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2. ConfidentialMEETS THE CHALLENGE OF CHANGE 2
Agenda
1. The Current Marketplace
2. The Disruptors in the Payments Industry
• Big data
• Social networks
• The internet of things
• Mobile
• Commerce platforms
• The cloud
• (G)local
• Business models
• Other disruptors
3. Summary and Conclusions
6. THE DISRUPTIVE FORCES ON THE PAYMENTS INDUSTRY
Almost all disruptive innovations do one of two things (or both)…
1. They provide a new benefit
2. They solve an existing problem
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What is Big Data?
• Evolved from “Big Science” which described the rapid cycle of
changes that occurred in scientific disciplines during and after
WW2.
• Term first used in the late 1990s to describe massive information
volumes which increase as more digital records created every
day e.g. 3,000+ photos uploaded to Facebook every second (300
million a day)
• Google – “5 exabytes of information (1,000,000,000,000,000,000
bytes) created by the entire world between the dawn of
civilization and 2003. That same amount is now created every
two days.”
• Organizations are drowning in data – which will increase through
unlimited bandwidth and storage, with device ubiquity and cheap
chips.
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What is Big Data?
9
• The power of “Big Data is it provides a more personalised
approach
– Leveraging structured and unstructured data to increase cross-selling
opportunities
– Creating the customer segment of one , reducing marketing spend but
increasing customer engagement
– Creating the insight that informs the decision that delivers a customer
experience
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Big Data is Important Because Those Who Make
Sense of It Will Win in Competitive Markets
• Technology players e.g. Amazon, Apple, Google and
Facebook
– See leverage of data as the product
– Know how to sift data and make sense of it which is why banks fear them.
– Understand your social activities, financial transactions, lifestyle etc as a
competitive weapon and have partners to offer real-time deals/alerts
• The bank‟s biggest weaknesses are:
– Their heritage and organizational structure as they separate data functions
from product functions by holding data separately in silo divisions. This
does not allow them to leverage data and weakens their ability to use it to
deepen relationships and compete. This is the big opportunity for new
entrants.
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Big Data is Important Because Those Who Make
Sense of It Will Win in Competitive Markets
• One bank CEO recently stated “Our peers I can handle.
They‟re in the same boat. If Google opens a bank, with their
data – we‟re in trouble.”
• And Eran Fiegenbaum, the director of security for Google
Apps, has already made it clear that Google is “a bank for
your data.”
• Conclusion: medium disruptive threat
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Social Network Myths Banks Believe
• Myth banks need to stop believing: It‟s for young people only
which stems from the stereotype that new, hip, cool
technology is for those who adapt the fastest. It's not:
– Its for people who want to communicate on-line
– It's for those who enjoy that technology improves their lives
– Facebook and Twitter have more users over the age of 25 than under
• Most social media users are wealthy, educated, in
employment and mature - the bank‟s target audience for
CRM.
• Social media as a medium for financial transactions is still
treated with caution due to reasons like information
security/hacking etc and lack of awareness created among
customers.
• Conclusion: medium disruptive threat
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What is the Internet of Things
• Connectivity for anyone from any
time and any place with anything!
• A wireless network, usually self-
configuring between objects like
household appliances -Wikipedia.
• By embedding short-range mobile
transceivers into gadgets and
everyday items new forms of
communication between people
and things, and between things
themselves will emerge.
• The term "Internet of Things" has
come to describe a number of
technologies and research
disciplines that enable the internet
to reach out into the real world of
physical objects.
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The challenge of the Internet of Things
• Technological architecture and standardization in most areas
are still fragmented curtailing interoperability.
• Connections between the real and virtual worlds
• Managing and fostering rapid innovation is a challenge for
governments
• Privacy and security
• Absence of governance, naming, identity, interfaces
• How to convincing users that the IoT technology will protect
their data and privacy when tracking
• Potential solutions
– Education and information
– Legislation limiting the scope of the Internet of Things
• Conclusion: currently low disruptive threat
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Mobile Payments and eCommerce will Comprise an
Increasingly Larger % of Payments Volumes
• Ovum believe mobile is top of
• most Banks investment priorities
• Why?
• Phone is a more powerful device
than the PC
– Knows who you are
– Knows when you are in/near store
– Knows your purchase/search history
– Delivers instant gratification
• 5x more phones than PCs
• In store sales are still 19x greater
than eCommerce
SOURCE: Yankee Group, Dec 2010; Press search; McKinsey Global Payments Map
2010
Global Payment
Flows : $516T
eCommerce
Flows:
$1,700B
Mobile
Payment
Flows: $10B
2015
Global Payment
Flows: $780T
eCommerce
Flows: $3,420B
Mobile
Payment
Flows: $545B
CAGR:
+122%
CAGR: +9%
Total Flows:
CAGR: 15%
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The Disruptive Influences – Mobile
Mobile is transformational
• Moving people from having to go somewhere to do something to
having connectivity in their pocket/purses 24x7.
• Gives 7 billion people the ability to communicate
wirelessly, globally and socially one-to-one, person-to-
person, peer-to-peer.
