The report Investments in Paytech analysed the investment lifecycles of 113 PayTech companies founded or operating in key western markets (France, Germany, Italy, Spain, UK and US) between 2010 and 2015. It found that UK and US companies dominate the market almost completely, with 90% of start-ups originating in these countries.

While the US has more PayTech companies overall, the UK punches well above its weight. In 2010, 13% of PayTech start-ups were based in the UK compared to 58% in the US. By 2015, the US had remained nearly static with 61% of start-ups based there, while the UK had more than doubled its share to 28%. Seed funding growth reinforces this view.

The average UK PayTech start-up received $1.8m in seed funding in 2015, more than double the $0.84m from five years ago, and is now nearly on a par with its US-based rivals ($1.8m).

The lifecycle of UK PayTechs is also impressive, with start-ups remaining independently active for longer than peers in other western markets including the US. After five years, 43% of US PayTechs had either failed or had been acquired, while all of the businesses in the UK remained active and independent. While this indicates that the UK is better at creating and fostering sustainable PayTech companies with long-term prospects, the lack of acquisitions suggests some caution about acquiring start-ups before they are fully scaled up.

Key findings

o    The US and UK dominate payments in western markets

• 90% of PayTech start-ups originate in the US or the UK

o    The UK is the second most attractive place to set up a payments business after the US

• In 2010, 58% of PayTech start-ups were in the US and 12.5% were in the UK
• In 2014, 61% of PayTech start-ups were in the US and 28% were in the UK

o    UK PayTech seed funding more than doubled between 2010 and 2014

• In 2010 UK seed funding averaged at $0.84m and grew to $1.8m in 2014

o    The UK is now on a par with the US when it comes to seed funding

• In 2014 US seed funding averaged $1.9m compared with $1.8m in the UK

o    UK PayTechs remain independently active for longer than US players

• 43% of the US PayTech companies which were established in 2010 have either closed or been acquired
• 100% of the UK PayTech companies included in this survey are still independently active

“It’s gratifying to see the UK PayTech sector punching well above its weight – not only creating new ideas that become new companies, but also creating businesses that thrive beyond the start-up phase to challenge the bigger players,” said Tony Craddock, Director General of the EPA. “While investors have recognised the potential in UK PayTech for some time now, it seems that prospective acquirers are less certain. PayTech companies and the broader payment industry needs to do a better job at showcasing the scale and scope of success in the UK.”

“One area the UK has led on is regulation and start-ups are clearly taking advantage of the unique conditions of the UK to create sustainable businesses. However, much more can be done. Regulators should take note of what’s possible even when some aspects of the system work against start-ups, such as the cost and complexity of accessing Faster Payments,” concluded Craddock.

“With the unprecedented speed of evolution in payments, it’s critical that we take a breath and evaluate whether as an industry we are doing enough today to support the payment businesses of tomorrow,” said Kriya Patel, European Managing Director, The Bancorp. “The report highlights the challenges and opportunities involved with funding, an analysis of the investment trends currently being witnessed, as well as an assessment of the business and investor lifecycles currently anticipated in this growing sector. From entrepreneurial start-ups to those on recognised global indices, it’s required reading.”

The post UK closing US lead on FinTech investment in PayTech appeared first on Accourt Payments Specialists.

Thinking ahead from the past is always fraught with hazards. When it comes to the future of digital payments, it may be a case of same-same but different. Various technologies, propositions and use cases will continue to co-exist in the digital payments future.

“We believe the pace of change taking place in the payments industry is going to increase as digital technology continues to advance,” says E-bai Koo, senior vice president, global network business, American Express. “While the number of digital payment options is growing, we believe it is too early to determine whether any one platform or form factor will win out. Customers adopt new technologies when they meet their current needs better than how they are being met today.”

For John Berns, managing partner, Accourt, co-author of the Digital Payments Report 2016, various factors are coming together to drive the perfect storm for digital payments.

“Historically innovation has generally been hardware-driven so you have had to wait and catch the innovation wave. For example, no-one upgrades to the latest model of digital television immediately. Consumers only adopt new technology as and when their old device or technology reaches the end of its natural life or breaks down,” says Berns.

