Frank Breuss, Director of International Sales, PPRO Group
It’s summertime, it’s lunchtime, and it’s hot. You’re hungry and with the weather, you’re very thirsty, so what’s the best thing to do? See what’s available at a near-by restaurant? Grab a drink and a snack at a local shop? Or use the Internet to order a delivery?
Whatever you decide, you may well end up quenching your thirst with a product that’s only found in your part of the world and paying for it using a method which might be unfamiliar to your colleagues based in other countries. Nearly everyone’s familiar with Coke and Pepsi (and Visa and Mastercard, two of the best-known names in payments) but there are plenty of smaller brands available as well, products that meet local wants and needs. So join us for a whistle-stop tour of eight countries – get to know some new soft drinks, and find out how the locals prefer to pay for them.
Let’s start our tour in Brazil: e-commerce here is growing at more than 15% a year, and the B2C e-commerce sector is worth $19.4 billion. 20% of these transactions are made using BoletoBancario, a local Brazilian bank transfer solution. Another 9% are made with local credit cards like Hipercard, ELO and Aura – around 80% of card owners have, and use, a local card. Reason for the vast amount of local cards and the high popularity of BoletoBancario is the very low financial inclusion in Brazil, i.e. most people do not have access to a bank account. This strong local bias is reflected in Brazilian’s soft drink preferences. The Brazilian market is the world’s third largest soft drink market, and Guarana, a carbonated drink based on a traditional drink of indigenous Brazilians, accounts for more than a quarter of this market. Just the thing to refresh you after a hot day at the beach, or a wild night at the Rio carnival!
The (rather long) hop over to Finland – and the change in climate – will give you a chance to cool off. This Nordic country accounts for over 40% of all e-commerce in the region, with B2C e-commerce generating $10.1 billion. Traditional Scandinavian beverages like Erdbeerlimonad (a sparkling strawberry drink) can be found throughout the country, but while the Finns are eager to support tradition, they’re also looking firmly to the future. When it comes to retail, it’s often cheaper to pay using a card rather than cash, with even the smallest independent shops accepting them. 52% of consumers shop online, and online banking transfers are widely used when paying for goods and services. So if you’re planning to emulate the Finns, and pop out for the first of your 5 cups of coffee today, don’t forget to take an appropriate method of payment with you – and that won’t be a handful of coins!
In contrast, if you’re heading to Vietnam, you should definitely plan to take a stack of US dollars (widely accepted) or dong (the local currency). The country’s infrastructure is still undeveloped, making credit card penetration almost zero. Purchases contributing to Vietnam’s $1.5 billion B2C e-commerce sector are usually paid for by alternative payment methods or in cash on delivery. This adherence to tradition is also reflected in the nation’s beverage choices. One popular thirst-quencher is Nuac Me, a sweet-and-sour tasting drink made from tamarind. Fruit from the tamarind tree has multiple uses: its distinctive flavour gives piquancy to the local cuisine, and the fruit pulp is used to polish brass artefacts found in Buddhist shrines.
A shift from the traditional to the technological takes us over to Germany, a country ranking 5th in the world in terms of online sales volume. With 60% of the population shopping online, it’s not surprising that e-commerce is booming, with the B2C e-commerce sector being worth $71.2 billion. And while Germans may not have embraced the credit card with any great enthusiasm, they certainly benefit from technology (used to facilitate direct debits like SEPA direct debit, bank transfer methods like giropay and SOFORT and payment on account payment options) when making payment choices. This preference for a mixture is reflected in Spezi, a blend of cola and orangeade invented in Bavaria in the 1950s.
Israel is only a few years older than Spezi, having formally become a country in 1948. Although the B2C e-commerce sector is worth $169 million, domestic e-commerce is limited, with many Israeli consumers choosing to shop abroad. However, the country’s strong start-up environment indicates a commitment to local talent, so perhaps it’s not surprising that consumers choose to use local payment cards such as Isracard. And with a similarly commitment to physical activity, what could be a better drink to choose than a natural alternative such as peach nectar?
