G+D Mobile Security’s Convego suite of solutions offers banks a way to future-proof their payments services against what appears to be an irresistible move among consumers
to open their ewallets. The company’s VP Jukka Yliuntinen shares his thoughts
Consumers may still prefer plastic to pay, but ever-increasing smartphone use and a proliferation of industry players means digitisation of payments looks inevitable. Such a shift could have a massive impact on the wider industry and it may not be the banks that win this time.
Jukka Yliuntinen is VP at Giesecke+Devrient Mobile Security (G+D), the Munich-based company that is a global powerhouse when it comes to payments. Billions of people unknowingly use G+D technology to carry out transactions – whether paying by cash, card or smartphone – every day, so Yliuntinen is well-placed to comment on the future of the industry. And he has a near and long-term view: an immediate play-off between card-based mobile payments and account-to-account transfers or instant payments, followed by a more radical shift.
“Payment will be related to your mobile phone or, at least to the devices that you carry or, potentially, purely the biometrics you have. But there will be no need to have any interaction with that device; it will automatically make the payment that’s pre-authorised by you and enabled by biometrics,” Yliuntinen forecasts.
Whatever the technicalities, the fundamental principle of payments remains the same; goods and services are exchanged at a value deemed mutually acceptable to both buyer and seller. And, at this moment, cash provides some strong assets as a payment means. “It has an excellent user experience. You have it, you see it, you give it; it’s very tangible.”
While G+D’s view is that cash will not disappear but continue to be an enabler for underbanked regions as well as an enabler of trustworthiness in the government space, the FIS Worldpay Global Payments Report 2018 shows its use is declining in every global region. It predicts that cash will be overtaken by debit cards as the leading point of sale (POS) payment method this year, and expects it to be relegated to fourth place behind debit cards, credit cards and ewallets within the next four years. The question is: then what? In the era of the EU’s revised Payment Services Directive (PSD2), which demands strong customer authentication (SCA) features, plastic cards’ convenience, familiarity and reassuring physicality could increasingly be undermined by more frictionless and secure virtual payments platforms.
And this is where digitised, or tokenised, payments, such as those used by Apple Pay or Google Pay, could play a more disruptive role. In fact, G+D is one of the major facilitators of this revolution: its Convego Hub is part of a suite of digital solutions that make it simpler for banks to manage the secure provisioning of cards to the many and varied wallets that are now emerging, with a single-service interface for financial institutions and wallet issuers.
Nearly one billion people are said to have made a smartphone payment in 2018 and, while still a comparatively small payments segment, ewallets are the fastest-growing: by 2024 consumers are predicted to be happily opening their digital wallets way more than their physical ones – led by China but with surging adoption in North America.
It has to be said that not everyone is so convinced about the adoption of near-field/contactless mobile payments. According to research conducted by YouGov last year, 43 per cent of consumers don’t think mobile wallets are secure and 38 per cent are concerned about losing their device and being unable to make payments at all.
But the market is moving incredibly fast, albeit it at different rates in different countries, hence the need for banks and payment providers, particularly global ones, to keep all their balls in the air – and for G+D to offer multichannel solutions.
For consumers already wedded to a particular payment method, any alternative offered must answer a need. In a revealing piece of research into ewallets conducted by aggregator site Merchant Machine, adoption was shown to be rising fastest among users of payment platforms that are already established in the consumer’s mind as being super-convenient for their lifestyle – with Paypal, Alipay and WeChat Pay top of that list. A two-speed adoption rate is definitely emerging: according to GlobalData’s 2018 Consumer Payments Insight Survey, mobile wallet adoption in Asian markets such as China (64.9 per cent), India (60.5 per cent), Hong Kong (45.5 per cent) and Taiwan (37 per cent) is much higher than Western markets such as the UK (11.5 per cent), France (5.1 per cent), Germany (10.4 per cent) and Spain (10.5 per cent), where consumers predominantly use cards. Many of those Asian countries also leapfrogged card technology with the rapid take up of mobile wallets, which offered consumers QR-based payments for POS, for example, which also required less investment on behalf of the merchant. And Yliuntinen sees the balance of power shifting emphatically in the near term from payment provider to consumer in whose hands the technology, literally, now resides. The winners will be those methods that offer a good user experience, he says.
And this is where ewallets could eventually win out over cards and cash, because the other main driver of adoption, despite the reservations already highlighted, is increased security. The introduction, in Europe, of PSD2, which, along with opening up the payments infrastructure to alternative players, also mandates SCA, is a decisive feature of that trend, he says. The question is how to make a secure payment that incorporates SCA, which intentionally introduces additional stages to the transaction, user-friendly. “That’s the big challenge that I see at the moment around the implementation of PSD2,” says Yliuntinen.
In the initial scramble to meet PSD2’s September 2019 cut-off for technical implementation, he says some SCA features were introduced that make it so cumbersome to use that consumers are irritated by it. “What happens then is that they might reach for another way to pay – which could be cash,” he says.
Many banks were not ready for SCA, he notes, with most countries asking for an extension or waiver to full implementation.
“Some of the banks introduced SCA in a way that, yes, complies with PSD2 requirements for strong authentication and gives me as a consumer a certain reassurance that, OK, something must now be secure because you need to have, for example, a secondary password. But if you need to start introducing that at point of sale… forget it. People start looking for something else.”
Part of the problem for the industry, he says, is that the SCA regulation left a fair amount open to interpretation.
“Ultimately, if the user experience (UX) between you and me is different, or if it’s different when I use my Apple Pay compared to my other wallet or my card-based contactless payment, I get confused. And a confused consumer is the last thing you want,” he says.
More harmonisation is needed. “But there is no good body, in my opinion, that could coordinate it.” So, payment providers are waiting to see what everyone else is doing. In this period of uncertainty, banks, he says, should seize the opportunity to differentiate themselves by being innovative around the user experience. This is where G+D’s Convego Hub can prove useful in future-proofing a bank or other issuer’s payments portfolio.
“If they want their cards to be digitised, they can connect to us just once but have all the different schemes’ services available to them,” says Yliuntinen.
The G+D Convego Hub extends support to local payment methods such as India’s RuPay, launched by the government as part of its effort to take the nation cashless, which has reached more than one billion transactions and put at least one international payment scheme under pressure there. Convego Hub makes it simple to implement the digitisation of payments: the means by which plastic card is replaced with the process of tokenisation, enabling banks and other wallet providers to increase security and flexibility in a cost-effective way.
But payment and security should not be looked at in isolation, observes Yliuntinen. Instead, banks and other providers should consider how payment and authentication can sit in the wider context of a digital identity. “Data, after all, is the new money,” he says.
And here’s where the opening up of banking and payment services, and the interaction with mobile hardware, gets interesting. Yliuntinen believes the GAFAs (Google, Amazon, Facebook and Apple) are in a strong position because they get to say how their devices and services are designed to make and protect a payment. “They can impact the user experience more than anyone else,” he says. But, at the same time, the relationship people have with their bank is not just around payments. “It’s a question of whether you’d be happy to put all your financial assets into an Apple account. Maybe not,” he says. “Currently, I think most people would stick with their existing bank. Then it’s a question of whether banks can provide a user experience that is good enough for people not just to use it, but to love it.”