“The payments industry has invested heavily in EMV so I think that this will be the consumer interface for some while to come in the physical world — and the survey results particularly around contactless reaching critical mass bear this out. In the digital world, however, it’s a complete revolution.”

“Consumer adoption of new digital payment methods will be far more rapid as you’ve got the perfect storm as technology, regulation and social desire to operate via a single device are coming together.”

NFC contactless: the de facto standard

Contactless payments are growing strongly and NFC technology will be one of the drivers of digital payments at point of sale (POS). The Smart Payments Association reports that around 40 percent of chip cards shipped in 2014 included contactless functionality. Meanwhile on the acceptance side, 9.5 million NFC-capable terminals were shipped globally in 2014. This represented a 33 percent increase on 2013, bringing the worldwide installed base to 21.4 million units, according to Swedish research firm Berg Insight. 

Although consumers can already make higher value contactless payments, typically for payments more than €50, by authenticating themselves with their fingerprint or PIN on their mobile devices, this is currently only available at selected merchants. However, the acceptance infrastructure for mobile contactless is to be extended. By 2017, all contactless terminals already deployed across Europe will be upgraded to allow high-value contactless functionality. And by 2020, all European POS terminals will allow this.

Survey respondents were confident about contactless acceptance reaching critical mass. The majority of respondents believed that this would happen by 2018. 52 percent thought that North America would achieve critical mass by 2018, whereas for Asia and Europe the figures were higher at 59 percent and 75 percent respectively.

On the issuing side, 53 percent of survey respondents thought that critical mass would be achieved in North America by 2018. 62 percent thought that Asia would be ready, whereas 72 percent felt that Europe would be at this level by 2018.

Wearables and connected commerce 

Where are wearables? They are already here, for example American Express and fitness tracker Jawbone announced a partnership in April 2015. This marked the first time consumers could use a wearable fitness tracker with an embedded NFC chip for Amex payments.

As second- and third-generation devices are deployed, the market for wearables and connected commerce generally will continue to grow. According to the International Data Corporation Worldwide Quarterly Wearable Device Tracker, the wearable market worldwide will reach 111 million units in 2016, an increase of 44 percent on 2015 figures. By 2019, total shipments are forecast to reach 214 million units, a five-year compound annual growth rate of 28 percent.

The debate around when wearables will reach critical mass, how much they will displace cash and cannibalise existing card spend almost misses the point. Wearables are not for every consumer or every payment situation. However they broaden the scope of digital payments beyond the plastic card. They are also part of the greater trend of integrating and embedding payment into a broader experience — making them invisible — for greater speed, convenience and ease-of-use.

Digital wallets 
With Apple Pay and Samsung Pay live in many markets, digital wallets are firmly back on the payments agenda. That said, there have been various high-profile causalities in the wallet wars, with more expected. Google Wallet has seen poor take-up and numerous iterations since it was first launched in 2011. Visa Europe’s digital wallet V.me by Visa has been withdrawn two years after launch and the investment of around €300 million.

“There are a lot of digital wallets out there — some of the local schemes are looking at this — but we are starting to see some consolidation,” said Berns. “The revised EU Directive on payment services (PSD2) may well lower the entry barriers even further to new entrants in the space, which could interest the internet giants. After all, iTunes is a stored value mechanism, so it’ll be interesting to see how Apple, Google and Amazon compete in the wallet wars.” 

Handset manufacturers and alternative payment providers were judged the most likely innovators in the wallet space across all regions, according to the survey respondents. Mobile operators faired the worst. Yet when it came to trust, payment networks and banks were most trusted to deliver wallets, and merchants and mobile operators the least trusted across all regions.

Unsurprisingly, acceptance and convenience were the factors most likely to drive wallet usage, according to survey respondents. Ubiquitous coverage, or allowing the consumer to use the wallet wherever they want to use it at the very least, preferably via a simple, one-click checkout are the fundaments of a winning proposition.

