Update on developments in online payments

Vol. 5 Issue 12, 05 Sep 2012

Asia-Pacific: the big story lies in e-commerce FOCUS ON: India: a huge potential for e-commerce development 2

Exclusive interview with Markus Rinderer, CEO, PAY.ON

EXPERT OPINION: India a market ready to harvest low value payments (by Nebo Djurdjevic, CEO of Cardis International) 6 dynamic and interesting payment markets. Until now, we`ve seen global companies

Asia-Pacific: the big story lies in e-commerce

WORD FROM THE EDITOR
The Asian e-commerce market is not a uniform market, but rather a collection of economies currently at different stages of maturity. Therefore fragmentation is to be expected both in-country and at a regional level. Each market in the region is increasingly developing its own characteristics and dynamics. The industrialized countries, like Japan and South Korea, are very mature markets, and dominated by strong local retailers such as Rakuten. The Chinese is dominated by eBay -like marketplaces including Alibaba, but also local retailers such as 360Buy, Joyo and Dangdang. By contrast, India's online market remains extremely small compared to these countries. The diversity of culture and languages has very real and specific implications for retailers looking to tap into this market. Also expected and easily justifiable is the presence of a large variety of active players currently looking to establish themselves in the promising online payments playing field. Asia-Pacific is a vast market and its development represents a real challenge to e commerce across the globe. The industry players are facing stiff competition both domestically and internationally and this makes the country one of the world's most
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including Google, Facebook, Microsoft on an acquisition rampage, but such a scenario has not been visible in Asia-Pacific until this year. A lot of foreign companies, especially those from the US and Europe are now tapping into Asia Pacific or extending their footprint, driven by the explosive e-commerce growth and strength of the internet market in the region. As the regional fragmentation is an unavoidable reality in the business environment across Asia Pacific, the online payment industry in the region implicitly demonstrates a very high degree of fragmentation with a high number of new initiatives. From a payments perspective, Asia-Pacific has traditionally been a region dominated by the use of cash. Recently, the increase in the use of credit cards has led to an evolution of the payment ecosystem. The online payments market has also grown in importance in recent years as a result of a boom in the e-commerce market, resulting in the shift of customers from paper based payment mediums to online payment mediums. It is generally considered that Asia has the biggest market potential in almost every industry. Highly integrated with the global trading and financial systems, Asia is undoubtedly set to become the largest economic region in the world and this will have significant and positive consequences on the e -commerce market.

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FOCUS ON:

Vol. 5 Issue 12, 05 Sep 2012

almost 8 to 10 million Indian users who make online transactions, representing about 11 percent of the 80 million internet users in the country. According to the Indian Digital Consumer Study, released by financial services company Avendus , the figure represents 7 percent of the entire Indian population and 17 percent of the urban

India: a huge potential for e-commerce development

With the numerous innovations in the digital age, e -commerce has become a great opportunity for retailers to develop their businesses. Therefore, an increasing number of companies as well as countries focus on improving and expanding the online retail market and enable customers all over the world to gain access to desirable goods and services. The Indian online commerce market has increased substantially in the recent years. According to a report released by the Internet and Mobile Association of India, the countrys e-commerce market is jumping at an average rate of 70 percent per year and has grown by over 500 percent since 2007. The main factors which contribute to the development of online trading in India include an increasing number of companies which have launched e -commerce platforms, cash-based payments, technology developments such as VOIP (Voice -overIP) which have diminished the gap between online buyers and sellers, the emergence of blogs as an avenue for information dissemination and two -way communication for online retailers, e-commerce vendors and demographics.

population. According to the same source, although only 20 percent of internet users actually make online purchases, the number of online shoppers is expected to reach 39 million by 2015. In addition, the Indian online commerce market will increase from USD 6.3 billion in 2010 to USD 24 billion in 2015. As far as online purchasing categories are concerned, travel related products

(ticketing, accommodation) are the most popular category, with air and train bookings accounting for almost 90 percent of the segment's revenues. In 2011, the Indian online travel market was estimated at USD 5.5 billion, according to Indian Digital Consumer Study. The same study has mentioned that, between 2010 and 2011, 57 percent of total online travel revenues came from air travel, while 37 percent came from train packages, 5 percent from hotel and only 1 percent from bus bookings. In addition, the online train ticket bookings are expected to hit USD 1.8 billion for the period 2010 2011, accounting for almost 32 percent of the overall ticket bookings. According to 'India Goes Digital' report released by Avendus Capital, a financial services

On the other hand, the growth of the Indian online market may be hindered by several obstacles. Limited internet access, gaps in the current legal and regulatory framework, logistics, security issues and taxes are the main challenges which Indian e -commerce industry has to face nowadays.

