Mobile Money for the Unbanked by Arunjay Katakam for GSMA.com

Smartphones, internet players and mobile payments: Opportunities and challenges for mobile money in emerging markets

What have learned from mature markets?

In recent months, we’ve been hearing a lot about technology companies launching mobile payments on smartphones in the US. In October 2014 we saw the launch ofApple Pay. In February 2015, Google announced its acquisition of Softcard—a joint-venture between US mobile operators formerly known as ISIS, who had laid off 60 staff in January 2015—a move many commentators believe is in response to Apple Pay. In addition to gaining Softcard’s back-end technology and intellectual property, Google Wallet / Android Pay will soon be preloaded on all phones sold by AT&T, T-Mobile, and Verizon in the United States. Softcard isn’t the only mobile operator joint venture offering payments that has seen a change. For example, both WEVE (a joint-venture between UK mobile operators) and Buyster (its French equivalent) have abandoned their plans to launch mobile payments in 2014.

Integrating mobile payments into existing payment networks

Over the last four years, the battle for how mobile payments integrated into existing payment networks has been brewing. With Apple using their own secured element, and HCE (Host Card Emulation) now a feature on Android, NFC phones can be securely authenticated without using the SIM card. Based on recent developments, it is clear that device manufactures (Apple and Samsung) or operating system players (Google) are in an advantageous position in developed markets. Whilst this battle has had no impact on mobile money it should be seen as a warning by mobile operators in emerging markets.

In emerging markets, smartphone penetration is growing, opening the market to new players

Whilst smartphone adoption in Sub-Saharan Africa is 12.5% [1], a lot of early adopters and influencers already have smartphones.

The subsequent battle is for the next generation digital payment networks. Increasing levels of smartphone adoption are beginning to pave the way for non-MNOs (internet giants or start-ups) to offer mobile payments using apps (see figure above). For instance, 62% of mobile money providers already offer a smartphone application as a channel to access their platform [2]. Social media apps (SnapChat, Line, WeChat, Twitter, Facebook/WhatsApp and Square) have started to dabble in mobile payments. Expect to see many more announcements this year.

So far five messaging services have gone beyond chat and introduced payment services. These are KakaoTalk, Line, WeChat, SnapChat and Facebook messenger.

Mobile operators have a first move advantage and key assets

Without a doubt, mobile operators have made a fast start. In December 2014, there were 299 million registered and 103 million active mobile money accounts [3]. However, given mobile money is primarily a distribution business, agent networks remain a key asset for mobile operators, and it remains to be seen how long it will be before that is disrupted. In many markets, regulators are removing exclusivity clauses from agent contracts allowing new entrants to piggy back on existing agent networks.

Mobile operators need to interoperate locally and globally fast

Most mobile money services operate as independent schemes with little or no ability to transact with other mobile money services. As a result, the value they provide is severely limited compared to other services than operate without geographical constraints. Imagine if voice calls didn’t interoperate? How useful would it be if you could only make calls to people on your own network? By interoperating their mobile money services, operators can maintain their mobile money leadership position by building out by far the largest cross-platform global digital payment network, and in doing so combat the threat posed by internet players, who already have large global networks and their sights set on taking over mobile payments.

Pricing is the final piece of the puzzle

Both banks and internet players use asymmetric business models. Banks in general do not charge for deposits or withdrawals and generate revenue by intermediating funds (lending, etc.). Similarly, internet players generate their revenue by selling software or advertising. However, mobile operators also enjoy indirect benefits, such as customer retention, increase spend on their mobile network and savings in airtime distribution costs, which will allow them to compete on price.

That said, interoperability is likely to gain faster take-up from customers if operators price cross-network transfers at the same price as within their network, helping to create the network effect they need.

Notes

[1], [2] and [3]: See 2014 State of the Industry for Mobile Financial Services

Source: http://www.gsma.com/mobilefordevelopment/smartphones-internet-players-and-mobile-payments-opportunities-and-challenges-for-mobile-money-in-emerging-markets

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HAPPY EARTH DAY FROM ALTO GLOBAL PROCESSING

LET US STRIVE TOGETHER TO MAKE OUR EARTH MORE BEAUTIFUL FOR OUR FUTURE GENERATIONS!

