What does Apple’s acquisition of Mobeewave mean for banks?

This weekend Apple acquired mobile payment company Mobeewave, a Canadian-based startup that allows merchants to use their smartphone as payment terminals without any external accessories. What will this mean for banks and the payment industry?

This acquisition follows several moves that show that Apple has its eyes set on the payment industry. Ever since the launch of Apple Pay back in 2014, Apple has continued their push towards the mobile payment market by safeguarding NFC access on their smartphones as well as P2P payments and launching an Apple-branded credit card to compensate for slow adoption rates of mobile payments. However, the market for mobile payments is estimated to amount to 3,4 trillion USD by 2022, with a compound annual growth rate of 33.4 percent, it is worthwhile to be patient. With this acquisition, Apple is placing another long term bet on payments.

Bloomberg was first in spotting the $100 million acquisition and reports that this acquisition puts Apple in direct competition with Square, a provider of smartphone-enabled POS terminals for small businesses. By allowing the smartphone, itself to become a payment terminal, Apple effectively eliminates the need for external peripherals such as the ones provided by Square and iZettle, and lets buyers tap either their phone or credit card directly on the merchant’s phone to process the payment. You can see how it works on Mobeewave’s website.

Apple is not the only one who has shown interest in Mobeewave’s technology, and according to Pitchbook, Samsung Ventures has previously invested in the company, as well as signing a deal to allow their phones to use the technology. According to PYMNTS, this partnership resulted in a pilot program with over 10,000 downloads of Samsung’s POS app, which smaller businesses used as a boost for their sales.

Whether or not this deal will still be on the table following the acquisition is not disclosed in the press release, but it will be in my opinion in Apple’s interest to let this deal continue, as a large installed base will ultimately be positive for Apple.

Looking beyond the obvious that this will increase competition in the POS market, this acquisition has several potential implications for the payment industry and the incumbents in the industry such as banks, credit card schemes, and payment processors.  

With the ability to serve merchants in physical retail, Apple strengthens its ecosystem and thus takes one step further towards mobile wallet dominance. This is a subject I have covered previously and may lead to disintermediation of the customer interface, allowing Apple to act as a gatekeeper for potential cross-sales through every banking interactions. This scenario may be a costly outcome for incumbents.  Looking at how other industries like the hospitality industry where players like Expedia take commissions between 10 to 15 percent have been disintermediated; there is likely a willingness to pay to be the default payment option if third-party wallets become dominant players for digital payments.

Even if Apple should become dominant in the customer interface, Apple is still depending on VISA/Mastercard or local schemes such as Interac to act as the rails for payments, to process payments through Apple Pay. Thus acting as a frenemy of incumbents with a mutual dependency, where revenues are still distributed between existing players (after Apple gets their share of course) through interchange fees

Interchange fees are transaction fees that the merchant's bank account must pay whenever a customer uses a credit/debit card to make a purchase from their store. The fees are paid to the card-issuing bank to cover handling costs, fraud and bad debt costs and the risk involved in approving the payment. Source: Bigcommerce

However, if Apple succeeds in widespread adoption on both the consumer and merchant side, they could in theory bypass traditional payment schemes and banking infrastructure, and process their own payments. This will not only have an impact on scheme providers such as Visa/Mastercard but also banks that get a portion of their transactional revenues from interchange fees every time a card payment is processed. The European Commission reports that on average (although this varies across member states), revenue from payments is estimated at about 25 percent of total bank revenue, and interchange fees play a significant part in the revenue pool.

According to ECB, the total interchange fee paid by acquirers to issuers for consumer card transactions within the EU was about EUR 7,800 million, and even after the effect of the IFR market cap, where interchange fees decreased by EUR 2,700 million the revenue pool for interchange fees is still significant. One interesting finding from the study is that while Issuers have lost revenue of EUR 2,950 million per year. Acquirers, instead, have gained revenue of EUR 1,200 million coming from lower interchange fees. Not surprisingly this is the part of the value chain that Apple targets through their newly acquired POS capabilities.

The timing is also impeccable in the midst of the ongoing pandemic, where many small merchants stray away from cash as their primary means of payments.  The use of cash is already on the decline, but will likely accelerate as people fear that cash may act as people far that banknotes may spread the disease and many stores encourage customers to use cards or mobile payments.  According to Nets, contactless adoption rates in the Nordics are increasing at a never before seen rate. Mobile payments in physical retail have proven to be a slow train coming so far, but the option to authenticate a payment on your own phone rather than handling a potential germy PIN-pad may be the spark that accelerates mobile payments.

Lastly, going back to the Square comparison one should not mistake Square for a mere provider of easy to use and cheap POS-hardware. The real value of Square lies in its unique positioning in its customer value chain. By placing themselves in the midst of their customer’s income stream, Square is able to leverage this position to provide small business loans. Through square cash, merchants will receive a loan offer based on their card sales, and the ability to repay it automatically with a percentage of their daily card sales through Square.

To strengthen this offering, Square received the nod by federal and state regulators to open a bank in Utah. The company will be able to use this opportunity to boost Square Capital to achieve increased flexibility in its small business lending program. That means Square will soon be able to originate commercial loans to merchants that process card transactions through its payments system.

It remains to see how far Apple will venture into this territory, but a glance at how Square is redefining everyday banking services through their ecosystem, combined with the ability to bypass existing infrastructure by closing the loop on payment processing and strengthened position as a mobile wallet provider shows the potential implications for incumbents.


It is unlikely that Apple will open up NFC for third-party payment solutions


In the wake of the Apple Pay launch in Norway, the fact that only Apple themselves is allowed to provide NFC-based payments through the handsets, making Apple Pay the only option for contactless payments through an iPhone has become a hot topic, and Apple has been reported to the Norwegian competition authority for exploiting their dominant market position to prevent competition. Despite this, it is still unlikely that NFC access for payments will be opened for third-party developers anytime soon.

To give some context, Apple has an estimated market share of more than 60 percent of the smartphone market in Norway. Based on this, it is claimed that Apple may be in breach of the national competition laws. Another issue regarding Apple Pay is that the solution is based on international schemes such as VISA and Mastercard, which represent a significant cost increase compared to national schemes for retailers.

This has also become an issue in Denmark, where Apple has an estimated market share of 70 percent of the smartphone market, and Apple is also reported to the Danish competition authority for automatically choosing VISA over the national scheme, Dankort. This again is an issue under IFR (Interchange Fee regulation) that states that the consumer should be able to choose which payment scheme that will be utilized when conducting a payment.

It is not only payments that call for Apple to open up NFC access. The Dutch government is pushing for Apple to open the NFC functionality on iPhones to the Dutch authentication system DigiD, as this authentification method is widely used for identification in the Netherlands through username and password. However, for some services, stronger authentification methods require an ID document, and the chip in this can be read with the NFC function on a mobile device. This is possible with an Android device. Norwegian fintech spinoff from NDB, IDmee is another solution that utilizes this technology.

Based on this, the expectations where high that Apple would announce full third-party NFC access through the Core NFC framework for iOS 12 at WWDC this year. The expectations fell short as it became clear that NFC-access for third-party developers is still limited to fairly limited use cases.

Despite strong arguments for Apple to open up NFC-access to third-parties, it is unlikely that this will happen anytime soon.

The legal battle for NFC-access has already been fought and lost by Australian banks. Already back in 2016, leading Australian banks submitted an application to the ACCC (Australian Competition and Consumer Commission), urging for access to NFC for third-party payment solutions.

As a response to the claim for NFC access by Australian banks, Apple states that the increased competition claim doesn’t apply, as if the banks were given NFC access, they could start specifically charging customers for using Apple Pay, discouraging the use of the mobile payments platform and thereby reduce competition with their own proprietary wallets. Offering NFC access to the banks also creates significant costs, including negative effects on consumer security and data privacy, the ability for users to select their payment card at the point of sale, and a depreciated customer experience.”

The request by the banks was eventually denied by the ACCC, as the benefits were outweighed by the downsides of granting access to NFC.

The ruling stated among other reasons that mobile payments are still in its infancy, and in rapid change. it was also stated that this would give Apple a competitive disadvantage towards Google in the competition for mobile payments. On this note, it is worth mentioning that Google is paying Apple 3 billion USD per year to remain the default search engine on the iPhone, despite no technology lock-in on search. Another argument from the ruling states that Apple Wallet and other multi-issuer digital wallets could increase competition between the banks by making it easier for consumers to switch between card providers. which corresponds fairly well with the intentions of PSD2.

