Accenture EverydayBank Card-Issuing

8/9/2019 Accenture EverydayBank Card-Issuing

1/16

Accenture Payment Services

Cards InnovationCard Issuing and MerchantAcquiring in the era ofEveryday Payments

How digital is revolutionizing

the cards issuing and

acquiring ecosystem


2/16

The era of the Everyday Bank 3

The payments environment:disruptive change on all sides 4

Implications and actions forcard issuers 8

Implications and actions formerchant acquirers 12

Accentures approach 15

2 | EVERYDAY BANK RESEARCH SERIES


3/16

Todays banks and payments

service providers have theopportunity to become centralto their customers lifestylepurchases, in the same way thatsocial media and providers likeAmazon have become centralto retail purchases. Or they canremain on the periphery, strictlylimited to handling financing

and fund transfers.The need to choose between thesetwo contrasting futures puts banksand payments service providers at acrossroads. Across their business, theyface critical decisions that can set themon the path toward becoming an EverydayBanktrusted, indispensable, and integralto consumers everyday activitiesora purely transactional provider. InAccentures view1, those that choose the

path of the Everyday Bank can expect togenerate operating income 50 percenthigher than those that do not.

heralds the advent ofEveryday Payments

As the Everyday Bank emerges over thenext five years, it will be differentiatedfrom todays banks and banking serviceproviders by its enhanced ability toleverage digital capabilities includingmobile, analytics, interactive and cloudcomputing. It will complement thesedigital capabilities with a physical presence.And it will apply all its assets, expertise

and relationships to position itself at theheart of its customers daily lives.

As the main daily point of interactionbetween customers and their bank,payments will be core to this positioning.As the Everyday Bank emerges, so toowill the Everyday Payments Providers,including banks, card companies,ACHs, processors, payment gateways,acquirers and other entrants suchas mobile operators and retailers. To

optimize customers service experience,convenience and engagement at theseinteractions, the Everyday PaymentsProvider needs to embody four specificcharacteristics in the payments arena:

It optimizes the payments experienceacross all customer touch points.

It operates withinand connectsacrossa diverse ecosystem ofcustomers and partners.

It places high importance on payments,not least as a source of valuable,actionable customer data.

It supports its customers across theireveryday needsfrom routine toonce-in-a-lifetimethrough real-timeservices, both financial and non-financial.

A key pillar of these attributes is

the ability to support and facilitatepolymorphic paymentsallowingindividuals, merchants and corporates toperform digital transactions wherever,whenever and however they want,regardless of the underlying paymentmethod, currency or channel used, andindependently of where the value is held.

bringing major

implications for cardissuing and merchantacquiring

This is Accentures vision for the futureof banking and payments. And it bringswith it disruptive and transformationalimplications for cards issuers andacquirers.

Across the payments ecosystem, paralleland accelerating changes impacting allparticipantsnot just banks and paymentsservice providers but also customers,retailers, loyalty schemes, devicemanufacturers, communications operatorsand moreare rapidly and radicallyreshaping the issuing and acquiringlandscape.

To survive and succeed in such anenvironment, issuers and acquirerscannot afford to stand still. They need

to respond in ways that will turn risksinto opportunities, and which will enablethem to identify and secure their role inthe emerging payments ecosystemwhilesimultaneously embedding themselves atthe heart of customers lives.

Everyday Issuing and Acquiring is thefuture of card payments. Its time toembrace that future.

The era of the Everyday Bank

EVERYDAY BANK RESEARCH SERIES | 3


4/16

The rise of ecommerce

For many years, the card issuing andmerchant acquiring industries havebeen meeting the respective needs ofcustomers to access quick and convenientpayment methods, and of retailersto accept debit and credit cards atpoint-of-sale (PoS) and for MOTO (mailorder, telephone order), supported bythe necessary equipment and bankingfacilities.

Change in these industries used to occurat a measured pace, with zip-zapmachines giving way first to magneticstripe card readers for electronicallyauthorized transactions, and theninmany countries, but not initially the USto EMV for chip & pin transactions. Also,while ecommerce has been on the risesince the late 1990s, it was originally aniche activity regarded as an adjunct tothe core acquiring business.

is changing the gamefor ever

No longer. Ecommerce and online retailinghave now reached critical mass, and arefirmly established as part of mainstreambusiness and key growth drivers forpayments. Smartphones and tablets arespearheading this retailing and behavioralrevolution, with new technologies such

as cloud, analytics and social mediaaccelerating the change. These sametechnologies are enabling new ways ofpaying, and empowering new entrantsto bring new payment propositions tomarket.