You’re more likely to find South Africa’s treasure under the earth than in a mountain range. Famous for gemstones, minerals and gold, this country’s B2C e-commerce sector only totals $3 billion, but 22% of consumers will shop online. Of those that do, 28% of them use their mobiles, with credit cards and e-wallet payments being a popular choice. And if you find you’ve made an unwise purchase after a heavy celebration, just reach for a can of Crème Soda: this local beverage is nicknamed the Green Ambulance, or Crème Sober, and is meant to be great at combatting hangovers.
It’s not only South Africans who use soft drinks as a cure for the morning after the night before. Inhabitants here in the UK, our final stop, do this too: the Scottish soft drink, Irn-Bru, is famous for its restorative properties. A can of this will certainly set you up to make your contribution to the largest e-commerce market in Europe: the country accounts for 30% of all ecommerce transactions in the region, with the B2C e-commerce sector being worth $157 billion. Although alternative payment methods are used by the British, most of them did not originate in the UK, and credit and debit cards remain the preferred method of payment.
That’s the end of our tour, and it’s probably time for you to get back to work. We hope you’ve enjoyed this brief look at some of the alternatives around the world, and that you found something tasty to quench your thirst!
Risk Mitigation vs. Risk Avoidance: Why FIs Need to Maintain Risk Appetite and Not Place All Bets on De-Risking
De-risking aims to protect financial institutions from the increasing pressures placed by regulators and threats, associated with clients operating in high-risk GEOs and market segments. Agnė Selemonaitė, board member of ConnectPay, states that FIs should not focus entirely on de-risking to mitigate all potentially dangerous prospects, rather strive to continuously improve their tools for risk control and consider dividing the market among banks and EMIs for more strategic risk management across the entire sector
October 22, 2020. The payments sector has always been under the microscope in terms of regulatory compliance. Now, with a number of scandals and compliance discrepancies, financial institutions have responded in a growing trend of terminating accounts deemed high-risk—a process also known as de-risking. While in the risk management space the term describes hedging against precarious exposures, within the payments sector it has become synonymous with avoiding risks.
Since the financial crisis of ’08, FIs have been hit with approximately $36 billion of non-compliance fines. The significant growth corresponds with the ever-tightening AML/CTF rules, as well as the general tendency of policies becoming more and more strict. With a continuously toughening regulatory environment, financial institutions are less inclined to take on dubious clients and would rather eliminate any viable threats than risk getting fined by the regulatory authorities. Agnė Selemonaitė, board member of ConnectPay, emphasizes that while de-risking is necessary, it should not become the basis of the entire approach to how financial institutions tackle risks.
Although de-risking has been gaining traction in the payments sector, it is important to disclose the shortcomings associated with the practice. The case of Malta, a EU country bordering the Mediterranean sea, is a good example of how strict de-risking policies can impact the payments landscape and alter a country’s image on a global scale.
Maltese FIs have been under mounting pressure from the European Central Bank, as well as local regulatory authorities due to a significant number of ambiguous industries thriving in the country. For instance, the gaming sector accounts for 13.2 % of Malta’s overall economic activity. Called out to re-evaluate their risk profiles and strengthen AML and CFT strategies, FIs chose to not risk sky-high fines, rather terminate riskier customer bases. This has pushed many businesses to direct their payments to out-of-country vendors, while Maltese institutions lost trust due to unbalanced de-risking.
“Now, businesses operating in higher-risk markets are hesitant to rely on a single regulatory jurisdiction to mitigate risk exposure in terms of payments security. Yet provider diversification leads to missing out on a number of benefits, for example, potential discounts, offered due to high payment volume associated with a client,” explained Agnė Selemonaitė. “We’ve noticed this tendency amongst our own clients too. Many are being overly cautious and choose to carry out only a small fraction of payments, fearing for things to take a similar turn, as it did in Malta, and become the ones deemed high-risk.”
