MPE Round up - day one

The payment world reconvened in Berlin today for Merchant Payment Ecosystem, for my money the best industry conference. It’s friendlier than most and has content that continually meets the changing focus of a loyal audience. It helps that Empiria, the organisers, produce just this one conference. This is MPE and they really care about their customers.

The payment industry seems in good form, despite the Fintech Winter and rumours of layoffs at the big companies. The sponsor slots, the best barometer of the health of a conference, are full and the halls busy with delegates. For the first time, the conference is taking the entirety of the Berlin Intercontinental, good news for people with a ticket but bad news for people who like to freeload by sitting at the bar networking.

Compared to previous years, the traditional payment players are largely absent. For example, there are just two people here from Worldline and only one from Nexi while Checkout and Adyen have seven delegates each. The open banking vendors and terminal manufacturers are less numerous than of late. In their place is a small army of payment orchestrators and businesses providing IBANs. I’m told that the organisers received an extraordinary 25 entries for “payment orchestrator of the year.”

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Cardmeggedon

Turning to the content, there is much discussion of when we will see the long-promised shift from cards to other forms of digital payments. This is important because the payment ecosystem knows how to make a good living from card payments and isn’t quite so confident how to add commercial value to bank transfers.

Bain has predicted “peak card” in 2029 in the US but probably a little earlier in Europe where national account to account (A2A) schemes are growing swiftly and a digital Euro is on the horizon.

Open banking

Open banking was meant to be the future of A2A but is getting a bad press. A number of speakers were openly dismissive.

David Rintel from Trust Pay, a Bratislava based eCommerce acquirer not to be confused with Trust Payments, told the audience that open banking is far from delivering the promised revolution. The user experience is horrendous, there’s no payment guarantee for the merchant, and, despite PSD2, there is no European solution. The APIs provided by the banks are not standardised and this makes them difficult for Fintechs to work with. Simas Simanauskas from Connect Pay was even less complementary. Open banking “is crap” he told the audience. It’s almost impossible to design a payment flow using the retail bank APIs, he explained.

If open banking is not going to replace cards, what will?

?A few domestic mobile payment schemes have been very successful at wrapping a seamless customer experience around A2A transfers. These probably show us the future. David Rintel called out Blik in Poland, Payconiq Bancomat in Belgium and iDEAL in Holland.

To replace cards, these schemes need to work across borders and work is already underway. Blik is opening in Slovakia and Romania. Payconiq/iDEAL is the foundation of the European Payments Initiative which launches its “wero” wallet later this year.

The technology behind these products is quite simple but distribution is much harder. It takes a lot of expensive marketing to get consumers to download an app and this is why support from local banks is so important. It’s no surprise that these schemes all have local banks as shareholders. Blik also has Mastercard as an investor which would explain its very bullish international ambitions.

Digital Euro

The Digital Euro session was well attended but many of us left with more questions than answers. It’s clear that policymakers need to address the potential implications for financial inclusion and resilience of cash disappearing. It’s also clear that Europe desperately needs to reduce its dependency on foreign operators of its payment infrastructure. There’s a clear risk that Trump 2 could order Visa/Mastercard to close down operations in any country he doesn’t like.

But, that doesn’t mean that the digital Euro is the answer, at least the one that would run according to the draft rules outlined by the ECB.

Evelyn Witlax from the ECB gave a spirited defence of the project, backed up by Fredrik Rydbeck of the Swedish central bank. Merchants will like that this new currency should be cheaper to process than today’s euro but will be less excited to learn that they aren’t allowed to hold any digital euros themselves.

The ability of the digital euro to operate offline will certainly help make the payment system more resilient but the requirement for ID checks for online payments undermines the argument that the digital euro is simply digital cash. This is not private money.

?And nobody can explain why consumers should be excited. They can travel around Europe with their local debit card (co-badged as appropriate) and buy what they need with little trouble today. Until the ECB and friends can explain the problem they are trying to solve, there’s a risk that (as Dave Birch put it) we just create a slightly annoying pre-pay debit card.

Merchants

The merchant perspective was provided by Atze Faas, a long-term BP exec, who now represents Eurocommerce on the newly formed Merchant Payment Coalition – Europe. This is a lobby group looking to address the rising costs of payment acceptance. Its major areas of concern are the lack of competition in the payment industry, the lack of transparency of its charging structure, the many regulatory gaps and its continued insistence on ad valorem pricing. Why should a €1000 transaction be more expensive than a €100 transaction? Why should CNP be more expensive than CP? Atze challenged the industry to explain because SCA has dealt with this. ?

It's true that SCA has reduced fraud levels, but it’s also introduced friction that has led to reduction in legitimate transactions too. And SCA is no guarantee that the customer is who they say they are. Chris Read, EVP Identity Solutions at Mastercard, explained that the dark web is now awash with fake credentials such as passports and driving licences. You can “buy” a bank account for €200 or less.

If there’s one bright spot, it’s that experts seem more worried today about the explosion of first party fraud. Merchants are appalled by these pesky Gen Y consumers who spend their leisure time on Tik Tok exchanging tips on how to steal from merchants. There’s a big increase in people cheating on eCommerce returns or scamming McDonalds for free burgers in compensation for fake negative reviews. Paradoxically, the payment industry is in the clear. If merchants are defrauded by their own customers, we’re not to blame.

Artificial Intelligence

Finally, with Blockchain and metaverse long forgotten, artificial Intelligence (AI) is the next big thing. Galit Shani-michel from Forter showed the impact of moving fraud decisions from simple rules to AI powered decisions. She told the audience that fraudsters were using AI to reverse engineer rules and merchants need to stay one step ahead.

Forter recommends using AI to optimise payment authorisation, for example choosing whether to use a PAN or network token, to ask for an SCA exemption or route to a particular acquirer. She explained that some issuers are more likely to approve a transaction that uses a network token and others less likely. And some issuers don’t mind, in which case AI can recommend saving money by not asking for a network token in the first place.

AI also offers to rewrite LinkedIn posts. I wrote "people being rude about open banking" which the AI wanted to change to "it's disappointing to hear people being rude about open banking. Let's remember that open banking has the potential to revolutionize the way we manage our finances, making it easier and more accessible for everyone." Hallucination, bias or common sense? You choose.

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With that, I’m heading to the bar. There’s going to be plenty to talk about.

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