PSD - experiences and outlook

Swiss Finte.ch Meetup Event

Christian Bucheli

F10 Incubator, Zurich, 4th February 2016

Classification: public

Page F10 Incubator, Zurich, 26 January 2016, public

Content

2

• SIX - Payments in a nutshell

• PSD 1 – experience

• PSD 2 –outlook

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SIX - Payments in a nutshell

F10 Incubator, Zurich, 26 January 2016, public

A day with us…

F10 Incubator, Zurich, 26 January 2016, public

SIX Payment Services - overview

Merchants Financial Institutions

Card Issuance - Cobranded international

payment cards

- Closed loop private label

payment cards

- Closed loop private label loyalty

cards

- Issuing partner models

- Issuing processing and

management

- Issuing services (fraud, auth.

Cardholder support, etc.

Enabling - Stand alone POS solutions

- Integrated POS solutions

- E-commerce PSP solutions

- Stand alone POS solutions

- Integrated POS solutions

- E-commerce PSP solutions

Card Acceptance - Multibrand, multicurrency

acquiring

- Merchant processing

- Acquiring reseller models

- DCC solution

- Value added services

- POS Acquiring partner models

- Merchant management

- POS Acquiring processing

- ATM Acquiring processing

- ATM Management

- Transaction switching

- DCC solution

- Value added services

Non card payments - Mobile peer 2 peer payments - Mobile peer 2 peer payments

SIX Payment Services covers the entire electronic payments value chain and

possesses all necessary banking and PSD licenses to provide financial services

across Europe with almost 50 years of business experience.

F10 Incubator, Zurich, 26 January 2016, public

An international footprint to be close to our customers

Luxembourg Processing Centre Issuing, Market Leader Issuing and Acquiring.

Switzerland Processing Centre for Acquiring and Issuing, Market leader POS- and ATM business

Hungary Leading Acquirer for Retail- and Hospitality Solutions

Other office locations Germany, Italy, Poland, United Kingdom, USA, Sweden

Austria Market Leader Issuing and Acquiring Processing, POS & ATM business

t t t

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London

Stockholm

Vienna

Budapest

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Luxembourg

Hamburg

Frankfurt

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Warsaw

Milan Geneva Biel Zurich

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PSD 1 - experience

F10 Incubator, Zurich, 26 January 2016, public

Going international – initial legal concerns

In 2007 SIX, at the time still Telekurs, decided to expand its acquiring business

internationally to follow international merchants, penetrate new markets and protect

the home market.

A strategy to achieve this was written and as a first step an international sales team

put together. Still it was very unclear under what type of legal framework SIX would

be allowed to operate in Europe because legislation was very heterogeneous.

F10 Incubator, Zurich, 26 January 2016, public

PSD I – a silver lining on the horizon

In 2008 the EU started publishing the first version of the PSD with the aim to

standardize the local legislations for financial service providers across all member

states by November 2009.

Impact:

In order to offer card acquiring and /or issuing service a PSD license is required.

The PSD is not included in the bilateral agreements with the European Union.

Therefore a Swiss Company’s legal entity cannot obtain a PSD license.

Solution:

SIX founded after careful evaluation a legal entity in Luxembourg in December

2008. This newco obtained a PSD license in 2009 which was then passported

successfully in all major European Market. This allows SIX to offer Payment

Services in all these countries.

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Assessment

In hindsight the solution SIX went for clearly was a success characterized by the

following most important pros and cons.

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Cons

- National PSD implementations not

identical

- National PSD certifiation

procedures strongly vary

- Additional laws like AML, KYC,

VAT still not harmonized

- Local business rules for settlement

- Specific local tax directives

- Different IT system setups

between CH and EU

- Redundant structures between CH

and EU

Pros

- Legal security to set up business

upon

- One legal framework to apply

across all EU countries

- Standardized passporting to enlist

in EU member states

- One authority to deal with (CSSF)

- Certain plain level in the market

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PSD 2 - outlook

F10 Incubator, Zurich, 26 January 2016, public

PSD II – the disruptive elements

Aside of a number of incremental changes, extensions into further domains and

even stronger harmonization the following items have the potential to strongly alter

the financial services market by offering third party providers the following services:

One-time access to a consumer’s online banking presence to

collect transaction history information

One-time access to a consumer’s online banking account to

enable the authorization of a transaction (using a credit

transfer) but not to hold funds at any time

Trusted party providers (TPP) must be licensed and hold appropriate insurance. If

so, they may not be discriminated by banks. A shared liability for defective

transactions between the parties is the working hypothesis. No contract between

Bank and TPP is required but they need to authenticate themselves every time and

are obliged to keep the customers security details secure.

AIS

PIS

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Standard APIs – app store innovation dynamics

If the industry in collaboration with the legislators manage to come up with a

standardized open API to trigger Account Information and Payment Initiation

Services a veritable innovation Tsunami could be triggered.

Thanks to this TPPs would be able to build a myriad of services based on this

foundation always relying on identical specifications and rules. Such services could

comprise:

• Direct to ACH payments

• P2P payments

• IOT payments

• Instant installment purchases

• Credit scoring services

• Address verification services

• Simple check-in / check-out

• Identity management services

• Finance management platforms

• Finance services comparison services

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Opportunities and threats

As with many innovation cycles these changes can be an opportunity or a threat for

incumbent players depending on their ability to update their business models.

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Threats

- Potential disintermediation due to

TPPs.

- Bank’s services can become

commoditized and exchangeable

- Increased difficult to master

security challenges due to multiple

parties involved

- Large players like Apple or Google

could start bypassing Card

Industry

- Unreliable or inconsistent TPPs

can backlash on banks customer

relationship

Opportunities

- Growing number of ACH

transactions should reduce card

based fees and increase control

over general cost structure

- Banks information and services

become even more central to

consumers

- Diversification into information

services allows banks to diversify

business models

- New revenue models for Banks

and Processors

- Federated ID management

systems like in Nordics become

possible

Thank you for your attention.

Christian Bucheli

Executive Director

Head of strategic ventures

SIX Payment Services

christian.bucheli@six-group.com