What will EU Mobile Payments look like in a Post-Pandemic World, Chris Skinner

PAYMENTS IN A POST-PANDEMIC EUROPE

WHAT WILL “THE NEW NORMAL” LOOK LIKE AND

WHAT DOES IT MEAN FOR MOBILE PAYMENT SERVICES?

A review by 12 leading influencers  Curated by Chris Skinner 

May 2020 

INTRODUCTION

When the Covid-19 pandemic hit Europe in early 2020, it hit hard, and it hit fast. Spreading quickly through the continent, Italy was the first to enter lockdown, with Spain, Germany, the UK, and the rest of Europe all locking down soon after in mid-March.

Several major headlines at that time was to avoid using cash, or at least to wash your hands after handling them. Those of us in the industry have known this for years, but it was not until a World Health Organisation (WHO) representative advised to use contactless payments when possible that it became better known to the wider European population at large.

In a conversation between The Daily Telegraph and a representative of the WHO, there was a specific question about bank note usage to which the WHO representative responded: “We know that money changes hands frequently and can pick up all sorts of bacteria and viruses … when possible it’s a good idea to use contactless payments”.

This raised the question of whether people would move to contactless payments and in what form? It also led to card issuers raising the limits of contactless payments. In the UK, limits increased from £30 ($37) per transaction to £45 ($55) from April 1 2020; Poland raised the limit to 100PLN ($25); France, Ireland, Greece and Malta increased contactless payment limits from €30 to €50 from May 11 2020; and more countries followed suit across Europe.

However, there are some hygiene issues with contactless payments too. Contactless requires touching the debit card or credit card against a terminal. Depending on the value of the transaction or availability of contactless payment technology, the cardholder may be required to type a personal identification number (PIN) on a PIN pad. The PIN pads and contactless terminals are unlikely to be cleaned after each use creating potential risk of virus transmission.

This raises further questions to consider: Will consumers naturally move away from cash and card payments to truly contactless payments on mobile telephones? Will this crisis change their behaviours and, if so, will it change their behaviour for the short term or long term?

To find out the answer to these questions, Chris Skinner interviewed many of the leading authorities in payments, FinTech and finance across Europe during April and May 2020. The interviewees included:

• Andrea Dunlop, Chairwoman of the Emerging Payments Association.
• Antonio Grasso, founder and CEO of Italian start-up Digital Business Innovation srl;
• Chris Gledhill, one of the world’s top-ranking authorities on FinTech;
• Devie Mohan, a researcher, writer and speaker, and co-founder and CEO of Burnmark, a fintech research company;
• Gijs Boudewijn, Deputy General Manager at the Dutch Payments Association and Chair of the Payment Systems Committee of the European Banking Federation;
• Matteo Rizzi, formerly of SWIFT where he co-founded Innotribe, and the founder of FinTechStage, a platform for investors, innovators, and start-ups to foster FinTech innovation;
• Miriam Wohlfarth, Managing Director and co-founder of RatePAY;
• Paolo Sironi, one of the most respected voices in the FinTech industry;
• Rich Turrin, an international best-selling author, and award-winning executive;
• Simon Cocking, Chief Editor at Irish Tech News;
• Simon Taylor, co-founder and blockchain lead at 11:FS; and
• Urs Bolt, consistently ranked as one of the top Swiss FinTech influencers.

This report presents the key findings and outcomes of these interviews.

Contents

INTRODUCTION

EXECUTIVE SUMMARY

THE EUROPEAN LANDSCAPE FOR PAYMENTS

DOES COVID-19 MEAN THE END OF CASH?

WHAT ABOUT MOBILE PAYMENTS?

DIGITAL CURRENCIES

HOW WILL THINGS CHANGE AFTER THE PANDEMIC?

CONCLUSIONS

All of the interviewees are convinced that the world has changed, due to Covid-19 and the three- plus months of being locked indoors. During this time, companies that excelled at online and online- to-offline (O2O) services, and home delivery grocery companies, did particularly well. Equally, when dealing with these companies, it meant a dramatic move from physical to digital services and servicing. People rapidly became more comfortable with using online delivery services and mobile telephone apps. Services like Zoom, Microsoft Teams, Facebook Messenger, Skype and more, all saw a boom in friends and family connecting and business meetings. By way of example, Zoom saw their video conferencing usage increase from 10 million participants in December 2019 to 300 million in March 2020.

This rapid switch to digital servicing and delivery also saw a parallel movement towards digital banking and digital payments. Research from Nucoro, a London-based FinTech company, discovered that between 14th March and 14th April 2020 around 12% of the adult population in the UK – some six million people – downloaded their bank’s App for the first time, because of the Covid-19 lockdown. In parallel, April saw a 60% fall in the number of withdrawals from UK cash machines1, along with the World Health Organisation urging people to use contactless payments when possible.

The interviewees do not believe this will be an absolute behavioural change. They all see cash still being used in most nations to different extents for the foreseeable future, but with declining importance as mobile and digital payment adoption accelerates.

This does vary by country, however.

In some countries, cash is the preferred form of payment. There can be many factors driving this, such as, under-banked economy, poor infrastructure, lack of trust in banking system and privacy concerns. Meanwhile, cash has been on its way out for several years in the Northern European nations, particularly in the Nordic nations where mobile wallets are used by most.

What Covid-19 has done is accelerate the inevitable, which is that in the long-term, card and mobile payments will become the predominant way in which people pay, and cash will be used less and less. This was best illustrated by a comment from Gijs Boudewijn which made clear that cash usage in the Netherlands is expected to decrease around five percent faster than predicted.

