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.”

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Advancements in digital technology continued to shape the payments industry in 2015 as mobile,

 Digital Payments Report 2016

online and other digital forms of payments moved into the mainstream.

From mass transit to gas stations and supermarkets, businesses of all sizes, across all the regions surveyed, now accept various types of digital payment, making paying for goods and services quicker, but above all, easier for the consumer.

While this seems very encouraging, what does the landscape look like beyond 2016?

The Digital Payments Report set out to survey and evaluate all the Payment industry stakeholders from the three major payments markets in the world: Americas, Europe and Asia Pacific. The industry survey respondents were largely senior executives from Card Issuers and Acquirers, Retail Banks, Financial Institutions, Payment Networks, Mobile Network Providers and FinTech suppliers.

The responses across the regions offer a unique insight into how the Payments industry is evolving in 2016 and beyond.

Download the REPORT HERE

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In an interview with RTL Nieuws broadcast on Monday, ECB executive board member Yves Mersch said the

ECB plans new system for bank transfers

system would let a consumer link, for instance, her telephone number to her International Bank Account Number, or IBAN.

Under the system, “to send payment over your telephone from one country to another, you go onto your contact list, you take the name of a person, and you would immediately also get his IBAN”, Mersch said.

The chief obstacles to the idea are legal, not technical, he added.

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They are projected to grow at a rate of 8.9% to reach a record high of 389.7 billion transactions,² up from 2013’s 7.6% growth rate. Driven by a combination of factors including robust growth of non-cash transactions volumes in Emerging Asia ³ and widespread adoption of mobile technology for payments in mature markets,⁴ the volume of non-cash payment transactions grew faster than GDP across all geographies in 2013.  For 2014, growth is expected to have been propelled by the continued economic recovery in mature markets, rapid expansion in China, adoption of mobile and contactless technology, and the global move towards Immediate Payment ⁵ schemes.

Number of non cash transaction by region

Emerging Asia continues to push growth upwards

Non-cash transactions in Emerging Asia are expected to have grown by 27% in 2014 from 22% in 2013 driven by increasing internet use and the adoption of mobile payments. In particular, non-cash payment volumes in China are expected to surpass those in Germany, the UK, France, and South Korea, moving it into fourth position globally, behind the US, Eurozone, and Brazil in first, second and third place respectively. China posted record non-cash payment growth of 37.7% in 2013 as regulators accelerated the opening of the domestic payments card market to overseas competition and point of sale terminals were rolled out across the country. Mobile payments also grew significantly in volume – by 170% – to reach 4.5 billion transactions, making it a core element of China’s payments ecosystem.

Top 10 non cash transaction markets

Hidden payments volumes are also increasing

Hidden payments, or payments processed through non-bank systems, are now estimated to be as big as around 10% (40.9 billion) of non-cash transactions in 2014 and are expected to grow in the coming years. The lack of coherent data on hidden payments, which include payments made through closed loop cards and mobile apps, digital wallets mobile money, and virtual currencies makes it challenging for banks and non-bank payment services providers in determining optimal operating and processing models in such markets.  As hidden payments are not subject to regulation, there are also concerns about the lack of consumer protection on data privacy, information security, dispute resolution as well as fighting fraud and money laundering and regulation is needed to minimize these risks.

Banks still in a strong position to offer customer-centric innovation

Despite the rise of other competitive payment providers along with new and alternative payment methods including digital wallets and mobile apps, banks are still in a strong position to develop innovations that improve the customer experience. Banks are better positioned than their alternative provider rivals to provide holistic solutions across all instruments and channels which make them more efficient as a single provider of payment services as opposed to having multiple providers for each payments scenario.  As banks continue to enhance their holistic solution offerings, Immediate Payment systems can act as an enabler for banks to develop new value-add propositions and drive business growth.  Immediate Payment systems allow money to be moved from one account to another within seconds, 24 hours a day, ensuring customers can use incoming funds just as quickly.

Regulation also has a role in driving innovation through the harmonization required for the cohesive global expansion of Immediate Payment schemes.  According to the WPR 2015, 86% of payment executives surveyed believe that regulators will need to evaluate and make changes to the existing regulation to make Immediate Payments a reality globally. In particular, the adoption of Immediate Payments is challenged by a lack of interoperability of systems built using different standards in Europe and around the globe.  Regulators can help resolve this by working to develop and guide standards and rules to support industry interoperability.

“Each year banks face new and greater challenges in innovating to meet consumer demands for more convenient, faster, more secure and more mobile payment methods,” comments Andrew Lees, Global Sales Officer, Capgemini Financial Services. “Facing this pressure and the need for new regulatory initiatives to support innovations like Immediate Payments, payment services providers must take a long-term approach for payments processing by building a holistic set of offerings that can deliver value on a global scale.”

Another development re-shaping the payments market is Blockchain technology.⁶  Three key features of Blockchain are transparency, decentralization and key signing permission ⁷. This mix has the potential to improve the efficiency of financial transactions and transform the global financial network.  This technology could accelerate the velocity of money and provide an alternative for legacy banking systems in the future.

