Kurt Schmid discusses digital payment trends and strategies for issuers. He outlines the growth of digital wallets and proximity payments. Tokenization securely digitizes cards and scales payments by using scheme token services. Wallets offer issuers opportunities to build brands and relationships through additional services beyond payments. While third party wallets control interfaces, issuers can deploy their own wallets and enable Apple Pay to retain customer touchpoints. Tokenization also benefits e-commerce by replacing stored card data with tokens to reduce fraud while maintaining security. Issuers should view digital payment investments strategically rather than just financial returns due to benefits like increased customer loyalty and transactions.

1. Kurt Schmid
Managing Director Digital Payments
Swiss Payment Forum Zurich
5. November 2018
Digital Payment
Quo Vadis?

2. Agenda
• Where we are coming from?
• Wallets, OEM Pays versus Issuer Pays?
• Proximity and eCommerce payment
trends
• The business case and strategic value
for issuers?
2

3. Why we are scaling:
Tokenization & Support from Schemes
3

4. Card
Issuer
Token
Service
Provider
Token
Requestor
The central use case is to digitize (tokenize) a card
4
Yellow Case
Step-up Auth.

5. The easiest and most secure way of digitalization
5
Token
Requestor
Token
Service
Provider
Card
Issuer
Authenticates
Encrypted PAN
Green Case

6. Scalability through scheme token services
6
Token
Requestor
Token Service Provider
Card
Issuer
MDES, VTS, AETS

7. Different kinds of token requestors
7
Token Requestors
Token
Service
Provider
Card
Issuer
like X Pays, Issuer Pays, Smart Devices, IoT, ….
Issuer Pay
Merchant
App

8. Wallets, X-Pays and Issuer Pays
8

9. The offers from the X-Pays
 The only way to emulate a card on an iOS
device (Note: Tag reading is possible on
iPhones)
 Apple interested in a part of the
interchange
 Yellow path and green path by support of
issuer app
 Offered for “free”
 Google interested in the payment data of
the customer
 Google interested in selling value added
services in the future
 Yellow path and green path by support of
issuer app
Google PayApple Pay
9

10. What are the challenges of a card issuer?
10
Why it is important to keep
the customer interface?
• Deliver & Promote Your Brand
• Build and Sustain Trust
• Know your customer
• Offer additional services

11. Payments:
@POS, in-App, eCom, P2P
Control & Security:
Strong Customer Authentication
Card Control Center
Information:
Balance, trx history, PFM, e-receipts
Value Add:
Insurance, Installments
Coupons, Loyalty
Is a wallet only about payment?
11

12. Where are the majority of touchpoints?
12
1x per quarter
1x per month
1x per week
1 x per day
Banking
Payment / Wallet

13. Where are the majority of touchpoints?
13
Banking
Payment / Wallet
PSD2,
X2A

14. Where is the risk?
14
Banking
Payment / Wallet
PSD2,
X2A

15. So what to do on a wallet strategy?
 Oh Jesus!
 You will not be in business in the future
 Only a good strategy, if you are shortly
before retirement
 Oh Jesus!
 You will not be in business in the future
 Only a good strategy, if you are shortly
before retirement
Do X-Pays onlyIgnore – do nothing
15

16. So what to do on a wallet strategy?
 In CH e.g Twint, Bluecode (A, DE), Swish,..
 Problem is reaching merchant and
consumer critical mass
 Problem could be user experience
 Needs long breath
 Do a feature rich wallet compliant to PSD2
with cool onboarding
 Do own mobile contactless payment for
Android, enable Apple Pay with green path
activation once conditions are acceptable
 Look to omni-channel use cases
Embrace in smart setupDefeat – do other ways of payments
16

17. The complexity of tokenization in MCP
Is hidden under the hood of our ToPay Cloud Payment Product
17
MyBankApp
Accounts
6,750.00
Recent Transactions
Ready to Pay
ToPay SDK
Token
Requestor
(CMS-D,
MAP)
ToPay
Server
Scheme
Token
Service
(MDES
VTS
AETS)
Card
Issuer
Authenticates
Encrypted PAN
PSP,
Acquirer
Network
Aut
h
DeTok.

18. eCommerce Payment Trends
18

19. But there is this other payment playing field: eCommerce
19
 Card Not Present and 3DS are today’s
prevailing methods for checkout
 “Global e-commerce payment market
is expected to grow from US$ 24.26 Bn
in 2017 to US$ 64.69 Bn by 2025 at a
CAGR of 13.1% between 2018 and
2025.”
 Even stronger growth for m-commerce
and in-app payments

20. Questions to you – the audience
 Who had already fraud on his/her
card(s)?
 Who likes to enter PANs again and
again for every new merchant?
 Who knows all the places where
his/her card data is stored?
20

21. And what are the concerns in e-commerce payments?
21
 Risk/fraud through
different attacks
 Low conversion rates
on mobile channels
 Abandonment of
checkout process
 Higher costs for CNP
versus CP
Merchant concerns Issuer concerns
 Risk/fraud through
different attacks
 Cost of customer
care
 Lost transactional
revenues
Consumer concerns
 Ease of onboarding
 Shopping convenience esp.
from mobile devices
 Efforts & pains too high for
small value transactions

22. So, why not use tokenization in e-commerce?
VISA uses VTS for tokenization in
E-Commerce and Card on File (CoF)
Mastercard started M4M (MDES for
Merchants)
The basic ideas
 Each merchant does not store the PAN
but a token
 By using a cryptogram, security will be
like Card Present
22

23. Tokenization in E-Commerce is using same principles like MCP
Token
Requestor
(CMS-D,
MAP)
Scheme
Token
Service
(MDES
VTS
AETS)
Card
Issuer
PSP,
Acquirer
Network
AuthDeTok.
CoF
PAN Entry
17

24. Four main use cases of merchant tokenization
24
Enroll:
 Add card manually or tokenize
from card on file
Display cards
 Card art coming from token service
(user sees his real card image)
Transact
 Generate EMV cryptogram
(can be used for one or more transactions)
Lifecycle
 Issuer account update

25. Key points of the EMV® Secure Remote Commerce Framework
“SRC”
25
 Defined by EMVCo (https://www.emvco.com/emv-technologies/src/)
 Scheme agnostic to help interoperability
 Pay securely via single SRC checkout button
 Will be scheme-neutral successor of MasterPass & Visa Checkout starting 2019 / 2020
 Will support card tokenization using MDES, VTS, and AETS
 Will support card present type security (“cryptograms”)
 Demonstrator available from Netcetera, training courses coming as soon as specification out

26. The Business Case
26

27. Material Benefits
 Cards that are also available on mobile
devices generate a higher transaction
rate also on plastic (replacing more
cash payments)
 Additional services like insurance,
loans, installments can be sold
 Less churn (e.g. to Fintech banks)
27

28. Immaterial Benefits
 Deliver modern image
 Stay in touch with your client
 Give confidence and trust to your
customer
28

29. Summary
 A clear ROI on digital payment alone is hard to calculate
 Value added services can leverage the payment business case
 Loosing the customer interface will have a huge negative impact to the future
business
 Consider an investment in digital payments as a strategic / marketing investment
 Be agile but start the journey today
29

30. Europaplatz4
4020 Linz
Austria
kurt.schmid@netcetera.com
+43 664 112 11 00
Kurt Schmid
Managing Director Digital Payment
Kurt.Schmid@netcetera.com
https://www.linkedin.com/in/kuschmid/