This report explores these themes in more depth and, specifically, looks at the world in five key sections:

• The European Landscape of Payments
• Cash Payment Trends
• Mobile Payment Trends
• Digital Currencies
• Post-Crisis Landscape

The main conclusion is unsurprisingly that cash is declining as a percentage of payments, cards remain important, mobile and digital payment services will increase rapidly and, long-term, the crisis

1 See Coronavirus ‘will hasten the decline of cash’, BBC News, 29 April 2020 https://www.bbc.co.uk/news/business-52455706

will have shifted consumer behaviours towards mobile payments far faster than if it had not occurred. “Cash is not dead yet but Covid-19 has accelerated contactless and e- commerce with millions more people trying these for the first time and existing users becoming super-users.” Andrea Dunlop

A second conclusion is that cryptocurrencies are unlikely to take off, but Central Bank Digital Currencies (CBDC’s) will. Again, the crisis has pushed central banks and governments to explore this avenue far faster than if it had not occurred.

One final, possibly surprising conclusion, is that no operator currently owns the mobile payments space and this space is currently wide open. In fact, it is felt that Europe’s major payments companies are holding back the progress of mobile and digital payments in Europe. This is why Europe has launched its own domestic development in this space, and is calling for a digital currency and regional card and mobile payments infrastructure. That is definitely a space to watch.

In summary, the coronavirus pandemic has forced consumers, businesses, banks, and payments companies to switch as fast as possible from physical to digital delivery and service. This will speed the adoption of digital and mobile payments such that widescale adoption could be seen before the end of this decade.

THE EUROPEAN LANDSCAPE FOR PAYMENTS

Europe is an advanced economy, with a predominantly cash base in the South and card, mobile and digital base in the North. In 2018:

• the total number of non-cash payments in the euro area increased by 7.9% to 90.7 billion compared with the previous year;
• card payments accounted for 46% of the total number of non-cash payments in the euro area, while credit transfers and direct debits accounted each for 23%;
• the number of payment cards issued (544 million) represented around 1.6 payment cards per euro area inhabitant; and
• around 44 billion transactions were processed by retail payment systems in the euro area with an amount of €34.0 trillion.

In addition, the European Union is building a Single Market with a single currency, the Euro, forming a large trading bloc of nearly half a billion people with a single financial infrastructure.

PAOLO SIRONI: Europe is still a fragmented continent when it comes to fintech and digital practices. The Nordics are clearly setting themselves apart on digital payments. Notwithstanding the recent debate linked to social distancing, we can expect that the Germans might continue with their cash story. Germany is very attentive to people’s privacy and might feel like the cash is an element to privacy. You know in how many places you still read a sign, ‘cash only’. You would think it’s going to be the opposite. Italy might be the country that accelerates being cashless, because of their lockdown restrictions converging with Italian government efforts to enforce traceability in the fight against tax evasion. Maybe France as well which is a major economy. Possibly Spain also, I cannot tell. There is kind of a momentum now, given the unfortunate situation of Covid-19 outbreak.

“More and more, there will be financially distressed families and individuals post-Covid19. There are not many ways to help these individuals to better manage their money if we can’t reach out to them and understand their needs. This is very difficult to achieve with cash… it needs to be digital and mobile.” Matteo Rizzi

MATTEO RIZZI: If any of the European countries wants to get out of the euro it will be an economical suicide, especially right now where the only way for Europe to get out of this is to stay together and for countries to have a common approach to business recovery. I also believe that a completely new form of collaboration and solidarity, where a back to basics spirit will surge. Financial literacy is not only for emerging markets but in Europe where, more and more, there will be financially distressed families and individuals post-Covid19 . There are not many ways to help these individuals to better manage their money if we can’t reach out to them and understand their needs. This is very difficult to achieve with cash and I don’t think that the current financial offering is giving them this opportunity. It needs to be digital and mobile.

DEVIE MOHAN: There are two curves that countries take to adopt digital payments. Before banking became mature in countries in Asia, the telecom industry became mature, so they’ve gone straight from cash to mobile wallets as a way of consumers finding an easier and cheaper way to do transactions. Whereas in Europe, the banking industry started investing in technology in the 1980’s and on systems around payments and, because of that investment, there was a movement from cash to debit cards and credit cards and, especially in the USA, it’s very much around credit cards. That shift slowed down the adoption of other means because it was not consumer driven. We find that the curve that went from cash to card is much slower to adopt mobile based payments. It’s much flatter as a curve. Countries that went straight from cash to mobile based technologies are more likely to adopt social media and mobile based technologies. The legacy is less and the push towards cards has been less.

Several interviewees underscored that there is a core infrastructural and logistics challenge in Europe that means the idea of moving to a rapid cycle of mobile payments and digital delivery will take a long time.

URS BOLT: What I’m always impressed with is how China changed the way payments are integrated into the whole workflow of what’s behind what they are doing, and how you pay as a consumer of services and products. For this to work in Europe, it needs to be much more integrated and the only truly integrated way can be digital. It needs to be also going back to the business back end. It needs to be compliant with regulation. It needs to be automated.

RICHARD TURRIN: The real question as far as Europe goes is: will they see that digital payment is not just about the convenience of paying? In fact, it’s about the entire network of second and third order companies, business and services that grow out of that. In there lies this logistics system and that is a critical bit of infrastructure for all countries right now. Europe, even more so than the USA, was behind developing this network and suffered for it.

DOES COVID-19 MEAN THE END OF CASH?

Before the pandemic, an estimated 79% of European POS transactions used cash but there is huge disparity in those numbers. As mentioned, not all of Europe is the same and it is interesting to note that, in Southern European countries, as well as Germany, Austria, and Slovenia, cash transactions are more than 80% of retail payments; conversely, in the Netherlands, Estonia and many Northern European nations, the use of cash fell to below 33%.

Despite the high numbers of cash transactions across Europe, more and more Europeans are also embracing digital payment methods. In 2017, 77% of Europeans were already using mobile banking and/or payments, and 68% had used a digital wallet. With the increasing availability of contactless payment facilities, we can expect to see a rise in these payments in the future.

These figures are likely to accelerate in trend due to the coronavirus crisis. Staying at home, focused upon digital services, the use of mobile apps and peer-to-peer payments has been notable. It implies there will be a major shift away from cash to cards and digital payments.