“New technology is accelerating change in the payments industry, offering holistic solutions as customers move from physical to digital payments as evidenced by the adoption of contactless in the UK with 53m transactions in March 2015. As a trusted partner, we’re at the heart of client transactions, facilitating the transition to digital payments,” comments Marion King, Director of Payments, RBS.

“As the digital economy transforms innovation in technology, it in turn gives customers greater choice and convenience in how they pay and conduct business.”

[2] The World Payments Report 2015 is an annual report which examines the latest developments in the global payments landscape, including payments volume trends, payment instruments (such as cards and checks), key regulatory initiatives and their impact on strategic considerations and options for banks. The transactional data in the report is from 2013. It makes a projection for 2014. Data is not yet available for 2015.

[3] Emerging Asia includes India, China, and other Asian countries.

[4] Mature Markets are: Mature Asia-Pacific including Australia, Japan, Singapore, and South Korea; Europe, including the Eurozone; and North America (the U.S. and Canada).

[5] Immediate Payment schemes, also known as real-time payments, allow money to be moved from one account to another within seconds, 24 hours a day, ensuring customers can use the funds just as quickly.

[6] Blockchain is a new technology initially used to support Bitcoin and cryptocurrencies which is based on federating independent computing power to capture and record transactions.

[7] In key signing permissions, the security of transactions is based on multiple synchronous validations from network participants.

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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.”

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The Trusted Execution Environment is a secure area of the main processor in a smart phone (or any connected device) which ensures that sensitive data is stored, processed and protected in an isolated, trusted environment.

An introduction to the Trusted Execution Environment for mobile services security

Industry interest in the Trusted Execution Environment is gaining momentum, as it addresses the needs of most applications by offering a higher level of security than a Rich OS, without the constraints associated with the secure element (SE).

The white paper introduces the Trusted Execution Environment and its general security characteristics, before progressing through the key security concerns and perspectives of various actors and markets.

The paper illustrates particular use cases, offering an understanding of how a TEE lays to rest major concerns within those use cases. In particular, the TEE’s role in the following implementation examples is examined: mobile payments, enterprise (bring-your-own-device), content protection and government eID solutions.

“As mobile and consumer markets for connected devices mature and expand, an increasing number of security concerns demand attention,” explains Kevin Gillick, Executive Director of GlobalPlatform.

“Yet while it’s in the interest of all actors in the mobile services value chain to protect applications on many levels, a balance has to be struck to ensure that security doesn’t compromise the end-user experience or the relative ‘openness’ of the device environment which offers commercial opportunities to so many stakeholders. This need to balance security and openness is a key challenge faced by the mobile services industry today.

“The TEE offers a solution which addresses many security concerns without imposing an undue burden on applications,” concludes Gillick. “This white paper will help audiences understand why this is the case and outlines its relevance for many use cases.”

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The paper, entitled ‘The Global Adoption of Real-Time Retail Payments Systems’ highlights two key interlinked themes; the variety of different adoption speeds and the relationship with core drivers which are leading to the adoption of such systems:

RT-RPS growth is strong, but countries are adopting a variety of approaches which affects the rate of progress

• Numerous countries have undergone rapid adoption, typically as a result of the lead role that regulators have played in encouraging the market to migrate, coupled with the use of relatively new technology and supplemented with attractive pricing or incentives;
• Other countries are on a slower adoption path, typically where the regulator did not play a prominent role and/or the banking community showed little appetite; and
• The remaining systems are on a ‘typical’ adoption path, between the two extremes, usually characterised by active regulatory participation but where the systems were launched more than a decade ago and use older technology.

Real time retail payments system market landscape (Source SWIFT)

Regulatory initiatives are proving to be the key driver behind the increased adoption of RT-RPS

• The results show that the primary driver (73%) for RT-RPS adoption is the impact of regulatory reform. This comprised a number of factors, such as consumer protection, reduced credit risk, transparency, financial inclusion, fostering of competition, and wider macroeconomic impacts.
• The secondary driver (27%) for RT-RPS adoption is the impact of the banks’ commercial needs – both in responding to customers’ expectations, and/or responding to competitive threats from new entrants.

Drivers of real time retail payments systems (Source SWIFT)

“The emergence of real-time payment services is having a transformational impact on underlying payment systems,” says Juliette Kennel, Head of Market Infrastructures at SWIFT.

“Real-time is a growing trend led by consumer expectations, supported by regulatory reform. Different countries have implemented real-time retail payment systems in different ways, ranging from simply adapting current legacy infrastructures to deal with real time, up to building brand new innovative systems, as we are seeing in Australia. Legacy and new models will need to co-exist both at a domestic and cross-border level, so, for banks, interoperability will be key. The industry is going to have to come up with ways to enable banks to offer real-time capabilities while keeping costs in check. Collaboration and innovation is going to be key.”

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A survey of 2,900 people on behalf of the Fed shows that mobile phones have become ubiquitous; 87% of respondents have handsets, and 71% of these are smartphones, up from 61% a year earlier.

Mobile phones have increasingly become tools that consumers use for banking, payments, budgeting, and shopping. Given the rapid pace of developments in the area of mobile finance, the Federal Reserve Board began conducting annual surveys of consumers’ use of mobile financial services in 2011.