Even as these new digital opportunities

open up, there is still a need to bridgethe gap with legacy technologies, sincetraditional card payment methodscontinue to function well and remain thedominant method of non-cash paymentsin most markets. There is a huge installedbase of cards in issue and merchantpoint-of-sale terminals to accept them.However, cards are inherently limitedin their function and user experience,and were not designed with a digital

environment in mind. As a result, cardsare coming under intensifying pressurefrom several different directions.

Seven key trends

Against this background, card issuersand merchant acquirers are facing sevenkey trends, causing them to revisit theirbusiness and operating models as amatter of urgency. While some of thesetrends have more impact on issuers andsome have a greater effect on acquirers,they are all relevant to both sectors tosome degree.

1. As well as growing rapidly,

e-commerce and m-commerce are

converging with in-store payments

The growth of e-commerce andm-commerce means acquiring is nolonger about cards acceptance via siloed

channels, but a multi-channel approachproviding a consistent experienceand service for both consumers andmerchants. This requires a polymorphicpayments capability as described aboveone with the flexibility to support bothcard and non-card payments acrossmultiple channels in a consistent,seamless way.

2. Omni-retailing and channel

convergence are changing the waypeople shop

Consumers now initiate and complete apurchase using multiple channels in anyorder: searching, viewing, ordering, andpaying for a single purchase can be donein independent steps on any channelphone, internet, mobile device, physicalstore. This again requires a polymorphiccapability, which allows paymentsprocesses to be tailored to the required

omni-channel purchasing experience,rather than the other way round ashas traditionally been the caseforexample when an e-commerce checkoutexperience is dictated by the way carddetails are entered and verified.

3. Contactless volumes are seeing

sustained hyper-growth rates

Rapid growth in contactless cardpaymentscurrently exceeding 200%

a year in Europeis the single biggesttrend in payments in some markets, and iscausing scalability and upgrade challengesfor legacy processing platforms.Everyday Payment Providers need tohelp consumers cross the chasm fromcontact (swipe or insert) to contactlesspayments, and to use contactless cardsas a stepping stone to contactless digitalpayments on mobile devices using e.g.NFC (Near Field Communication).

The payments environment:disruptive change on all sides



5/16

Jenny is buying something online

At the checkout, she clicks on a singlebutton on the websiteor smartphoneor tablet appto make the paymentusing her credit or debit card. She hasthe option to enter her unique user ID(email ID) and a PIN/password into anoption branded with the bank brand andschemes, such as Visa, MasterCard or

American Express. However, her bank alsohas an app which automatically generatesa one-time six character token code fromher fingerprint on the smartphone screenwhich she finds easier to use, and entersthis into the checkout field. Theres noneed for her to key in the 16 digits of hercard number, expiry date, address details,CVV or 3-D Secure password, but hercredit or debit card is still used directlyto make the payment. For Jenny, the

experience is quick and easy.

John and Jenny are buying goods in

a department store

John chooses a new digital radio thathe wants to buy, and takes it to thecheckout. A BLE (Bluetooth Low Energy)beacon automatically activates his mobilewallet, meaning its open and ready to usewhen he pulls it out. The wallet displaysa QR code which contains a tokenized

(one-off, non-reusable) version of hiscard details. To help pay for the radio, hedecides to redeem some reward pointsheld in his mobile wallet, and his walletautomatically calculates the cash balanceto pay with the card. The PoS terminalscans his QR code to initiate the paymentand redemption of the reward points in asingle transaction.

Meanwhile, Jenny is buying groceries ata self-checkout kiosk using her mobilebanking app. The self-checkout displaysa QR code, which identifies the merchantand the invoice amount. Using her phonecamera, she captures the QR code. Hermobile banking app recognizes themerchant from the QR code, and setsup a payment for the invoice amountto the merchant. Jenny presses pay toinitiate a real-time transfer from her bankaccount to the merchant, who receivesa confirmation of successful payment

instantly.

Jenny travels on the metro

Jenny wears a wristband with contactlesstechnology. She can travel anywhereon the metro wearing it, and does notneed to even present it at the gates. Onentering and exiting any metro station,her card is automatically deducted for thecorrect fare. If she wants to review hertravel and transaction history at any time,

she uses a mobile app that gives her real-time information on what she has paid,and even shows where she is on the metroat that moment.

John and Jenny

BUYNOW



6/16

4. Plastic cards are becoming

dematerialized

As part of digital transformation,plastic cards are increasingly becomingdematerialized, tokenized andhiddenor held on-filein digitalwallets, retailer apps, social media,electricity meters or in the cloud to

support a seamless purchase experience.As cards dematerialize, and as real-timepayments grow, the distinction betweenACH and card payment blurs. Over timethe two will converge, giving rise toopportunities to innovate beyond cards.