CHRIS GLEDHILL: The obvious answer most people will give is ‘that’s the end of cash’ but I think it is a bit premature saying that’s the end of cash. I know all the supermarkets right now are saying no cash and asking for card only payments but no, I don’t think you can just wipe out 2,000 years of cash usage. It will take a lot more than that. Cash isn’t going away anytime soon because obviously there is a long tail of financially vulnerable and digitally excluded people who are going to use cash. Until we’ve addressed that issue, the cashless society is going to be like the paperless office, forever on the horizon but just out of reach. What will die is receipts. People don’t want to be handed a receipt. I think people will realise that receipts are a waste of time. There will be digital receipt solutions.

ALL OF EUROPE IS NOT THE SAME

Once more, it is also worth remembering that Europe is not a homogenous marketplace with all countries the same.

MATTEO RIZZI: I don’t think cash will disappear because there are huge differences in terms of culture and types of business between North and South Europe. In Northern Europe, it’s almost a point of pride to completely digitise the economy. In Southern Europe, it has been mainly cash-based countries. I believe there will be regulation that will accelerate the digital footprint of payments in Southern Europe however, not only for post-Covid measures but as a way to digitise the informal economy.

For example, certain markets have a very specific view around card and digital payments versus cash, and believe cash is far better to avoid government tracking and tracing.

MIRIAM WOHLFARTH: For a lot of people, cash is freedom. But now, you realise this thing is coming now with Covid-19. There are all these people who didn’t want to pay with cards – they start paying with cards and even contactless now because they realise, ok there is risk of ‘hacking the data’ but we want to stay healthy, we don’t want to touch this. A lot of people have fears of exposing their data – they don’t want to be visible. They want to be free in what they do. When Google Street View started in Germany, several hundred thousand house owners in Germany filed objections to ensure that their homes will not be displayed. In

all the other countries, people have no problems with this, but here the data protection issues are huge.

URS BOLT: The crisis will just accelerate the acceptance of digital channels, but cash will not go away because, especially in Switzerland and Germany, cash is still very much used, and we see that in the statistics. People are temporarily reducing the use of cash and they will get back to that but it will force those – and there’s still many small businesses in Germany who have limits so if you don’t pay more than 20 euros they cannot accept card so you need to pay cash, I’m not sure how they’re doing now – in Switzerland you don’t see that. In Switzerland, you can pay like in the UK. Literally every amount with the card for years already but that wasn’t always the case. I think cash will be seen as the store of value more than just a transacting means as still many people use cash. I’m not using cash myself a lot. I don’t know when I was last at the ATM – probably 2 or 3 months ago. Just to have a bit of reserved cash in my card wallet, I just put in some notes, but I don’t need it anymore. I always bring with me my debit card if I go on a long hike and might need something on the way. I think the use of mobile channels and digital payments will just be accelerated by this whole virus, but cash will not go away, I cannot imagine that. Don’t forget that Switzerland still has a 1000 swiss franc note and it’s the one most used. There are people who actually have cash in their safes to avoid the negative interest payments or the fees they have to pay for holding too much cash.

The big concern amongst Europe’s heartland nations, therefore, is that digital payments using card or mobile will lead to increasing government monitoring of citizen’s activities.

CHRIS GLEDHILL: Financial surveillance is definitely going to be a big thing. What I’m talking about there is, with cash you can spend money whenever you want, and no one is really keeping track of it. Obviously, that has a great amount of freedom. Whereas once you move to digital payments, you are going to get a lot more of governments wanting to keep track of what we’re up to. It’s going to start off with good intentions. You’ve already got challenger banks saying we can put controls on your account and it’s all voluntary. We can put restrictions on how much you spend on junk food and stuff.

DEVIE MOHAN: When we did research, Germany, the Netherlands, and Belgium are extremely mistrusting of anything organised financially online or on mobile. It is a challenge, that’s why it’s so important to look at each country and each segment separately, because an amalgamation of different types of thinking is really hard to pinpoint. You have to do it country by country, and say this is the right thing to do. It is hard.

Tracking and tracing payments and following individual movements through data is a key concern in many European countries, as is tax. This is why six in seven payments in Italy were made in cash in 2016, according to the ECB, and why we see similar activities in most Southern European nations.

Italy has one of Europe’s lowest rates of card payments, with 86 per cent of transactions paid for using notes and coins, according to central bank estimates. But from next year, the government plans to offer financial bonuses to those who use cards or other electronic payment systems.

The government will put aside €3bn to finance the bonus in [the 2020] budget and hopes that an increase in electronic bill settlement will raise significantly more for the state by making tax fraud and black economy transactions more difficult. Details of the system will be fleshed out next year.2

The Italian government scheme offers a tax incentive to use cards, with a 2 percent cashback on each card transaction. Another factor about why people carry and use cash versus card or mobile payments is when the system goes down, as happened recently3. In those instances, cash is critical.

GIJS BOUDEWIJN: Some believe that cash is the ultimate fallback solution if the cards infrastructure goes down. It is true that there has to be a fallback for the cards infrastructure if it goes down and there is no longer cash. Then you come to the question that everyone is looking into ‘what is the alternative if it’s no longer cash?’ The answer to this question is becoming a matter of urgency.

GOVERNMENT ACTION IS NEEDED

The interviewees also made it clear that there is no motivation to move away from cash unless the government encourages such a move, such as through the 2 percent tax discount in Italy.

ANDREA DUNLOP: Cash is not dead yet but Covid-19 has accelerated contactless and e- commerce with millions more people trying these for the first time and existing users becoming super-users. However, this has widened the divide for those that aren’t part of the financial system. There are millions of people who are still underbanked, and many more that are financially and digitally excluded. It seems that businesses are not catering to these needs because they are not profitable and are assumed to be a demographically withering segment. I think that Government needs to help here and for them to encourage banks and financial service providers to be inclusive and not leave millions under-served. This may mean supporting cash as it becomes more marginal and less economic, but it also includes bringing more people into mainstream financial services through education and new solutions that are appropriate to these households.

