Hello Robert, thank you for taking some time before the end of the year. Our expertise at SHC lies in the areas of payments, customer self-service and eHealth. We would like to discuss these areas with you so you can give us your view on the past year 2018 and your outlook for the year 2019
Let us start with the area of “Payments”:
Q: What did the payment year 2018 mean to you? / How did the payment year 2018 distinguish itself from your point of view? / What characterizes the payment year 2018 from your point of view?
R: I would like to answer this question for each of the following segments separately:
1. Provider
2. Product
3. Regulation/Innovation
4. Market
– Provider
On the provider side, 2018 was certainly marked by the major M&A deals. I am thinking here of Six – Atos, BS PAYONE – Ingenico, Paypal – iZettle, Concardis – nets, etc., and we are not at the end of it. It remains to be seen how this will change/affect the market. As payment is a highly scale driven business, “big matters”, but as experience shows, this is not the only recipe for success in such a rapidly changing market. The transformation of traditional business models is the actual key to success.
– Product
On the product side, I consider the positive development in the increasing customer acceptance of contactless payments as a great result for 2018. The introduction of girocard contactless has certainly made a very important contribution here, since it opened the way for completely new products to be offered on the market. One example is the terminal without PinPad (TOPP), which combines the special requirements of contactless payments with the advantage of smaller hardware. In addition to this come new payment methods, in particularly from Asia. AliPay and WeChat are becoming more and more relevant for the stationary trade in Germany, as tourists form the Asian region prefer paying in their usual payment method. Also worth mentioning is Google Pay, which has been available since mid-2018, as well as Apple Pay, which (finally) went live in December 2018.
However: even though us Payment Nerds already get excited at the thought of contactless payments achieving double digits growth rates, we must realize that Germany still is a cash-based country and (unfortunately) 8 out of 10 transactions are paid in cash. We should take this potential and create attractive products and services for consumers! Contactless can help here, but this is by far not enough to trigger a “mind change”. The Nordics (Denmark, Sweden, Norway, Finland) have shown us perfectly how this can work. Through constant promotion and use of digital payment methods, the Scandinavians have managed to create a broad acceptance side in the trade, thus significantly increasing the number of transactions hat are paid non-cash.
– Regulation/Innovation
I see the topics Regulation and Innovation as a coherent segment, since the PSD/2 and GDPR in particular represent an endless playground for innovators of products with real customer added value and new disruptive business models. Since the actual PSD/2 introduction incl. Access-2-Account is not due until September 2019, I have not yet been able to identify any major developments in 2018. Regulatory implementation of the legal requirements is MANDATORY for me. The trick – how do I benefit from this as a consumer – will probably not pick up speed until 2019.
– Market
On the market side, we see the continued growth of the eCommerce market as the main trend. A reason of concern is for me the increasing market dominance of GAFA (Google, Amazon, Facebook, Apple) and the associated market power to change/influence our habits in their favor. It is only a matter of time before these players discover the fields of payment and banking. Arnulf Keese explained this beautifully in a series of articles for the Handelsblatt.
This brings me to the conclusion for 2018: Apart from the market consolidation, I would describe 2018 as a “year of preparation for the entry into force of the PSD/2”. We will probably see good innovations and new business models starting 2019, unless we are too busy with the company mergers.
Q: How will the payment market develop itself in 2019 and beyond?
R: I will also answer this question in the four segments:
– Provider:
On the provider side, I clearly expect the market consolidation to continue, however no longer at the enterprise level, but more in the SME sector. The SME market covers those merchants who still have interesting payment margins. Contrary to the often-nourished hopes, it is not banks who have access to these merchants, but the so-called commercial network operators for the POS and the PSPs in eCommerce. Especially here I expect to see changes, because these SMEs, with their direct customer access, suddenly become interesting sales channels for the big players. It will also be interesting to see whether someone will dare to extend his/her portfolio with mergers and/or acquisitions outside of the payment sector.
– Product:
Here I am curious whether Apple Pay will change the market in 2019. Yes, in Germany the more well-funded clientele in Germany uses Apple. But will this help to reduce cash transactions to 7 out of 10?