However, the main reason while Apple will remain unwilling to open up NFC-access is to maintain their competitiveness in the battle for mobile payments. While this market is still at an early stage, it is estimated to amount for 3,4 trillion USD by 2022, with a compound annual growth rate of 33.4 percent. This is a global battleground and Apple could easily be considered an underdog compared to Chinese competitors WeChat Pay and Alipay have a combined 1 billion users, followed by PayPal with 210 million users as of August last year and Apple Pay with 127 million users by the first quarter of 2018. While Apple is working to close that gap, proximity-based mobile payments such as NFC have proven to be a slow train coming despite continuous efforts to promote Apple Pay.

Mobile payments is undoubtedly a global clash of the titans, where Apple has entered the ring as a serious contender and seeks to utilize the iPhone as a competitive advantage. Opening up for third-party payment apps will significantly weaken that advantage, and that is why it is highly unlikely that Apple will grant NFC access anytime soon.



What should you expect from mobile payment adoption


Mobile payments have been one of the recurring topics for the financial service industry for more than a decade. Having followed this development a while, one thing is for sure No matter the approach to mobile payments, the only thing that matters is user behavior and reaching critical mass in terms of user adoption.

Looking at the various approaches to mobile payment, it becomes evident that there is no single recipe for mobile payment adoption. The choice of use case, technology, and market to launch follow different adoption patterns. The only similarity is if mobile payments do not solve a perceived “problem” for its users, there is no incentive to change consumer behavior.

Direct carrier billing is still the dominating form of mobile payments worldwide. While this form of mobile payments may be associated with purchasing ringtones for many, direct carrier billing is the primary way cy\sutomers pay for digital goods in emerging markets, with average conversion rates are about 5 times that of credit cards. Mobile research firm Ovum forecasts that total direct carrier billing revenues will increase to $24.7 billion in 2019 from $14.5 billion in 2014, and since its inclusion on Google Play last year, direct carrier billing sales have grown by 300%.  While app stores only represent 14% of the carrier billing revenues today, it is by far the fastest growing segment.

Mobile payment services such as M-Pesa and Easypaisa is widely known as pioneers in mobile payment services by providing basic mobile banking services to markets with lacking financial infrastructure. M-Pesa was first launched in March 2007 and grew to 17 million subscribers by December 2011 in Kenya alone. Easypaisa launched in Pakistan two years later, targeting a market of over 200 million people, with only 15 000 registered bank accounts. As a result, Easypaisa caters to over 6 million customers each month.

While these are compelling stories, these are not necessarily transferable to western economies and or markets with developed digital financial infrastructure. Direct carrier billing remains dominant in the Asia-Pacific region, and while many associate direct carrier billing to financial inclusion, much of the carrier billing opportunity today is confined to high-margin content, such as in-game virtual goods, as well as operator bundled OTT media services such as Spotify and Netflix.

Carrier billing has been around for a while, and my first encounter with mobile payments was with working on carrier billing in Southeast Asia back in 2005. Even though the technology may be perceived as dated, carrier billing is still going strong. as an alternative to existing payment methods as well as for financial inclusion on developed economies. Telcos are also incentivized to maintain growth in carrier billing as a means to exploit existing infrastructure in a time of diminishing revenues from traditional products such as SMS revenues.

Peer-to-peer payments is where we have seen rapid adoption patterns and has proven to be a favorable entry point to mobile payments. The inherent network effect of a peer-to-peer use case both incentivize to recruit friends as well as maintain a relatively high switching cost. This has proven to be the case with the launch of Venmo in the US in 2009, Mobilepay in Denmark in 2013 and Vipps in Norway in 2015. All services have shown similar adoption patterns as well as the ability to leverage a first mover position to move into other payment use cases and eventually follow in the footsteps to payment platforms such as Alipay, providing a wide range of payment options.

US banks have scrambled to launch their own response to Venmo through the payment app Zelle, and is showing a rapid growth in transaction volumes, and has managed to surpass Venmos volumes in less than a year.

But perhaps the biggest challenge for mobile payment services emerging from the peer-to-peer space is the threat from platforms like Facebook and Wechat, where payments are just one of many uses embedded in the platform. Amazon is already experiencing significant growth in the payments space, with 33 million active users and 200% year-over-year growth in merchants adding the “Pay with Amazon” buy button to their online stores an is rumored to launch a current account product. 

Whether you start out as a small fintech startup like Venmo, a bank-driven initiative like Vipps or Zelle, or approach payments as digital ecosystem like Facebook, peer-to-peer payments have proven to be an effective means to an end for rapid user adoption.

Proximity-based mobile payments are for many the very definition of mobile payments and are often associated with NFC through Apple Pay. Even though there are several other OEM options out there such as Samsung Pay, Google Pay, as well as various white label mobile wallets launched by banks or retailers, the majority of NFC-based mobile payments in western economies are performed through Apple Pay. For reference, 90 percent of all mobile in-store payments in the US are conducted through Apple Pay. Further findings from the US markets shows that 27 percent of the addressable market has registered and tested Apple Pay, indication a low to moderate adoption rate, but only 8 percent of iPhone owners are frequent users of Apple Pay. Even with relatively low adoption rates so far, Worldpay reports a 328 percent year-on-year growth in contactless mobile payments the in UK.

On a global scale, eMarketer predicts that in 2018 more than one-third of smart phone users ar will use a mobile phone to pay for a purchase at a physical point of sale at least once every six months. This will be mainly driven by the Asia-Pacific region, more specific China where Alipay and Wechat pay are dominating the payment field. where other methods of payments like QR-codes are also deployed through payment services like AliPay to encourage merchant adoption without upgrading existing payment infrastructure.

Given these number, it seems like proximity-based payments is a slow train coming rather than exponential user adoption. One of the barriers to user adoption is reportedly widespread adoption of contactless cards. Just replacing your good old credit card with the mobile phone simply does not add necessary value to get users to change their behavior.

Although cash is also still used extensively in several countries, such as Austria and Germany, the use of physical cash is diminishing across the board. Even the U.S., where cash accounts for one-third of all purchases, the use of cash is declining. Peer-to-peer mobile payments have shown to replace cash in western economies, and direct carrier billing is substituting cash in emerging economies.

It is difficult to predict and end-game in the payment space as various approaches to mobile payments show different adoption patterns. Wechat and Alipay may be the most successful mobile payment platforms to date, but their recipes for success is not necessarily transferable to markets with widespread card adoption and cost-efficient payment schemes.

A general prediction of mobile payment adoption may prove as useless as the G in Lasagna since there are several prerequisites that shape market dynamics in different markets.

  • How developed is the underlying digital infrastructure?
  • What is the smartphone penetration?
  • Is the use of cash still widespread?
  • Which payment schemes are present, and is there any dominant scheme?
  • What is the payment processing costs?
  • Are consumers still riddled with hidden payment fees?
  • What percentage of the population has access to traditional banking services?

These are some examples of the many questions that one should ask oneself before attempting to predict mobile payment adoption. Before venturing into mobile payment waters, these and many more should be accounted for in order to map the current landscape of your target market(s).

No matter the outcome, there will not be a linear transition to mobile payments, and we should expect a fragmented landscape. Context is king, and providing a relevant user experience is crucial to drive user adoption. Otherwise, mobile payments are just another solution looking for a problem.


Fintech and the disruption of banks – where are we now? Part 1: Payments

The landscape for financial services is changing, and while some trends stand out as inevitable, the endgame is still unclear. Not long ago, fintech was an obscure topic that only a few of us actually cared about. By now, fintech has exploded as a mainstream topic with an increasing level of interest from the general public. This post may not propose any revolutionary new insight, but in order to better navigate in uncharted waters it is often useful to conduct an overall assessment of the status of fintech and digital banking.

Fintech is not one single discipline, but a collective term describing different ways of improving and/or disrupting traditional financial services through use of technology, hence the term FinTech.

Payments is still the biggest and most mature field within fintech. Changing consumer behavior, eCommerce, smartphone adoption, digital currencies and PSD2 are just some of the trends that is making payments ripe for disruption. This used to be a field of opportunities for promising startups, and has given us successes such as Klarna, iZettle, Square and Venmo.  Now this field is gearing up for a clash of the titans, where fintech challengers like Klarna and Transferwise face off with tech behemoths like Facebook, Apple, Google, converging industry players from the telco and retail industry, incumbents from the payment industry such as Paypal, Visa and Mastercard, the banks and Alipay as the dark horse in this battle royale for the future of payments.

What are they trying to solve? 

The digital payment infrastructure varies across countries, and where the Nordics are nearly cashless, cash is still used extensively in countries like Austria and Germany. Regardless of digital maturity, there are still some fundamental issues to be solved. Even with card payments, there are still several areas where there is unnecessary friction in the payment and checkout process. New solutions aiming to reduce friction will enable digital retailers and merchant to increase conversion rates, thus creating opportunities for payment service providers that focus on convenience and simplicity. Cross-border payments and remittances are slow and costly, and innovators are attempting to reduce transaction cost and deliver near real-time clearing and settlements. Payments is the first step towards financial inclusion, and mobile solutions like mPesa and Easypaisa is providing basic transaction banking services to the unbanked in countries like Kenya and Pakistan.