5. mPoS capabilities are enabling

the emergence of new, differentiated

acquiring solutions and value-added

services

Merchant acquiring is becoming morecompetitive and dynamic, with newtechnology-driven players entering thefray, targeting both micro-merchantswho typically have not accepted cardspreviously, and large merchants who arestarting to use mPOS solutions for salesassistants in their stores.

6. Card revenues are diminishing

due to regulatory pressures and are

also under threat from non-card

alternative payments

Interchange revenues have been underpressure from regulators for some timein markets across the world, withforexamplethe European Commission

proposing a cap on domestic and cross-border debit and credit card interchangein the EU, and caps already in place incountries such as Australia and in theUS under the Durbin Amendment. Eventhough cards (in a dematerialized form)will be around for a long time to come,they face a potentially strong challengefrom alternative account-to-accountdigital payment methods which willfurther threaten card revenues.

7. There is an ongoing burden of

mandatory scheme changes and

compliance requirements

Alongside the need to respond to thechallenges involved in becoming amarket leader in the digital landscape,banks and payments providers also needto streamline and industrialize theircapabilities to keep pace with ongoingmandatory scheme changes and ensure

compliance with regulatory and industryinitiatives. One example is the migrationto the EMV standard in the US.



7/16

John receives his new card

Although John rarely uses his plastic cardnowadays, his bank still renews it everyfour years. However, when John receiveshis new card, he realizes that all the appswhere it is registered need to be updatedwith the new card expiry date and CVVcode. John has no idea how many appshis card is registered with, but fortunately

his bank provides a service that maintainsa list of apps or websites where he hasregistered his card details. He opens hismobile banking app and selects the optionto list all the places where his card isregistered. Reviewing the list, he realizesthere are some apps and websites he nolonger uses, so he delists his card fromthese. For the rest, he initiates a globaledit to update the latest card details ineach.

John claims a refund

John has bought some shoes online usinga digital credit card in his mobile wallet.However, when the shoes arrive, theydont fit properly. John decides it will beeasier to take them back directly to themerchant, which had a physical storelocally, and perhaps find another pair. Atthe store, he uses the electronic receipt

in his mobile wallet as proof of purchase,and with a simple tap of his phone on theNFC PoS, his credit card is refunded as hehands the shoes back over the counter. Hethen begins trying on some other shoes atthe store to see if he can find a pair thatfits. When he does, he buys them usinghis mobile wallet.

Jenny accepts card payments using a

mPOS for her small business

Jenny runs a small business designingand installing kitchens. She visits acustomer at her home with a design theyhave discussed on her tablet. After someadjustments, the customer agrees to thedesign and orders the new kitchen.

When Jenny says she requires a depositto take the order, the customer suggestspaying using a mobile wallet that Jennydoes not recognize.

In the past Jenny used to accept onlyVisa, MasterCard or cash. But nowJennys Payment Service Provider (PSP)accepts so many payment brands thatshe doesnt remember them all. However,she doesnt need to. Using an NFCreader, the customer taps her phone

on Jennys tablet. The PSP confirms thepayment method is acceptable, whilealso highlighting to Jenny the merchantservice fee she will be charged, andsuggesting a revised figure if Jennywants to surcharge the customer for thefee. Keen to secure the business, Jennyignores the suggestion and completes thetransaction on her tablet.

John and Jenny

CARD INFOUPDATED

RECEPT

PaymentAccepted



8/16

While the migration to digital payments

has more direct impacts on acquirers,it also brings major implications forissuersespecially when combinedwith parallel shifts in the consumer,technology, competitive and regulatorylandscapes. As a result, issuers are nowfacing several challenges that they willneed to address through changes to theirstrategies, business models, offerings andrelationships.

Credit cards decliningrole as a lending product

The credit cards traditional role as alending product is under threat, as debitcard transactions grow and credit cardsattractiveness to consumers as a meansof borrowing declines. For example, TheUK Cards Association Annual Report 20142states that in the UKwhich has oneof the highest adoption rates of credit

cards outside of the USabout 40% ofoutstanding balances are paid off in fulleach month or at 0% interest; only anestimated 3.7% of cardholders pay theminimum payment for 12 consecutivemonths; and credit card outstandings nowrepresent less than 4% of the UKs totalpersonal borrowing.

Consumers move away from borrowingon credit cardspossibly accelerated byindividual deleveraging during the recent

downturn, and a move to other forms ofborrowing such as overdraftsis puttingdownward pressure on card issuersinterest income, and fueling a gradualdecline in the volume and value of creditcard transactions. Meanwhile, debit cardsare showing strong growth in terms ofboth the number of cards in issue and alsothe volume and value of transactions,as cardholders continue to move awayfrom cash.