The survey examines trends in the adoption and use of mobile banking, payments, and shopping behaviour and how the emergence of mobile financial services affects consumers’ interaction with financial institutions.

This report presents findings from the 2014 survey, fielded in December, which focused on consumers’ use of mobile technology to access financial services and make financial decisions. Where applicable, the findings from the current survey are also compared with the findings from the 2011, 2012, and 2013 surveys.

Topics include consumer access to bank services using mobile phones (“mobile banking”), consumer payment for goods and services using mobile phones (“mobile payments”), and consumer shopping decisions facilitated by use of mobile phones. Details about the survey, its methodology, and limitations can be found in the body of the report and in a methodological appendix.

Key findings of the 2014 survey include:

Mobile phones are in widespread use

• 87 percent of the US adult population has a mobile phone, consistent with 2013.
• 71 percent of mobile phones are smartphones (Internet-enabled), up from 61 percent a year earlier.

The ubiquity of mobile phones is changing the way consumers access financial services.

• 39 percent of all mobile phone owners with a bank account have used mobile banking in the 12 months prior to the survey, up from 33 percent in 2013 and 29 percent in 2012.
• 52 percent of smartphone owners with a bank account have used mobile banking in the 12 months prior to the survey, up from 51 percent a year earlier.
• Among those mobile phone users with bank accounts who do not currently use mobile banking, 11 percent think that they will probably or definitely use it within the next 12 months, down from 12 percent a year earlier.
• The most common use of mobile banking is to check account balances or recent transactions (94 percent of mobile banking users).
• Among mobile banking users, transferring money between an individual’s own accounts (61 percent) and receiving an alert (e.g., a text message, push notification, or e-mail) from their bank (57 percent) are the second- and third-most common uses of mobile banking.
• 51 percent of mobile banking users have deposited a check using their mobile phone in the 12 months prior to the survey, up from 38 percent in 2013.
• Among mobile banking users, the frequency of use has increased slightly, from a median of four times per month in 2013 to five times per month in 2014. This frequency was five times per month in 2012.
• Residents of more rural areas have a lower incidence of mobile banking use than residents of more urban areas.

Usage of mobile banking and mobile payments by mobile phone type, 2011–14

Mobile phones are also changing the way consumers make payments.

• 22 percent of all mobile phone owners reported having made a mobile payment in the 12 months prior to the survey, up from 17 percent in 2013 and 15 percent in 2012.
• The share of smartphone users who reported having made a mobile payment in the 12 months prior to the survey has increased to 28 percent, up from 24 percent in both 2013 and 2012.
• Among mobile payment users with smartphones, the most common type of mobile payment was bill payment through an online system or mobile app (68 percent, up from 66 percent in 2013).
• 39 percent of all mobile payment users with smartphones have made a point-of-sale payment using their mobile phone in the 12 months prior to the survey, in line with the 39 percent reporting such payments in 2013.
• Of mobile payment users with smartphones who made point-of-sale mobile payments, 31 percent did so by scanning a barcode or QR code displayed on their phone’s screen at check out (down from 39 percent in 2013), while 22 percent used an app that did not require tapping their mobile phone or scanning a barcode (up from 17 percent in 2013).
• Residents of more rural areas have a lower incidence of mobile payments use than residents of more urban areas.

Measuring the Use of Mobile Payments and Mobile Banking

A preference for other methods of banking and making payments, as well as concerns about security, continue to be the main impediments to the adoption of mobile financial services cited by some consumers.

• Of those not using mobile banking, the primary reason respondents cited was a belief that their banking needs were being met without the use of mobile banking (86 percent).
• The primary reason non-mobile payment users gave for not using mobile payments was that they believe it is easier to pay with cash or credit/debit cards (75 percent).
• Concern about the security of the technology was a common reason given for not using mobile banking or mobile payments (62 percent and 59 percent, respectively, of non-users).

Smartphones are changing the way people shop and make financial decisions.

• 47 percent of smartphone users have comparison shopped with their phone while at a retail store, and 33 percent have used their phone to scan a product’s barcode to find the best price for the item.
• Of those consumers who used their phones to comparison shop in a retail store, 69 percent have changed where they purchased a product as a result of the information they found.
• 42 percent of smartphone users have used their phone to browse product reviews or get product information while shopping at a retail store, and 79 percent of them changed the item they purchased based on this information.
• 63 percent of mobile banking users have checked their account balance on their phone before making a large purchase in the previous 12 months leading up to the survey, and over half (53 percent) of them decided not to purchase an item as a result of their account balance or credit limit.
• 29 percent of all mobile phone users and 38 percent of smartphone users have used their phone to track purchases and expenses.

Mobile phones are prevalent among unbanked and underbanked consumers.

• The share of consumers who are unbanked is 13 percent, and the share who are underbanked is 14 percent.
• 67 percent of the unbanked have access to a mobile phone, 65 percent of which are smartphones.
• 90 percent of the underbanked have access to a mobile phone, 73 percent of which are smartphones.

48 percent of underbanked consumers had used mobile banking in the 12 months prior to the survey.

 Download the report here

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