Who are being disrupted?

Basically anyone operating in the payment industry is at risk. According to Accenture, banks alone are set to lose 43 percent of retail payment revenues as a result of PSD2. Payment infrastructure players such as SWIFT are challenged by the promise of blockchain, and traditional payment service providers have even more to lose as increased competition in the payment space may render payment processing a commodity.

However, the main reason why payments is the main battlefield in fintech is the fact that payments is the entry point for further disruption. According to McKinsey, 80 percent of customer interaction with their banks is through paying for goods and services. Controlling the payment interface will give an unprecedented leverage for intermediation of transaction banking. Facebook is one such player, who is in a unique position to disintermediate retail banks as a digital ecosystem built on the digital identity of every user in its user base, with the ability to evolve alongside changing user behavior.

iZettle has expanded into lending, and Klarna is already utilizing their strong position within digital payments to become a full-fledged retail bank. Payments are key to acquire crucial customer data, which will be used for both risk and credit assessment, as well as data-driven product development and new business models. EU’s payment directive, PSD 2 will further strengthen this trend by requiring banks to allow users to initiate payments and access their own transaction data through third-party solutions.

For more insight on payments, check ou these posts. Make sure to subscribe and stay tuned for my next update on where we stand on savings and investment trends.


What could Facebooks European payment license mean for banks?


This post was originally published at TechCrunch.

Early December, Facebook finally unveiled their newly acquired licenses for e-money and payment services out of Ireland. The rumors of Facebook entering the payment space in Europe has been going on for a while, ever since it was reported that Facebook applied for a money transfer license a while ago. Another clear indication of Facebooks ambitions in payments were the hiring of former Paypal president David Marcus as head of Facebook Messenger. As Mark Zuckerberg stated in January this year“We’ll partner with everyone who does payments.

With Facebook pay already operative in the US an obvious play is to launch this service across Europe as well, and the jury is out whether Facebook will be satisfied to provide a simple P2P payment service to create stickiness to their messenger platform or whether they’re targeting the $500+ billion global remittance market as well.

If we look beyond payments as an isolated service, Facebook as a licensed payment service company is representing several scenarios banks should pay close attention to.

The coming payment service directive 2 (PSD2) is requiring that banks need to offer payment APIs to third party-providers of financial services and allowing users to mandate licensed third parties to 1) initiate payments and 2) extract account information.

Facebook has already shook up the classifieds market with the launch of Facebook Marketplace, and with PSD2, Facebook have the possibility of becoming their own payments processor as a PISP (Payment Initiation Service Provider) and connecting to bank accounts directly through APIs. Facebook may then ask consumers for permission to use your bank details as a payment method. Once you give permission, Facebook will be able to securely access your bank account and collect their payment. In addition to cost savings, a solution where Facebook take on the role as a PISP eliminates the need for complex checkout processes and providing “one click”-payment options for recurring customers. By collecting payments directly from customer’s bank accounts PSD2 will also enable faster payments as well as blurring the lines between traditional industries.

Facebook may also become an AISP (Account Information Service Provider). The directive enables AISPs to present an aggregated view from more than one bank account. AISPs can analyze spending behavior or aggregate a user’s account information from several banks into one overview, rendering traditional mobile and online banking solutions based on one account obsolete. It is already obvious that chatbots will have a significant impact on banking, as a majority of banking services could be automated through simple chat request like “what is my daily spending limit until my next paycheck” or “approve and pay my outstanding bills. Why bother to log into your bank app when everything is already available and secure directly in Facebook messenger.

As a licensed payment services company, Facebook also has the necessary regulations in place to provide settlement risk to be compliant as a crowdlending platform (in some countries). Even though this is a crowded space with almost 300 alternative finance and crowdfunding platforms across Europe, Facebook has a unique position in this space with its vast user base and ability to utilize user data as well as account information for assessment of risk and creditworthiness.

Facebook is already in a unique position to disintermediate retail banks as the most powerful digital ecosystem out there for consumers. The key to Facebooks powerful position is the ability to evolve alongside changing user behavior, and so far, Facebook is excelling at this. What makes Facebook one of the most potent digital ecosystems is that it is based on managing the digital identity of every user in its user base, and ff done right, Facebook has the potential to render phone numbers, email addresses as well as bank account numbers obsolete. Eventually this could make banks as we know it as invisible commodity providers, where all customer interaction is conducted through digital ecosystems like Facebook Pay and Facebook Messenger for both payments, e-Commerce and everyday banking. According to a study conducted by pwc, 68 percent of bankers are concerned with losing control over their customer interface. A regulatory compliant Facebook should definitely make those concerns turn into worries.



Nordea and Danske Bank forms mobile payment powerhouse in the Nordics


Nordea announced this morning in a press release that they wil be joining forces with Danske Bank on the mobile payment platform Mobilepay as equal partners. The initiative welcomes all Nordic banks to join in in the collaboration effort.

As a consequence, Nordea will leave Swipp, a collaboration effort in mobile payments in Denmark.

inorder to make the platofrm attractive for other Nordic banks, Mobilepay also announce that Mobilepay will be divested in a separate legal entity with an independent board of directors. Mobilepay will also rid themselves of “by Danske Bank” in order to create a service that is attractive for all Nordic banks that wish to join. With a rapidly changing payment landscape, Mobilepay aims to create a Nordic player that is able to withstand competition from every direction in the years to come.

Visit Nordea’s press release for more.




The what, who, when, where and why of PSD2


This summary concludes my blog post series on PSD2, where I have focused on the basic principles of the directive and its implications on financial institutions as well as merchants and the ecommerce market.


For those who are new to the banking world and PSD2 in particular, PSD2 is an upcoming payment service directive from the European commission. In hort, the directive states that banks need to offer payment APIs to third party-providers of financial services, also known as TPPs (Third Party Provider) under the XS2A (Access to account) rule. This creates some new roles in the payment landscape:

  • PISP(payment initiation Service providers) will be able to initiate online payments from the payer’s bank account
  • AISP(Account Information Service Providers) will be able to extract and accumulate customers account data, including transaction history and account balance
  • ASPSP(Account Servicing Payment Service Providers) aka banks and financial institutions are the account providers that is required to offer APIs to PISPS and AISPs

If you would like to know more, check out my introduction to PSD2.


The directive will affect everyone in the shifting payment landscape. This include banks, fintechs, the PCI (Payment Card Industry) as well as merchants. For more information on how the directive will affect banks and merchants, check out these posts:


The revised payments services directive (PSD2) was first proposed by the European Commission in June 2013, adopted by the Parliament in October 2015 and entered into the Official Journal in December the same year. EBA has recently released the draft for the technical standards and a public hearing regarding technical standards will take place at the EBA premises on Friday 23 September 2016. Banks and other players that are affected by the directive then have until October 12th 2016 to give their response on the draft RTS. The directive was to be implemented national legislation by January 13 2018, although it is expected that the earlieest implementation date will be September 2019.


PSD2 applies to everyone under the SEPA (Single Euro Payment Area), which includesthe 28 member states of the European Union, the member states of the European Free Trade Association (Iceland, Liechtenstein, Norway and Switzerland), Monaco and San Marino. PSD2 extends the reach of the original directive, including also what is referred to as “one leg out” transactions. Transactions where at least one (and not anymore both) party is located within EU borders.


The purpose of the upcoming payment service directive PSD 2 is to create an even playing field for payments and encourage innovation. The directive has the potential to fundamentally alter the payment landscape as we know it.

In addition to the what, who, when, where and why comes the tricky part: The how

Security, compliance and authentification will always be some of the main concerns when it comes to digital banking. EBA propose the concept of Strong Customer Authentication (SCA),  goes beyond two-factor authentication. In addition a first factor like a password or an PIN number and a second factor like your mobile phone or code generator,  SCA introduces a third dimension referred as inherence (something that identifies that customer, such as a fingerprints or voice biometrics). There are still many, many questions regarding the how, and from a my business perspective am not even going to attempt to navigate the many legal and technical terms in the RTS any further and leave that one to the professionals.


PSD2 – opportunities, threats and strategic options for banks


As I have described in previous posts, PSD2 will force banks to open up their infrastructure to third parties by offering APIs under the XS2A (access to account) rule. The directive has the potential to fundamentally alter the payment landscape as we know it. One of the reasons why PSD2 will have such a large impact is that it will level the playing field and increase competition by integrating the role of new and emerging payment services into the regulation. While incumbents have the most to lose, there are also opportunities ahead for banks.