“However, higher turnover helps to better mitigate client-specific risks. For instance, the more vendors from any given corporate group are onboarded, the more we can learn about the payment behaviors in their industry, and, consequently, introduce better risk controls to prevent ML, TF and other threats to clients’ funds.”
Ms. Selemonaitė notes that hasty de-risking could contribute to other issues as well, like the growth of the shadow market. “The higher number of such accounts are rejected, the more inclined they become to look for alternatives to continue their business,“ she adds. “In a way, de-risking might increase the very thing it aims to mitigate for a more transparent market.”
That is why it is crucial for governments to establish a clear position on where the entire country stands in terms of risk tolerance. “Regulators implement changes that are passed down to them by the government. If the latter clearly communicates their stance beforehand – there is less room for distrust and ambiguity from the business’s perspective too.”
Selemonaitė argues that FIs should retain a healthy risk appetite and pool more resources into controlling dubious activities, rather than rely solely on de-risking as the basis for risk mitigation. “De-risking is a necessity – we have leveraged the practice ourselves. However, we are more focused on enhancing our overall risk control capabilities.”
She also raises the idea that sharing the market between banks and EMIs may be even more reasonable in terms of keeping risks at bay. “EMIs are more agile and prone to technology innovation, this allows them to have laser-focus on a single sector and become experts on its common threats. Thus deliberate market division creates the conditions for more strategic risk management across the sector.”
According to her, encouraging a dialogue between the regulators, fincrime watchdogs, market players and other institutions is equally important, as they determine the ins and outs of de-risking. Selemonaitė notes Lithuania’s State Tax Inspectorate (in Lithuanian – VMI) initiative as one of the examples of encouraging back-to-back communication: instead of handing out fines for possible compliance violations, they reported them back to the companies and gave a timeframe to address the issues. “In 6 years, this helped cut down on the auditing almost twice, as well as increased general trust in VMI, which rose from 25 to 75 percent, showing just how important it is to maintain a direct line of communication between regulators and regulatees.”
The TMNL initiative in the Netherlands is also a good example of how consistent dialogue can pave the way for more efficient and transparent process control. Following the initiative, banks are working closely with government parties, such as the Ministries of Finance and Justice and Security, to combat threats related to AML/CTF compliance via real-time transaction monitoring network.
“A joint approach on detecting suspicious patterns enables to take a firmer stand towards mitigating risks, emphasizing the point that, essentially, this is a two-way street: further growth and security in the sector depends on both sides’ efforts to keep communication open and transparent.”
Overall, refusing to work with certain customers or markets focuses only on avoiding risks. As she summarized, “the main goal should be not to shy away, but to increase the capacity to control risks on your own terms.”
Cash and digital payments – a balancing act to aid financial inclusion
By Matthew Jackson, Head of Partner Development, EMEA at PPRO
The cashless debate is one that continues to spark both conversation and controversy. The pandemic, which has seen many merchants discourage the use of cash to limit the spread of the virus, has accelerated these discussions. M-Pesa, a Kenyan mobile money transfer service, for example, waved its fees to support the move away from cash during the pandemic. Today, many global economies are now questioning whether they should continue to offer cash payments or go cashless by converting solely to digital. Critics say this move would disenfranchise unbanked, cash-dependent consumers and does not drive financial inclusion, while others claim that a failure to go cashless limits innovation in the fintech sector. So, what exactly is the answer?
The solution lies somewhere in the middle.
The truth is cash and digital payments don’t have to be mutually exclusive; this is not a zero-sum game as the two payment options can exist together. According to recent PPRO data, over half of US and UK consumers will stop the checkout process if it is too complicated or their preferred methods are not available. Consumers prefer having multiple payment options, whether it be using a bank transfer, a credit card, a mobile wallet or even cash. Payment flexibility is a crucial factor in offering a seamless checkout experience. Some shoppers never carry cash while others view cash as the only way they want – or are able – to pay.
The key is for merchants to offer a personalised experience for each and every consumer.
