1. EU Schemes and Processors – The “Buzz” for 2016!
Presentation to ESF+
23rd September 2015

2. What Has Been the Buzz over the Past Year?
The analysis is based on a sample of 150 enquiries for consultancy services received by PSE from Q4, 2014 to Q3, 2015.
Sources of enquiry include card schemes, wide range of processors, acquirers, merchants, PSP’s telco’s and investors.
Acquiring innovation sores highest at 16% followed by Regulation at 13%, Pricing (12%), Processing, Issuing innovation at 11%.
M&A interest at 10% is lower than the previous year
Smart POS + Tech Innovation/ACH + e-Commerce are rapidly growing sectors.

3. Network Inter-operability
European Payment Landscape Change Dynamics Q – Where is the money going?
Consumer
Initiation
Merchant
Acceptance
Changing Habits
Payment
Intermediaries
Omni-Channel
Gateways
Account
Access/ API EU
Institutions/
Regulators
Issuer
Processors
Acquirer
Processors
Scheme Separation
Interchange
Interchange
Network Inter-operability
Issuers
Acquirers
Card/ACH
Schemes &
Networks

4. Possible Impact on Processors
The combination of mobile innovation, regulatory change, multi channel developments, PSP sector growth and M&A will have an impact.
Significant impact as new applications, wallets, new security tokenisation introduced
Merchant
Acceptance
Impact of merchant payments innovation solutions. Similarly as F2F gateway players share terminal market changing. Good potential to exploit Clover opportunities
Consumer
Initiation
Changing Habits
Growing impact as Alternative Payments accelerate migration of CNP to ACH and new P2P. Account access potential game changer
Payment
Intermediaries
Omni-Channel
Gateways
Area of rapid change, and new PSP. Strong competitive pressure as terminal manufacturers move to become transaction processors as well as multi channel new entrants
Account
Access/ API EU
Institutions/
Regulators
Issuer
Processors
Acquirer
Processors
Emerging growth in bespoke prepaid sector driven by PSPs
New Integrated Players (PSPs)
Interbank Restructuring
M&A potential
Scheme Separation
Interchange
Interchange
Network Inter-operability
Issuers
Acquirers
Significant impact on issuer and bank debit interchange revenue ($8bn annually) will impact issuer investment, and possibly speed of innovation
Very substantial change. New Players (20-30+). EU MA/JVs/ portfolio purchase accelerates. Large players move to CBA, and local MSCs adjust
Card/ACH
Schemes &
Networks H M L
Degree of Change
Direct competitors if Visa/Mastercard separate brand/processing. Impact of innovation (HCE, tokenisation etc.) Faster Payments enabling new Alternative Payments.

5. Network Inter-operability
Areas of Opportunity
Wallets and Contactless
Tokenisation/HCE
Vertical Sector Payment applications
Consumer
Initiation
Merchant
Acceptance
Payments Innovation
Multi channel integrated/semi integrated solutions
Payments process simplification
New/Alternative Payments
Bespoke Vertical Market Integration
Changing Habits
CBA immediate impacts
Changed Business Rules
Account Access/Open APIs
Network Interoperability-SEPA
UK PSR Impacts
Payment
Intermediaries
Omni-Channel
Gateways
Multi Channel
Universal payment Hubs
M&A Approach
Account
Access/ API
New Alternative
ACH Payment Strategic impact/opportunities analysis
Account Access API’s
Faster Payments/P2P
Customer Requirements Analysis (bank and merchants)
Competitive Positioning EU
Institutions/
Regulators
Issuer
Processors
Acquirer
Processors
New PSP Models
Competitor Assessments
M&A Approach
Competitive Positioning
Scheme Separation
Interchange
Interchange
Network Inter-operability
Issuers
Acquirers
Card/ACH
Schemes &
Networks
Portfolio optimisation
Interchange optimisation
Portfolio M&A opportunities
Processing opportunities
Benchmark analysis H M L
Degree of Change
New Card/ACH/ATM Networks
Brand/Processing Separation
Domestic Card Scheme Futures
Competitive Positioning