At the core of the directive lies the requirement for banks to offer APIs to third parties, and an API and platform strategy will be crucial in order to benefit in an open banking world. When BBVA hires a head of open APIs, it is not to comply with technical requirements. BBVA aims to create a digital ecosystem where third parties can connect to the bank’s core infrastructure and provide new services that strengthens customer experience and improves the bank’s own offerings.

In order to assess the opportunities and threats for banks under PSD2, it is useful to base the analysis on the roles introduced under the SX2A-rule (as it is important to talk about PSD2 without involving three letter abbreviations):

  • PISP (payment initiation Service providers) will be able to initiate online payments from the payer’s bank account
  • AISP (Account Information Service Providers) will be able to extract and accumulate customers account data, including transaction history and account balance
  • ASPSP (Account Servicing Payment Service Providers) aka banks and financial institutions are the account providers that is required to offer APIs to PISPS and AISPs

The minimum effort required by banks is to comply as an ASPSP. This option requires the least effort, but increases the risk of banks becoming utilities, or “dumb pipes” as innovative competitors leverage the directive to take control over the customer interface. A compliance approach to PSD2 is an option, but will most likely lead to incumbents choosing this approach to become infrastructure providers of underlying banking infrastructure.

For banks looking for a more aggressive approach, there are opportunities.

Become a TPP by offering AISP services. This approach could strengthen incumbent banks value proposition as an everyday bank by collecting aggregating account data from other financial institutions as an AISP as well as other relevant open APIs. Since banks represent trust and security (at least in the Nordic region), banks has a unique position to become an identity broker and “financial life coach” centered around customers everyday finances. By taking this approach, banks should seek to become their customer’s favorite bank instead of the sole provider of financial services. This approach will create a strong position for banks in the overbanked population of the western world, and Swedish bank SEB as well as dutch ABN Amro has invested in fintech startup Tink to leverage this opportunity. Tink is one of many candidates that seek to become virtual banks, and incumbents should expect to see increased competition from fintech startups like Tink, Qapital and Moven as well as challenger banks like Lunar Way. This option enable banks to become one-stop shops for multi-banked customers with a consolidated account overview as well as a permission to initiate payments for both consumers, SMEs and corporate clients and should be considered as a primary approach by relationship banks such as savings banks and community banks.

Expand APIs to offer data beyond the requirements under XS2A. Banks hold vast amount of valuable data that may be leveraged in a data monetization strategy. While this is a seductive opportunity, it requires a well thought out information strategy, where only non-sensitive data is offered to third party. This approach enables incumbent banks to become part of external ecosystems in adjacent industries as well as providing value added services services to fintechs and other financial institutions.

Become a TPP by offering PISP services. This approach allows banks to expand their transaction banking offerings by actively disrupting the existing payment options for online payments as well as offering cost effective and faster API-based P2P payment solutions. This option could provide new revenue streams in a changing payment landscape but banks will need to compete directly with established players in the already crowded online payments landscape.

From an initial look at the consultation and discussion papers for the RTS (Regulatory Technical Standards) drafts published by EBA (European Banking Authority) there are still some questions regarding standardization, security, authentication and convenience that will shape the impact of PSD2. No matter the outcome of the RTS details, the directive represent significant changes to the payment landscape and the financial services industry as a whole.


What does PSD2 mean for online merchants?


The purpose of the upcoming payment service directive PSD2 is to create an even playing field for payments and encourage innovation. The players on this field include banks, fintechs, the PCI (Payment Card Industry) and merchants. I have explained the basics of the directive in this post. While banks are at risk of losing up to 43 percent of retail payment revenues by 2020, the directive represents several opportunities for online merchants.

I addition to friction in the checkout process leading to cart abandonment, credit card processing fees ranging from 1,5% to 3,5% take a serious bite of online retailers margins. The combination of high friction and cost has led to the incredibly growth of alternative payment methods such as Klarna, and according to WorldPay, alternative payment methods will see their overall share of transactions grow from 37% to 50% by 2019.

With PSD2, online merchants have the possibility of becoming their own payments processor as a PISP (Payment Initiation Service Provider) and connecting to bank accounts directly through APIs under the XS2A (Access to Account) rule. This moves payments away from established payment gateways, card schemes and PCI networks and potentially eliminates costs for card schemes and other intermediaries in the PCI ecosystem.

With PSD2, the Directive will allow merchants to ask consumers for permission to use your bank details as a payment method. Once you give permission, online merchants will be able to securely access your bank account and collect their payment. In addition to cost savings, a solution where merchants take on the role as PISPs eliminates the need for complex checkout processes and providing “one click”-payment options for recurring customers. By collecting payments directly from customer’s ank accounts PSD2 will also enable faster payments.

However, becoming a PISP will involve some complexity and increased costs. Merchants must comply to the directive’s Regulatory Technical Standards (RTS) which is under development by the EBA (European Banking Authority). In addition to providing strong customer authentication and secure communications, it is also suggested that TPPs (Third Party Providers) should be supervised to ensure consumer protection, security and settlement risk. Anyone who has any experience from the financial services industry knows that compliance is expensive. For the largest online retailers, this may still make sense if the business case shows that cost reductions from processing fees and potential increased revenues from reduced friction outnumbers compliance cost.

No matter the outcome, the way we look at payments will change in the next 2-5 years.


A short introduction to PSD2


The coming payment service directive from the European Commission marks a shift in banking regulations. Instead of prohibitions and limitations, the overall purpose of PSD2 is to create an even playing field and encourage innovation in the payment space as a part of SEPA (Single Euro Payment Area). Although all the technical details is yet to be sorted out, the directive states that banks need to offer payment APIs to third party-providers of financial services, also known as TPPs (Third Party Provider) under the XS2A (Access to account) rule. This creates new roles in the payment landscape:

PISP (payment initiation Service providers) will be able to initiate online payments from the payer’s bank account. A PISP could potentially provide new payment options bypassing traditional payment schemes and intermediaries. The directive states that these payments must not be treated with any form of discrimination compared with payments initiated by the bank.

AISP (Account Information Service Providers) will be able to extract and accumulate customers account data, including transaction history and account balance. The directive enables AISPs to present an aggregated view from more than one bank account. AISPs can analyze spending behavior or aggregate a user’s account information from several banks into one overview, rendering traditional mobile and online banking solutions based on one account obsolete.

ASPSP (Account Servicing Payment Service Providers) aka banks and financial institutions are the account providers that is required to offer APIs to PISPS and AISPs. ASPSPs can introduce a price per transaction for PISP, but may not charge differently for payments initiated through PISPs than they would for payments initiated through their own systems. This is one of the biggest uncertainties regarding the directive, as it is still it seems like ASPSPs may introduce price exeptions for objective reasons.

Security is obviously an important aspect of PSD2, and the regulation introduce several security requirements for TPPs. EBA (European Banking Authority) is responsible for technical standards regarding security. A public hearing regarding technical standards will take place at the EBA premises on Friday 23 September 2016.

According to a study conducted by pwc, 68 percent of bankers are concerned with losing control over their customer interface. Pursuing a traditional compliance approach to PSD2 sets banks at risk of becoming mere utilities, while ownership of the customer relationship shifts to third parties. Its companion, the Interchange Fee Regulation (IFR) for card-based payment transactions, is already having impact. It challenges the existing market structures and in particular major card schemes like Visa and MasterCard. PSD2 is also expected to increase IT cost as well as reduce retail payment revenues. Despite the concerns, PSD2 acts as a catalyst for banking as a platform, and should be viewed as an opportunity for incumbents.

The directive is expected to be implemented in national legislation by January 13 2018.


Mobil betaling handler ikke om å bytte ut plastkortet med mobilen

mCASH (1)

This post was originally publisheded at (in Norwegian)

Kampen om mobilbetaling er i full gang, og kundene kan nå velge mellom en rekke ulike tjenester fra bankene. Dette er bare begynnelsen, og flere mobile betalingstjenester er på vei fra Facebook, Apple, Google, Samsung med flere. Tidligere meldte dagligvarehandelen seg på, med en annonsert betalingsløsning fra Norgesgruppen og Coop, ikke ulikt CurrentC fra de store varehandelsaktørene i USA. Mens banker, varehandelen og teknologiselskapene kjemper om å skaffe seg en posisjon innen mobilbetaling hevder flere at bankkort fortsatt er den enkleste betalingsformen og ser ikke behovet for betaling med mobilen. Denne konklusjonen har én fundamental feil, og det er forutsetningen om at måten vi betaler på forblir uendret.

