliferate.

For the fintech sector, this represents a huge new opportunity. The manufacturers behind all the fridges, watches and cars that will be payment-enabled will have to build their own payment systems, or collaborate with a fintech or financial services organisation. Underpinning the entire system will be payment technology ‘backbones’, enabling fast and functional payments.

Instead of trying to build payment systems themselves, most businesses form partnerships with fintech providers, drawing upon the solutions using application programming interfaces (APIs) which they have developed.

This delivers an enhanced payment experience, via digital technology, for customers.

Among the difficulties in this new payments ecosystem is timing expectations: a large retail business could typically spend six months developing a new payment platform, with loyalty schemes and virtual wallets; manufacturers of consumer goods such as watches might take less than half this time. For the fintech and banking partners, adapting to these different timescales and demands means working in a more agile and flexible way than in previous eras.

VARYING NEEDSIn Europe, major banks have varying needs for payment wallets, yet by using a strong API it is fairly easy to comply with these requirements. Fintech suppliers are able to increase the scale of their products for numerous clients.

With a well-designed API, fintechs can supply the needs of customers’ virtual wallets for many years to come: financial services companies that collaborate with fintechs should identify this kind of foresightful development as the foundation for growth.

Today, there is growing demand for fintech services in Europe, as those companies that have invested shrewdly in the technology and created the right environment for collaboration are reaping the rewards. Partnerships between fintech and non-financial organisations will be increasingly common, as this demand continues to increase. Yet fintech businesses are unlikely to cross the line into financial services, since they will not want to enter competition with their own customers. Instead, they will form new partnerships with automotive companies, high street retailers and many others.

European banks and retailers are increasingly worried about the way global corporations use customer data, after a series of breaches and accusations of misuse. Instead of placing their trust in these corporations, the banks and retailers now seek partnerships with fintech organisations, using mobile wallets, for example, to provide payment options. This way, data stays in Europe instead of travelling around the world, where it may be used in ways that customers have not explicitly authorised. Fintech providers in Europe can give customers the security that their data remains in the continent and is covered by strict data accumulation and storage rules.

Customers in Europe increasingly trust their banks, with relationships that have typically developed over many years, in contrast to the short-lived and potentially dangerous alternative of placing their trust in global corporations, where their privacy and data protection may be less protected. They enjoy the peace of mind that comes from staying within a known and trusted system.

Banking customers in Europe have shown a strong preference for making electronic payments through the virtual wallets provided by their own banks, rather than those offered by their mobile phone manufacturer. Although the younger generation shares personal information across multiple social media platforms, it nevertheless trusts the established banking system.

As more digital services become available, traditional banks’ customers look to them to provide these services, placing new demands on the banks. Yet, the customers are less interested in the technology underlying these services, including payments. They look for easy, fast payment options such as contactless ‘tap and go’ systems, with little concern over whether Google Pay or Apple Pay underpinned the transaction. The payment ecosystem is becoming commoditised, adding to customers’ satisfaction.

This level of seamless transaction is delivered through wallet development by the new partnerships between fintech suppliers and retailers, banks and tech companies – including fraud-detection agencies, vastly improving customers’ payment experiences.

Every day, millions of these financial transactions take place, with major European payments service providers handling payments to retailers, hotels and e-commerce merchants, among many others. The healthy and growing level of partnership between fintech and banks sustains this commercial ecosystem, with widespread benefits to society. <

fintechs and banks: A new ecosystem for paymentsAs new fintechs emerge and traditional banking and payment institutions adapt to new technologies and higher consumer demands, the payment ecosystem is rapidly evolving, writes Andrej Eichler, managing director at SIX Payment Services

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Key Issues :

∤ Economic trends to 2020. Wealth management industry performance

∤ With technology playing an increasingly significant role in service delivery what benefit does institutional size confer?

∤ What are the implications for service, delivery and product distribution in the age of the digital wealth manager?

∤ How is technology enabling faster, more cost effective on-boarding, KYC and compliance reporting among wealth management organisations?

∤ How should Switzerland’s private banking industry define itself in the age of digital technology and intensifying competition?

∤ What channels are working for attracting, retaining and managing an increasingly diverse customer universe?

∤ What’s the connection between distribution and profitability? How are Swiss private banks adapting to the challenge of tight margins and higher costs?

∤ What does the country need to do to stay ahead?

SHAPE THE FUTUREOF PRIVATE BANKING

HEAR ∤ NETWORK ∤ DISCOVER ∤ CELEBRATE

Private Banking & Wealth Management: Switzerland 201812th December 2018 ∤ Marriott, Zurich

Private Banking & Wealth Management: Switzerland 2018 Conference and Awards leverages the expertise across the Verdict research and publishing portfolio, including Private Banker International, Wealth Insight

and Wealth Intelligence Centre. The event is an opportunity to share ideas, discover trends and network with peers across the wealth industry.

For more details please contact:

Vicki Greenwood on [email protected] or call +44 (0) 20 3096 2580

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uninvited guests - verdict...country snapshots. emerging fintechs and . traditional players are...

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