provider, apart from online travel, classifieds and advertising, which currently dominate the digital consumer industry in India, online retail or e -tailing will also gain popularity. Furthermore, e-tailing is expected to account for 50 percent of the total e -commerce

However, in spite of such challenges, the number of internet users who make online transactions has significantly grown over the years. According to the India Online Landscape Report, released by research company Juxt Consult, in 2010, the number of online shoppers reached 2.5 million, up by 33 percent since 2009. Currently, there are
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market, reaching USD 12 billion until 2015. Currently, the most popular e -tail goods include mobile devices (56 percent), computer hardware and consumer electronics (35 percent), closely followed by movie tickets, which account for 30 percent.

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IN THE NEWS

The online payments sector has lately witnessed a considerable increase, as consumers have switched from traditional (cash-based) to alternative payment methods, according to the white paper Winning Payment Strategies for BRIC Nations released by GlobalCollect. Credit cards have become one of the most preferred payment methods, yet debit cards and internet banking have also gained popularity among Indian consumers. Payments via PayPal are quite limited due to numerous restrictions imposed by the Reserve Bank of India. As a result, PayPal has been forced to make several changes in order to comply with Indian regulations. Initially, the export related payments for goods and services were not allowed to exceed USD 500 and any balance or future payments could not be used to buy goods or services but transferred to a bank account within 7 days from the receipt of payment. Yet, in 2011, RBI has increased PayPals export -related payments for goods and services to USD 3,000 per transaction, according to media outlet business-standard.com. Hence, Indian small and medium enterprises will now be able to transact with buyers in markets such as the US, Europe and Asia. Payments made via mobile devices are also expected to increase over the next years. A McKinsey & Co research has indicated that India will have about 450 million smartphones in the next four years. This represents a huge potential for mobile payments. The epayment industry in India is dominated by independent companies such as EBS, CC Avenue and BillDesk, but the main payment gateway providers are represented by private banks like HDFC, Citibank and ICICI. If you consider that e-commerce accounts for only 5% of trade volumes in the BRIC countries, there is tremendous growth potential. Koen Vanpraet, CCO, GlobalCollect Although there still are numerous obstacles the Indian e -commerce has to overcome, the online market has witnessed a steady increase over the last years and forecasts are optimistic as well. In the following years, India , along with Brazil, Russia and China, are expected to become a big driving force for e-commerce growth.
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PAY.ON expands PayPipe online payment routing gateway to China

Germany-based payment transactions processor PAY.ON, operator of the PayPipe online gateway for global payment routing, has extended the payment coverage of PayPipe to China. Read more

Walmart receives approval to acquire majority stake in Yihaodian

US-based multinational corporation Walmart has been awarded conditional approval from Beijing to acquire a majority stake in a Chinese e-commerce company Yihaodian. The financial terms of the acquisition have not been disclosed. Read more

Partnership between DHgate and PayPal falls through report

Chinese online marketplace for wholesale products DHgate has reportedly removed PayPal as a payment option from both its online portal and its mobile site, media outlet ecommercebytes.com reports quoting TechInAsia.com. Read more

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Update on developments in online payments UAE Exchange expands to Malaysia

Vol. 5 Issue 12, 05 Sep 2012 PSPs need to establish a very close relationship to the acquiring banks
- Exclusive interview with Markus Rinderer, CEO, PAY.ON AG Markus Rinderer has been the CEO of PAY.ON AG since November

UAE Exchange, a global money transfer and foreign exchange company, has established a presence in Malaysia by acquiring Malaysia-based remittance company Fast Remit. Read more

Qiwi, DinoDirect.com to expand in China

Russian-based electronic payment systems provider QIWI has inked a contract with DinoDirect.com, a cross-border online store, to expand QIWI Wallet payment system in China. Read more

2010 and also a Partner for Barikuta Partners GmbH. He has previously worked as Project Manager at Wirecard. PAY.ON serves payment service providers, payment scheme suppliers, acquirers and risk management providers. What is the business model for the most successful players in Asia -Pacific and how is that different from the rest of the world? Markus Rinderer: In the APAC region MSPs/PSPs need to establish a very close relationship with the acquiring banks and their staff to accomplish their work successfully. Additionally, MSPs need to have in each APAC country a local entity in case the MSP wants to process with merchants in different APAC countries. Only Hong Kong and to some extent probably Australia and New Zealand seem to be less demanding regarding this requirement. For example, China is extremely strictly regulated in the way MSPs/PSPs operation is running its business. First, a local processing center is required. Second, international companies must have a local partner with about 50% company share to start business in China. However the requirements in China are the strictest. Additionally, Chinese merchants are not used to pay any payment transaction fee, but more open to pay a risk management transaction fee or risk management service fee. The willingness to pay transactions fees like in Europe is less developed. The awareness of merchants for a good payment processing infrastructure characterized by high quality/state of the art standards and a high level of automation is much less developed. Often local APAC MSPs tend to build their own IT payment infrastructure.