The future of cash
Despite a seemingly rapid shift towards digital payment methods, cash is not going anywhere. Many regions across the globe are tied to cash-based payments. For example, in Latin America, 21% of e-commerce transactions are completed by cash. Via cash vouchers, many consumers are able to access the global, online marketplace: at the checkout page, consumers are shown a barcode for their order. They then take this barcode (either printed or on their mobile device) to a local convenience store or bank and pay in cash. At that point, the goods are shipped. Even here in the UK, approximately 1.3 million UK adults are classed as unbanked, exposing the large number of consumers affected by any ban on cash.
Cash is often preferred for a plethora of reasons: It can be easier to use cash for smaller purchases, older consumers may be wary of digital payment methods, and avoiding credit can help shoppers stay within budget.
Conversely this year, Bristol was revealed as the contactless capital of the UK, with London leading the way when all card payment types were considered. Tottenham Hotspur’s brand new stadium was also the first stadium in the UK to go completely cashless in a bid to provide the best possible fan experience. The stadium claims fans can now expect increased service speed, shorter queue times and better hygiene as staff won’t be handling cash. With many other venues following this trend, merchants must be able to provide multiple options to consumers or risk excluding part of the market.
Ensuring inclusivity with digital payments
Financial inclusion is not just limited to offering cash payments. Each region has its own nuances that influence consumer payment preferences. Consumers want to pay with the payment methods they are comfortable with; a majority of online shoppers will abandon their cart and purchase items on another site if they aren’t offered their preferred way to pay.
Local payment methods serve as the bridge to connect shoppers with merchants across the globe.
A great example of this is the rise of the mobile payment method M-Pesa in Kenya. According to PPRO research, more Kenyan consumers have a smartphone (60%) than a bank account (56%). Payment innovations have helped solve consumer needs and enable financial inclusion by turning a smartphone into a virtual bank account. Similarly, in southeast Asia, GrabPay, which started out as food delivery and on-demand taxi app, has evolved into a leading payment method used by 115 million consumers across the region. These sentiments resonate in the UK as well with 45% of UK consumers believing cash will be a thing of the past in just five years.
Striking a balance
Whatever the way forward, ultimately payment methods need to enhance the consumer shopping experience and a combination of both cash and digital payments is a way to enable this. For many regions the lines between cash and digital payments continue to blur. For example, in Argentina, Mexico and Brazil, cash-based payment methods like RapiPago, Oxxo and Boleto Bancario give many cash-dependent consumers a chance to shop online. Merchants must come to realise that cash can actually complement many digital payment methods, not necessarily restrict them.
To be able to continue to satisfy the needs of all consumers, merchants need to understand the factors driving consumer behaviors around the world and offer the specific local payment methods to fulfil those needs. In some cases, this is cash and others a digital method. Having a choice is what will not only drive inclusion but also increase sales around the globe. Innovation does not necessarily mean cashless, but rather the industry creating solutions to solve consumer needs.
The value of digital identity in payments
By Vince Graziani, CEO, IDEX Biometrics ASA
In ever more challenging times, the payments industry needs to maintain trust by finding a way to protect consumers from the constant threat of payment fraud and theft. Consumer’s wishing to limit physical contact during the current pandemic has led to the popularity of contactless payments which has accelerated in multiple territories.
In the US, one in five shoppers have made a contactless payment for the first time during the pandemic according to research published in August by the National Retail Federation and Forrester. The bad guys have unfortunately taken note. This has led to a real need for the industry to fight back with enhanced security.
At the 2019 Money2020 Europe conference, there was a universal call for a comprehensive form of digital identity (ID) to enable digital payments. A form of digital identity that would make cashless payment interactions – secure, intelligent, efficient and private. The feeling was unanimous: without functioning digital ID, the payments revolution will stall.
Unlocking the payment ecosystem
In an increasingly connected world, consumers find themselves needing to authenticate their identity daily. Whether that be with financial institutions, retailers, government departments or healthcare providers. Yet, it is rarely known where consumer data is stored, how secure it is or how it may be traded. Privacy regulations such as the European Union’s General Data Protection Regulation (GDPR) have attempted to restore some trust, but the industry still has a way to go.