• Most affluent consumers change their mobiles every 18 months
• Provides a transactional infrastructure that was non-existent just
a few years ago. Africa has seen the most rapid transformation
through mobile, with e.g. M-PESA in Kenya
• Allows geo-locating to locate anyone, anywhere, anytime and say
at the point of retailing: “here‟s the deal”.
• U.S. bank BBVA Compass - Banks that fail to invest in mobile
risk being swept away by a wave of disruptive innovation
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The Disruptive Influences – Mobile
25
• Why?
• Phone is a more powerful device than the PC
– Knows who you are
– Knows when you are in/near store
– Knows your purchase/search history
– Delivers instant gratification
• 5x more phones than PCs
• In store sales are still 19x greater than eCommerce
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The Disruptive Forces – Amazon
• Amazon
-Have launched the Amazon Coin, tied to the US$ that can
be used to buy apps for the Kindle, and cannot be
exchanged for other currencies.
-Are aggressively offering loans to small businesses, but the
proceeds can only be used to purchase items from its sites.
-Is focused on its own businesses and unlikely to disrupt the
payments landscape in the short term.
• Conclusion: low disruptive threat
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The Disruptive Forces – Google
• Strengths
– An experienced disruptor!
– Heavily promoting its wallet, which it is offering for free
– Launched a credit card in the U.S. and U.K. (with MasterCard)
– Offering loans for purchasing AdWords
– Dangerous because it gives valuable things away for free. For the
– Currently focused on advertising, not payments.
• Weaknesses
– Marketers targeting smartphone and tablet users
– Drop in shares price blamed, in part on mobile marketing.
– The average cost per click dropped as mobile marketing took budgets away
from traditional desktop advertising.
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The Disruptive Forces – Google
• BGC - The challenge is for Google to reignite revenue growth as
their existing businesses start to mature and slow down.
• Google, like the rest of the online world, is realizing the power of
mobile marketing is greater than predicted, and an evolution will
be required in order to be able to keep up with the changes that it
demands.
• Conclusion: medium disruptive threat
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The Disruptive Forces – Apple
• Apple
– Has a wallet product – Passbook – based on QR technology
– Was expected to add NFC to the iPhone5 but did not. Now
rumours of an iWatch for payments linked to an Passbook-
enabled iPhone .
– Acquired biometric scanner maker AuthenTec in 2012
– Has the world’s largest database of consumer payment
information (from iTunes)
– Already has products being used as POS devices
Already has an impressive track record of disruption
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The Disruptive Forces – Apple
Already has an impressive track record of disruption
– Apple has all the necessary pieces and a HUGE motivation for
disruption as it could save a lot of $ as the cost of the current
payment system to them is huge. Expect them to do something
about it.
– They have it all: an established customer relationship, a trusted
brand, payment information, purchase and POS devices, a
channel, and deep pockets.
• Conclusion: high disruptive threat
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The Disruptive Forces – PayPal
An alternative network and enemy to all things traditional in the bank’s view
• PayPal is already in the payments business. It:
– Is an acquirer
– Has banking licenses. If it became a bank it would be the largest in the
world
– Has 230 million accounts and moves more than $2 million every hour!.
– Facilitates transactions via multiple methods (and discriminates between
them)
– Is moving from an online payment processor to a one-stop-payment-
shop: online, offline, and mobile
– Has made deals with offline retailers like Starbucks, Home Depot, etc.
– Has arrangements with Discover (Cards) and NCR (POS equipment )
– Has 110 million active users
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The Disruptive Forces – PayPal
An alternative network and enemy to all things traditional in the bank’s view
• PayPal is an ambitious player with a good brand, a
wide reach, a reputation for agility, and deep
pockets. Unlike Apple, it born in the payments
industry.
• This IS their core business.
• Conclusion: high disruptive threat
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What is the Cloud ?
• Cloud computing
– Integrated and networked hardware, software and Internet infrastructure (called
a platform) hiding complexity via simple GUI or API
– Digital model so customers can access from anywhere they like, anytime.
– Provides always on, on- demand services, anywhere, anytime, any place.
– Allows customers (consumers, business) to pay for use as needed.
• Benefits
– Efficiency - large scale at a lower cost to IT, operations etc
– Software not tied to a particular piece of hardware
– Enables dynamic provisioning to handle peak loads
– Provides IT responsiveness or temporary resources e.g. for year end
– Speed to Market
– Improved service to customers through more consistent uptime and integration
their cloud based applications/services
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Cloud Issues for Payments
• Integration and business relationship of Cloud-based services
– Legacy and the Cloud
– Ability to integrate into IT and application framework
– In-house vs. external staffing
– Resources vs. experience
• Regulation
– Regulators in key markets, particularly in finance regulate that data must be held on bank
premises.
– Compliance all the way through the chain
• Security
– How the Cloud provider protects the data, where they are located, the standards used etc
– Encryption will also make data more secure, as well as an enterprise architecture that is
built for security and needs approval from regulators
– How to undertake fraud detection in the Cloud?