URS BOLT: I cannot imagine that cash will go away in the next twenty to thirty years, unless we have a generally coordinated campaign with all the countries and governments regulating away cash. Now, there are many reasons why they want to get rid of cash because, as soon as they have, they digitally have all the methods to track down the flow of money and all the side effects coming with it.

It may well be that cash could be removed from Europe’s market quite quickly if the European Central Bank moved but, without such action, it would take time. Nevertheless, it is clear that the coronavirus crisis will accelerate a move towards increasing card and mobile payments as, for the majority of European citizens, cash is becoming less and less predominant as a payment method.

SIMON COCKING: Over the last couple of years we’ve been moving towards a cash-free society already, and then it’s only used for inconvenient things, like paying for parking

2 Italy seeks to end shoppers’ reliance on cash, Financial Times, 24 December 2019 https://www.ft.com/content/23232b46-21a9-11ea-b8a1-584213ee7b2b

3 Visa outage: payment chaos after card network crashes – as it happened, The Guardian, 1 June 2018 https://www.theguardian.com/world/live/2018/jun/01/visa-outage-payment-chaos-after-card-network- crashes-live-updates

meters, and it becomes used in fewer and fewer places. The view now is ‘why do I have to pay with cash?’ and ‘if you’re making me just pay with cash, I’m not very happy about this’. Without anybody explicitly forcing this to happen, I think culturally we’re already becoming accustomed to the smoothness of that happening, because otherwise you’ll have to go back to the cashpoint to get the money to do this. People then say, ‘when will we be cash free?’.

“No-one can prove exactly what will happen after the crisis, but any behavioural psychologist will tell you that if you have shown a certain behaviour over a prolonged period of time, you are quite likely to continue that behaviour. Even the elderly are changing directly from cash to contactless, not contact with PIN.” Gijs Boudewijn

GIJS BOUDEWIJN: In the Netherlands, we are already seeing payments where 67% is cards and 33% cash in 2019. I ask my people, apart from the crisis, if we just follow the trend, where will we be in five years’ time? From the discussions we are having about the future of cash, the trend says we would have arrived at 15-17% without any crisis effect. The crisis will probably accelerate this to be 10-15% sooner. The exact figure does not really matter but it will be significantly less than 20%. No-one can prove exactly what will happen after the crisis, but any behavioural psychologist will tell you that if you have shown a certain behaviour over a prolonged period of time, you are quite likely to continue that behaviour and not revert to the old behaviour. Even the elderly are changing directly from cash to contactless, not contact with PIN. This means that cash is really on the way out and that raises lots of questions. What at the end of the day will be the end state of paid cash infrastructure? Who’s going to pay for it? Whose problem is that anyway? Is it a utility, is it a universal service or is it a service where the costs should still be covered by the commercial banks?

CREDIT CARDS OR SOMETHING ELSE?

Although cash will see an acceleration of its decline due to this pandemic, a key question is whether this means mobile and digital payments take over, and whether they are card-based or in another form, such as QR code with mobile wallet.

When asked about these trends, most interviewees see the move to card payments in Europe today, as there is no major alternative. Europe does have mobile wallets, QR code-based payment schemes and digital payment services but, unless using cash, the predominant methods of payment are by card payments.

RICHARD TURRIN: We are unfortunately locked in that direction by the desire of the card companies to keep their business. They’ve been less than progressive in envisioning a new way to use their systems.

This may be changing however, due to moves at a European level to develop alternatives. There is a scheme – the European Payments Initiative – to create a pan-European card scheme as an alternative, and there is also the development of Open Banking as a result of regulatory changes introduced in 2018. Open Banking requires banks to provide customer data to third party payment processors (TPPs), if the customer requests such service.

These developments could change the fundamentals of banking in Europe, but will they?

ANDREA DUNLOP: The European Central Bank (ECB) has said it’s supportive of the move by some of the largest European banks to set up a pan-European payment system to challenge the dominance of the US card schemes in the EU market. However, this has been talked about for decades and I just don’t see Europe making this happen anytime soon. The duopoly of the two card schemes is not going to change in the short term. They are expensive and bureaucratic, but it’s not easy to be a global business whilst navigating the different country regimes. It is clear that both the schemes are worried about disintermediation with open banking and real-time payments, and both are investing in these areas. Up to now, I don’t think Covid-19 has fast tracked any of these aspects, but I do think that a more open Payments Market is needed and I am hopeful that these regulatory changes will encourage innovators to open new ways to pay and get paid.

In addition, the increasing use of mobile smartphone apps with card payments has been a significant movement during this crisis. This is because consumers are being forced to use these apps to get what they need whilst staying at home and being isolated.

“This crisis means that we have broken a lot of the barriers to resistance, which otherwise would have been around for much longer. It’s like a massive nudge.” Simon Cocking

SIMON COCKING: With payments, we all know that the technology exists, but it’s more a question of whether the trust exists. The first time you do anything is the most fearful, and the biggest source of reluctance and resistance to do things. When we look at behavioural models, we know that the first time you do something is the hardest. When you do it a second and a third time, a lot of your resistance are no longer as valid as what you thought they were. Therefore, now that we’ve all done it for probably three months or longer, will we fall back to bad habits or will we move forward? Will we think ‘do I have to go back to the supermarket?’ and ‘do I have to load the trolley?’ This crisis means that we have broken a lot of the barriers to resistance, which otherwise would have been around for much longer. It’s like a massive nudge.

MATTEO RIZZI: It will be a longer lasting habit simply because one of the hardest obstacles is experiencing it first. The fact that once you have it, it’s kind of a no-brainer. If you experience that it’s faster, seamless, safer, and not only for your health, I really do think it will last longer. I believe that because of the initial forced changed behaviour, which was paradoxically the most difficult thing for these start-ups to instil in the customers, it should facilitate swifter adoption. It’s probably one of the biggest payment developments arising from the response to the virus.

WHAT ABOUT MOBILE PAYMENTS?