Agricultural Bank of China selects ACI Worldwide for ACI Money Transfer System, Proactive Risk Manage
Financial services company the Agricultural Bank of China (ABC) has selected ACI Worldwide, a US online payment services provider, in order to implement the latters Money Transfer System and ACI Proactive Risk Manager as its wholesale payment processing and anti-money laundering (AML) service to enable its expansion into the US market. Read more

AsiaPay, Yahoo! Hong Kong to launch Member Payment Service

Online payments provider AsiaPay has expanded its agreement with Yahoo! Hong Kong by launching the Member Payment Service. Read more

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Vol. 5 Issue 12, 05 Sep 2012

subsidiary as well as with its routing gateway PayPipe to be connected easy, swiftly and directly to the Asian scheme operators and acquiring banks on the base of only one single API. PayPipe fulfills the requirements of all participants along the financial supply chain. Merchants with strong brands of European and/or US region origin ask for the acceptance of China UnionPay (CUP) cards of Chinese shoppers. Even some of these merchants plan to benefit even more directly from the economic growth in the APAC zone by strengthening or ramping up their only sales in the domestic markets of the APAC region directly. These merchants, especially with international strong brands expect similar processing standards like they are used to in Europe or US. International PSPs have here a great chance to follow these merchants into these markets and to undergo a learning curve as well. It seems also that the steady domestic growth in ECOM merchant business in the APAC

In other APAC countries it is easier to run a domestic PSP/PSP operation, but local managers and their local staff should be in relevant or exposed positions to build up a local touch and strong trust with local clients and acquiring banks. Additionally, many APAC countries require a kind of local data processing infrastructure from MSPs such as China, Korea, Malaysia, Indonesia etc. In other APAC countries the requirements are usually mutually managed by the acquiring bank and the related MSP. The APAC region Australia, New Zealand and probably Hong Kong is probably most similar to Europes practices. Beyond this local APAC MSPs seems to be less involved in expanding their processing services into neighboring APAC countries. They are less used to provide services to non domestic merchants. Successful business models in payments depend on the conditions in the respective country such as infrastructure, income, access to banking services, legislation, culture, buyers behavior and development of the ecommerce market. The great fragmentation of the APAC market is a fragmentation in terms of all of these characteristics what has an impact on payment methods and schemes used in each country. Each country is a separate case and need a separate business model. For PSPs, the expansion in APAC means to study each market, players and legislation, it is an expansion of country by country. But the Asia-Pacific region now holds 41% of the worlds internet population which is an enormous undeveloped potential for market participants from Europe and the USA.

region does not force APACs PSPs/MSPs to expand their services into other APAC markets. Only the MSPs/PSPs like AsiaPay Group (Hong Kong) and GHL Group (Malaysia) of APAC origin seem to be an exemption for such a behavior. On acquirer level only international players such Global Payments (with HSBC) and First Datas Merchant Services (with Standard Chartered Bank) provide services in various Asian and South East Asian countries. In your perspective, can Asian markets leapfrog development stages when they learn from other regions or when European/US big players from outside tap into these markets? Markus Rinderer: Asian merchant markets are interested to sell their products and series

In terms of online payments, mature markets such as the US and EMEA will continue to show very attractive growth rates but the big numbers will clearly come from new markets such as the Latin American and Asian Pacific region. In your opinion, which consequences will this have on international PSPs? Markus Rinderer: European and US-based PSP/MSPs are getting more and more interested to process payments for Asian markets and their hundreds of millions of Asia shoppers. Here PAY.ON can help with its best business connections over its Asian
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abroad and need state of the art risk management services which they are quite often not receiving at the same level like European or US based merchants. Some Western Risk Management Providers seem to take advantage of this at this moment. The strong risk management service proposition of European or US based MSPs could be advantageous to convince Asian merchants as along as sufficient local touch such as support of the local language and familiarity with local business practices is presented by the foreign MSPs. Please notice the fees for processing payment transaction are in the range of the US or
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Update on developments in online payments

Vol. 5 Issue 12, 05 Sep 2012

processor PAY.ONs services are an accelerator or rather a distributor for all international payment methods for the whole payment industry. Over its white label PSP platform PaySourcing and routing gateway PayPipe clients are automatically connected to all available payment schemes worldwide. Actually several hundred PSPs, acquirers, merchant service providers and financial institutes are using one or more of PAY.ONs services. Doing so, our several hundred clients in the US, Europe and around the globe can directly bring our Asia/Pacific connections into use for their merchants to connect them to the Asian to the hundreds of millions of consumers. Thus PAY.ON is a guarantor of the immediate availability of all needed payment methods worldwide.