Technology should be regarded as an enabler to the success of digital wallets, rather than the starting point for a solution. Due to the investment in EMV, the payments industry has favoured NFC for point-of-sale mobile payments, and has perhaps been somewhat standoffish about QR codes. Consumers, however, appreciate the speed and convenience of scanning such codes to make retail or bill payments in-store. Tencent’s WeChat wallet and Alibaba’s Alipay have capitalised on this insight in incorporating choice as well as speed and convenience into their propositions. Their respective wallets have been available to users in China for some time and both companies are looking to expand into other markets and regions.

There is no single use case or one-size-fits-all for digital wallets. As with so much in the payments industry, winning propositions must address both acceptance and usage in a compelling way. They build scale quickly by piggy-backing existing acceptance infrastructure, rather than trying to re-invent it. As few consumers go out of their way to pay in a different way, winning propositions offer incremental value to consumers in addressing an un-met or unacknowledged need or pain point compared with existing alternatives.

Security and trust

When it comes to security and trust in digital payment methods, the present is the baseline for the future. “Security is first and foremost for American Express. When we make new technology available to our customers, we do so in a way that provides the same level of security they are used to receiving from us when using traditional charge and credit cards,” says Koo. 

Opportunities and risks exist in the same future. They are inherent to one another. As Koo explains: “While advancements in online and mobile payment options have widened the scope of fraud, they have also created new opportunities to fight fraud.”

Koo cites the American Express Token Service launched in November 2014. With tokenisation, real card account numbers are replaced with tokens, eliminating the need for merchants to store account numbers in the clear, and limiting the potential damage if their systems are compromised. Tokenisation also enables issuers to deploy new digital payment services, such as Apple Pay and Android Pay, in more secure ways.

“Digital technology has also enabled American Express to communicate with and service our card members in more ways. They can sign up to receive alerts about suspicious activity on their accounts through e-mail, SMS and mobile app push notifications,” adds Koo.

The future of digital payments

What does the future of digital payments look like? The future will be more omni-channel, namely using all sales channels interchangeably to serve the customer. More ‘click-and-collect’ and ‘endless aisles’ propositions are expected as merchants consolidate their back-end systems. However, just as service will become more channel agnostic, it will also become more device agnostic as customers expect to transact from any device, any time, anywhere. The future is increasingly digital, which means a greater take-up of digital payment methods.

These methods include automated clearing house (ACH) payments, which are expected to rise in prominence, particularly with the global movement towards immediate or real-time payments. Real-time settlement on the back-end is key to this because it minimises risk for everyone. The merchant receives faster settlement. The consumer sees the transaction immediately and is able to support, approve and challenge it as appropriate.

“Immediate payments is great fit with what is happening in the digital space and the perfect storm I mentioned earlier. So the short answer about the future of digital payments is: there is going to be more of it,” according to Berns.

Succeeding in the digital future

The digital future is about scale, partnerships and speed-to-market. According to Koo at American Express, advancements in digital technology have opened up opportunities for companies of all sizes to get into the payment business, and to grow scale almost overnight.

“We believe that scale wins and partnership is key to achieving success. Given the complexities of the payments industry, companies that can find ways to partner and break into the ecosystem have a much better chance of succeeding.”

“If you look at the amount of funding going into FinTech at the moment and the rate at which technology and innovation are moving, I think that the salvation of traditional players is partnerships and abandoning the build-it-yourself mentality,” says Berns.

“Payment industry incumbents and traditional players definitely have a role to play in making good lending decisions and managing deposits. Beyond these core functions, the technology innovators also have a role to play. Fortunately the industry is big enough for everyone to have a role.”

The Digital Payments Report 2016 provides views and projections on the state of payments based on research and a survey of industry executives, observers and analysts.

The post The future of digital payments appeared first on Accourt Payments Specialists.

To accompany the report, 2000 consumers were also polled on their attitudes to current payment methods as well as what they would like to see in the future. The results have clearly demonstrated that, whilst we are a nation that is still getting to grips with a whole host of new ways to pay, the appetite for innovation is accelerating.