Visa Europe data shows 77% of Europeans are using mobile banking and/or mobile payments. Nearly two-thirds (62%) check their balance or access other services through a banking app, whilst 68% of European consumers used a mobile wallet in 2017. The payment giant says Europeans “are feeling increasingly comfortable doing transactions on their mobile devices, moving away from desktops and laptops as nearly half (48%) of Europeans use a mobile device to shop … almost the same number (45%) send money to friends and family using a smartphone or tablet.”

There are equally a number of mobile payment methods in Europe: Apple Pay, Samsung Pay, Android Pay and PayPal; FinTech start-ups offer apps dedicated to payments with leading players being firms like Revolut and TransferWise, although they tend to be dedicated to cross-border payments; and there are a variety of national mobile wallets.

“It could be a chip or whatever but, in my view, it will go the mobile way and it will always be with you. You won’t need cash in your purse.” Urs Bolt

URS BOLT: A mobile wallet is clearly the way to go but whether these mobile wallets are built into something other than a smart phone. It could be a chip or whatever but, in my view, it will go the mobile way and it will always be with you. You won’t need cash in your purse.

What is surprising is that although text payments and paying via apps appear to have taken off, mobile wallets have not in general. There are exceptions such as Swish in Sweden and Vipps in Norway, as the mobile apps are fully supported by all of the banks in those countries. But then the Northern European countries pride themselves on being fully digital first, as mentioned earlier when discussing the European landscape.

Why haven’t mobile wallets taken off in Europe and will they in the future?

RICHARD TURRIN: The critical failure in the EU and US is basing mobile payment on what brand of phone you buy: Apple, Samsung or Android. The need for an independent third- party payment platform is made clear to me whenever I pick up my iPhone and try to use it to send money to someone with an Android phone. The opportunity to span this gap is massive and as of yet untapped.

ANTONIO GRASSO: “The issue is that these new tools that you use to pay, like Apple Pay, are on top of the financial system. They are new, but they are not disrupting the sector because they are just offering new and different ways to pay to use your money.”

In other words, a pan-European mobile payments wallet platform is a huge opportunity.

But who can make it work and how will it work? My own view is that it would be driven by the European Commission in a similar way to the way payments APIs were forced into the system under the Payment Services Directive 2, or PSD2 for short.

Nevertheless, even if the EU governments agreed on this, it would not necessarily crack the mobile wallet nut.

DEVIE MOHAN: This is when you realise the challenge the payments industry faces in getting people into digital and mobile payments. On paper, it’s absolutely the right thing to do, but how do you educate people who have never used the internet for payments to do this? They’ve never used a mobile phone for payments, and there are many people who still don’t have access to an internet connection or smartphone. There is a problem of comfort, technological literacy and education around payments that we don’t really talk about in the industry, especially in the age group and people who haven’t used these kinds of online payment options before, particularly outside urban areas.

CHRIS GLEDHILL: There is an embarrassment factor of messing up a mobile payment in the front of the checkout whereas, with a card payment, you just type in your PIN and it’s going to work. If you try and be fancy and get out your phone and your thumb print doesn’t work. or some things popped up that need confirmation, everyone’s rolling their eyes and tutting. That’s like the worst thing possible, from a social anxiety point of view. It will take a while for people to get confident enough to use it. It will also take a leap of physics to get a battery in a phone that’s going to last. We carry cash, in case our cards are declined, and we carry cards in case our phone battery dies.

SIMON TAYLOR: Will push payments ever really catch on as a payment type? It just never seems to. It never quite seems to get there because banks do just about enough.

Yet it took off in China. Chinese consumers transacted over USD$13 trillion of mobile payments in Q4 2019 alone, an increase of 70 percent year-on-year, edging the volume of mobile payments to over $45 trillion for the full year. Why did it work in China and hasn’t happened in Europe or America (the USA mobile payments market processed USD$114 billion of transactions in 2019)?

Free report: #Payments in a post-#pandemic #Europe:

What will "the new normal" look like and what does it mean for mobile payment services?

Review by 12 leading influencers curated by @Chris_Skinner.

Honored to contribute

#Fintech #COVID19 #banking https://t.co/IC3ylbHXaC

— Richard Turrin (@richardturrin) June 2, 2020

RICHARD TURRIN: In the early days, mobile payments in China wasn’t about using my bank on my phone. It was about putting your debit card or credit card onto your phone, and the third-party processor will provide the mobile payments system. That’s precisely the same sort of technology that, if rolled out in Europe, would be a hit. It’s relatively easy. It doesn’t force you, as the user, to buy new stuff. It doesn’t force you to give up on your bank. It doesn’t force the vendor to have exceptional costs in using it. That was the real magic with QR.

Will the pandemic crisis drive a change to do something similar?

URS BOLT: Mobile payments definitely have to accelerate now, especially as we cannot physically visit relatives or family members. I think many people now have to get used to using any kind of mobile device, whether it’s just for simple video conferences with family members or others that we would normally see every day. Where I still see a challenge is that people are not yet using all the possibilities they have in terms of instant payments and person-to-person transfers.

“One of the biggest advantages is the low cost of transactions. We need to educate the corner shops, retail stores about the advantages of having mobile payments so once you sort out that side then the consumers will follow.” Devie Mohan

DEVIE MOHAN: The question would be: What are the advantages of mobile payments over card payments? One of the biggest advantages of course is the low cost of transactions. The merchants have a low cost. We need to educate the corner shops, retail stores about the

advantages of having mobile payments so once you sort out that side then the consumers will follow. There are a lot of campaigns and activities targeting the consumers whereas I think it should be targeted at merchants, especially the small merchants.

DIGITAL CURRENCIES

Several of the interviewees do believe that, due to the crisis, central banks are evaluating and escalating their activities around Central Bank Digital Currencies (CBDCs).