Antakelsen om at betaling må være en aktiv handling som et obligatorisk steg i kjøpsopplevelsen preger fortsatt mye av utviklingen. Resultatet av dette er at mobilbetaling i mange tilfeller ikke tilfører noen reell verdi til brukerne. Dette fikk norsk bank- og telekombransje erfare med Valyou og selv Apple opplever lav brukeradopsjon, til tross for at Apple Pay er det foretrukne alternativet blant brukerstedene i USA. For brukerne gir det ingen tilleggsverdi å holde mobilen inntil en tradisjonell POS-terminal i stedet for å bruke kortet. Mobil betaling skaper først verdi når det kobles til en relevant kontekst eller gjøres usynlig og integrert i andre tjenester. Når var sist gang du tok frem kortet for å betale for en Uber?

Google er en aktør som tar dette på alvor og lanserte nylig Google Hands free, hvor det er mulig å betale med Android Pay uten å ta telefonen ut av lommen ved hjelp av en kombinasjon av Bluetooth, Wi-Fi og lokasjonsbaserte tjenester. Paypal annonserte i fjor en lignende løsning der brukerne kan betale uten å ta frem telefonen. Ved å fjerne betaling som en aktiv handling vil betaling med mobilen redusere friksjonen forbundet med betaling i fysisk varehandel.

For å styrke denne utviklingen er det flere initiativ som jobber med å integrere betaling i smarte enheter og «wearables» med mobilen i sentrum for autentisering og sikkerhet. Automatiske betalinger vil være et sentralt tema i fremveksten av smarte hjem, biler og samfunn. VISA og Accenture har allerede integrert betaling som en funksjon i smarte biler, og Mastercard har annonsert at alle tilkoblede enheter er potensielle betalingsenheter. Med en et estimat på 20 milliarder tilkoblede enheter innen 2020 er vi så vidt i startfasen når det gjelder betalinger i fremtidens smarte samfunn.

For restaurantbesøk kan tiden der regningen ankom i en skinnmappe nærme seg slutten. Selskaper som Tab og Dash gir kundene muligheten til å legge inn og godkjenne sin betalingsinformasjon automatisk når de bestiller bord via mobilen gjennom åpne grensesnitt mot bookingtjenesten Opentable. Når kundene ankomme restauranten vil de bli henvist til sitt bord og servert som vanlig, men kunne reise seg opp å gå når de er ferdige uten å måtte vente på å betale. Betalingen gjennomføres automatisk og kvitteringen sendes på epost. En følge av dette er at interessen for «usynlige» betalinger er økende blant brukersteder.

Samtidig som fragmenteringen av betalingslandskapet kan virke uoversiktlig for mange er det enkelhet og relevans som alltid vinner frem. Dette vil føre til at løsninger som Apple Pay, Samsung Pay og Android Pay, løsninger som mCASH, Vipps og Mobile Pay, samt plastkortet vil kunne leve side om side. Forskjellen er at løsningene vil benyttes i ulik kontekst der det tjener forbrukeren.

Starbucks har allerede bevist at det vil ikke nødvendigvis være én universell betalingsløsning som vinner frem innen mobilbetaling. Allerede i 2009 lanserte Starbucks sin app som lar kundene både bestille og betale i samme steg før kunden ankommer kafeen. For kundene betyr dette kortere ventetid og en automatisk kobling mot Starbucks sitt lojalitetsprogram, og resultatet er at mer enn 1 av 5 kjøp hos Starbucks gjennomføres med løsningen.

Samtidig som det er lite penger å tjene på mobil betaling, er den store verdien knyttet til betaling i fremtiden er ikke nødvendigvis transaksjonsinntektene, men eierskap til kundegrensesnittet og kundedataene. Ifølge McKinsey består mer enn 80 prosent av kundens interaksjon med bankene gjennom betaling og eierskap til dette grensesnittet betyr eierskap til kundene.

En rapport fra Deutsche Bank bekrefter dette og viser til at summen av innovasjon innen mobile betalinger vil gjøre selve betalingen usynlige, men åpne opp for nye datadrevne kundeflater. EUs kommende betalingsdirektiv, PSD 2 vil ytterligere styrke denne utviklingen ved å kreve at bankene både tilgjengeliggjør betalingsdata, samt lar tredjeparter initiere betalinger gjennom åpne grensesnitt. Det er kampen om kundegrensesnittet som driver fremveksten av mobile betalinger fra både banker og andre aktører, og vi har kun sett starten på utviklingen. Den som eier noe kunden bruker hver dag, eier kunden, og mobilbetaling er kun middelet for å nå dette målet.


Blockchain from a banking perspective

Shared some perspectives on blockchain at Oslo blockchain day today.



A short summary of Money 20/20 Europe


This week Copenhagen was the center of attention for anyone interested in fintech and the future of finance asfor the first Money 20/20 was held for the first time in Europe. More than 3000 participants gathered for four days of fintech. I will try to give a brief summary of my key takeaways from the event.

At the opening statement the event organizers commented that they started seeing a lot more suits than jeans and hoodies at fintech events. This remark illustrates that fintech is no longer reserved for entrepreneurs and VCs, but is now at the top of the agenda for bankers everywhere.

Collaboration between banks and fintech is one of the hottest subjects this year, and also the focus on the track I spoke at.

Celine Lazorthes from Leetchi/Mangopay shared her experience e of approaching traditional bankers as a young female entrepreneur. When she first approached  incumbents with her startup their response was to offer her an internship rather than discussing a partnership, proving the cultural resistance to change within the banking industry. Or as Greg Midtbo of Moven stated it: “Banks aren’t broken, but traditional banking is”. This is the reason several banks participated at the panel, sharing our collective experiences of different partnership model. Concluding that there is no one size fits all recipe for bank and fintech collaboration.

When fintech was in its early days both entreprenurs and investors were set to eat the banks lunch. While on the other hand incumbents dismissed fintech as a threath and stated that the banks would eat the fintechs for lunch. But at some point both bankers and fintechs realized that it would be a lot more beneficial for everyone to eat lunch together.

Valuations are getting a reality check as fintech moves to the next level of the hype cycle. It is no longer sufficient with a vision to revolutionize payments and banking, but you need an execution plan of how you should fit in to the ecosystem as well as proven non-vanity metrics to get the investors attention.

Alipay announce their move into Europe by immodestly announcing that their goal is world domination. Expect the payment space to become even more competitive as Amazon, Apple, Alipay, Paypal, Google and Facebook are all targeting the same consumers.

Payments is in other words an area you should stay away from if you are contemplaiting becoming a fintech entrepreneur in the future. As the competition increase, consumer payments will become a commodity and no more than a tool for customer acquisition for banks, converging industries and big tech. On the other hand there are still revenue potential at the B2B side of payments, both in the SME segment and corporate banking.

Challenger banks, escpecially Mondo recieved a lot of attention as they showcased how great user experience, personalization and customer centricity should be perceived as more than digital lipstick for retail banking.

Blockchain was once again center of attention as Blythe Masters took the main stage, predicting that the financial sector will start using blockchain in less than two years. However mainstream adoption will still take many years from now. On the panel track regarding regulatory perspectives on blockchain and cryptocurrencies it is stated that the need for a common global standard is required for mainstream adoption.

As the event were in Copenhagen, it was a great opportunity for the Nordics to showcase a wide selection of fintech startups. Ranging from Klarna at the center stage to startup presentations and showcases at the exhibition hall.


Are payments necessary?


This post was originally published at TechCrunch.

Payments has been one of the hottest areas in fintech for several years, and everyone has been lining up to join the party. Apple is aiming at mobile payments through Apple Pay, as well as the patent filing for payments in iMessage. Amazon is after discontinuing Amazon register focusing on Pay with Amazon in both existing and emerging markets. In addition, Amazon is moving the “buy now” button into the physical space with Amazon Dash, where you can order items that you need to restock on regular basis with the push of a button. The messenger services are all integrating payments to their platform such as Facebook Pay, Kakao Pay, Wechat Pay and Facebook Pay. Venmo is capitalizing on their first mover advantage in P2P-payments to expand to merchant services, and Klarna is growing steadily through the promise of frictionless and smooth payments. Retailers are attempting to stay relevant with CurrentC, telcos are targeting emerging markets through mPesa and Easypaisa, and the financial sector is struggling to prevent payments from becoming a zero-margin commodity. Google is no stranger to the payments space, and attempted early to take a position through the now discontinued Google checkout, followed by Google Wallet and Android Pay.

However, it is Googles latest move in the payments space that may lead the way to the future of payments.   Google hands free is Googles latest payment innovation, where you are able to pay through Android Pay without taking your phone out of your pocket.  Paypal has already announced its own beacon solution, promising to provide “hands free” payments where consumers do not need to pull out their phone last year. This actually reduce friction for physical payments, unlike assuming that transactions in physical retail is synonymous to the POS-terminal. Just replacing plastic cards with a mobile phone does not really solve anything for the end user.