Empowering payers to make informed purchases in a way that suits them 

83% of consumers surveyed by VocaLink admitted they check their bank balance before making a significant purchase – highlighting that banks have a pivotal role to play in innovating ways for customers to maintain visibility and control of their money. It is likely that in ten years’ time, making informed decisions on expenditure will become even easier since portable communication devices (from smartphones, to watches, glasses, etc.) will help us budget more effectively, providing more options for ring-fencing funds within our bank accounts in seconds and even automatically helping consumers access better ‘deals.’ Over 50% of consumers would be interested in these sorts of apps.

However, flexibility in how we pay is already an acute need for many today. The employment market is changing with a growing number of workers reliant on multiple income flows, rather than having one steady and periodic source of income. One prediction regarding this issue is that by 2025 incomes could become even more erratic so should be met with technology that offers the necessary agility to accommodate these customers.

Similarly, another contributor to the Moving Money whitepaper believes that one of the most successful future innovations will be to make it easier to quickly ‘undo’ payments made in error to the wrong person or organisation.  This is a problem nearly 1 in 4 people in the UK, (rising to 1 in 3 for those under 45), have already experienced according to VocaLink’s consumer research. Of these, approximately three quarters eventually got their cash back whilst the rest simply did not see their money again, highlighting the need for a universal process to be devised and adopted in the event of erroneous payments.

Greater security demanded – but flexibility over identity authentication is expected

However we end up paying for things in 2025, security is the number one concern for consumers – 65% identified this as their number one priority when it comes to financial transactions. Contributing experts to the paper agreed, predicting that by 2025 there will be multiple ways of authenticating identity before payment can be made. In fact, as smartphone security increases, physical payment cards are expected to become obsolete since account details will be stored on the device itself. We’ve already seen a glimpse of the impact that biometrics-initiated mobile payments could have in the future and VocaLink’s research has found 1 in 4 UK consumers would consider using biometric technology to access banking or payment services². However, by 2025, some experts believe biometrics will be the principle method to authenticate our identities, with the usage of facial recognition in particular significantly reducing fraud and time/hassle constraints in making payments.

Real-time payments will offer certainty

Over the next ten years we will likely see an increase in adoption of immediate payments, via the Faster Payments system, as well as new innovations which build on this existing infrastructure. Larger transactions will become available on an immediate basis, particularly as the value limit on transactions rises past the current level of £100,000. This has obvious benefits for SMEs who will make and receive payment quicker, providing greater cashflow certainty and enhancing growth potential. Paying staff salaries will also be increasingly easy, as a payment can be made at the end of a week to reflect the exact hours worked with the employee receiving their salary immediately.

“The UK is in a fantastic position to make real time payments and all these other predictions a reality over the next decade. We have a world class digital payments infrastructure and this puts us at a distinct advantage – however if we are to stay ahead of the crowd, it is vital we start laying groundwork for the future now,” explains Chris Dunne, Director at VocaLink.

“The collective insight of this whitepaper has shown us what we could and should be able to achieve in the payments sphere. Disparate corners of the UK’s society and economy will benefit hugely if we can map their needs against the evolution of the UK’s payment system and the burgeoning technology that supports it. This collaborative effort is only the beginning; we are keen to catalyse discussion across all relevant parties about what comes next and set the wheels in motion to make future payment technology a reality.”

The post The next decade in payment innovation appeared first on Accourt Payments Specialists.

The research also reveals that mobile first has now become mainstream, while innovative disruptive technologies such as block-chain will potentially become a very attractive alternative to traditional payment methods, transforming payment processing and acting as significant drivers for change this year.

The fourth annual report, ‘The Changing Face of Payments: A Review of Current Payments Infrastructures and Implications for the Future’, predicts that several trends have reached their tipping point. According to 90% of responses, mobile devices will represent a mainstream option for person-to-person or person-to-business payments within the next five years.

What are the key infrastructures you process payments through today?

Digital wallet features continue to be developed, a trend encapsulated by the launch of Apple Pay, which has made such offerings more accessible. The executives surveyed predict the continued influence of such brands, with 39% of responses suggesting that Apple and Google will dominate mobile payments over the next five years.

The study also highlights that cryptocurrency and block-chain technologies are now seen as real drivers for change and are gaining mainstream recognition, particularly in back-office infrastructures.

