Thursday, 27 July 2017

PayPal recipe for a successful transformation in Payments

PayPal reported yesterday 2Q17 results that demonstrates its solid position in the Payments industry. In the press release Dan Schulman, President and CEO of PayPal describes Paypal´s recipe for success:

“Our strong results reflect PayPal’s transformation from a single product to a platform company, from a vendor to a strategic partner to both merchants and ecosystem players, and from a checkout option to an increasingly more central way for consumers to manage and move their money.”

PayPal Reports Second Quarter 2017 Results and Raises Financial Guidance for Full Year

In my view one of the highlights of that recipe is the strategic partnerships. Since early 2016, PayPal has announced 22 partnerships agreements with card schemes, major US issuers, global tech companies, and select international players. This is really transformative, as PayPal is being now recognized as partners by certain players previously thought of as competitive threats.

Recent metrics suggest that this new direction is paying off:

  • TPV Growth: 26% y/y
  • Net Revenue Growth: 20% y/y
  • Active Account Growth: 12% y/y (or +6.5mn to 203mn)
  • Transaction Growth: 23% y/y
  • Mobile Payment Volume Growth: 50% y/y to 34% of TPV (vs 32% in 1Q17).

Friday, 21 July 2017

HR Treasury response to PSD2 public consultation dispels some doubts

It is six months until the PSD2 comes into affect, and there are many questions not answered yet about its applicability. This week, the HM Treasury has published its response to the consultation document published in Ferbruary 2017. This response dispels some doubts some players still have on what banks have to deliver from 13 January 2017, the role of screen scrapping and APIS during the transitory period or the access to credit cards for initiation of payments.

The documents lists the 85 respondents in which you interestingly will find Apple.

Below a summary of the main points related to AIS/PIS:
  • The government can confirm that, from 13 January 2018, ASPSPs will have to allow access to payment accounts for all registered or authorised TPPs, unless they have an objective reason (such as fraud) to deny access. The FCA sets out further detail on blocking TPPs for fraud in their draft Approach Document. ASPSPs will not have to provide access to unregulated or unauthorised TPPs.
  • ·         Prior to the RTS coming into effect, registered or authorised TPPs will be able to access consumers’ accounts directly by utilising their login details (commonly known as ‘screen-scraping’), or via Application Programming Interfaces (APIs) such as those designed to the Open Banking Standard. This is in line with the PSDII, which states that all registered or authorised TPPs must be able to access accounts.
  • ·         The government’s expectation is that the Open Banking directory and standard APIs will start to be available to TPPs for the majority of UK consumers’ current accounts from 13 January 2018. The government is of the view that this access route offers a more secure and stable interface for ASPSPs, while also creating a more competitive ecosystem for TPPs by lowering the barriers to entry. The government therefore strongly encourages TPPs to use these APIs where they are available, other ASPSPs to use the Open Banking standard APIs for their payment accounts, and the Open Banking Implementation Entity to broaden the scope of Open Banking to the full PSDII product suite in due course.
  • ·         ASPSPs will only be expected to provide equivalent access to that available online to customers. Therefore if consumers cannot initiate a payment from their online credit card account, PISPs cannot initiate a payment either (and therefore have no right of access). Equally if there is no online account available (as is the case for many gift cards) there is no requirement for access to be provided.
  • ·         The government maintains its view that direct debits are out of scope of payment initiation services unless this facility already exists within a user’s online payment account. The PSDII definition of payment initiation also does not extend to cancelling or amending existing direct debits or standing orders.
  • ·         Regarding specific access routes for AIS/PIS services, the government:

o   is aware that the Commission is examining the question of whether certain corporate systems, such as those operated by SWIFT and host-to-host services, should be exempt from the scope of the AIS & PIS regimes
o   does not intend to explicitly carve TPMs out of the definition of AIS/PIS services, as they could be used as an access route for TPPs providing services which should be in scope.
  • ·         Regarding which TPP needs to be authorised if there is more than one, the general rule is that the TPP which the customer has a contractual relationship with for accessing their account is the TPP which needs to be registered or authorized.
  • ·         The government recognises the concerns of ASPSPs who are seeking compensation from a PISP (where the PISP is liable) and can confirm that ASPSPs will have a right of action against PISPs in the event they breach their regulatory obligation to refund an ASPSP for an unauthorised transaction. However, we would also encourage industry to develop a voluntary solution to better address this issue for all parties involved.

Wednesday, 12 July 2017

The Hard Truth About Business Model Innovation

Business Model Innovation is one of my favourite topics. I read this article a few months ago, and re-read that again this week; I think that as any other Clayton Christensen´s article is worth reading. My favourite quote of the article is:

"Over the long term, the greatest innovation risk a company can take is to decide not to create new businesses that decouple the company´s future from that of its current business units".

The Hard Truth About Business Model Innovation

This made me think about the latest innovation attempts by banks. Specially, the creation of new units, normaly under the name of New Digital Business, where they try to innovate and generate new businesses. However, I always had the impression that business model innovation wasn´t really a priority for these new created units, and that their efforts weren´t really aimed at decoupling the company´s future from that of its current business units. Well, apparently, until now:

"Diana Biggs has been appointed as Head of Business Model Innovations for UK & Europe. Biggs will oversee all business model innovation projects, including managing the ‘test and learn’ proposition opportunities related to open banking and PSD2".

HSBC Makes Key Hire To Augment Digital Innovation Team