Against this background, issuers still stand

to derive revenues from interchange fees,but these are also under pressure fromregulators. So they need to identify andtarget new ways of generating revenuesand reducing or sharing costs, such aspartnerships with retailers and otherparticipants in the payments ecosystem.

Rising transaction volumes

Transaction volumes are increasing due

to the e-commerce revolution and risingusage of contactless cards, which aredisplacing cash for low-value transactions.For example, as per eMarketer estimates3,worldwide B2C e-commerce sales willincrease by 20.1% in 2014 to reach$1.500 trillion, underlining the importantrole played by the cards payment industryas a key enabler of e-commerce. Thesetrends mean issuers card processingplatforms need to be sufficiently robustand scalable to cope with the rise intransaction volumes and the growingdemand for lower transaction processingresponse times.

Adapting to themultichannel environment

The move to an omni-channelenvironment for purchases and paymenttransactions means card issuers need to

explore new distribution models, lookingbeyond traditional methods such as directmailings, which are expensive and nolonger as effective as they used to be.The best option may be to switch to morecost-effective alternatives such as theinternet. Collaborative approaches canalso prove valuable, such as partneringwith retailers to roll out co-branded cards,sharing the costs of customer acquisition.If issuers fail to respond effectively withstrategies such as these, they risk losingout to competitors that use new andinnovative distribution networks to retainand attract customers.

Keeping pace withcustomers changing needs

As customers behaviors and needs evolve,issuers are responding by providingcards that are customized for differentpurposes, including offering featuressuch as cash-back, air miles, or foreigntransactions without incurring additionalfees. However, the challenge for issuersis that customers needs are dynamic andchange over time at different stages of

their livesfor example when they movefrom being a student to fully employedadult, and then on to home ownershipand parenthood.

It is difficult for issuers to anticipate andtrack these changing needs, and to respondwith appropriate card features and offers.Here data analytics can play a major role,enabling issuers to spot patterns andevents that indicate customers are movingto new life stages and priorities. These

insights can also help issuers to partnerwith their customers, building long-termrelationships to help them navigate alongtheir lifetime journey.

A key challenge in designing a cardproduct is to make it relevantforexample, a consumer may have threedifferent cards, but doesnt need or wanttravel insurance on each. Analytics andpartnerships can help identify relevantneeds and provide choice for consumers.

Issuers also have opportunities to leveragecustomer behavior data across differentchannels. Todays customers often begin atransaction via one channel but want tocomplete it via another. Quite rightly, theyexpect a consistent and well-informedresponse at each touchpoint. For example,if a customer calls in to discuss an issuewith their card, it will help if the customerservice center is aware that they have

recently looked for a small-value personalloan on the banks website. The customerservice representative might even be ableto suggest a solution using the credit card.

Implications and actions for card issuers



9/16



10/16

A further imperative to enable a superiorcustomer service experience in themulti-channel environment is thatcommunications messages and servicemust be consistent, with seamless levelsof service and identical offers provided tothe same customer via different channels.Issuers that can achieve this stand a better

chance of capitalizing on the generallyhigher customer engagement that resultsfrom using mobile apps. Again, dataanalytics can help to achieve this.

Innovating for digital

As advances such as dematerializationof cards accelerate, digital is becominga strong force shaping the needs andexpectations of customers. This impact

extends to the payment experience indigital interactions and how customersexpect to pay. Card networks and issuerscannot simply dematerialize cards andmigrate them to digital, and expectcustomers to be content. Instead theymust reinvent cards to be relevant in thedigital world.

For example, the effort traditionallyinvolved in using a card onlineincludingentering a long string of digits, start and

expiry dates, CVV codes and so onisunacceptable to many consumers. Soalternative solutions, such as a singlebutton to enter an email ID/user ID (ormobile phone number) and PIN, or even athumb print (for example Apple Pay), arenecessary both for online and mobile apps.

Increasingly, consumers are registeringtheir cards on-file in mobile apps (andonline websites) in order to authorizepayments automatically when purchasing

through apps such as Apple iTunes. Ascards-on-file proliferate, consumers willwant to keep track of where they haveregistered them, and have a mechanismto centralize updatesfor example acard renewal or replacementwithouthaving to visit every app and website.Card networks and issuers should startproviding these types of new services.

Additionally, as cards disappear throughmechanisms such as cards-on-file, cardnetworks and issuers will need to reinventtheir branding approach to keep theirbrands visible to the consumer.

A further area for digital innovationis giving the consumer more controland relevant context. Examples include

allowing users to see balances andavailable funds when making purchases,and to set up their own controls suchas switching their cards on and off,restricting geographically where they canbe used, or setting an additional approvalstep for mobile transactions above aspecified limit.