• Conclusion: high disruptive threat
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(G)local
• A combination of the words "global" and "local" used to describe
a product or service that is developed and distributed
globally, but is also fashioned to accommodate the user or
consumer in a local market.
• In the business world the idea was adopted to refer to global
localization
• Basics: A global company designing products for a local
community.
• Conclusion: low disruptive threat at this time because idea
needs more development
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The Disruptive Forces – Merchants
• More stores moving into the digital space or let customers to buy
online and pick up in store.
• Have to ensure they offer all the channels the customer wants to use
for payment
• Will have to upgrade their POS terminals – Tesco are yet to take
contactless cards
• Must respond to threats like geo-location – not offering a signal in
their stores is not a solution
• Could the US MCX model emerge in EMEA ?
• Need more functionality from their acquirers
Conclusion: Some have the ability to be major players because
they have banking licences, mobile offerings, greater data, on-line
channel and loyal customers : high disruptive threat
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The Disruptive Forces – Digital Wallets
• “The Term Wallet was used so Old People Understand what the application delivers” DMUS Conference Sept
12
• Most of the big players are on the wallet bandwagon (card companies, telcos, Apple, Google, industry
consortia…)
• Different varieties: NFC (Google Wallet), QR (Apple, LevelUp)
• Cool factor: keeps the card in the pocket. In some systems, even the phone stays in the pocket (Sum up and
Pay with Square)
• Great opportunity for added services (for consumers and merchants), targeted marketing, consumer
tracking, couponing, loyalty, etc.
• Innovative e.g. Tesco‟s shopping wall in South Korea
• But… slower adoption than expected: so far, digital wallets have more „bark than bite‟. Widespread adoption
(NFC, QR) might change that. There will be winners and losers depending on the walletments system.
• Conclusion: low disruptive threat – for now
48. THE DISRUPTIVE FORCES – LOYALTY –
UBIQUITOUS AND USED REGULARLY Source: WorldPay
Conclusion: low disruptive threat – unless exploited by other disruptors
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The Disruptive Forces – Biometrics
• Not yet a clear winner of the one to
use – fingerprint, voice, vein
• Face recognition is the latest from
the Nordics
• May not be one global solution
• Likely slow adoption rate – but it is
already rolling out
• Conclusion: low disruptive
threat currently, but could
increase
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The Disruptive Forces – BitCoin
• Violent fluctuations in value an issue
• Being accepted in e.g. some U.K. pubs and
independent stores
• Now on Regulators radar
• Conclusion- low disruptive threat – for now
52. WITH ALL THIS DISRUPTION IT IS
NO LONGER CLEAR WHO OWNS
THE CUSTOMER
Source: Visa
53. BUT THE CUSTOMER MAYBE HAS MORE POWER
THAN EVER BEFORE - THE ULTIMATE DISRUPTOR
Source: Visa
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The Disruptive Influences
54
• Big data, Cloud and mobile are the key to the impact of the disruptors as
they bring this all together and are required for delivery.
• The Cloud provides the ability to analyse unlimited amounts of data for
any purpose. It is the antidote to big data which is all about drowning in
exabytes of bytes, while Cloud provides the capability to gain access to
unlimited power and storage to analyse that data.
• New Payment platforms and business models can harness these without
having to move from legacy systems
• So these are centrifugal forces of change in 2014, as they are massively
complementary.
• Mobile allows anyone to socialise with anyone on the planet, whilst the
cloud allows companies and government agencies to sift through the
massive amounts of data that the mobile, social world is creating.
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The Impact of the Disruptive Influences
on Players in Payments
• Banks – must get consumer trust back and expect more mergers in
some markets. BUT have to adapt and get to grips with the disruptive
influences – especially mobile, Cloud, new competitors and big data.
The clock is ticking!
• Acquirers …vulnerable in a mobile world and to new competition
• Card Schemes need to up their game and fully integrate the acquisitions
they have made – and stop squabbling – e.g. Izettle
• Telcos …power if they choose to use it, but do they have the
appetite, consumer trust, the cash or the customer service ? Geo-
locating is a key change but targeting requires massive analytical
capability of data to target what is relevant to whom and when
• Equipment vendors …in for a bumpy ride as e.g. dongles multiply and
add functionality
• Merchants are frustrated and feel constrained by the current system.
Their costs are high and unpredictable. They want a stronger
relationship with their customers and to add services.
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The Impact of the Disruptive Influences
on Players in Payments
• New players commerce platforms and social networks – the real
unknown – some have the power/cash to cause real disruption –
others less so. Its all about appetite
• Consumers are generally satisfied…they trust the current
system, they know how it works, they see it as inexpensive and
convenient. BUT, they are starting to see the real costs; they want
more information and services faster; and are more open to
alternatives (the iPhone effect). So they are the ultimate disruptor
• Conclusions
– Most players in payments need the banks but are not loyal to them. If they see
something cheaper and better (or free), they will jump. That is the threat the
new acquirers bring.
– The current system will survive, with changes. The winners and losers will be
unequally distributed. Regulation (especially SEPA) will have a role to play and
could be seen as unfair to the banks.