The emergence of digital-only lenders such as Atom Bank in the UK emphasises the conversion of previously marginal initiatives into the everyday. However, the report has one caveat: that regulation and the use of cryptocurrency markets and Bitcoin will potentially be a major issue for payments regulators and participants in 2015, not least given how fast these new entrants have evolved from emerging technologies to real contenders in the payments industry.

Change leaders in processing infrastructure

For the first time, regulation is not seen as stifling innovation anymore and those surveyed rank the two as equally important in terms of short-term industry development (32% and 33% respectively for banks, and 34% by those from non-banks).

However, innovation is seen as far more important in the long-term, due to competition, market opportunities and an ever-increasing need for more agility for faster time to market solutions (29% of all surveyed consider innovation a priority, compared to 17% for regulation).

Both regulation and innovation are now key considerations for companies striving to optimise customer journeys that are cost efficient, safe, flexible and secure, making them a real investment priority. The importance of innovation is being driven in particular by new entrants to the industry that are major sources of disruption in establishing new ways to pay and to disintermediate or differentiate in a fluid market.

“The payments industry continues to face an unprecedented pace and scale of change, driven by a potent mix of social, technological, political, competitive and regulatory factors,” says Tony Virdi, Vice President of Cognizant’s Banking and Financial Services Practice for the UK and Ireland.

“Innovation is crucial and traditional players need to adapt quickly, with agile and secure technologies to improve their business models and deliver better customer experience. The speed at which these innovative concepts have developed from ‘new kids on the block’ to major agents for change is extraordinary and the key to winning in the ‘Innovation Game’ is to be a part of it. It is essential that financial institutions are able to diagnose, adapt and respond to the changing market with agility in order to respond to ever evolving customer needs – a positive customer experience is key.”

The post Innovation in payments initiatives appeared first on Accourt Payments Specialists.

ECB: Digital currencies unstable

unstable” whilst remaining upbeat about the potentially transformative benefits they may offer in payments.

The ECB study builds off an earlier study published in 2012, offering both a general overview of digital currencies as well as follow-up analysis on the potential benefits and risk of using so-called virtual currency schemes (VCS).

The central bank, which oversees national-level central banks in the eurozone, suggested in the report that digital currencies could impact the ECB’s ability to function. However, it stopped short of calling digital currencies a threat to its operations because of its lack of widespread adoption among consumers and businesses.

The report’s authors note:

“Although VCS units are not denominated in euro, they do have the potential to have an impact on monetary policy and price stability, financial stability and the smooth operation of payment systems in the euro area.”

The viewpoint echoes a report released last year by the Bank of England, which in September acknowledged that, if widely adopted, bitcoin could “severely impair” its ability to govern the UK monetary system. The Bank of England said in a study published last month that the technology could fundamentally change the way that central banks function.

Virtual Currency Schemes – A Further Analysis

Cross-border payments disruption

The ECB outlined a number of areas in which digital currency development could broadly impact the traditional payments space, noting that defects in the remittance ecosystem could provide an opportunity for the technology to flourish in the long term.

The report’s authors state that digital currencies like bitcoin, given their cost structures, make the technology a potentially attractive option for both domestic and international remittances. While acknowledging the technological resources required to build such a network, the ECB notes:

“…there is major room for improvement, especially in [the remittance] field, and hence a VCS could have the potential to offer a better service than traditional providers (banks, money remitters and informal remittance systems).”

The ECB goes on to say that a significant barrier to broader adoption for remittance is the lack of centralized protections for those who opt to use digital currencies.

ECB highlights risk of ‘scamcoins’

As well as including refrains of central bank warnings about digital currencies, such as a perceived lack of transparency and market volatility, the ECB also touched on the growth of altcoins.

The report suggested that altcoins may one day serve as future payment networks that, in the eyes of the ECB, could compete with bitcoin given the differences in design, distribution and implementation.

At the same time, the report highlighted how altcoins pose added risks for investors because of the nebulous nature of some projects, noting:

“It is too early to tell what the future of these altcoins will be. A great many of them could be nothing more than “scamcoins”, ie VCSs that are created with the main objective of swindling naive buyers, either as consumers and payers or as investors.”