To strengthen this development there are several initiatives working on integrating payments in smart devices and wearables, laying down the foundation for automated machine-to-machine payments between smart devices. When cars are self-driving, is there any reason they should not be able to pay? Payments could be processed automatically based on usage, and the car itself would keep track of all costs related to pay-as-you drive insurance, tolls, parking and power consumption.

Makers of smart devices feature the ability to replenish and pay for supplies automatically, promising to make your smart home self-replenishing. Mastercard also announced last year that they aim to make every connected device a payment device. With the predicted growth of connected devices, we are just scratching the surface of payments in the Internet of Things.

When it comes to paying the restaurant bill, the days of the faux leather folder on a plastic tip tray also look numbered. Companies like Tab is enabling patrons too book a table and order their food through their phone, but away the phone and enjoy the meal and just leave. The payment is processed automatically and the user receives their receipt by email.

Blockchain-based micro transactions for digital content could enable industries delivering digital content such as the music industry to ensure digital rights management in a way that artists, labels, and publishers are paid their fair share without bothering the end user through automatic usage-based subscription models.

According to a recent report from Deutcsche Bank, all these innovations from streamlining payments or integrating billing, to mobile payments, security developments and cryptocurrencies continue to make payments increasingly cashless and invisible, while enabling data-driven engagement platforms for customers.

The flip side of invisible payments is a potential additional decline in financial literacy as spending moves from tangible cash, via plastic cards to a merely a background process. In order to counteract this effect both incumbent financial institutions and fintech challengers should aim to assist users to keep track of spending in a meaningful way.

In the future, there will not be one universal way to pay as we are used to with traditional cash and plastic cards. Payment options will be context based and in many cases payments will become “invisible” and integrated into services. Have you ever pulled out your credit card to pay for an Uber ride?


Fintech predictions for 2016


After an exciting year for fintech in 2015 with investment levels at least doubling from 2014, consolidation in payments, continued growth in marketplace lending and blockchain becoming the hottest subject both in- and outside of finance. Now that we are facing a new year, everyone is trying to figure out what is next. Predicting the future is always a bold move, but I decided that I would give it a shot.

Payments will continue to consolidate and focus on user adoption. Apple is rumored to enter the already crowded P2P-payment space, aiming to challenge Facebook on global P2P-payments. Mastercard will roll out Masterpass for one-click payments, and there are several initiatives working on integrating payments in smart devices and wearables. Payments will become “invisible” and integrated into services. Have you ever pulled out your credit card to pay for an Uber ride?

Marketplace lending will mature and consolidate. P2P-lenders with high default rates and grey area lenders are facing an uncertain future and leading P2P-lending platforms will increase their market shares. More P2P-lenders will follow SoFi and move into mortgages. Banks will acknowledge that alternative finance is here to stay and explore P2P-lending and crowdfunding either in-house or through partnerships.

Blockchain will become mainstream in 2016. More and more banks are joining the R3 consortium and the use of blockchain in capital markets and cross border payments is already here. It is highly probable that blockchain will become a viable option for domestic interoperability between banks and smart contracts will be applied in trade finance and securitization of for instance mortgages.

Biometrics will continue to replace passwords as default security and login procedures. Fingerprint identification is already becoming the preferred way to log in to your mobile banking service, and promising fintech startups like Zwipe is implementing biometrics on credit and debit cards. We will also see the emergence of multifactor biometrics relying on several biometrics sources as heart rhythm, facial recognition, and other behavioral biometrics as wiring pace on a user’s keyboard and angle of cell phone when you place your thumb on the fingerprint reader. At the same time as cybersecurity area is growing at rapid pace, cybercrime is becoming more organized and sophisticated. While phishing and Trojans have dominated the last ten years of cybercrime, malware like ransomware will become an even bigger threat in 2016.

Regtech will become a hot topic during 2016 as the amount of regulatory challenges and reporting required to run a bank seems never ending. A new breed of fintech startups will try to exploit technology to ease the burden of staying compliant in an increasing complex regulatory landscape.

Artificial intelligence will continue to affect the industry. In addition to robo-advisors  and the use of robots and algorithms to automate manual tasks previously performed by humans, the use of AI will see new use cases in banking and finance. With recent breakthroughs in quantum computing, the use of AI in managing large portfolios with complex derivative structures seems like a viable use-case.

Credit scoring and risk modelling will be challenged as innovative challengers utilize artificial intelligence and various data sources ranging from social media data, such as your Facebook friend list, LinkedIn profile or whether you use correct capitalization when filling out forms online. The growth of wearable technology and Internet of Things represent a new world of data sources, and the Telcos are exploring the use network data to determine a customer’s credit worthiness. Will 2016 be the beginning of the end of traditional credit models such as the FICO model?

Open APIs will become the norm for incumbent banks. In order to stay relevant banks should offer APIs for third party integration even though this is a cultural tough decision for bankers.

Insurtech will start to gain traction. While challenges to banking are more imminent, insurers may face bigger threats in the long run. The big venture companies are starting to turn their focus towards insurtech, and 2016 will be the year we start to see how the insurance industry will be transformed.

Collaboration between incumbents and fintech startups will become common. We will also see more fintech startups pivoting away from trying to disrupt the incumbent banks and will become software vendors catering to said incumbents.

Neobanks will attempt challenge incumbents through smart use of technology, customer relevance, mobile only presence and as “borderless banks”.

Tech giants like Facebook, Google and Apple will launch new services aiming to take a position in the value chain for financial services.

The only certainty when predicting the future when technology is the main driver for change is that we will be wrong on one or more of the predictions. We tend to underestimate the significance of emerging technologies and overestimate the impact of the hype.


The Death of Bank Products has been greatly under-exaggerated

Credit cards

This is a guest blog post by Brett King, CEO of Moven, author and radio host of Breaking Banks. This post was originally published at Brett’s blog at Medium.

Since 2005 I’ve been predicting the decline of branch banking. For almost 10 years I fought bankers who decried my assessment that branches would cease to be the most important channel in banking, to be replaced by far more efficient mechanisms for revenue generation and relationship. Today the discussion is increasingly resorting to a sort of desperate plea — “but branches aren’t going to die completely, are they?” No one is saying branches will grow.

The United Kingdom, the United States, Spain, and a host of other countries are seeing the lowest number of bank branches in decades. For the UK you’d have to go back 60 years to find lower numbers of bank branches than we have today, and 2014 saw the use of bank branches fall 6% in a single year — the biggest reduction ever. In the US banks like BofA, Chase and Wells have cut more than 15% of their branches in just the last 4 years, bring their branch levels back to that of the early 1980s. While the US has only seen declines of 1–2% per year in branch numbers, branch footprint may be a much better indicator of the waning support for branches. Wells Fargo has reduced their branch square-footage by 22% in just 6 years, and for BofA it’s one-fifth of their branches that have already disappeared in just the last 5 years.

“We don’t know how to grow without [branches]… But, we have taken the total square footage of the bank from 117 million square feet at the time of the merger with Wachovia in January of ’09, to about 92 million square feet today, and we’re continuing to go down from there.”
John Stumpf, Wells Fargo CEO — interview

The reason we’re reducing branch numbers and square footage is obvious — customers just aren’t using branches as much as they used to. They don’t need to. It’s not a branch design problem; it’s a customer behavior problem.

When it comes to customer behavior, however, the greatest challenges for banking are yet to come and they aren’t channel-based, they’re product-based.

Products that make sense in a digital world

By 2020 we’re going to see 50 billion new devices connected to the Internet — everything will be smart. Smart Fridges that order your groceries or can tell you what you can cook with the remaining items inside, sensors you wear on your wrist or in your clothes that monitor your health and activity, cars that will talk to each other and drive themselves, smart mirrors that will show you how you look in that new shirt, robot drones and pods that will deliver you groceries or Amazon order — the world will be filled with smart stuff.

We live in a world where new technology emerges and is adopted in months today, versus the years it took previously. It’s all moving so quickly. As more and more technology is injected into our lives, we become acclimatized and just accept the increased role technology has to play. Have you ever taken a selfie? Ordered a taxi via Uber or Hailo? Watched a movie on Netflix or AppleTV? These are things we didn’t do just a decade ago — but are now an unavoidable part of our daily life. This is known as technology, adoption diffusion.

