Merchant Payments Digest

The Merchant Payments Digest is a regular update from Oliver Wyman to keep merchants apprised of developments in the rapidly shifting payments space.

PAYMENTS SPOTLIGHT


	Transformational payments solutions:The Clearing House (TCH) launched its Real-Time Payments (RTP) solution in the U.S., with BNY Mellon and U.S. Bank placing a test transaction with each other. This is the first new payments clearance and settlement system in 40 years. The solution aims to reduce the reliance on checks by moving funds between accounts in seconds, and comes with detailed messaging capabilities to increase the efficiency of back-office activities such as reconciliation and exception handling. TCH expects merchants who use RTP to benefit from better working capital management and has set a goal for RTP to gain ubiquity by 2020. Source: The Clearing House (https://www.theclearinghouse.org/press-room/in-the-news/20171114%20rtp%20first%20new%20core%20payments%20system)

	Regulatory landscape: The scope of UK’s Open Banking initiative is being expanded to cover all of the EU’s Payments Services Directive (PSD2) products, including credit cards, e-wallets and prepaid cards. The initiative previously focused on current accounts when it was launched in 2016. With the expanded scope, banks will now, based on customer consent, have to make customer data on these additional products available to merchants, technology players and Fintechs, among others. Access to this valuable data collected over the years can help merchants customize and improve their offers to customers – e.g., offer installment loans at the point-of-sale to increase conversion. Customers can also make in-app or online purchases at merchants without having to provide payment details – thereby reducing friction. Source: Financial Times (https://www.ft.com/content/55f4503e-cb95-11e7-ab18-7a9fb7d6163e)

	Customers’ evolving expectations: In a sign reflective of the rise in digital commerce and payments, more millennials and younger consumers prefer shopping online with a debit card than older consumers, according to Vantiv’s 2017 Holiday Shopping Survey. 32% of Millennials and 27% of Generation X use a debit card as their preferred online-shopping method, as compared to 18% of Baby Boomers and 12% of Retirees. However, credit cards are still the preferred form of payment overall for eCommerce purchases, with 50% of consumers preferring it – as compared to 23% for debit card transactions. This highlights the need for merchants to customize payments acceptance and shopping experience based on the profile of customers. Source: Vantiv (https://www.vantiv.com/vantage-point-enterprise/smarter-payments/2017-holiday-shopping-insights)

	Data:Facebook filed a patent to use facial recognition as a method for making secure payments in a physical store, signaling its interest in the consumer payments space. The technology uses GPS data to authenticate the merchant, its location, and the user’s presence in that location. The patent discusses drawbacks of existing authentication systems for in-store payments, including contactless payments which require the device to be unlocked with a PIN, password or biometrics. Facebook’s system would authenticate both the customer and the payment method simultaneously, by capturing a facial image at the POS and matching that with images in a social network, along with a confirmation request to the user’s device. Source: Biometric Update (http://www.biometricupdate.com/201711/facebook-files-patent-for-facial-recognition-for-physical-payments)
	New providers: BKM, the Interbank Card Center of Turkey has developed a national payment scheme ‘Troy’ with the support of banks. Troy’s products cover both online and physical payments and include magstripe, contact, and contactless technology across debit, credit, and prepaid cards. The solution has already achieved ubiquity - covering 2.3 million+ terminals including ATMs, point-of-sale (POS), and e-commerce sites. Going forward, Troy’s value proposition will be enhanced by enabling international acceptance. Source: BKM (http://bkm.com.tr/en/turkey-an-exceptional-market-for-payment-innovations/)

PARTNERSHIP SPOTLIGHT

American Express and Santander launched a blockchain based real-time cross-border B2B payments solution by partnering with Ripple
- Using this solution, U.S. corporates and merchants can send funds instantly to UK-based businesses that bank with Santander
- The players expect the solution to benefit businesses by reducing the cost and complexity of cross-border payments, and by improving working capital management due to the speed of transfers

Source: Reuters
(https://www.reuters.com/article/us-blockchain-amex-ripple/amex-launches-blockchain-based-business-payments-using-ripple-idUSKBN1DG1SX)

Square has partnered with GoDaddy to enhance the sales and payments capabilities of smaller merchants
- With this partnership, Square’s payments solutions for eCommerce sales and online appointment booking has been integrated into GoCentral, GoDaddy's website builder that helps merchants with a physical presence sell their products and services online
- The partnership is expected to benefit smaller merchants making the transition to omni-channel with an optimal payments experience

Source: GoDaddy
(https://aboutus.godaddy.net/newsroom/news-releases/news-releases-details/2017/GoDaddy-Simplifies-Online-and-Offline-Selling-for-Small-Businesses-in-Partnership-with-Square/default.aspx)

MERCHANT SPOTLIGHT

Alibaba the Chinese eCommerce giant had a blockbuster Singles’ Day, with sales topping $25 BN. More than 90% of transactions came through mobile, with 1.48 billion payments processed through Alipay
- In preparation for the event, the company converted 100,000+ retail outlets into ‘smart stores’ equipped to use facial recognition and other newer technologies to process payments
- Alibaba has been successful in integrating the physical and online aspects of retail by enlisting ~600,000 convenience stores and ~1,000 brands to upgrade their computer systems and to become delivery and storage centers

Source: Bloomberg and Forbes
(https://www.bloomberg.com/news/articles/2017-11-12/alibaba-singles-day-goes-global-with-record-25-billion-in-sales)
(https://www.forbes.com/sites/helenwang/2017/11/12/alibabas-singles-day-by-the-numbers-a-record-25-billion-haul/#10466531db15)

To make gift cards more personal, Amazon has patented a new type of digital card
- Using this card, gift givers can set rules or parameters for the gifted item. Parameters can include price range, product characteristics and exception handling to name a few
- This way the recipient is not restricted to a specific product and does not have to be concerned with the returns process and handling gift receipts

Source: CBInsight
(https://www.cbinsights.com/research/amazon-patent-gift-rules/)

Oliver Wyman is a global leader in management consulting with offices in 50+ cities across nearly 30 countries. Our Payments practice works with constituents across the payments value chain to deliver insights with real impact, combining deep industry expertise with powerful consulting capabilities. To have a discussion with Oliver Wyman on your payments issues and opportunities, please contact Beth Costa at payments@oliverwyman.com.