Specific risks named in the report include a lack of specific information about an altcoin network’s management, premining and market illiquidity.

The post ECB: Digital currencies unstable appeared first on Accourt Payments Specialists.

Early currencies were actual coins made of precious metals, which people trusted to have an intrinsic

Can we trust Cryptocurrencies?

value that they could use to obtain goods or services. Today, most countries use fiat currencies which have no intrinsic value and are not tied to any physical value such as precious metals. Instead, fiat currencies are backed by government guarantee – entirely lacking in physicality and intrinsic value, fiat currency demands ultimate trust.

The identity of those involved in a transaction (and the ability to verify such identity) is invariably a key component of this trust equation. In order for the fiat currency system to function, the currency issuer and each of the key players in a payment chain must be trustworthy to ensure that the currency is not counterfeit and that the currency will not be stolen before reaching its final destination.

But in the deliberately anonymous world of cryptocurrencies, where value is established by algorithms and verified by the electronic transfer of data, how can trust be established without proof of identity? In light of the widely reported vulnerability of e-wallets, can we ever truly establish the same trust in cryptocurrencies that we have in our own fiat ones today?

The answer perhaps lies in an appreciation that the trust deficit will only be met once there is sufficient confidence in the technology which underpins the currency and the key market players in cryptocurrency transactions are held to a high level of accountability. In fiat transactions today, “money” must pass through many hands before reaching its final destination. When you pay for your shopping with a credit card, your personal details are collected by the shop, transmitted to their acquiring bank that then transmits your details again to your card issuing bank. After initial approval, these details are transmitted along this chain once more before the funds are actually released.

This chain demonstrates a number of potential points for a security breach. Despite this, society generally trusts in the system because the banks and payment processors are regulated and we can feel secure in knowing that the parties involved are required to enforce a high level of security. Even if a breach occurs, we know that the parties involved will be held accountable and trust that we as participants will have the opportunity for redress.

Cryptocurrencies, on the other hand, are entirely decentralised and value passes directly from payer to payee. Quite clearly, there are far fewer potential points for a security breach along the Bitcoin payment chain that solely consists of a payer and a payee. There has also never been a recognised security breach or defrauding of the actual Bitcoin ledger, known as the Blockchain, to date. The Blockchain is considered to be extremely secure as it publically records every transaction that is ever made.

For a system that seems to be so secure in its technology to be plagued with instances of hacking and fraud (most recently the hack of the popular Chinese Bitcoin exchange Bter), the real trust issue lies with the gatekeepers between cryptocurrencies and their traditional fiat relations.

Cryptocurrency-related businesses that act as interfaces with fiat currencies, such as exchanges and payment processors, are largely unregulated by any regulator worldwide. They have also been the generators of the largest reported hacks to date, causing widespread mistrust in the system and extreme volatility in cryptocurrency pricing. However, this mistrust stems from the lack of accountability of the cryptocurrency-related businesses that are able to operate without any required disclosure of identity or location.

To condemn cryptocurrencies as a whole based on the poor security of a few rogue market players would be tantamount to condemning a fiat currency because of a few bank thefts. If currency is stolen from a bank, its security is increased. Consequently, when a cryptocurrency exchange is compromised, it should follow that the solution should be increasing the security of exchanges. However, unless and until the loss falls on the exchange, there is no incentive on the exchange to change its behaviour.

Indeed, it is only when the behavioural and organisational standards are enforced by industry or national regulators that the collective conduct and security of the cryptocurrency industry will be elevated. When responsible conduct of participants is required, confidence in the market will follow. It is therefore in the best interests of most cryptocurrency-related businesses to support the push for regulation and instil trust in the wider currency platform.

It is only by learning how to play this trust game effectively that cryptocurrencies have any real shot at viability: if consumers feel able to trust in the industry that has thus far been plagued by hacks and security breaches, cryptocurrencies could even revolutionise the way we live.

It should therefore be a truth universally acknowledged that a cryptocurrency exchange in possession of fortunes, must be in want of good regulation.

The post Can we trust cryptocurrencies? appeared first on Accourt Payments Specialists.