6. Possible Impact of Separation
ICS Brand and Processing Separation – Very Significant Impacts on ACS Processing
Separation of ICS/domestic scheme brand/membership from processing complex - many benefits – potentially (and longer term) a common carrier EU network with substantial reach for all transactions (bank/non-bank, cards and ACH).
Current Structure
Issues
Possible Impact of Separation
Scheme Vertical Integration
Operated Principally as a Service
Mandated Scheme Network Usage
Scheme Specific Product Releases
Scheme Specific Network Value Adds
Scheme Specific Routing ACS
Member Specific Features (Risk)
Embedded Shareholder Value
Mono Brand Network
Service Operational Model
Limited Competition
Complexity of Communications
Lack of Flexibility
Mostly One Brand Service
Complex to Manage
Hidden Value for Members
Two new multi-brand Networks (EU only)
Operated to full P&L principles and M&A enabled
Significant Competition and Lower Revenues
Open products – not network specific
Generalised all scheme Value Adds
Common Payment Carrier Service
Member specific features moved to brand
Highly valuable businesses

7. PSDII – Non Bank Account Access
The PSDII proposes that non-banks have access to Bank Account Data provided they have customer authority. This new rule is expected to accelerate the development of non-bank owned Alternative Payment methods. However TPPs must be regulated as Payment Institutions (PI’s) and, in addition, bank authentication protocols must be followed.
Possible Impacts
1. Significant Value Add to Alternative Products
2. Financial Reporting Aggregators Benefit
3. New non-bank Alternative Payments development accelerated
4. Bank non Discrimination rule results in Payments Guarantees charges for all products
5. ACH based retail Payments development accelerates
6. Increase in non-bank PI/eMoney licences
7. Improved quality/lower cost of AML/KYC
8. Improved Quality of Credit and Risk assessment
Key Questions
1. Who is the Target User?
2. Who does this Already?
3. Will Banks be Mandated?
4. Bank Authentication Barrier?
5. Can Banks Charge for Service?
6. Which TPPs want Regulation?
7. Will More Non-Banks Become Banks?
8. Will Banks Benefit as Well?
Resulting in

8. 2020 Payments Gateway Landscape Vision
If acquirers are prepared to invest then seven years on the payments landscape could change significantly with a single acquirer connection into the merchant. Corporate banking would interface via the acquirer as would non-bank Alternative Payments and, most importantly, new bank developed electronic ACH payments.
Consumer Purchases
Consumers
Card Purchase
Issuer Merchant Bank A/C Settlement
Merchant
Settlement
Issuer
Acquirer
Card Scheme Clearing & Settlement PC
POI Hardware & Software
POS
Merchant
POS/Web platform
Third Party Services
Merchant Processing Contracts
Transaction & Terminal Mgt
Payment Front End
ecosystems
Acquiring
Scheme Management
Payment Back End
Visa
Master-
Card
4-party
Acquirer Settlement
Merchant Acquiring Contract
Acquirer
Bank IP
POS
Multi
Channel
Platform
and
Retail
Payments
Hub
Bank Hub
Single Backend Plug In
ecosystem
ACH + eNet
eNet
Acquirer
Payer Bank
Payee Bank
PSP
Multi
Channel
Platform
PSP Gateway
Alternative Payment Purchase
Multiple Devices
Tablet
Mobile and Wallet
Issuer
Merchant
Acquirer
ACH / Electronic Payment Purchase
Corporate Banking
SCT & SDD
Card / Alternative Schemes
ACH/ electronic
Amex
Diners
PayPal
MyBank
3-party / eAP
ecosystems
eNet and

9. PSP Multi-Channel Retail Payments Hub
A “Multi-Channel Retails Payments Hub” concentrates all traffic for routing, reporting and analytics purposes, as well as providing a single platform for new services
Reporting and Messaging
Channels
Platform
Services
Consumer Apps
Customer and Transaction Store
Payments (cards and alternatives)
Hub/Switch
mPOS
Merchant Settlement and Support
Channel Integration Layer
Client Integration Layer
eCommerce
App Store Support
Acquiring Bureau Services
mCommerce
Billing & Settlement
Security

10. Tokenisation – What It Is?
To ensure that sensitive personal information isn't compromised during a security breach, payment data is eliminated from the merchants’ network. As such, tokenisation is now being promoted by big players (e.g. EMVCo).
Tokenisation
… Is the replacement of sensitive data with a unique identifier that cannot be mathematically reversed.
… In card payments tokens take the place of sensitive card data.
Example
PAN
Exp Date
CVV2
Original Funding card
12/16
123
Token PAN
Token Exp Date
Token CVV2
06/14
789
Usually the Token is a standard Card Data structure but where the original card data (PAN, Expiry Date, CVV) are replaced digit by digit
The structure of the card data is maintained so the token may be routed using payment system protocols
In order to be routed to the right Issuer the BIN part of the PAN is the same than in the original PAN.
Source: Smart Payment Association

11. Thank You
Presenter Name