Technology (product) adoption is constantly accelerating (source: Augmented)

As we move to this technology-optimized world, we’ll start to redesign where and how humans fit in society. Banking will be embedded in our life. We’ll walk into a store, pick something off the shelf and walk out with the payment auto-magically affected. Our fridge will order groceries on our behalf. Our smartphone will soon be able to book us flights or a ticket for a train journey just by us asking it to do so. AI-based advisors will consistently outperform human advisors. Underpinning all of this is an expectation that banking, payments and credit will just work, in real-time, solving my problems and helping me manage my money everyday.

As this happens, products will make way for experiences. Here are 3 quick examples:

The Uber of Banking is Uber

A recent Quartz ( article identified that up to 30% of Uber drivers in the US have never had a bank account — many operated previously as taxi drivers in the cash economy. To be a driver on Uber, however, they need a minimum of a debit card to get paid. So Uber has had to solve this problem by allowing drivers to sign up for a bank account as part of the Uber driver application process, in real-time. Unsurprisingly, this makes Uber the largest acquirer of small business bank accounts in the United States today, bigger than Wells, BofA and Chase combined.

You probably never thought of Uber as an acquirer of small business bank accounts, but if you’re an Uber driver and Uber can give you a debit card that enables you to get paid — then why would you go to a bank branch to open an account instead? It also means that as a entrepreneur bank account the next obvious move is to design day-to-day banking into Uber’s app instead of standing alone as a typical bank account or mobile banking app.

For the millions of permalancers or gigging economy workers, it’s highly likely that the first time a freelancer opens a bank account will be directly as a response to a new ‘gig’ or job offer — if that employer (like Uber or AirBnB) offers you a bank account as part of the sign-up process, why would you stop signing up for Uber, drive to a branch and sign a piece of paper?

Uber is offering car leases to it’s drivers also — allowing drivers with no vehicle to sign up and get car financing backed by demand from Uber. This is what the new banking experience looks like for small business entrepreneurs. Uber is effectively doing all the sourcing for bank relationships, and has become an acquirer for bank accounts, leasing and insurance. An Uber driver has no reason to come to a bank branch for his needs today thanks to Uber’s commitment to experience design simply enabling the needs of a new driver.

Bye Bye Credit Cards

As the world starts using NFC, closed loop App payment systems, Apple Pay, Samsung Pay and Android Pay increasingly, were pretty quickly going to eliminate the need for plastic all together — we’ll just download a token or a payment app to our phone, linked to our bank. We won’t use a card number, because it just isn’t secure anymore. We’ll tap our phone, authenticate via our fingerprint, and receive a notification that the payment has been successful.

If we download our cards (or tokens) to our phone, then it won’t be a credit or debit card — does it need to have the same properties as those legacy ‘physical’ products? Not likely. Let’s think about how we use a credit card today and how we might redesign that utility in a real-time world.

The two primary use cases for a credit card today could be illustrated thus:

  1. I’m at the grocery store, swiped by debit card and the transaction was declined because my salary hasn’t yet hit my bank account. I need to buy these groceries for the family today, so I’ll use my credit card and worry about why my salary hasn’t hit the account later, or
  2. I really want this new iPad Pro, but I can’t afford it based on my current savings. If I use a credit card I can pay it off over the next few months

If we’re redesigning this in a mobile, real-time world we wouldn’t need to sell a customer a credit card at all because we’ll just fulfill in real-time.

The grocery store scenario becomes an Emergency Cash credit facility — a real-time overdraft or line of credit that we deliver in one of two ways. We either preempt the cash shortage because we know the customer regularly shops at Tesco or Whole Foods and spends $600 or £300, but only has say £100 quid in his account. Either that, or we offer it in real-time when the tap of the phone to pay at the POS fails due to insufficient funds. We can eliminate rejection of a typical credit card application, because we only will offer the Emergency Cash to someone who qualifies. That’s a huge deal becausebetween 15–30% of applicants get rejected for a credit card typically.

It turns out you don’t need a ‘card’ — you just need access to credit (credit:

For the In-Store Financing scenario there are a ton of new approaches that fit the real-time approach better than a credit card.

We can allow people to put a wishlist on their phone for all the stuff they want to save for, and when they walk into a store where a wishlist item is available we can then offer a discount combined with contextualized creditoffering. We can learn from previous purchase or search history and anticipate a purchase where a instantaneous line of credit option might be attractive. We can use a preferential low or zero-interest 12 month financing deal getting them to switch payment vehicles at the point-of-sale, or we cantrigger an offer based on geo-location. We can use iBeacons and match an offer with a customer to give a preferential deal where credit is built in. We can match savings with credit — let’s say you’ve saved $300 towards that new smartphone, we can offer the remaining $300 you’ll need in real-time as you walk in the store.

“We’ll probably be the last generation to use the term credit card and debit card…It will probably be debit access or credit access, and it will likely be loaded on to a mobile device.”
John Stumpf, CEO of Wells Fargo at Goldman Sachs Financial Conference, Dec 8, 2015

Basically we will need to totally redesign the way we message credit facilities to customers, the way we determine risk (based on behavior), and the value proposition we offer to a customer — it’s all now about how I enable you in this moment. Not requiring the customer to think ahead, applying for a product for when you might need a line of credit.

From a mechanics perspective we can better match risk and behavior to the type of credit line, we can eliminate the need for a physical product or any conventional application process at all, and we can use behavior, location or moments of desire/doubt (not product features) to trigger an offer.

In this world, a real-time world of engaged customers, why would you ever sell a piece of plastic to a customer ever again? You would still sell credit, just not ‘card’.

There’s another angle to this that retail banks and lenders will have to come to terms with. Airline miles won’t sell a ‘digital’ credit card in the medium term, because they are not part of a real-time engagement model. Rewards may, but only if they are contextual and immediately relevant — i.e. offer me a discount for something you know I want to buy, but only when I walk into the store that is selling it. Millennials won’t be sold on delayed gratification on airline miles when they realize they can probably get a better deal buying the ticket directly instead of through very expensive airline miles.

When your self-driving car has a bank account

While owning a car will definitely be an option in the future, many millennials and their antecessors will opt to participate in a sharing economy where ownership is distributed, or where self-driving car time is rented.

“[In 15–20 years] any cars that are being made that don’t have full autonomy will have negative value. It will be like owning a horse. You will only be owning it for sentimental reasons”
Elon Musk, Tesla earnings call Q3 2015

Let’s take a scenario in 2025 where a millennial subscribes to a personalized car service guaranteeing access to a self-driving car for certain number of hours each day, or where he or she buys a ‘share’ in a self-driving car with some friends or colleagues.

Will your children ever own a car? I don’t know, do you own a horse?

The car picks up the millennial and takes her to work, and is alerted that the car will be required again in approximately 6 hours time. After dropping the individual at her shared workspace for the day, the car goes off and collects two more of the collective owners of the vehicle and delivers them each to their required locations. At this point the car makes a decision to find a charging station and recharge for an hour. It drives to a local car park where supercharging stations are location and hooks in. As the car made it’s last drop off, it had already worked out that it would need to recharge, and had negotiated with the car park’s machine interface, negotiating a price for both the parking facility and energy it would need.

A company owns the car park itself, but they have allowed individual investors to own or lease a supercharging station connected to a solar grid on the roof of the car park, to offset the costs of retooling the car park with charging stations. Each supercharger has its own wallet linked back to it’s owner(s) and the energy used by the self-driving car as it recharges, is paid for in KwH directly between the car and the supercharging station, as is the same for the car parking fee paid to the garage owner.

The self-driving car then, calculating it has approximately 3.5 hours before it will be required by one of its owners again, logs in to Uber and makes itself available for a 3-hour block as a self-driving resource. It is immediately called out to a pickup, and after 3 hours has earned $180 in fees, which it puts away in its wallet.

The wallet in the self-driving car is not linked to a single individual owner. It is a collective account. Any earnings it makes are used to offset ownership costs, energy costs, parking and registration fees, etc. The owners just top up the self-driving car’s own wallet on a monthly or weekly basis as required, but the self-driving car’s ability to pay for energy, or earn income for rental time is independent of a typical identity structure or bank account. It is an IoT (Internet of Things) wallet or value store.

The wallet in the self-driving car is analogous to the debit card you carry around in your wallet today, but there is one big difference. A human/persondoes not own this wallet, it is linked to the car and may or may not have multiple human owners and the identity of those owners could change frequently, but it doesn’t have to have a human owner linked at all theoretically. In today’s banking world this might be marginally possible, but only through a torturous series of contracts, declarations and identity verification processes that would essentially require all of the owners of the vehicle, and the self-driving car itself, to personally front up at a bank branch. That’s clearly and absolutely ludicrous.

Whether a self-driving car, a smart fridge that orders your groceries, a smart house that both consumes and generates data and energy, a solar array, or any AI that negotiates specific transactions, these all will need independent access to the banking system, along with their own bank account.