Addressing fraud risks

The rapid rise of e-commerce andm-commerce is bringing with it newchallenges around fraudulent transactionsin card-not-present (CNP) situations,and a need for issuers to develop newstrategies to mitigate the resulting risks.According to the European Central Banks(ECBs) Third Card Fraud Report4,publishedin February 2014, CNP now accounts for60% of the total value of fraud using cardsin the Single Euro Payments Area (SEPA).

Given that consumers are on a journeytowards mobile devices becomingthe dominant payment method, thepayments security processes on mobiledevices and operating systems needto be strengthened. New players inthe payments ecosystemsuch as themobile network operatorsalso need toplay a role in improving mobile security,alongside to the traditional players. Inthe meantime, issuers need to prepare for

some loss of revenue due to fraud.

To date, the industrys responses toincreased fraud risks have includedplans for EMV adoption in the US andChinaalthough this is likely to takefive to ten years, given the cost andsystems implications. Issuers also need toexamine the potential for new advancedfraud management software platforms,

taking a risk-based rather than rules-based approach to fraud, potentially byusing specialist third-party vendors inpreference to building bespoke systemsin-house. Efforts to help issuers take theright steps include the ECBs publicationon its website of recommendations for thesecurity of internet payments5.

Going forward, issuers have theopportunity to take fraud preventionto a whole new level by innovating and

using technology effectively. One area ofprogress could be to put more control inconsumers own hands, by using analyticsto enable a more intelligent approachto fraud management including usinglocation data as an input, or by usingtokenization and end-to-end encryptionto secure transaction and card data.

Revenue implications

of mobile walletsWhile digital and mobile wallets representa big advance for consumers, their growingusage means issuers facing a potentialloss of revenue. While the revenue iscurrently shared between the traditionalplayers in the cards ecosystemissuers,schemes and acquirersthe rise of mobilewallets will see the mobile networks,software vendors and others start to seeka share of the profits. Apple Pay, for

example, charges a transaction fee toparticipating card issuers.

To manage the impact on their revenues,issuers will need to forge partnershipswith the digital or mobile wallet providers,in order to ensure their cards aresupported as mass-adoption of thewallets picks up. More positively, risingusage of mobile/digital wallets alsocreates opportunities for issuers to sendoffers direct to customers.



11/16

The journey tocontactless payments

Mass adoption and usage of contactlesspayment cardsas already seen, forexample, on buses and trains run byTransport for London (TfL) in the UKwillbe a key enabler for the industry to move

towards mass-adoption of Near-FieldCommunication (NFC) enabled mobilepayments. As confidence in NFC increasesamong consumers and merchants, theresult is that issuers and other stakeholderssuch as mobile operators will be able toinvest with greater certainty in NFC-enabled platforms and offerings.

The emergence of host card emulation(HCE) as an alternative to SIM-basedhosting of card credentials on mobile

phones, removes banks dependencyon working with mobile operators onNFC payments. This will free them upto innovate and launch independentlytheir own contactless mobile paymentpropositions and reduce the need toshare revenues.

The impact ofinterchange regulations

Accenture estimates that the changescurrently proposedand in some casesalready implementedin interchangeregulations will see the fee per cardfor UK issuers fall by 30% and 68%respectively for debit and credit cards.To offset these lost revenues, issuers needto find ways to increase their share ofcustomers wallets.

Once again, a useful tool for achieving

this will be data analytics, which can beleveraged to create more appealing andtargeted offers and marketing campaigns.Partnering with merchants to produce co-branded cards can also help to increaseissuers revenues by driving increasedcustomer loyalty and higher customeracquisition rates, while additionallyenabling the costs of customer acquisitionto be shared with the merchants.

Consumers are also impacted by capson interchange. Experiences fromcountries such as Australia and Spainsuggest that consumers were madeworse off as a result of the regulation ofinterchange fees as cardholder fees andcredit card interest rates increased6. InEurope, differences in timing of proposed

interchange reductions provide a shortwindow of opportunity for merchants toseek merchant acquirers across bordersinstead of domestically. If merchantacquirers take advantage of thisopportunity, it could significantly reshapethe merchant acquiring landscape.

In-house or third-partyprocessing?

As the new world of mobile, multichanneldigital payments takes shape, a keydecision for issuers is whether to keeptheir cards processing in-house oroutsource it to third-party processors. Inrecent years, cards processing as a wholehas become increasingly complex becauseof the increased focus on functions suchas fraud management and regulatorycompliance, in addition to the traditionalcore functions of transaction processing,settlement and reconciliation.