REDUCE, REUSE AND RECYCLE.

Earth Day Challenge and Photo Credit: http://www.plasticstoday.com/blogs/Earth-Day-challenge-Be-a-leader-in-recycling-plastics0419201301

Visa, MasterCard to Roll Out New Cybersecurity Features by Chelsey Dulaney for The Walls Street Journel

By CHELSEY DULANEY
Updated Feb. 13, 2015 2:46 p.m. ET

Visa Inc. and MasterCard Inc. are taking long-awaited next steps to ramp up security of customer data as concerns over cyberattacks continue to mount.

The plans, unveiled separately by the world’s largest payments networks, include the expansion of tokenization—a way to obfuscate a customer’s information during a transaction—and biometrics verification.

The announcements come as President Barack Obama and a large group of government officials descended Friday on Stanford University to meet with top executives from a number of industries, including Apple Inc. Chief Executive Tim Cook , for a first-of-its kind cybersecurity “summit,” part of an effort to combat future cyberattacks.

Concerns over cybersecurity are growing as high-profile data breaches have hit nearly every corner of corporate America—from retailers like Target Corp. , to Sony Pictures Entertainment, to J.P. Morgan Chase & Co., to most recently health insurer Anthem Inc.

“Part of their role, part of what they charge for, is setting the rules of the road and enforcing them,” said Mr. Luria. “What hasn’t happened yet is that there’s been very little blame put at Visa and Mastercard’s doorstep.”

Visa said it would bring its Visa Token Service, which replaces cardholder information such as account numbers and expiration dates with a unique series of numbers that validates the customer’s identity, to device manufacturers beyond Apple. Visa launched the service on Apple devices in October, allowing users to wave an iPhone in front of a wireless reader and complete the transaction with a fingerprint.

Visa said it also plans to tokenize online transactions for retailers that use its Visa Checkout service, including Gap Inc. and Orbitz Worldwide Inc.

By getting rid of the sensitive card information, banks and merchants can leave hackers with nothing of value to steal if they break into their computer servers.

“Removing card account numbers from the processing and storage of payments represents one of the most innovative and promising technologies we’ve seen in decades,” said Visa Chief Executive Charlie Scharf in a news release.

MasterCard, meanwhile, said it plans to spend more than $20 million on its efforts, which include a pilot program to be rolled out later this year that will use a combination of biometrics, such as facial and voice recognition and fingerprint matching, to authenticate and verify transactions.

MasterCard said it would also continue to push forward with the rollout of chip cards.

The company teamed up with Visa last year to form a new group to speed up the adoption of technology aimed at improving credit- and debit-card security, including the use of chip technology in credit and debit cards. In chip technology, which many countries have already implemented, the magnetic strip found in credit and debit cards is replaced by a smart chip that stores customer data.

U.S. banks and retailers have dragged their feet on implementing new payment systems because it requires significant investments in new payment technologies.

It is estimated that half of all cards will be chip-enabled by the end of the year, according to MasterCard. Both Visa and MasterCard had originally set an October 2015 deadline for retailers to adopt the chip technology, known as EMV.

Still, Mr. Luria questioned whether the initiatives would be enough.

“Nobody’s really come up with a foolproof way to safeguard consumer information,” he said. “At the end of the day, it’s the retailer, the bank that has to keep it secure. [Visa and MasterCard] can only do so much to set the rules, enforce them.”

Write to Chelsey Dulaney at Chelsey.Dulaney@wsj.com

Source: http://www.wsj.com/article_email/visa-mastercard-to-roll-out-new-cybersecurity-features-1423834542-lMyQjAxMTA1ODE0NTAxNTUxWj

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Visa and MasterCard Cut Interchange Fees to 1.5% in Canada by Bloomberg News

Visa Inc. and MasterCard Inc., facing pressure from Canada’s federal government, agreed to lower credit-card transaction fees for the nation’s merchants by about 10 percent.

The two payment networks submitted proposals to reduce their average effective interchange rate in Canada to 1.5 percent on consumer credit cards, the finance department said in a statement posted on its website today. The rate will stand for five years and take effect no later than April, it said.