Currently, authentication is fragmented and unwieldy. It requires a mix of hardcopy documents, online login credentials and digital wallets. This is not only frustrating for consumers but leads to the reuse of passwords and PINS that make the user vulnerable to fraud. Mastercard believes there is a clear need for a verified identity that is accepted globally and across multiple digital touchpoints and doesn’t involve aggregating more information in potentially vulnerable data stores, but instead gives the individual control over their identity data.
An integrated digital ID scheme would enable the payments industry to fight fraud on a global scale. It would also meet the pressing need for a payment authentication system that consumers can access anytime, anywhere, and on any device. This joined-up approach is vital to ensure no consumer is left behind as the world continues its digital transformation.
Providing access to a singular, unified digital ID will not only streamline the identity process, but also unlock new and enhanced consumer experiences during this digital transformation. Particularly in the new breed of smart buildings and cities, where everything from travel to payment systems will be connected to a user’s identity.
What form should our digital ID take?
While the need for digital ID is well established, the form it will take is less clear. There are two main challenges that payment providers need to overcome with a potential new identity solution: onboarding new users and ensuring the digital ID is compatible with all transactions.
Placing individual consumers at the centre of their own digital interactions will ensure confidence and broader adoption of new technology payments and services. Yet, for this to be successful, the payments industry must adopt a process that is simple, familiar and easy to understand.
Fingerprint biometrics as a digital identity
The use of fingerprint authentication to unlock a smartphone is now deeply entrenched. As far back as 2016, 89 percent of users with compatible iPhones were using fingerprints to unlock their devices. The solution for a frictionless onboarding has been at our fingertips the whole time.
Payment providers can incorporate fingerprint biometric sensors directly into their new breed of smart payment cards. A biometric payment card may be a new concept, but payment providers and retailers across the world are already using contactless card technology in the payment process, so it is the next logical step. Consumers are now used to carrying a card and tapping it for contactless payments. Plus, as we have seen, consumers are used to using their fingerprint as an authentication mechanism. Perhaps biometric cards could be the catalyst for financial inclusion desired by the World Bank, as they don’t require the ownership of expensive smartphones in developing nations.
Building a chain of trust with biometrics
Continuous developments in payment regulation mean that secure authentication is imperative. Under the second Payment Service Directive (PSD2) European banking regulation, all payment transactions will soon require Strong Customer Authentication (SCA) to validate users at the point of transaction to reduce fraud and increase security for customers. SCA requires two forms of authentication for every transaction above the contactless limit. While one is generally something you have like a smart card, the second can be something you are like a fingerprint. Using a fingerprint means that it can be used across multiple platforms and is always at hand. There should be no trade-off between convenience and privacy and fingerprint biometrics delivers on that expectation.
Biometrics can play an essential role in digital ID, significantly limiting exposure to potential fraud and criminality. The addition of a biometric sensor onto a payment card creates a secure ‘chain of trust’ that indelibly connects the user to the card. Furthermore, digital ID has the scope to be extended far beyond payments and used as a unique identifier in areas such as access, government ID and even across IoT devices.
Securing the future of the payments industry
While the world is becoming ever more cashless, commentators and analysts all agree – without a fully functioning digital ID, the payments revolution will stall. As Tony McLaughlin, Emerging Payments and Business Development at Citi put it recently: “If we fix digital identity, we fix payments”. I couldn’t agree more. Both consumers and the payments industry need a user-centric digital ID that is owned and managed by the individual, so they can unlock the full advantages of a transformative digital payment ecosystem.
Using fingerprint biometrics as a digital ID in a payment card will transform the way people authenticate transactions. This integration would enable consumers to confirm their identity wherever they are, on any device, and across every transaction. It will change the face of digital identity as we know it.
We believe that digital interactions should be privacy-enhancing, secure, intelligent, and efficient. To facilitate this, consumers require a user-centric digital identity that is owned, managed, and controlled by the individual. It is time to place individuals at the heart of their digital interactions globally.
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