Given this rising complexity, issuers facethe challenge of choosing between thein-house or outsourced modelswhetherpartial or fulldepending on their overallbusiness strategy. There are pros andcons one each side. On the one hand,in-house processing provides the benefitof readier access to valuable customertransaction data and greater cross-sellingopportunities. On the other, outsourcing

to third party processors can lead to lowerprocessing costs, while also providingaccess to proven value-added services inareas like fraud management and businessintelligence. Using third-party processorscan also help issuers who are planninggeographical expansion speed up theirtime to market. Such factors mean thechoiceand balancebetween in-houseand outsourced processing will vary fromissuer to issuer.



12/16


From an acquiring perspective, the

implications of the move to digital aremore profound than for card issuing. Ina polymorphic payments environment,acquiring will need to operate acrossall the various available mechanisms. Itfollows that acquirers will have to expandfrom a card acquirer role to a muchbroader polymorphic role.

Whereas merchant acquirers maytraditionally have offered merchantsthe choice of accepting Visa and/or

MasterCard and/or other brands (includingnon-card alternative payments), in apolymorphic environment there are somany brands that this approach is nolonger practical. Instead, merchants willwant to accept as many brands as theircustomers use, and will expect theirmerchant acquirer to accept any paymentmethod presented to the merchant.

If the merchant acquirer meets thisrequirement, then the merchant no longerneeds to worry about what to accept andnot accept. However, the acquirer maywant to incentivize or allow the merchantto display payment brands in a prominentposition to encourage customers to usethem. Additionally, the merchant willwant to see what the fee is for eachpayment at the time of the transactionand have the option to surcharge thecustomer if necessary.

Combined with the trends describedabove, this shift poses challenges inseveral areas for merchant acquirers,as they rethink and reposition theirbusinesses for the digital age.

Intensifying competition

As new players join the paymentsecosystem, merchant acquiring isbecoming increasingly competitive anddynamic. A particular impact is thatmerchant acquirers have to competeharder to provide value added services tomerchants. New entrants such as Squareand iZettle are forming relationshipsdirectly with merchants and developingPoS innovations. In doing so, they are

expanding the marketplace into newsegments that traditional merchantacquirers should now look to address.

Some Payment Service Providers (PSPs),previously regarded as suppliers ofonline gateway services to merchantacquirers, are now providing merchantacquiring services directly to merchants.E-commerce is a lucrative and fastgrowing market for PSPs and newpayment networks, partly due to the fees

they charge for their gateways, and partlydue to the shift to ecommerce from in-store purchases. As a result they are in astrong position to invest in new capabilityand exploit this growth.

At the same time, card issuers arealso forming direct relationships withmerchants for merchant-funded rewardsprograms and digital propositions,loosening the ties between merchantacquirers and merchants for the provision

of added value merchant services.

Changes to strategyand operating model

Scale counts in payments, andingeneralthe value of a payment ormerchant acquiring network increasesin proportion to its size and reach. Thismeans merchant acquirers have anopportunityand arguably an imperativeto expand both in terms of digitalchannels and geographical coverage.

Its clear that acquirers today need aneffective and workable strategy forembedding themselves in the digitalecosystems supporting ecommerce.However, a key consideration is whetherto invest in the mature physical PoSbusiness as well. The question here iswhether the combination of a physicalPoS business and a digitalinternet,mobile, TVbusiness is critical to supportthe trend towards channel convergenceand omni-retailing. In the past, some

banks have divested their merchantacquiring businesses due to the low-margin and resource-intensive nature ofthe capabilities needed to provide physicalPoS services. However as PoS innovationsgain traction and high-margin ecommerceacquiring expands, many of these banksare evaluating whether they should re-enter merchant acquiring.

In terms of geographical expansion, themain considerations include whether toexploit the borderless reach of digitalchannels and support merchants as theyexpand across borders, and/or whether toacquire portfolios of merchants in newgeographies.

Implications and actions for merchant acquirers


13/16


Additional services

Acquiring is no longer just about cardacceptance. Non-card payments andemerging payments need to be integralaspects of any acceptance offering.Merchants want one acquirer relationshipfor all payment types and channels,

whether face-to-face or online, whileface-to-face payment acceptancealso needs to accommodate non-cardpayments, including online bank-enabledpayments (OBeP) such as iDeal in theNetherlands and Sofort in Germany.

Digital wallets are likely to be an essentialpart of alternative payments, regardlessof the success or otherwise of NFC.With the move to alternative paymentscomes the challenge of maintaining

service levels consumers have come toexpect from cardsspecifically in termsof consumer protection and the abilityto address disputes and chargebacks.These capabilities are supportedcomprehensively by the card schemesand in card business processes, but areoften less robust or even overlooked inalternative payment mechanisms. Theresult can be a poor consumer experiencein the event of a query or dispute.