Prime Minister Stephen Harper’s Conservative government, which has been rolling out consumer-focused policies ahead of next year’s federal election, pledged in its 2014 budget to take additional measures to lower card fees for retailers, a move that would also reduce revenue for Canada’s banks. Merchant groups including the Retail Council of Canada have been the biggest advocates for government action on the fees, which the government claims are among the highest in the world.

“These commitments represent a meaningful long-term reduction in costs for merchants that should ultimately result in lower prices for consumers,” Finance Minister Joe Oliver said in the statement. “As a result of the voluntary proposals, there is no need for the government to regulate the interchange rates set by the credit card networks.”

In a separate statement, Visa said it is entering the agreement on the expectation there will be a level playing field in the industry.

“If Visa or our clients are disadvantaged as a result of entering into this undertaking, Visa reserves the right at any time to terminate or amend it,” the Foster City, California-based company said today in a statement.

Source: http://www.paymentssource.com/news/compliance/visa-and-mastercard-cut-interchange-fees-to-15-in-canada-3019602-1.html

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Alto Global Processing: DID WE JUST SEE THE FUTURE OF MOBILE PAYMENTS?

By KAREN WEBSTER @karenmpd

CEO, Market Platform Dynamics for http://www.pymnts.com/

Say hello to Apple Pay. It’s the new kid on the payments block and, depending on how things unfold, it could be the new Gorilla in the mobile payments ecosystem.

Here’s what it is. When consumers get an iPhone6 or 6 Plus, they can use Apple Pay almost right away (obviously in October when it is live at merchants) as long as they have an iTunes account – and there are 800 million of those now in the world. All these 800 million consumers need to do is to enter their CVC code and they’re up and running.

Consumers can then use those Apple Pay accounts to pay at places that have NFC terminals by holding their phone near the device and holding their thumb on TouchID. (Whether this is faster than swipe remains to be seen.) Want to put another card in? Just snap a picture and Apple will do the rest—so long as it’s with one of its affiliated banks (which now includes those that control more than 80 percent of the consumer transactions in the U.S.). Consumers can always do it the new old fashioned way and type in all the card details into Passbook.

Card info isn’t actually stored on the phone at all. Cardholder information is tokenized and stored in the secure element and never makes it onto the phone’s memory or on Apple’s servers in the cloud. That’s a pretty big deal. Apple Pay leverages the card network’s tokenization standard, which pretty much seals the deal on how cardholder security will be done in a digital world. Between that and fingerprint ID, Apple Pay seems pretty secure. The spiffy Apple Watch that they showed also enables payments but must be paired with the phone to do it.

There are two other big deals here.

The first is that Apple Pay is also headed online, which means it is going head to head with every other digital online acceptance mark, e.g. PayPal, Visa Checkout and MasterCard PayPass. With 800 million iTunes accounts worldwide, Apple is millions of miles ahead of all three of those guys combined. All Apple needs is for online merchants to accept it. And with all those iTunes accounts, that doesn’t seem like it will be that hard.

The second is the API. Apple is doing with its payments app what it did with Beacons and the apps store before that: creating an ecosystem that stimulates innovation and strengthens the power of its own walled garden. Allowing developers to embed Apple Pay in their apps is an efficient way for Apple Pay to get massive distribution and scale.

As great as this sounds, there are two limitations of Apple Pay right now for consumers and merchants. And it’s that old chicken and egg issue that gets in the way of every new payments system.

At least as of today, no one has an iPhone 6 capable of working with Apple Pay. That will change on September 19^th, but most people won’t be able to use Apple Pay next year because they won’t have the right phones. Estimates say that Apple will sell roughly 180 million phones over the next 12 months worldwide and about 25 million of those are in the U.S.. Since that is where Apple Pay works today, analysts say that the addressable market for Apple Pay is 25 million when they count the number of people whose contracts are up and who are eligible to buy a new phone. Apple is, of course, hoping that enough people find the iPhone 6 cool enough that they buy it anyway, contract terms notwithstanding, which could make that number much higher.

Then consumers that do have Apple Pay can’t really use at it very many places right now. Apple says that there are 220,000 merchant locations today that accept NFC but that’s a small fraction of the 8 million plus point of sale locations in the U.S.. Apple Pay ignition depends on merchants believing in Apple and consumers believing that merchants will believe in Apple.

So that’s why what happens next will be really important to watch.