(sometimes much) lower. The acquiring banks have usually the biggest value generating stake on payment processing level. Generally, the culture of selling added value services is less developed in APAC markets. Does fragmentation hinder the progress of online payments in the region? Is it fair to say that from this point of view, Asia -Pacific is a reflection of the European payments culture? Can you point out differences/similarities (examples)? The Asian/AP market is fragmented in a sense that local payment methods do also exist, just like in Europe. The relevance of the local payment schemes depends very much on each specific APAC market. The availability of international debit and credit cards varies strongly from country to country. In Hong Kong, Singapore of South Korea the penetration of credit cards of MasterCard or VISA is quite strong while other regions like Philippines, Vietnam etc. compared to the size of the population are much behind regarding the availability for use. Such patterns have been seen also in Europe. Regarding both aforementioned topics a similarity between Europe and Asia can be identified. However the ratio of the unbanked population in the Asian region (maybe less in fact in the APAC region besides Philippines, Vietnam) is significant compared to Europe. This is also a huge chance for any mobile payment service initiatives. Some differences: - For VISA and MasterCard, in Asia there is not a processing cross licensing culture for Asian/APAC acquiring banks such as in Europe which is a unique region in this respect. - The ratio of cross border shoppers within the APAC region is until now lower as in the European zone, in particular compared to the most developed European economies such as UK, Benelux and Scandinavian countries and German speaking Europe etc. The market fragmentation can be easily overcome in the same way as in Europe where payment gateways serve as an access point to all important payment schemes. As a global
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EXPERT OPINION

India a market ready to harvest low value payments

By Nebo Djurdjevic, CEO of Cardis International Nebo Djurdjevic has 18 years of experience in senior business and technology management roles in electronic payments, having developed and marketed advanced electronic payment solutions based on chip card and mobile technologies. He was previously a member of the executive management team at Intellect Group where he was instrumental in providing payment solutions to financial institutions around the world. Based in The Netherlands, Cardis Enterprises International provides solutions for cost effective processing of low value payments. The Cardis low value payment plug -in is currently deployed with Raiffeisen Bank International in Austria and in implementation
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with a range of financial organisations worldwide.

Vol. 5 Issue 12, 05 Sep 2012

Payment solutions giant TSYS estimates Indias middle class is currently at around 350 to 400 million greater than the total population of the US and that it is growing at five per cent annually. This is a demographic group with a healthy appetite for consumer goods which will be demanding convenient yet safe access to its funds. Although international and commercial banks have done much to cater for the top earning

In this article Mr. Djurdjevic shares his impressions from a recent visit and discussions with Indian payment organisations. He also has some advice for financial institutions and other payment players participating in this market. Indias economic statistics paint a picture of a big, bold and burgeoning market. However, when it comes to the payments environment the Asian elephant will need the light footedness of a mountain goat to thrive. India is ripe for technologies that are agile and yet also able to address the core needs of the worlds largest democracy. The majority of Indias 1.2 billion people are currently using cash but there is every sign that this will change with growing consumer confidence, a rapidly increasing middle class and a young generation eager to pay and manage their finances electronically, he believes.

segment of the population, there is now an enormous opportunity for commercial and public sector banks to serve the needs of the growing middle and lower middle classes. Another important engine for growth is the countrys vast population of un(der)banked who, particularly in the rural areas, are cut off from basic banking services let alone non cash based payment mechanisms and electronic banking. Inclusion and security are vital for growth Based on data published in the TSYS White Paper, Incredible India! Four Imperatives to Accelerate Electronic Payment Adoption, the prepaid customer segment is estimated at a staggering 600 million, pointing out that this presents the most significant room for growth. Unlike the users of credit cards, this target market is made up of the lower segment of the Indian population who mainly pay for low value items and services. Low value transactions are typically anything below 750 Indian Rupees (below $15). Whereas financial inclusion will get the consumers into the banking system, this will not be enough to stimulate electronic payments. The reason is that most of the merchants where the under-banked spend their money do not accept cards resulting in almost exclusively cash payments. Financial institutions and merchants in India have an ideal opportunity to engage this market. The good news is that there are already a host of initiatives under way in the market, including the launch of the RuPay debit card scheme by NPCI, and the regulatory push by the Reserve Bank of India around security and Chip and PIN migration.