Economic shifts

The regulatory pressure on interchangedirectly affects card issuers. However, asexisting revenue pools shrink it is alsolikely to put indirect pressure on merchantacquirer revenues, both by slowing (oreven reversing) the growth of issued cardsand transactions, and also by creatingincentives for the non-card alternativesnow staking a claim for acquirersrevenue pools.

With alternative payment mechanismsthat bypass card networks, merchants maystill pay transaction fees to the alternativepayment provider, but merchant acquirersrisk losing transactions and revenue. Forbank-owned merchant acquirers thisdevelopment may see a shift in revenueto the retail bank if the bank offersnon-card alternative payments, but for

independent acquirers it is a direct risk totheir business.

At the moment, non-card volumes arevery low and the risk is relatively small,but this may well changea prospectthat underlines the need for merchantacquirers to offer alternative paymentmechanisms and get into the value chainearly. Strategically, merchant acquirersshould consider how they can connect

into a proliferating set of paymentnetworks beyond the traditional cardnetworks.

Technology re-platforming

As the payments landscape reshapes,merchant acquirers face significanttechnology challenges. Legacy technologiessupporting PoS and MOTO merchantacquiring have rarely worked well with

ecommerce technology and onlinegateways, leading to inconsistencies inthe merchant experience and serviceacross channels. Addressing theseinconsistencies is becoming an urgentimperative given the rapid growth inonline commerce and the emergence ofomni-retailing and channel convergence.

The key requirements for a merchantacquiring platform include:

Connectivity to a wide range of payment

methods, to enable a polymorphicpayments service for merchants.

Incorporating modern technology suchas cloud, social media, mobility andanalytics to stay relevant to the growthin digital commerce and flexible to thedemand and opportunities it generates.

Providing tokenization servicesfortokens generated at gateways and POS,and for tokens generated by paymentnetworks.

Providing APIs that merchants canembed in their online stores, mobileapps, POS terminals and even in devicesfor the internet of things for example,smart meters used by utilities; throughexposing their processing systems toprovide payment functions, as wellas through acting as a broker forAPIs provided by payment networks,for functions such as token services,electronic id, and fraud checks.

Supporting high transaction volumesacross all channels, including handlingvery high peak volumes from digitalbusiness models (e.g. event ticket sales).

Enabling payment capture/pointof interaction from a range ofdevices and form factors (includingmPoS-type devices), all seamlessly

integrated, allowing consumers tostart a transaction on one channel andcomplete it via another.

Addressing many of the shortfallswith legacy acquiring platforms,including areas like dynamic pricing,merchant outlet managementtracking & reporting, billing, and evenintegrated functions such as inventorymanagement and product profitabilityreporting that are especially important

and relevant to small businesses andmicro merchants.

Maintaining PCI DSS compliance,and architecting to reduce ongoingcompliance overheads.

Enabling the rollout of EMV (e.g. in theUS) and contactless (NFC).

Upgrading from the classic Base24switch (for those that use theubiquitous authorization software).

A further challenge is the shortage ofpackage software providers serving themarket with full end-to-end merchantacquiring solutions.


14/16

How does your approach to cross-

border transactions, new channels,device proliferation, digitalcommerce, analytics, mobility,social media and cloud fit togetherwithin a coherent and holisticstrategy?

Do you have a strategy tosupport omni-channel retailingand channel convergence, and

capabilities to support a seamlessconsumer and merchant experienceacross all channels, includingthe ability to provide servicesin a fragmented, polymorphiclandscape with proliferating newways to pay?

As the emerging digital ecosystem

takes shape, what is yoursourcing and partner approachwith payments service providers,merchants, non-card paymentnetworks, new entrants and otherparticipants?

Transformation in issuing and acquiring:some key questions



15/16

Accentures approach to

transformation in card issuingand merchant acquiring has threeelements.

Strategy, target operatingmodel design andbusiness case definition

Accenture helps issuers and acquirersboth to identify the end-state they are

aiming to achieve and also to chart thepath to get there (such as replacementof specific legacy systems or accessto advanced analytics capabilities). Arecent example was when Accentureworked closely with an acquirer toidentify its cross-border strategy toexpand geographically and define theappropriate target operating model andIT architecture. We helped the client dothis by analyzing the gaps, recommending

plans to reach the target state, and finallydefining the business requirements for anew technology platform to support thenew operating model.

Architecture

Through our cards reference architecturemodel and High Performance Bankingprocess model we can assist issuersand acquirers in defining their businessrequirements and architecting anddesigning their IT systems. This includesarchitecting low latency, high capacityand resilient internet and mobile paymentgateways for digital commerce fordifferent operating and business models

e.g. cross-border, direct-to-merchantor white-labelled; and it includesarchitecting and simplifying switches tosupport payments over digital channels.

