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2018: A SEMINAL YEAR FOR

2018: A SEMINAL YEAR FOR THE FUTURE OF PAYMENTS? by Matthias Setzer The payments industry is in a constant state of transformation. Long gone are the days when it was dominated by innovation in cards and terminals. It is – quite expectedly – now under the influence of digitalisation. Technology companies, fintechs, untraditional currencies and banking models are pushing the drive towards a more sophisticated, decentralised, customer- and security-driven approach in what was once considered a straight-forward industry: payments. This revolution has been hailed as golden among analysts and investors, with its appeal to put security and users at the centre, amid growing consumer demands and expectations. With so many developments ahead, one would wonder - what’s the ultimate goal of this transformation? Is it to fully digitalise an industry that still runs virtually on cash? Is it to facilitate P2P, P2B or B2B2C payments? Or is it to simply ensure that eventually, everyone, everywhere, will be able to make and accept payments when (and how) they like? Looking at the latest figures by The World Bank, the latter presents a massive challenge. It’s almost universal for consumers in highincome economies to have a bank account and use it at least three times a week for online and offline payments (94%). Still, only slightly more than half of all adults in developing economies have access to the same convenience in payments. With so many important developments unfolding this year, 2018 is shaping up to be a seminal year for the payments and fintech industry. Here’s a look at what’s ahead: Regulations will define the pace This year is all about compliance and requested permission and nowhere is the hype more prevalent so than in Europe. While tech giants are taking precautions to ensure they comply with strict new policies, especially as the EU’s General Data Protection Regulation comes in effect this May, the payments and fintech industry has its eye on PSD2. As of January 13, 2018, the Revised Payment Services Directive (PSD2) is in fact in place. In short, PSD2 mandates the use of open APIs, allowing financial transaction information to be shared with explicit permission from the account holder. What’s interesting to explore is that PSD2’s mandate carries a hidden opportunity – it’s a chance for banks and traditional financial institutions to co-operate with fintechs, rather than see them as potential threats. Built with security and customer protection at their core, fintechs have the ability to facilitate the struggles banks have when adapting to PSD2, as they’re already leading the way with the latest security components such as tokenization in place. Tokenization came to exist as a way to encourage fraud prevention; it’s where payment credentials are tokenized to ensure the uselessness of data should it happen to fall into the wrong hands. One of the ways in which tokenization is already shaping the year is the impact that it has as a fraud reduction measure and the ability it has to improve the user experience. As more consumers make mobile purchases, tokenization enabling one-tap payments is creating a new way to pay online. It’s All About Customer Experience – It always has been, actually! Ask any business owner about their main business goal, and they will wholeheartedly say that nothing comes close to ensuring a high level of customer retention. 4 4 THOUGHT LEADERS CORNER

No matter the type of merchant – online or offline, B2B or B2C, every business is working on controlling and reducing churn to ensure a stable customer base and predictable cash inflow. This task can become a challenge of massive proportions if the business model of this merchant is based on recurring payments. And why is that? Recurring payments are a win-win for both sides as they allow consumers to easily and effortlessly plan their expenses, and in return help merchants smooth out their revenue stream and ensure long life-cycles. Moreover, as reported by The Economist Intelligence Unit, consumer demand for new consumption models – subscriptions, sharing or leasing - is hitting the roof at over 85%. In a world where online purchases for goods and services are dominating, businesses have to find ways to ensure seamless online purchasing experiences. With that in mind, offering recurring payments and subscription options can help lead the way to a necessary change. Moreover, the advent and uptake of eCommerce also means cross-border sales now represents one of the biggest opportunities available to merchants around the globe. With the accelerating shift to subscription/ new consumption models, companies who want to grow their business or remain leaders in their industries will increasingly explore cross-border opportunities, especially in high-growth markets such as LATAM and India. A pressing issue to take into consideration is involuntary churn: a worry for any subscription-based business. What is specific for high growth markets is that when we look into a terminated subscription because of a payment issue in those markets, the problem does not only come in the form of fraud, expired or lost cards. In some cases, subscriptions could be cancelled and payments could not be going through if the preferred method of payment of customers is not supported by the merchant, resulting in unnecessary cancellation, even if the consumer might still want the product or service. Merchants should ensure their payment processor can offer a strong solution for subscription business models. MATTHIAS SETZER Chief Commercial Officer at PayU Matthias joined PayU as the Chief Commercial Officer in October 2016. In this role he is responsible for PayU’s cross-border business, global sales, key accounts, strategic partnerships and marketing & PR. Before joining PayU, he worked with PayPal for over 12 years in various roles, most recently as their Senior Director Strategic Partnerships & Biz Development EMEA, based in Luxembourg. Matthias holds a Masters degree from WHU in Vallendar, Germany. PAYU PayU uses its payments heritage and expertise to deliver financial services in emerging markets. Our local operations in Asia, Central and Eastern Europe, Latin America, the Middle East and Africa enable us to be experts in these countries and provide the best solutions for the local market. PayU is the leading online payment service provider in 16 high growth markets, dedicated to creating a fast, simple and efficient payment process for merchants and buyers. Our 250+ payment methods and PCI certified platforms are designed to meet every consumer’s needs. The markets in which PayU operates represent a potential consumer base of nearly 2.3 billion people and a huge growth potential for merchants. PayU has more than 1,800 payment specialists based in these local markets supporting PayU’s 300,000+ merchants and the millions of consumers making online payments. 5

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