The paradox of digital payments

The paradox of digital payments
At Celent we run a couple of Banking research panels – one on Branch transformation and another on Digital – where any US-based bank or credit union can participate in surveys we administer on a regular basis. Last week we published the report with findings of our survey we conducted in November 2015 on Digital Payments. 42 institutions participated and answered our questions on:
  • How important are digital payments in the context of other priorities?
  • What has been the industry’s experience with digital payments?
  • Where is the industry in its EMV migration journey?
The survey results highlighted the paradox of digital payments:
  • Nearly everyone thinks that digital payments are important, but only 13% view it as strategic priority, aim to lead and invest accordingly. 63% aim to be fast followers and another 23% only invest to stay on par with peers.
  • 71% of participants agree that financial institutions (FIs) should offer branded digital payments (e.g. own digital wallet), but they are more likely to participate in third party wallets, such as Apple Pay, Android Pay and others, than to invest into their own HCE wallets – 46% have no plans for HCE.
So, what should the FIs do in digital payments? Accept that “payments are disappearing” and focus on ensuring that their payment credentials are available for customers to use wherever they want them or fight back with their own branded wallets? Does it have to be an “either/ or” choice? Can they/ should they do both? What are your thoughts? P.S. Our panels are open to any FI in the US – Celent clients and non-clients – and we share the results report with all respondents. If you’re a banker and would like to participate in future Digital Panels, please contact info@celent.com.

First thoughts on marriage between Visa Inc. and Visa Europe

First thoughts on marriage between Visa Inc. and Visa Europe
Today Visa Inc. announced it would be acquiring Visa Europe, subject to regulatory approvals. The press release is here; the executive team also held an investor call earlier today – the recording and the presentation are here. The deal was widely expected, and so should not be a surprise to anyone who follows payments. Still, it poses a number of questions, such as, for example, how effective the combined entity will be in dealing with intricacies of the European market, and whether this would lead to the Europeans calling (again) for a new separate pan-European card scheme. It’s true the European payments market has unique dynamics in terms of regulation and competition, both in cards and in payments more broadly. PSD2 will have profound effects on the existing market players, including Visa. Depending on the final interpretations, some provisions such as scheme and processing separation requirement might introduce undesirable complexities to the integrated Visa. However, I am sure none of this news to Visa’s management and they must have a plan for how to deal with the regional challenges. Visa has committed to maintaining a strong European presence, including an “empowered European leadership team and in-country resources”, “local data center”, and “differentiated country and regional strategies.” Furthermore, the potential synergies are real – a more consistent product set and fewer duplicated efforts should help Visa drive innovation and move to digital on a global basis.​​​ Visa also said it was planning to incur up to $500 million of integration-related costs over the next 4-5 years, most of which would go towards integrating Visa Inc. and Visa Europe systems. In the past, I have seen on occasions Visa Europe appealing to European banks by playing up its ownership structure in Europe and contrasting it to the global approach of MasterCard. This argument is now gone – both networks will be global commercial entities. Would this re-open calls for a pan-European card scheme? I had a look at this issue a few years ago in the Celent report, “In Search of a Third European Card Scheme” and concluded that it was “time to move on.” I still stand by that conclusion today; in my view, it has always been a politically motivated initiative, with no particularly clear business rationale. When “plastic” was the main/ only form of electronic payment, it at least made more sense to consider various options. Now, the world is changing rapidly, as digital payments and real-time networks between bank accounts emerge. Let’s hope that the European banks will find better use for their financial windfall from this transaction than trying to create a new pan-European card network. Given the original “put” option, it was always more a question of “when” rather than “if”. Congratulations to Visa team for deciding to move forward with the deal. P.S. Stay tuned for my reflections on last week’s Money 20/20; I was planning to post those today as well, but Visa’s deal prompted a number of inquiries, so wanted to offer a few thoughts on that first.