Industrialized deliveryand testing capabilities

Accenture has proven delivery capabilitiesacross many geographies and regulatoryenvironments. Through our Global Delivery

Network we can build, test and maintainissuing and acquiring systems, and real-time switches. For example, we run thecore acquiring systems for one of theworlds largest merchant acquirers, andwe are helping a number of issuers andacquirers to implement capabilities tolaunch mobile and digital propositions.

Accentures approach



16/16

NOTES

1Accenture Analysis for the Everyday Bank

PoV, http://www.accenture.com/microsites/

everydaybank/Pages/index.aspx

2http://www.theukcardsassociation.org.uk/wm_documents/UK%20Cards%20Annual%20

Report%202014%20interactive.pdf

3Global B2C Ecommerce Sales to Hit $1.5 Trillion

This Year Driven by Growth in Emerging

Markets, eMarketer.com, Feb 2014.

4http://www.ecb.europa.eu/pub/pdf/other/

cardfraudreport201402en.pdf

5http://www.ecb.europa.eu/pub/pdf/other/

6Europe EconomicsThe Economic Impact of

Interchange Fee Regulation in the UK, Final

Report 2013.

ABOUT ACCENTURE

Accenture is a global management consulting,

technology services and outsourcing company,

with more than 305,000 people serving

clients in more than 120 countries. Combining

unparalleled experience, comprehensivecapabilities across all industries and business

functions, and extensive research on the

worlds most successful companies, Accenture

collaborates with clients to help them

become high-performance businesses and

governments. The company generated net

revenues of US$30.0 billion for the fiscal

year ended Aug. 31, 2014. Its home page is

www.accenture.com.

ABOUT ACCENTURE

PAYMENT SERVICES

Accenture Payment Services, a business service

within Accentures Financial Services operating

group, helps banks improve business strategy,technology and operational efficiency in three

key areas: core payments, card payments

and digital payments. Accenture Payment

Services and its more than 4,500 professionals

dedicated to help banks simplify and integrate

their payments systems and operations to

reduce costs and improve productivity, meet

new regulatory requirements, enable new mobile

and digital offerings, and maintain payments

as a revenue generator. More than 50 clients

worldwide have engaged Accenture Payment

Services to help them turn their payment

operations into high-performing businesses.To learn more, visit www.accenture.com/

paymentservices

VISIT US AT

www.accenture.com/everydaybank

FOLLOW US ON TWITTER @BankingInsights

To find out more about cards innovation, please contact:

Massimo ProverbioAccenture Payment Services

Global [email protected]

Jeremy LightAccenture Payment ServicesEurope, Latin America & Asia Pacific Lead

[email protected]

Himanshu AgrawalAccenture Payment Services

[email protected]

Contact us

Copyright 2014 AccentureAll rights reserved.

Accenture, its logo, andHigh Performance Deliveredare trademarks of Accenture 14 4833U/9 8340
http://www.accenture.com/microsites/everydaybank/Pages/index.aspxhttp://www.accenture.com/microsites/everydaybank/Pages/index.aspxhttp://www.theukcardsassociation.org.uk/wm_documents/UK%20Cards%20Annual%20Report%202014%20interactive.pdfhttp://www.theukcardsassociation.org.uk/wm_documents/UK%20Cards%20Annual%20Report%202014%20interactive.pdfhttp://www.theukcardsassociation.org.uk/wm_documents/UK%20Cards%20Annual%20Report%202014%20interactive.pdfhttp://www.ecb.europa.eu/pub/pdf/other/cardfraudreport201402en.pdfhttp://www.ecb.europa.eu/pub/pdf/other/cardfraudreport201402en.pdfhttp://www.ecb.europa.eu/pub/pdf/other/http://www.accenture.com/paymentserviceshttp://www.accenture.com/paymentserviceshttp://www.accenture.com/paymentserviceshttp://www.accenture.com/paymentserviceshttp://www.ecb.europa.eu/pub/pdf/other/http://www.ecb.europa.eu/pub/pdf/other/cardfraudreport201402en.pdfhttp://www.ecb.europa.eu/pub/pdf/other/cardfraudreport201402en.pdfhttp://www.theukcardsassociation.org.uk/wm_documents/UK%20Cards%20Annual%20Report%202014%20interactive.pdfhttp://www.theukcardsassociation.org.uk/wm_documents/UK%20Cards%20Annual%20Report%202014%20interactive.pdfhttp://www.theukcardsassociation.org.uk/wm_documents/UK%20Cards%20Annual%20Report%202014%20interactive.pdfhttp://www.accenture.com/microsites/everydaybank/Pages/index.aspxhttp://www.accenture.com/microsites/everydaybank/Pages/index.aspx

Documents

Accenture EverydayBank Card-Issuing