Guest Blog for Business & Finance: Ireland a hotbed of payments innovation!

I was delighted to guest blog for Business & Finance this month.  Here's a copy of the post as it appears on their site:

Ireland is fast becoming a thriving hub for the global payments industry.  We have the right experience, world class skills and are building a solid reputation globally for creating highly innovative payment businesses.

According to IDA Ireland there are 30 indigenous companies in operation here, employing around 1600 people and producing over €225m in exports.  Ireland has also attracted large global payments brands such as MasterCard, PayPal and Elavon.  The IDA states there are now 12 multinational payment companies here employing around 3700 people.

Over the last few years we have seen a lot of new innovative solutions- from payments technology to entirely new payment concepts. There are some fantastic success stories emanating from this country! 

Kerry is a regional hothouse of payments innovation with Fexco and Monex.  Set up in 1981, Fexco now employs 1800 people globally offering Dynamic Currency Conversion (DCC), corporate payments and global treasury solutions.  Monex was established in 1997, offering multi-currency pricing, DCC and cross border acquiring solutions.  Similarly Continuum, another Irish-owned operation also offers DCC services from a Kerry base.

Irish-owned Realex, which was set up here over 10 years ago, already processes payments of over €24 billion a year for 12,500 online retailers including Aer Lingus, Paddy Power, Vodafone and Virgin Atlantic. It employs 160 people in offices in Dublin, London and Paris.  Colm Lyons, founder, is now driving the company’s growth further by pushing into UK and Europe by partnering with Elavon, to offer a gateway solution for online retailers across Europe.

Sentenial, the Maynooth-based payments company providing technology for other companies to ready themselves for the SEPA changeover, has recently announced over 100 new jobs.  These will be created over the next 14 months, bringing the total workforce to 270.

OmniPay, a global payments processor, was founded in Dublin in 2000.  Due to significant business growth, this company also recently announced the creation of 30 new jobs at its headquarters in Clonskeagh, Dublin, bringing its total workforce to almost 200 people over the next six months.

MasterCard has now based its global innovation ‘hub’, MasterCard Labs, in Dublin with 200 people employed there.  Similarly, Elavon supports a variety of business lines globally through its 400-strong workforce in Ireland. Paypal, set up in 2003, now employs over 2400 people at its Dublin plant. 

Neither of these is Irish-owned but as with other examples in this industry offshoots do develop so it will be interesting to see what emerges.  Stripe, a new e-commerce tool for online payments, offers an alternative online payment system to the likes of PayPal. Whilst US based, it was founded by Irish brothers Patrick and John Collison.  Only two years old it has already secured thousands of clients in the US and recently launched officially in Ireland with further plans to expand into Europe.

There are a number of Irish research institutes involved in ongoing research into payments technology such as Centre for Cybercrime at UCD, the Computer Science Centre at UCC and the Dependable Systems Unit at DCU where students are developing more reliable software systems, examining security issues and exploring mobile forensics.

It’s not difficult to see why such companies would choose to set up here. Irish financial regulation, whilst stringent, still serves the payments market in Europe well.  Ireland is signatory to the European Payments Services Directive and e-Money directive and is a member of SEPA. This is undoubtedly an attractive aspect for any interested US or European business

Equally, government enterprise bodies offer employment grants and favourable tax credits to companies who set up here.

With regards to innovation on the Irish front, the Irish Payments Services Organisation (IPSO) doesn’t directly call out their thoughts on fostering innovation.  Instead they reference the goals expressed by the National Payments Plan (NPP).  These NPP goals revolve largely around changing the focus, usage and adoption rates of newer payment technologies rather than listing any specific goals to attract or foster investment in new payments providers or payments innovation. 

Surely this is a strategic gap which needs to be filled?

IDA Ireland however bills Ireland as ‘the location of choice for international payments firms’ and is promoting Ireland as having a strong capability in DCC, PCI compliance, prepaid cards and payment processing platforms. The payments market in Ireland offers rich opportunities to start up, scale and grow new businesses with a truly international focus. 

It is important that we do more to foster indigenous enterprise rather than focusing all our efforts on attracting multinationals.  Investment in research and education, a focus at national level by bodies such as IPSO and incentives to set up at a local level will certainly help.

This way we can ensure we continue to strengthen our payments knowledge and technology enabling us to retain and grow our global reputation in this area.