SIMON TAYLOR: Cash will still be with us for a very long time in its physical form, and it’s very hard to remove unless we saw something like the demonetisation that India introduced a few years ago. There has been little push for that from the Central Banks in Europe so far. The most progressive in this respect has been the Bank of England, which has published and actively looked at central bank issued digital currency, or CBDC for short. There could be a path in there that does start to take hold in the UK, as a medium-term displacement, but the earliest that will take effect will be around 2030 or beyond. Before that, any sort of adoption – never mind mass adoption – is pegged to an RTGS (Real-Time Gross Settlement) upgrade. The Bank of England sees a digital currency and an RTGS upgrade as the same thing.

ANTONIO GRASSO: What you’re seeing at the moment is things around the edge of the system and not a big change to the system itself. The biggest change to the system itself would be if central banks start to issue digital currencies and therefore money itself becomes digital.

RICHARD TURRIN: CBDC was considered a joke but it is actually a revolution, not just for international payments but for how people pay. If you look at the change you can see that senior policymakers went from saying “CBDC’s are something that are many years off” to “We have to look at this now”. That transition happened over a three-month period.

GIJS BOUDEWIJN: I have a hard time imagining, in ten years’ time, who would still use cash and for what? Especially if, in ten years’ time, the Central Banks have a nice Central Bank Digital Currency (CBDC) alternative for us.

Interestingly, CBDC’s are often associated with related things like cryptocurrencies, blockchain and Distributed Ledger Technology (DLT). Are these important and making an impact and, if yes, what should be looking at?

SIMON TAYLOR: DLT has already had an impact, as Central Banks are now looking at issuing their own currencies directly to the population digitally. So, it’s not will it make a difference. It already has. China has taken a massive lead on that, and you will see similar initiatives across Europe. The interesting one for me is whether or not any of the private initiatives like Libra survive or whether they are just an interesting distraction. Will they actually compete? Will the digital dollar initiatives that are out there become the thing that gets support from governments? Will the private sector contribute to governments in some way or will it be a government top-down initiative? Europe’s kind of a halfway house between the Asia model and the American model, and that’s why it has a whole load of bureaucracy in the middle.

It seems that most of the interviewees do believe there will be digital currencies replacing cash in the next decade, but it probably will not be private crypto currencies or those generated by technology firms. It will just be fiat currency in a digital instead of a physical form, and this will be issued as CBDC’s sooner rather than later thanks to the crisis.

HOW WILL THINGS CHANGE AFTER THE PANDEMIC?

After all the discussion of cash, cards, mobile wallets and digital payments usage, what is the panel’s general view of how Europe will look after this crisis. Will payments fundamentally change, or will we revert back to normal payments patterns?

DEVIE MOHAN: It sounds logical that cash should reduce due to the risk of carrying the virus , but my experience observing this in other countries like South Korea, Singapore and Japan, is that you’ll find that cash use hasn’t reduced significantly. The reason is that consumers are treating the quarantine as a departure from real life, and are going back to ingrained habits once quarantine is lifted. If you don’t provide incentives to try new payments products that makes use of new shopping or food habits, all of the newly-learnt digital habits are likely going to disappear with the groups that are unfamiliar with them. A lot of active education is needed for this to happen. The second reason is cash as a means of payment is cheaper for small merchants, especially where the cost of accepting payments over a card is very high. Unless we have a shift towards mobile wallets and mobile based payments, the cost of transacting for the merchant is very high. Due to that fact, the smaller merchants themselves prefer cash.

Maybe there is some perception that the new normal in payments may be just like the old normal, but digital payments companies should seek to demonstrate to these new users how technology can be a key differentiator compared to traditional payment means.

MATTEO RIZZI:. Post-Covid is going to accelerate fintech development because when I see how traditional banks operate, the difference in the user experience is huge. I am still unable to do an international payment for my business outside of office hours, which is 9am-3pm. Can you imagine, all of a sudden, I immediately move to a challenger bank because the experience is better. Its currency rates are cheaper, it’s open 24/7 etc, and it feels like a multi-currency mobile wallet.

In particular, there will be a big drive to be more digital after the crisis, across the board.

SIMON TAYLOR: Post-pandemic everything is moving more digital, including payments. Yes, cash is decreasing whilst all types of digital payments are increasing, whether that’s card- based or push payments. They will all see an increase. What had momentum before the pandemic will likely increase in momentum after it. So, things like Apple Pay have momentum, and they will increase. Things that didn’t have momentum will need to generate momentum, and that’s going to be challenging.

MIRIAM WOHLFARTH: Consumers expect the same service as provided by the large tech platforms today. It doesn’t matter which branch, it needs to be technology. Those companies that really think tech, that have tech in their DNA, understand your customer. The better you are in technology, the better you understand what your customer wants, and you can decide better what your customer wants and provide better products.

One big question that everyone is wondering is how quickly recovery will take place and when The New Normal will become normal. For banks in particular, this looks like a challenge.

PAOLO SIRONI: I do not expect we will recover from this crisis quickly. After 2008, when the last financial crisis hit, we realised that bank balance sheets were largely unsustainable.

Warren Buffett’s annual letter in 2002 called the excess usage of derivatives “financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal”. Central Banks and regulators took many actions to save the system, some could argue that they also made the problem worse promoting excessive moral hazard. In essence, the search for “unsustainable stability” of the too-big-to-fail paradigm wanted to grant banks time to restructure and “change their business models on digital”, as Mario Draghi said in his last speech before leaving the ECB in 2019. But that, as he openly noted, did not happen. The Covid-19 outbreak further demonstrates that banks as a whole are no longer efficient mechanisms of monetary transmission, as the FED also realized.

ANDREA DUNLOP: This is a time for entrepreneurial and innovative leadership more than ever before but it’s also a moment for a return to profitability. The downturn caused by Covid-19 is like having an extremely bleak winter where companies that can survive it will either have deep resources to weather it (cash and strong balance sheets), be providing services that are required rain or shine (especially the platform guys), and those teams with the resourcefulness to create new opportunities for both the winter and the spring that beckons beyond (great new leaders!). Meanwhile zombie businesses and leaders will struggle to make it through when they might otherwise have survived and optimistically a period of creative destruction and self-isolation personal reflection will accelerate some long- term trends which will make life better for all of us.