This obviously raises some very interesting questions.

You can’t ask a self-driving car or a fridge to identify itself at a bank branch with a signature, so will it have its own identity?

Will the self-driving car have to pay tax on the money it earns as part of a sharing economy, or will this be passed on to the collective owners?

If you’re a bank, 2016 is the year you start redesigning every single product in your wheelhouse

The future is about putting the bank in the lives of our customers with zero friction (ok, well minimal friction) everyday. That means we have to come to terms with the fact that anytime we stick a piece of paper in front of a customer it is pure friction, and it certainly won’t allow us to execute revenue or relationship on a mobile phone, iPad or in a self-driving car in the moment. Let me state that again to be crystal clear…

Paper and signatures have no future in the banking world — at all.

Are you sure? Yes. Not least of all because with facial recognition, image recognition on drivers licenses/passports, and other identity verification technology (geo-location, social media, heuristics, etc) a physical Identity Verification (IDV) is now 15–20 times riskier than a digitally led IDV process. Why do you think every customs department in the world is going to biometric verification of passports at borders? The answer is simple. Humans are the single weakest link in the security process — the most prone to errors, the least likely to pick up a false ID document.

Think about that. The single riskiest thing banks do today is have a face-to-face account opening based on a piece of paper.

AliPay uses facial recognition for better payments security (credit: Alibaba)

Keep in mind that every FinTech competitor you have doesn’t use paper or signatures already — they’re way ahead of the curve on this. They’ve got no legacy process to circumvent.

If you have a physical representation of a bank product (card, checkbook, bank statements, application form, sales brochure, etc)prepare for that to disappear by early next decade almost entirely.

The component utility of banking namely a value store, a payment, a line of credit, a savings rate, etc will be integrated into experiences defined by context. The future of product design isn’t products at all, it’s experiences — money experiences, payment experiences and credit solutions.

By 2020 you won’t call your bank accounts ‘checking’ accounts. By 2022 banks won’t have a head of cards or a cards division. You won’t differentiate between small business bank accounts and retail banking — customer behavior is what will differentiate the use of a value store. A mortgage will be part of a home buying experience, not a separate experience. If you choose to own a car, you’ll order a car with or without financing, but you won’t ever sign a piece of paper — the only thing you’ll need to do is nominate how much you want to pay each month and where the money for those payments will come from.

This is going to take a complete, from the ground up, rethink of every product in the business as we re-task it for real-time engagement, and it has already started. 2016 is the year where bankers start to have to deal with it in earnest.

This is what disruption in banking really looks like…


Why iZettle’s move into lending makes perfect sense


iZettle just announced that they have raised EUR60m  in order to move into small business lending. When payment processing becomes a commodity this move makes perfectly sense, and confirms the prediction that payments should be considered a strategic platform for cross-selling other financial products.

One of the opportunities related to payments lies in data collection and analytics. By delivering mobile  POS-terminals, iZettle has a competitive advantage when it comes to calculating credit worthiness of existing customers. Based on this iZettle plans to offer small sums of credit without a traditional credit check and application process. Through this approach, lenders should receive their funds within a couple of days. installments are repaid as a fraction of future card transactions made through the iZettle terminals.

SMEs are experiencing a funding gap from incumbents, and one of the main issues for SMEs has been the lack of collateral when applying for traditional loans. iZettle’s move into small business lending strengthens the trend where SMEs are seeking alternatives to banks for funding needs. iZettle’s U.S counterpart Square has been operational in data driven cash advances for more than a year through Square Capital. Marketplace lenders are also expanding their SME loan-portfolios in order to create access to capital for SMEs.

Another approach to solving the capital need for SMEs is through invoice financing, where risk is calculated based on the recipient fo the invoice and holding the invoice as collateral. Companies like MarketInvoice and Kickpay are aiming to solve this by offering up front liquidity in B2B-markets, where small companies are at risk of waiting up to 90 days to get paid.

These are just a couple of examples, but in my opinion makes it obvious that SMEs are clearly underbanked and represent a significant market opportunity for both fintech companies and banks.


Will the buy button be the end of POS?


When talking about mobile payments it’s easy to assume that transactions in physical retail is synonymous with the traditional POS-terminal. While traditional magnetic stripe and EMV-based card payments is both secure and user-friendly, there are several emerging technologies with NFC, QR codes, Bluetooth and beacon technology all competing to become the new standard for payments. In addition, omnichannel is more than a buzzword for retailers with online retailers are setting up physical stores, initiatives like Amazon Dash and incumbents enabling new delivery methods with “click and collect”-enabled mobile shopping. For mobile payments, there is a race to reduce friction in the payment process through a simple buy button or one touch checkout.

Both Facebook and Google have announced that they will launch different versions of the buy button integrating purchased with Facebook pages and enabling purchased directly from ads in search results., using the payment information linked with the Google account. When eCommerce, mCommerce and traditional retail are converging, the buy button may become the standard in the physical world also. There are several developments that support this scenario.

The adoption of beacon technology, the buy button could make the jump from online to physical retail through proximity based mobile solutions.  Apple announced built-in support for Bluetooth Low energy as an alternative to NFC though iBeacon back in 2013. Paypal has also its own beacon solution, promising to provide “hands free” payments where consumers do not need to pull out their phone. While beacons has not reached mainstream adoption so far, initiatives like Google’s open source beacon format, Eddystone and proximity network provider, Unacast are making the business case for beacon technology more obvious for retailers.

Closed loop solutions like Starbucks’ payment app enables customers to both order and pay through the app before collecting their order. This option has proven a to be a great success, with one in five purchases in the US processed through the app. Subway is also looking for ways to improve the order-to-payment value chain and is partnering with Mastercard for mobile payments.

In addition, merchant-owned network MCX recently announced that the QR-code based payment solution, CurrentC will launch the next month. And there are also numerous candidates attempting to improve the point of sale through mobile POS solutions.

With so many initiatives attempting to improve this crucial part of the shopping experience, the times they are a changing. The remaining question is whether there will be one common standard for retail payments, or if there will be room for many alternative technologies.


For those in search of summer reading material


After a busy couple of months with many interesting developments in fintech, I’ll be taking a couple of weeks hiatus from updating my blog for the summer. Feel free to check out my previous posts from the last couple of months in the meantime.

Since the launch of my blog in late february I have covered numerous subjects that interest me. A common denominator for the majority of my blog posts is the changing landscape for financial services, where I have looked at how tech giants are challenging incumbents though the launch of Facebook Pay as well as what plans Google may have for the insurance industry. Ia have also covered how industry convergence is reshaping finance, with the Scandinavian media industry is also joining in on the fun.

Not only are established companies from converging industries challenging the existing ecosystem, but the number of unicorns in fintech steadily increasing, with P2P Lending as one of the areas of high potential for disruption as well as bitcoin and blockchain as a potential game changer. I have also given a reminder that regulations are not always a constant, and Iceland’s proposed change in the monetary system is a brilliant example.

Over to regional perspective, I have devoted a lot of time giving an overview of fintech in Scandinavia, including fintech in Sweden, or more specific the greater Stockholm region, how Denmark is focusing on a more specialized approach and the growing Norwegian fintech scene. There are also several bank driven fintech initiaitves, and some claim the Nordics as the potential silicon valley of payments.

In addition to my focus on fintech, I have also looked into more general subjects like how to hire digital talent, interpretation of Net Present Value when interest rates are negative, and how sharing in the sharing economy is everything but caring.

While you wait, you could also check out the older material on my blog (in both English and Norwegian) and stay tuned for my next contribution at TechcCrunch scheduled July 12th. There I will look closer at real time banking and the correlation between ISO 20022 and Blockchain.

Thank you for all the feedback and encouragement. Have a great summer!


A challenger appears in the Norwegian mobile payment space

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P2P payments is a hot topic these days with the upcoming launch of Facebook pay as well as Google announcing that Google Wallet will live on as a P2P payment app with the launch of Android Pay. Mastercard announced earlier this week that they will be taking on Facebook, Paypal and VISA with Mastercard Send. The global market size for P2P Payments is estimated to over $1 trillion and is expected to grow even further with a promise of delivering frictionless means of transferring money between consumers when cash is becoming less common.

Vipps is the latest addition to bank-driven fintech initiatives in the Nordic region. The solution suddenly became available through App Store today and offers P2P-payments with an integrated chat function. The solution is available for all consumers with a bank account in any Norwegian bank. Once set up, there is no need for authorization other than a PIN of your own choice and, all you need to transfer money is the recipient’s phone number.

The launch of Vipps acknowledges P2P payments as a separate option besides existing channels for incumbent banks. Vipps is owned and developed by Norway’s largest bank, DNB.