Industry News & Papers
Discovering cashless payments
From the passive observer, through an active user, to the beginnings of professional career in banking and cashless payments. How did I learn it? What did surprise me? What difficulties did I meet, and what proved to be easy and intuitive?
My very first experience with cashless payments was about 10 years ago, back in high school. Some of my colleagues possessed their first credit cards. Back then I used only cash. I could pay anywhere without any issues while my friends often had to look for an ATM in some haste only to get back to the shop and pay with cash. Moreover in some situations they had to pay substantial fees for withdrawals. In that period cashless payments seemed to me inconvenient and impractical.
Few years later, when I was studying, I opened my first bank account and received a contactless enabled payment card. I quickly found it very convenient. As a result I ceased to have cash in my wallet and started to avoid cash-only shops. From this period I remember two things best. The multiple warnings concerning lack of security of contactless payments on the one hand, but on the other merchants kept encouraging and treating Tap&Go as a default payment method. That attitude along with the convenience of use changed my shopping customs permanently.
At the beginning of 2016 I started my career in financial sector. I was working in a bank as a client’s advisor and got promoted to a head of sales unit. Back then I was thinking myself an expert regarding functioning of bank branches and products. I could easily handle clients who came to me with doubts and questions concerning Elixir transfers, SEPA transfers, currency conversion and activation procedures and fees for certain services on different types of payment cards. This period of my education was all about retail banking.
The reality verified my views and knowledge very quickly, when in the beginning of 2017 I started to prepare a short training on the subject of card payments for Swan McAdemy. I read many publications on cashless payments and consulted multiple experts, but in the first few weeks every new information brought new doubts with it. On many occasions I came across seemingly contradictory explanations, definitions and regulations. And that not considering novelties, but things that had been functioning in the industry for years. In this period I learned a lot of new vocabulary related with cashless payments possessed general knowledge about functioning of payment schemes. Below I will provide you with some examples of difficulties and doubts, which appeared during my cashless education.
The first one concerns 3-party and 4-party payment schemes. The differences between them seemed clear. In 3-party scheme we have cardholders, merchants and payment organization which issues cards and does the transaction processing and settlement. In 4-party scheme there are two additionally distinguished roles of issuer and acquirer (3+2=5, why is it called 4-party?). I started doubting my knowledge when I remembered that the bank I worked for issued AMEX cards. How is it possible when in 3-party scheme there is no issuer? In addition, when I visited Diner’s Club website I saw the whole list of acquirers with which a merchant have to enter a contract in order to accept their cards. Is there an acquirer in 3-party scheme also? Only after I realized that the relations between stakeholders are formed at various levels I could understand how all of that was possible. Then it was clear that in some cases the bank is an issuer and in other only a sales agent. That helped me realize how important in the industry are the matters of responsibilities, risks and agreements.
Another challenging subject was the Payment Facilitator institution (PF), which is often described as small merchant aggregator providing certain services in the name and under the supervision of an acquirer. Going through the documents released by Visa and MC I encountered multiple differences in their approach to the PF institution. Consultations with experts did not give me clear answers. I often heard: “this rule is dead, no one does so in Poland/Europe”. The examples of PF institutions raised my doubts even more. It appeared that some companies I know (such as PayPal, PayU or Square) had the status of PF institutions while I thought that they are conducting some different king of business. Analysis of this subject once again gave me the impression that market practices have as big influence as formal rules.
Another difficult subject were the technical standards of contactless cards. Who defines them? In case of EMV cards it is EMVCo and most payment organizations use the same standard. However in case of contactless cards every payment organization has its own technical standards which were developed and successfully implemented before EMVCo even started working on the subject and released its own standard. The attempt was too late, but it is not the lonely example of unsuccessful implementation. During my cashless education I encountered multiple projects of “innovative” payment methods, which did not gain the sufficient scale and died. It includes also projects of big companies e.g. mobile wallets providers. This example shows clearly that an idea is not sufficient. It has to come along with the solution for expansion and gaining sufficient scale and reach. But then it starts its own life in the industry and its difficult to change or standardize it.
The next example of challenging subject are alternative payment methods. In various publications we can see that the area is growing in comparison to card payments. Still I did not come across a clear definition which payments are considered card payments, and which alternative. I guess it is the result of the marketing strategy of many companies which want to offer something “alternative”. We have similar situation with FinTechs, PayTechs, RegTechs. All of it makes it really difficult to distinguish the reliable sources from the fake ones not only for beginners but sometimes also form experts.
Cashless payments are still rapidly developing and many analogical examples will appear in future. Security and payment automation are becoming more and more important. Solutions using biometry, blockchain and API may be a great part of cashless payments future. Riding the wave of popularity there will appear multiple companies with their ideas and the time will tell which of them will succeed and change the payment industry for good.
How is it possible to learn cashless payments? The necessity of having certain knowledge from many domains such as technology, regulations, security, business models and market practices will prove challenging for sure. What’s more one has to constantly update his/her knowledge, because the changes in payment industry are frequent and dynamic. During my short career some of the information have already become out-dated. There is no way to possess all the knowledge from all the important domains yourself. In order to overcome all the obstacles from my experience I can advise a few methods: developing the whole picture of the subject, finding the source and replaying the whole history of the problem, consultations with experts, determination and attending conferences. Thanks to all of it even a beginner can sometimes surprise experts with his/her knowledge.
The paper has been published in Polish Cards Almanac ( http://cardsalmanach.eu/ ) in Dec 2017.