In particular, banks will be forced to digitalise faster and create payment systems that are internet and mobile first, not cash and card first. That’s a difficult ask for many European and Western banks.

“The time is now, more than ever, to help banks embrace new business models grounded on transparency principles and accelerated by digital technology.” Paolo Sironi

PAOLO SIRONI: The problem of banking never came from fintech nor from Covid-19, but from inside their organisations. Their business model does not correspond to the economic reality they operate in, which is made of zero to negative interest rates, high costs of capital, lowering margins, payment disintermediation. In the coming months, all eyes on what happens in Europe given the political tensions brought in by the search for debt- mutualisation. Also, all eyes on the Americans stepping deep into the 2020 electoral year. Should economic trouble continue, the immediate issue will be with credit cards. Then it will go to insurance covering mortgage payments that citizens might not be able to afford any longer. How long can SMEs and eventually larger companies afford a possible future made of periodic lockdowns? Time is now, more than ever, to help banks embrace new business models grounded on transparency principles and accelerated by digital technology, making them more anti-fragile and capable to generate value for customers even under stress.

RICHARD TURRIN: There was certainly a group of banks that were well-prepared and very digital, but then there are banks like mine in the USA. My USA bank requires me to go to the branch to make a Swift transfer. Imagine this, I’m sitting there at a cash machine that both accepts currency and disperses. I stick my card into the machine and withdraw cash out of my USA accounts. I then take the same cash to the same machine, and stick my Chinese ATM card in and deposit the same money I’ve taken out.

In addition, the task is much wider than just addressing the need to move to mobile and digital payments. ANTONIO GRASSO: We can have a push towards the digitalisation process but if you watch only the payments, the payment is just a step in the process in the transaction. We need to watch the realistic perspective of what will happen at the transaction. What will become digital so we can manage digital right. How will society move forward? Many things are happening in our world. It’s the moment to do a complete shift between both worlds – the digital and the physical. And so, if you watch payment only for the tool or the way you pay, I think you are a bit blind.

Especially as payments become part of the fabric of everything on the network.

ANTONIO GRASSO: The internet of things will change everything, not only because the machine will have intelligence and act autonomously, but also because it will create new business models and many others will become obsolete. The key will be that intelligence, artificial or real, will be the DNA of our society, of our economy. It will be the backbone of the next future.

URS BOLT: Payments will be more and more built into the overall product or service you consume and, if it’s a regular service provided by a trusted counterparty, then you might not even need to pay the way you pay today. It’s just going to be deducted from your balance with an automated payment, like a subscription payment.

The idea of banking, payments, money, and value being built into everything on the network starts to reinvent business and business models. As a result, the new fabric of the internet post-pandemic will see finance integrated, not separated at all.

CHRIS GLEDHILL: One of the big things that is going to change is paywalls. The information superhighway is going to become a toll road where everyone is starting to monetise their data and their content. As a result, paywalls are going to become a much bigger deal and obviously that comes with a massive amount of friction because you have to sign up for every site and have a different account. Ultimately, you will get to what Tim Berners-Lee imagined was the original internet, which was that it is a pay-as-you-use subscription service. You top- up your browser like an electricity metre and every site you go to gets a fraction of a cent of money. That requires an app that doesn’t exist yet. An app where, whenever you go into a site, it will do the handshake and exchange a micro payment with that site and manage all of that for you. So, there’s a missing Fintech unicorn in our landscape that’s going to pop up in that sphere. That’s desperately needed.

CONCLUSIONS

As outlined in the executive summary the interviews performed for this report, which are primarily focused on payments trends although also incorporates the wider views of Europe and banking, see six key trends post-pandemic:

1. Cash is declining 2. Cards remain important 3. Mobile and digital payment services will increase 4. Europe does not have a dominant mobile wallet today 5. Cryptocurrencies are unlikely to take off 6. Central bank digital currencies (CBDC’s) will launch sooner, rather than later

URS BOLT: There is not enough room for too many payment methods.

Cash is declining, and that has been obvious for years. In Southern European countries, cash still dominates but is also gradually eroding, and government incentives such as tax concessions will speed up that decline. The crisis has also accelerated that decline and possibly brought forward the increasing use of card, mobile and online payments as the new way to pay by a period of years. As noted by Gijs Boudewijn, the likelihood is that the Covid-19 crisis has moved the needle for using non-cash payments by three to five years.

SIMON COCKING: The digital economy is coming and the companies that prepare for it and are ready to move fast will meet an audience that’s more than willing to use it. This is almost the proof of the case that it works, it can be used, and whoever can deliver the best service I think will do really well.

Meanwhile, on digital and mobile payments, there is a rise in payments-by-mobile, but this rise appears to be based upon using card payments in mobile apps and online services, rather than a mobile wallet. A mobile wallet for Europe may work, except that we are currently seeing many national schemes such as iDEAL in the Netherlands and Swish in Sweden, rather than any pan- European service.

In a similar way, cryptocurrencies are unlikely to succeed without governmental support and legislation. The resistance to the widespread adoption of bitcoin by national authorities illustrates this well, as does the governmental barriers to the launch and implementation of private currencies, such as Libra.

That being said, the pandemic has forced governments to investigate the opportunity to launch their own digital currencies using these technologies far faster. It is therefore highly likely that some countries – Sweden and Britain being the most likely – will launch a digital currency within the next year or two. Such digitalised systems will encourage even wider adoption of mobile and digital payments. RICHARD TURRIN: Digital systems are now part of critical national infrastructure, rather

than niceties.

THE AUTHOR

CHRIS SKINNER

Chris Skinner is known as one of the most influential people in technology, and known as an independent commentator on the financial markets and fintech through his blog, the Finanser.com. His latest book (sixteenth!) is called Doing Digital, and shares the lessons of doing digital transformation learned through interviews with BBVA, China Merchants Bank, DBS, ING and JPMorgan Chase. He chairs the Financial Services Club and Nordic Future Innovate, is a non- executive director of 11:FS and on the advisory boards of various firms. Mr. Skinner has been an advisor to the United Nations, the White House, the World Bank and the World Economic Forum, and is a visiting lecturer with Cambridge University as well as a TEDx speaker.