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money from every transaction processed. This is possible by fundamentally rethinking the traditional card payments model, especially for low value payments which is the vast majority of payments made by these segments. Terminalisation of merchants: Both fixed (ie up-front) and variable (ie ongoing) costs have to be adapted for merchants in rural, underdeveloped and poor areas. Using the mobile phone as POS device resolves the fixed set -up costs of traditional POS terminals. New technologies such as transaction aggregation can enable acceptable on-going transaction costs. Develop a positive business case from EMV: EMV migration is currently seen as a regulatory requirement that will be costly and divert a lot of resources from the business. Banks can turn this around by making sure that their EMV investment generates returns through incremental payment volumes. This is possible but a cost -effective low value payment solution should be high on the agenda.

There is also technology available that does not require major changes to existing systems and infrastructures and that encourages merchants and consumers to reduce their dependency on hard cash for small value items. Cardis International has for example developed a low value payment plug-in which uses aggregation of low value transactions. The plug-in reduces transaction costs by a factor of ten and, moreover, offers an attractive acceptance proposition to merchants. In rural areas, the challenge of infrastructure can be overcome by the adoption of mobile technologies. Mobile payments are best positioned to reap the rewards, in this case the potential of ushering millions from the informal banking system into the formal one. For any solution to be successful in India it will have to be flexible and include mobile technologies. No need to wait! While some of these initiatives will take time, Djurdjevic believes the country can accelerate its efforts to bring the mass market to payments by looking seriously at low value payment options. He offers the following advice for players in the Indian market: Leverage EMV in a smart way. Consider a secure off -line solution or low value payment plug-in that bundles (aggregates) transactions to dramatically reduce the cost of individual transactions, does not require major investment in POS and telecommunication infrastructure AND safeguards transactions from theft and fraud. Take a phased innovation approach: Because of the size of the market and the challenges with infrastructure, India needs a solution that is channel and form factor agnostic i.e. a solution that can be used in parallel across different form factors such as chip cards, contactless cards, non -NFC phones, NFC phones, computers or tablets over a period of at least five to ten years. Implement a profitable payment proposition: Issuers who aim to target middle to low income segments of the market should look at a proposition that generates
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UPCOMING EVENT

Vol. 5 Issue 12, 05 Sep 2012

YOUR OPINION IS IMPORTANT TO US!
We would like to inform you that in the next editions of the Online Paypers newsletter, we will continue to focus on some of the most important developments and initiatives in the online payments and e-commerce eco-system in parallel with a series of exclusive interviews with representatives of payment services providers whose role on the online payments market is not difficult to define, including Alipay, Chase Paymentech. The Online Paypers newsletter is also aimed at keeping its readership informed with regard to online fraud prevention innovations and the most significant trends in the e identity space, from a technological perspective. If you would like to contribute with an expert opinion on any of the topics above, do not hesitate to contact us at adriana@thepaypers.com.

On the 1-2 October 2012, the leaders driving innovation in the Middle Eastern banking industry will come together for the Middle East Banking Innovation Summit in Dubai. The aim of the summit is simple: to provide the information and tools needed to encourage innovation within the banks and financial institutions of the Middle East, in order to facilitate financial growth. Middle East Banking Innovation Summit is designed to promote the networking, learning and idea sharing that will result in competitive offerings, improved customer engagement and reduced costs. Join over 200 senior level professionals including CEOs and CIOs, who are committed to innovation within the banking industry. This event will showcase the most exciting trends and case studies in the region, keeping you up-to-speed on how the banking industry is evolving and how you can take full advantage. Attending Middle East Banking Innovation Summit will give you the unique opportunity to meet and network with senior level strategists and decision makers of the banking industry across the MENA region. Every minute out of the office counts, so we will ensure that you are networking at the highest level possible. Delegates will include:

About: Online Paypers is a bi-weekly update on developments in online payments by The Paypers, the portal for payment professionals. Editors: Adriana Screpnic, Mihaela Mihaila, Ionela Barbuta and Melisande Mual. Website: For more information, please visit our websites: www.thepaypers.com Contact: For more information, you can contact us at: info@thepaypers.com

Banking institutionsIncluding but not limited to 100 top banking institutions from conventional to Islamic banks; Regulatory Bodies and Associations Hosting key associations and senior representatives from Central Bank, financial centres and Government institutions; Service Providers Consultants, financial products and services innovators, IT providers.
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