Apple clearly did not intend to innovate payments in its purest sense of the word. It preserved, yet made digital, the core tenants of the four party system that has defined the payments world for the last 60 years. It has given NFC an entirely new lease on life and all but crowned it as the technology standard for payments. As we’ve said many times, NFC needed a catalyst to ignite it and the longer that it lacked one, the more it was at risk of becoming obsolete. Apple Pay is banking on the fact that enough merchants in the U.S. will light up the NFC capabilities that come with their new EMV terminals. The promise of millions of high spending Apple Pay consumers may be that catalyst.

It appears that Apple did intend, however, to reinvent the experience of buying. We’ve seen hints of it already as making a payment with Apple Pay in a physical store doesn’t require popping open an app to activate the card. This is just the tip of a very deep iceberg. Expect that experience on steroids as the beacon and payments ecosystems mash up, inspire innovators to spring into action to create entirely new sources of value for consumers and merchants.

The other subtle, yet potentially game changing observation I had today is how Apple chose to name its payments capability. Apple introduced us today to Apple Pay, not iPay, not iWallet. Apple wants the consumer association with Apple first and foremost. Sure, card brands and network brands are visible, but Apple Pay will make every other brand subordinate to it because that is how the consumer and the merchant will view it.

That means that the power, at least in the iOS ecosystem, is likely to accrue over time to Apple. And with 800 million registered accounts, well, it might not need that much time. Just ask the mobile operators what happens when Apple exercises its power over an ecosystem: the balance of power shifts in a pretty dramatic way to them.

Fast forward a few years and it is quite likely that payments becomes an ecosystem defined by apps in the cloud, assembled in Passbook under the control of Apple at least for the iOS ecosystem. Not only did we meet Apple Pay yesterday, we might also have just met one of the most powerful players in the payments ecosystem.

Let’s not get ahead of ourselves. The news is still fresh and many details are still not known and those that are must still be digested. Today, in many ways, marks the beginning of mobile payments 3.0. The next couple of years will be something to watch now that Apple is in the game.

Source: http://www.pymnts.com/news/2014/did-we-just-see-the-future-of-mobile-payments/#.VBBj42RdX84

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Alto Global Processing: Canadian Bitcoin Processor Nets $8.5 Million Round

Vogogo, a Canadian e-commerce processor based in Calgary, said last week it has secured an $8.5 million round of financing that will enable it to expand its recent success in processing bitcoin and other cryptocurrencies in Canada to the U.S. and other countries around the world. The 13-year old company said it handles $6 to $10 million in cryptocurrency-based transactions monthly and that its dedication to “[meeting] strict compliance and risk mitigation requirements of conventional banks and regulators” will help bitcoin shed any negative perception that remains.

“We had been watching Bitcoin and crypto currencies closely. As a payments company we were very intrigued by the potential of Bitcoin,” said Vogogo Co-Founder Geoff Gordon. “We watched several crypto groups enter the Canadian market, have a lot of success only to then be shut down by their bankers due to payment-related fraud and/or no compliance structure. We put the Vogogo platform in front of a few crypto groups to resounding success in Canada. We are now adjusting our platform to scale these services and we will be replicating the service in the U.S., EU and other target markets.”

Cormark Securities led the funding round with participation from Salman Partners Inc., Clarus Securities Inc., Beacon Securities Limited and Canaccord Genuity Corp.

Source: http://cardnotpresent.com/news/default.aspc?id=6234

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ALTO GLOBAL PROCESSING: Why Some Businesses Don’t Like Virtual Cards

By Jeff Green for @pymnts
Virtual card use is gaining momentum in the B2B market, with their use growing particularly in travel, invoice and health care payments, where use of paper checks remains common. But not all companies favor network automatic opt-in rules tied to acceptance of virtual card products.

Through virtual card products, issuers provide to companies specific 16-digit card numbers they may use online or by phone to apply to specific transactions or payees, thus providing an extra layer of security compared with traditional card products. There is no actual plastic card issued.

Visa reportedly soon will launch a B2B tool to make it simpler for corporations to pay supplier invoices using virtual payment cards. The offering would complement a cloud-based payment initiative Visa launched last year using the SAP Financial Services Network.

