As we move into the fourth quarter of the year, the global payments landscape remains locked in a constant cycle of change. But what particularly stands out this year is the growing disruption of a rapidly maturing fintech service provider sector boosted by a favourable regulatory environment. This has become an issue of increasing significance in the market, as well as a growing area of focus for the SPA.
In this latest newsletter we touch on the issues presented by this emerging fintech sector, in addition to highlighting other key regulatory, technology and payments market trends. We discuss the SPA’s efforts to promote ‘safe innovation’, and introduce an exciting new initiative to extend participation in SPA activities – through the development of the SPA Advisory Council program.
Read our latest paper: Could Cooperative Competition Offer a Way Forward for Banks and Fintechs?
Extending participation: The SPA Advisory Council program
Earlier this year SPA launched the Advisory Council program to make it possible for non-SPA member organizations to participate, contribute and collaborate with the SPA in areas of mutual interest. This exciting new method of participation has been reflected in the SPA bylaws and operational guidelines to guarantee the independence of those organizations willing to join us.
SPA is particularly active in the standardization, security certification and regulatory fronts. We are committed to sharing our understanding of fast-evolving payment business models to new partners - opening up participation and debate with our experts in the different SPA working groups. This new program aims to leverage and better focus our initiatives and contributions to develop a payment landscape where technology vendors are able to exert their influence and drive the agenda.
In 2017, the Payment Systems Directive (PSD) 2 framework is being complemented with a series of Regulatory Technical Standards (RTS) drafted by the European Banking Authority (EBA).
Unfortunately, the publication of the RTS on Strong Customer Authentication has been delayed – primarily due to the divergent views in the mechanisms to be used by third party trusted payment providers to access bank account information. SPA has expressed its views on the RTS during the EBA public consultations: we are in favour of separated authentication credentials by the third party providers and by the banks.
Similarly, new EU directives on Anti Money Laundering came into force midway through the year. This is the most sweeping AML legislation for some years, with the EU Fourth Directive setting out requirements for enhanced customer due diligence and evidence-based risk-approach measures, and the introduction of new measures to prevent terrorist financing – including through e-money and anonymous prepaid cards. This framework overlaps, and is complimentary to, the PSD2 and opens new opportunities for more intensive collaboration between the identity and the payments industries. SPA members are committed to supporting both areas, with a focus on finding the right balance between security and privacy.
SPA has also published a paper: setting out its position on the recent EBA initiative to identify security challenges and specify appropriate risk management practices when financial services are outsourced to cloud service providers.
Boosting ‘safe innovation’ in payments
The growing consumer demand to transact anytime, anywhere, and across any channel is boosting innovation. Yet some things never change. Security and trust in the face of massive disruption remain the driving forces to adoption and success. But delivering the former, without hampering innovation, is considered no small challenge by SPA.
New architectures, involving the secure communication between the cloud, mobile devices and payment acceptance environments, are under scrutiny. The coexistence of different security environments within the mobile (SE, eSE, TEE and HCE), digital wallets and applications is being standardized by Global Platform with decisive contributions by SPA members. This effort is a real enabler for new business models.
Moreover, advanced standard architectures are being promoted by SPA for endorsement by the payments industry in key organizations such as the European Payments Council (EPC) and the European Cards Stakeholders Group (ECSG). Updated guidelines for mobile contactless implementation released by the EPC will be available by the end of this year.
Developments in wearable tech is also paving the way for connected devices using the Internet of Things (IoT) and Artificial Intelligence (AI). In response to an SPA proposal, payment use cases will be investigated by the European Card Stakeholders ECSG. In this area SPA has led the vendors’ efforts for an ambitious program of work in terms of technological innovation for the next release of the Volume Book of Requirements by the ECSG.
Blockchain technology, which forms the backbone of virtual currencies like Bitcoin, is gaining traction in areas like payment authorization and cross-border payment authorization. The European Central Bank has recently identified the potential role of technology to integrate payment clearing and settlement infrastructures. The security and privacy of blockchain technical solutions are central objectives for SPA members. Our experts are already actively involved in the first ISO initiatives (ISO TC307) to provide a stable framework for the deployment of interoperable blockchain-based architectures.
On the evolving issue of fintech entrants, SPA monitors developments around payment innovation. We increasingly see regulators worldwide no longer ignoring the potential impact on the payment market structures of these incomers - and looking to take action.
Meeting you at Industry Events
The SPA is a supporting organization of the following events up to end of the year and will be happy to meet you there:
- IoT 2017 Payments 2017, 10-11 October 2017, Austin, TX - USA
- IFSF Conference 2017, 14-15 November 2017, Paris - France
- HCE, Tokenization and Instant Payments Summit 2017, 1st December 2017, Brussels - Belgium
- Trustech, 28-30 November 2017, Cannes - France
President, Smart Payment Association