Sources include: Government’s Action Plan for Jobs 2013 http://www.djei.ie/publications/2013APJ_Annex.pdf, Irish Independent, IDA Ireland

Huge opportunities globally for Dynamic Currency Conversion

The market for Dynamic Currency Conversion (DCC), where consumers are offered the opportunity to pay in their home currency regardless of where they actually make the purchase, represents a massive opportunity.

When Visa lifted its moratorium in 2010, allowing its acquirer customers to activate new accounts and new merchant locations for DCC in all regions, I expected a much more prolific growth in the number of companies and merchants offering this service.  Without those Visa limitations, new DCC participants into the market could further capitalise on foreign spending by converting new customers, while at the same time increasing their revenue from foreign transactions.

The market is ripe for this type of service.  The global economy is set to record 3.1% growth in 2013 with the IMF predicting global GDP to grow by 3.8% in 2014.  International tourist arrivals worldwide are set to increase by 3.3% a year from 2010 to 2030 to reach 1.8 billion by 2030.  Business travel alone recorded 212 million arrivals globally last year. 

Unfair practices of DCC are being ruled out.  In Australia, in February this year, the competition regulator launched a case against Visa in support of fairer DCC services.  The Regulator alleged that the company had abused its market power by preventing customers from using a currency of their choice when carrying out their international shopping.  In other words they were accusing Visa of actively limiting consumer choice by preventing retail stores in Australia from offering DCC or preventing businesses from supplying DCC services on ATMs.  Although Visa is asserting the opposite stating it will “vigorously defend itself” against these claims, the reality looks like Visa is simply not keen to drive the growth in any competing DCC services as this represents a loss to their own earnings from the transaction. 

As of September this year Brazilian banks, Itaú and Bradesco, no longer allow DCC on purchases made with credit cards they issue.  The Association of Brazilian Credit Cards and Services Companies (Abecs) has recommended against the practice stating that they were dealing with a number of complaints from Brazilian consumers who bought goods in Brazilian Reals but were confused by credit-card statements showing the purchase in dollars. 

It’s too early too tell the impact of this decision on e-commerce merchants selling into Brazil but certainly not being able to pay for products on foreign websites in Brazilian Reals will adversely affect sales for international e-commerce merchants.  I think this decision will illustrate how a lack of DCC services ultimately does not serve the consumer well.

Despite regulatory issues like this, there is still plenty of growth available in this industry over the next 5 years.  I’ve extolled the benefits of DCC before in my earlier blog namely the ability for consumers to view foreign prices in their own currency therefore making a more informed purchase.  Equally I’ve highlighted that some merchants are using it as an excuse to levy unfairly high fees which fuels consumer fears that this type of currency conversion is artificially higher than actual market rates.

The market is ready: the global economy is returning to levels of stability and tourism and business travel is growing annually.  The key here, on the merchants’ side, is to ensure fair fee levels.  Once there is complete transparency and trust in this system, there are infinite possibilities for merchants to get on board and offer DCC as part of their service. 

Sources include: Forbes.com, FT.com, Irish Independent, World Travel Market Euromonitor Report 2013, Tourism Trends and Marketing Strategies UNWTO, ABECS website

O2 money card ... An opportunity lost or still available?

When the O2 money card first came out in 2011 in Ireland it got great traction; within one month of its launch O2 had sold more than 50,000 cards.  Customers could top-up their cards online through their bank accounts, in any O2 retail store or in over 1,500 Payzone outlets nationwide.  Card balances could be checked at any time online or via text message. It was positioned as an easy way to manage personal cash flow and without incurring additional debt.

By 2012, O2 had signed up more than 100,000 customers and reported over 1.2 million transactions through their cards, citing that 80% were online purchases with the majority of spend going towards well known music and book retailers, airlines, online gaming services and supermarkets. 53% of the O2 Money Card customer base were under 35 years old and it was made available to everyone aged 13 or over.  A valuable customer segment and one which is highly attractive to players in the financial services market.

Heralded as something revolutionary in terms of payment options, you would think that this momentum would have continued and more consumers would have opted to take out prepaid cards.  In reality, this has not been the case.

A survey conducted by National Consumer Agency in 2012 stated that there were 9 prepaid cards in circulation on the Irish market. Examples include Swirl MasterCard and Ryanair Cash Passport.  The features of prepaid cards vary significantly, particularly the methods of purchase, operation, fees, terms and conditions.  There is also huge variation in the charging structures between these products.  In some cases they can have up to five different fees involved in using them for example sign-up fees, top-up charges and various transaction charges each time the card is used in making a purchase.  Likely consumers are confused and find it difficult to compare the products on offer, as well as consider many of them to be poor value 

In 2012 it was estimated that there are around 200,000 prepaid card holders however there seems to be little growth, or no evidence of growth since the initial surge of O2 money card’s success.  Competition in the prepaid market competition is now virtually non-existent, with little or no mass advertising to try to attract more customers. 