The year 2019 is the 1st year of PSD/2. As a consumer myself, I am looking forward to refreshing products in the areas of account, convenience of payment, security, costs, loyalty, as well as to a replacement of the antiquated 3DS 1.0. Unfortunately, for me it remains to be seen how this will be brought to the market in the remaining time. If I take the current status of the knowledge of merchants, PSPs, Acquirers and also Issuers into consideration, I fear “black writing on a black screen” with the one or the other credit card payment.
– Regulation/Innovation
From September 2019, the “bank grace period” will be over. From then on, every approved AISP (Account Information Service Provider) and PISP (Payment Information Service Provider) may access accounts and execute payments on our behalf with the consent of the account holder. It remains to be seen whether these payments will then all be card-based, or whether all instant payments, especially SDD Payments with good risk management and strong convenience are in the fast lane. The chances here are, in my opinion, not too bad. This will be exciting, especially considering the background of the current implementation status of 3DS 2.0 by all parties involved. Another topic for 2019 will likely be the spread of instant payments, provided that the fee models of the banks will also play a part here. This will become a decisive driver for enforcement at the POS and in the eCommerce. In my view, this also is not about defending the status quo, but about exploiting the opportunities offered by instant payments to optimally serve the customer interface. The business model of “chargeable processing of payment transactions” is certainly a model that should be reconsidered in the medium term. Moreover, the development of the ID services YES, net-ID, Verimi, etc. will also be interesting in 2019. If they can fill a concrete gap in the market in connection with the possibilities offered by PSD/2 and build up significant reach, they will become strong competitors of today’s payment service providers. After all, payments are based on proven identities and risk management. It is well known that nothing more is required.
– Market
As we know, the GAFA’s of this world are not really look disclosing their cards. However, it is certain that these players are aware of the PSD/2. With their enormous reach, the topic of ID services certainly plays an important role in their considerations; and not only GDPR, Verimi and YES (login with Facebook has been existing for a long time). It is difficult to say how this will impact us, the customers, in 2019. On the market side, I fundamentally see a trend towards standardization and simplification. Providers with a wide reach have clear advantages here, and the GAFAs have become so big/important because they offer customer-friendly and simple solutions among other things. I see another trend in the area of “real OmniChannel” and marketplaces. For merchants, OmniChannel means something completely different than for payment service providers. This bridge between merchant expectations and payment contributions will be one of the major market issues in the coming years. And marketplaces – if done well – are the range multiplier for many small merchants.
Q: In your opinion, what are the top industries that can benefit from future developments in the payment market?
R: Every industry needs payment. A limitation in the previous form to the stationary POS or eCommerce already no longer exist. Wherever goods and services are offered, there is a need for simple, secure, user-friendly and increasingly automated payment options.
The automotive industry is one of the first industries to break up the existing “monolithic” products in smaller customer friendly and modular product elements, meaning individual services can be temporarily booked in addition to the existing car configuration. Considering the number of cars in Germany alone, this represents an enormous potential for payment.
The same applies to mobility, self-service and healthcare. Interestingly, all these industries rely on simple consumer identification (keyword ID services) to process payments in a user-friendly manner.
Q: How do you classify the launch of Apple Pay in Germany shortly before the end of the year? Is this the breakthrough for Mobile Payments in Germany?
R: Since 2012, we have been intensively working on the topic of mobile payment in various projects. As far as we are concerned, a real breakthrough has not yet taken place. Whether this will change with Apple Pay – I dare note to answer the question: “what concrete benefit does it have for the average consumer to pay with his mobile phone”. Apple Pay will certainly give mobile payment a significant boost (not least because of the very simple and intuitive payment with the iPhone). However, I would call this a breakthrough if Apple Pay and Mobile Payment were to reduce the cash/card ratio from 8/10 to 5/10. A look at the other countries in which Apple Pay was launched shows an increase in the use of mobile payments in the short term, but again a decrease in the medium term, albeit to a slightly higher level than the starting level. I expect a similar development in Germany.