Virtual card use for invoicing is especially important for the card brands, as nearly half of all corporate payments are still paid by check, according to Visa, which estimates global commercial consumption expenditures at US$112 trillion.

Firms may embed the Visa tool, which is scheduled to launch later this summer, into their general ledger software, reports FierceFinanceIT.com. In doing so, companies would make it simpler to choose Visa’s virtual credit card offerings when companies pick their payment method online.

“One of the big areas of opportunity for the B2B payments industry is moving upstream into the accounts-payable process, where corporations are making decisions on how to pay invoices,” Tad Fordyce, Visa head of global commercial solutions, told the publication. “Visa has virtual card products that address this opportunity, and one of the challenges we face, as checks are being displaced by electronic payments, is we want to make sure that Visa’s virtual card solutions are present and available for the corporates to use at that time of the payment decision.”

Visa said it expects a new solution in launched recently with SAP to help corporations who want to move toward electronic B2B payments and easily automate and process their invoice payments without the need for significant investment in custom software.

“As companies shift from labor-intensive, paper-based processes to more efficient electronic procurement systems, having the option to pay with Visa will help simplify the process and bring many benefits,” Fordyce said in a Visa/SAP announcement. “We anticipate that being able to make Visa payments via connection to the SAP Financial Services Network will help corporations streamline accounts payable processing, while avoiding the upfront and ongoing costs that would be associated with custom software for the payment process.”

Opt-out request

Virtual cards also have caught the attention of health care providers, which have mixed feeling about the products when used to settle claims.

Last month, a hospital representative told the Department of Health and Human Services’ National Committee on Vital Health Statistics Subcommittee on Standards that some health plans are automatically using virtual credit cards to pay claims, resulting in significant banking charges and administrative work for health care providers.

In his testimony, Doug Downey, speaking for Hospital Corporation of America (HCA), said the committee should discourage health plans from imposing a transaction fee for electronic payment or requiring hospitals to “opt out” of virtual card payments.

Health plans or their agents switch payments from check to virtual cards with no business discussion between the two parties, effectively automatically enrolling the provider in the program automatic opt-in. Health plans or their agents are also incorrectly leveraging the card-network rules, which apply to consumer-to-business payments, and applying these rules to B2B payments, Downey said.

“This is a misapplication of the rules,” he said. “HCA merchant credit card fees in 2013 increased by an estimated $3 million as a result of the un-negotiated use of [virtual credit card] payments by health plans and/or their clearinghouse/aggregator payment service agents.”

HCA is not opposed to virtual card use because it may be appropriate for some providers, but it is against network rules that automatically opt in providers to accept such payments, Downey said.

A long history

Virtual cards have been around for some time. One of the first companies to introduce them was Ireland-based Orbiscom, which MasterCard acquired in 2009. MasterCard also works with other virtual card companies, including Europe’s Conferma, which also does business with Visa Europe issuers, according to Business Travelers News.

Though initially marketed primarily as a way for consumers to improve the security of online payments, virtual cards more recently have gained the interest of B2B companies, including firms in the travel industry.

Last fall, MasterCard announced MasterCard Travel Controller, which provides companies with information necessary to allocate charges to appropriate cost centers and allows them to expand control over travel spend by setting customer virtual accounts for each transaction.

Virtual fleet cards

Fleet card specialist Wex is among the major issuers of B2B virtual cards, providing a MasterCard-branded product to its fleet customers.

Last year, the company added 700,000 new fleet cards globally, growing its virtual card volume by 20 percent, according to the company’s fourth quarter earnings release.

In April, Wex’s European unit signed an international deal with Conferma, bringing to that company a prepaid virtual product for the first
time. It enabled Conferma’s partners to optimize travel payments by selecting the payment method that is most appropriate for each transaction type.

Source: http://www.pymnts.com/in-depth/2014/why-some-businesses-dont-like-virtual-cards/#.U7wHBRb2pnE

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Alto Global Processing: Amazon Launches Recurring Payments for Third-Party Sellers

Amazon this week expanded its third-party payments service to include support for recurring billing. Two hundred and forty million consumers have Amazon accounts and the company has long been seen as a sleeping giant in the e- and m-commerce world. Amazon will now enable online sellers to access those accounts for sales made using a subscription model. The Seattle-based company tested the service with several Websites including mobile phone company Ting, according to a Reuters report confirmed by Amazon.