This represents a real opportunity, especially in the financial services sector, to revitalize interest in this type of service.  At a time where consumer trust in banks is very low, and there is a well-founded fear of accumulating excessive debts, a product like this is ideal.  Add to this the increasing fee structures for current accounts and you can understand why people want something different.  Consumers are actively seeking new alternatives. 

With prepaid options, consumers can load money onto their cards and use this instead of incurring fees associated with payment via their Laser or Visa cards.  Equally there is no pressure on them to have a certain amount lodged in their accounts to avoid fees. Instead they can lodge smaller amounts to the prepaid card and use this. 

Due to this no-debt factor, prepaid cards are often available to the under 18s and the student segment - younger people who wouldn’t have a credit rating.  Again, this represents an ideal opportunity for financial services companies to develop prepaid products to bolster their student package offerings and attract this lucrative segment.

If we consider the move towards a mobile wallet, where brands are offering mobile contactless purchasing options, then money cards integrated with mobile apps are a valuable and highly relevant payment option. It is surprising therefore that O2 have not developed this further.

The timing is right for a reinvigorated prepaid offering -something straightforward and easy to grasp.  Consumers are debt-adverse and actively seeking new and inexpensive ways to manage their money.  The market is ripe for a cool alternative to bank payment products, integrated with mobile apps and wallets, and leaders in this space would certainly see positive results.

Sources:

Survey of Prepaid Payment Products, National Consumer Agency, October 2012.

Archived o2 press releases February 2011 & February 2012.

‘Shoppers warned over high charges for prepaid cards’, Irish independent Article, March 2012.

 

SEPA: So near but so what?

It seems we have been collectively preparing for the Single Euro Payments Area (SEPA) for quite some time now yet no one seems too pushed about it!

Essentially SEPA is designed to improve the efficiency of payments in Euros both cross-border and domestically. As part of this, new schemes for credit transfers and direct debits will replace existing payment schemes and existing payments will migrate to the new schemes.

With a February 2014 deadline – this actually means there’s only 100 days left for government, banks and businesses to migrate their existing euro credit transfer and direct debit schemes to the SEPA credit transfer (SCT) and SEPA direct debit (SDD) schemes.  According to the European Central Bank the changeover process is now entering ‘a critical phase.’

In the Irish market, it’s been very slow to gain momentum despite these impending deadlines.  An ISME survey from September revealed that only 58% of SMEs are aware of SEPA, 29% were unaware of the 1st February 2014 as the compliance date and little over half of the SME community (54%) have begun early planning or implementation of this new system.  In total just 19% are considered SEPA compliant.

With so many other pressures and challenges facing small business owners it’s easy to see how SEPA fell below the radar.  In light of everything going on for business, it’s not really that compelling - even I struggle to find something transformative or tangible about it.

No doubt consumers are feeling the same; it’s just not clear how it will affect them or indeed if it will benefit them at all.   SEPA promises to offer greater choice of service, competition and flexibility. So a consumer wishing to pay for services within any of the 33 European countries involved in SEPA can now do so using just one domestic account.  They will also be able to use the same payment card for all euro payments within the participating countries, making the use of cards more efficient.  It will also be easier to opt and pay for services provided by European companies such as telephone, insurance and utilities. 

Therefore consumers should enjoy the benefits of increased competition in both the payments and utilities market.  I wonder though, will they embrace these rights post SEPA?  Will we see consumers opening up new European bank accounts?  And what are the risks for consumers, particularly in regards to making cross-border direct debits? 

The ISME report also outlines risks posed by a "big bang" late migration. If everything is left to the last minute, there could be huge capacity issues by providers and software vendors.  Similarly this doesn’t leave adequate time for system testing and dealing with any issues during the changeover phase.  Ultimately this approach could cause operational risks, like disruptions in individual handling of payment orders.  The organization is embarking on a nationwide rally to inform and motivate SMEs to get moving in their preparations for the upcoming deadline.

If life post SEPA offers up increased efficiency, smoother payment processes and greater competitive pricing/choice for both businesses and consumers, why are we so unhurried in our pace to embrace this? It seems there is little understanding or urgency to get moving on this new payments era.

Source: Second SEPA Migration Report, October 2013, European Central Bank and ISME SME SEPA survey, September 2013