THE CONTRIBUTORS

ANDREA DUNLOP

Executive, investor, and formerly CEO of Acquiring Paysafe Group, a regulated business she established in 2013. The Chairwoman of the Emerging Payments Association, she also sits on several industry forums including the PSR and EWPN. Highly-regarded in payments, she has been named one of ‘Most Influential Women in Payments and voted in Payments Power 10, a list of the top ten influential contributors to the payments industry. A passionate speaker, and supporter of diversity and financial inclusion. Prior to joining Paysafe, Andrea ran her own payments consultancy. Prior to that, Andrea served 13 years in the Royal Air Force.

ANTONIO GRASSO

Founder and CEO of Italian start-up Digital Business Innovation srl, Antonio is regarded as one of the top Digital Transformation influencers on artificial intelligence, cyber security, digital transformation, the Internet of Things, and blockchain. He is an advisor and enterprise and public sector consultant and mentor to numerous startups. Antonio Grasso has over 35 years’ experience handling numerous projects in the field of information technology for both enterprise and public sectors.

CHRIS GLEDHILL

Chris Gledhill is an independent fintech futurist, writer and advisor. Chris regularly ranks as #1 top global finTech influencer and is considered a thought leader in fintech, banking and the future of financial services. Chris has both a technical & business background with expertise spanning multiple industries and a wide range of disruptive technologies including Blockchain, AI, API, Big Data, Deep Learning, Virtual Reality, CryptoCurrencies, Biometrics, Quantum, Mobile & Wearables.

DEVIE MOHAN

Devie Mohan is a researcher, writer and speaker on fintech, and is the co-founder and CEO of Burnmark, a fintech research company, that supplies research and data to governments, banks and technology firms around the world. She is a panel member on the ING Group Think Forward initiative on better financial decision making, a fintech lecturer at Coventry University and a tutor in Harvard University’s short fintech courses. She is the author of “The Financial Services Guide to Fintech” and a columnist with several publications.

GIJS BOUDEWIJN

Gijs Boudewijn is Deputy General Manager at the Dutch Payments Association. Before that he was responsible for payments and security related matters at the Dutch Banking Association. He has extensive experience in domestic as well as international (SEPA) payments issues, governance, competition law and fraud prevention. Next to sitting on various Dutch domestic payments related bodies, he is Chair of the Legal Support Group of the European Payments Council and Chair of the Payment Systems Committee of the European Banking Federation.

MATTEO RIZZI

Matteo Rizzi is the author of FinTech Revolution and Talent&Rebels, and is a polyglot executive with 20+ years of experience in technology and financial services. He spent 13 years at SWIFT, where he co-founded Innotribe. He then launched with Innotribe the first global challenge for fintech entrepreneurs. Since 2013 Matteo has been a fintech investor and/or venture partner with global VCs and CVCs. In 2015, he created FinTechStage, a platform for investors, innovators, and start-ups to foster fintech innovation globally. In 2019, he founded Timepledge.org a global initiative to foster financial inclusion and entrepreneurship. He is the executive producer of Breaking Banks Europe. Matteo has been appointed several times one of the most influential fintech executives in Europe.

MIRIAM WOHLFARTH

Miriam Wohlfarth is Co-founder and Managing Director of Ratepay. She is responsible for the areas of Innovation, Marketing and Sales. With almost 20 years’ experience in online payment, she was most recently Country Manager Germany of the international payment service provider Ogone (Ingenico Payment Services). Prior to that, she played a significant role in establishing the electronic payment transaction business for the Royal Bank of Scotland (RBS) and its payment services subsidiary Bibit in Germany.

PAOLO SIRONI

Paolo is one of the most respected voices in the fintech industry, providing business expertise and strategic thinking to a network of executives among financial institutions, startups and regulators. He leads the global thought leadership in banking and finance at IBM Institute for Business Value. He is also a celebrated author on quantitative finance, digital transformation and economics theory, exploring the biological underpinnings of financial markets.

RICHARD ‘RICH’ TURRIN

Rich Turrin is an international best-selling author and award- winning executive, with more than 20 years’ experience in fintech innovation. His next book is “China’s Digital Currency Revolution” due in the summer of 2020. He lives in Shanghai and is an independent fintech and AI consultant, helping clients navigate the China market. He previously headed fintech for IBM Cognitive Studios Singapore (IBM’s Innovation Lab) and worked for IBM China where he led his team to win the prestigious “Risk Technology Product of the Year” award for his unique hybrid- cloud solution to risk analytics.

SIMON COCKING

Simon Cocking has been Chief Editor at Irish Tech News, CryptoCommonwealth, CryptoCoinNews and InvestInIT – with over 1.5 million+ unique monthly views and growing. He was the top ranked member of the ‘People of Blockchain’ for 2018 based on total funds raised & also the #1 ranked advisor on ICO Holder. He is a business mentor and advisor working with over 200 successful companies to date, and has been named on many global Twitter influencer lists in the last 12 months. He is an accomplished public speaker at events including TEDx, Web Summit, and overseas.

SIMON TAYLOR

Simon Taylor is Co-Founder and Blockchain Lead at 11:FS. Previously at Barclays, he established the bank as one of the leaders in blockchain thought and action. Simon also serves as an advisor to central banks and governments, in addition to consulting with the top 20 banks on blockchain. He’s helped a variety of startups flourish through the Barclays Accelerator.

URS BOLT

Urs has over thirty years’ experience in the financial services industry, mainly in wealth management, investment banking and banking technology business. He is consistently ranked as one of the top Swiss fintech influencers by Fintech Switzerland and as a global RegTech influencer by Planet of Compliance. During his career, Urs has held Senior positions at Credit Suisse AG, both in London and Zurich, and UBS in Zurich.

"Doing Digital"

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