Amazon’s hope, according to the report, is that startups like Ting, which might have trouble convincing consumers to hand over their credit-card details for automatic periodic payments, will have no such trouble when that information is already vaulted by Amazon. A Ting representative told Reuters that customers who used Amazon recurring payments spent 30 percent more than customers who did not.

Amazon is expected to expand its payment activity even further next week, when, industry observers say, the company will launch its own smartphone.

Source: http://cardnotpresent.com/news/default.aspx?id=5826

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Alto Global Processing: American Express Expands OptBlue Merchant Acquirer Program

American Express has announced the expansion of OptBlue, its new merchant acquiring program that extends U.S. small merchant acceptance coverage for its cards.

Amex reports there are now 10 participating acquirers in OptBlue, five of which are among the top 10 in the United States. New to the program are: First Data, EVO, Merchant e-Solutions and First American Payments Systems. The program was announced at American Express’ Financial Community meeting earlier this year with Vantiv, Global Payments, Heartland Payment Systems, Worldpay, Transfirst and JetPay as the first participants. Participating acquirers will provide a full one-stop servicing solution for American Express Card® acceptance to eligible U.S. small merchants.

OptBlue is part of American Express’ ongoing commitment to enhance the U.S. small merchant experience and is an evolution of our acquiring business,” said Ed Jay, Executive Vice President, Merchant Services – Americas, American Express.

“The program will help deliver a smart and easy solution for U.S. small merchants to enjoy the benefits of American Express Card acceptance while making it convenient for consumers to Shop Small® year round.”

With OptBlue, participating acquirers can offer U.S. small merchants the benefit of a single statement, one settlement process, and one contact for all the major card brands. Acquirers determine merchant pricing in addition to providing payment processing and servicing. OptBlue will help expand American Express’ U.S. small merchant coverage, providing consumers more payment options at local businesses. American Express continues to receive the same transactional information it does today, allowing OptBlue merchants to benefit from the valuable tools, services and marketing that the Company delivers to small merchants. OptBlue is limited to eligible U.S. small merchants that have a projected American Express charge volume of less than $1 million per year.

Source: American Express Expands OptBlue Merchant Acquirer Program.

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Alto Global Processing: IRS DEEMS BITCOINS TAXABLE PROPERTY

By JEFF GREEN @epaymentsguy

Senior Analyst at PYMNTS.com

Bitcoin collecting and use just got a lot more complicated, thanks to a March 25 IRS notice classifying bitcoins as property and not currency. As such, it imposes a huge record-keeping burden on anyone who is dealing in bitcoins.

According to the IRS, general tax principles that apply to property transactions apply to transactions using virtual currency. Among other things, the notice imposes a huge record-keeping cost on anyone dealing with bitcoins.

“Anytime you buy or sell you have an IRS record-keeping obligation,” David Evans, chairman of Global Economics Group, tells PYMNTS.com in commenting on the IRS notice. “Obviously, they are only going to enforce that selectively, but people that are heavily into this will have issues.”

The IRS decision also provides what Evans believes is a real impetus to using bitcoins only for things that are only denominated in bitcoins. If a website offers “stuff” that is only priced in bitcoins, then it would be hard to argue that there’s been appreciation, he said.

Still, the IRS created some major headaches for many bitcoin users. “It imposes huge paperwork requirements; every time you pay with an appreciated bitcoin, you face a tax liability,” he said. “And it means you have to pay your personal income tax rate of about 10 percent to 40 percent (more if state taxes apply) if you’ve held the appreciated bitcoin for a year or less.”

Most people, Evans suggested, will ignore the IRS rule, and merchants don’t have to worry about taxes if they are using a bitcoin wallet provider that pays them in real currencies. Still, this provides a strong incentive to hold on to one’s bitcoins if the belief is they will appreciate. That way, the holder is liable only for long-term capital gains instead of using them for transactions, he said.

“For people in the with paper losses, it might provide an incentive to dump them and get the tax write-off,” Evans added.

To read the full IRS notice, click here.

Source: http://www.pymnts.com/in-depth/2014/irs-deems-bitcoins-taxable-property/#.UzMlNa1dWSo

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