Payments Ecosystem 3/5

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The opportunities of digital processing and mobile convergence enable new players to reinvent the way payment is made. In the purchasing process, either in-store or in a web environment, the time when the payment is made is always the most critical factor. The new solutions are developed with the aim of removing the friction from this “moment of truth” making it almost invisible in the purchasing process. It is intended to effectively reduce the emotional charge of the act of paying.

These players intervene between the merchant and the consumer as payment facilitators. They take advantage, in an intelligent fashion, of the means of payment (cards) offered by banks and in the case of allowing the creation of virtual accounts, they take advantage of the compliance procedures and money laundering carried out by the banks, since these are the origin of the funds transferred (e.g. strengthening of a PayPal account or a prepaid application).

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They are intermediates of the transaction that, as an alternative to traditional POS – payment terminal with card, make use of the mobile, a particular application (APP), the messaging system (SMS/USSD) or the existence of an integrated chip in anything (IoT), to trigger the onset of the financial transaction.

Different technologies are used, ranging from the simplest version of the telephone (SMS/USSD) to the more advanced version of the smartphone with access to Bluetooth, NFC and Mobile Data. In situations where it is desired to perform a validation token via telephone message, it is necessary for the network operator to be active.

Tokenisation transmits security to the transaction and prevents data transmission to the merchant (e.g., providing CVV2 security code entered in the back of the cards). In the case of a transfer performed in home banking, an SMS code is generated, which must be used to validate and complete the transaction. This is a beneficial authentication system for all stakeholders.

The security of the transactions is strengthened based on digital identity (I am), by use of the mobile (I have) and validation by password or token (I know). The conditions for a strong authentication are thus guaranteed.

Given that these conditions are met, the new players are prepared to act as payment Gateways that provide services for opening virtual accounts and digital wallet banking cards. Additionally, they can provide direct access to bank accounts, in networks previously created in partnership with banks. They can also perform transactions in electronic money, converting the currency of origin and destination previously and subsequently, respectively.

To operate, they also have to meet conditions of acceptance of payments, either their own or through agreements with international brands, processing conditions and transaction settlement conditions.

The new payment solutions are, generally, based on three-part models.

I highlight the Paypal payment system, Alipay and M-PESA.

paypal_ukPayPal is a pioneering payment system in three parts, created in California, which allows the transfer of money between individuals or merchants using an email address and a password. It became widespread worldwide in online shopping from computers, applications in mobiles and tablets. Personal and banking data of users are stored in PayPal and are not transmitted to traders. The user can get a PayPal credit by the BillmeLater solution. Another PayPal service is the P2P cross border transfer (Xoom).

AliPay is an online payment system, created in China by Alibabaalipay_uk Group (MyBank) without transaction fees. It provides an escrow service, where consumers can check whether they are satisfied with the goods they bought with the right to get their money back, if they are not. The transactions are carried out and confirmed to traders in Chinese electronic money – RMB / CNY.

m-pesa_ukM-Pesa is a payment system which was made feasible in 2007, by the operator Vodafone. The customer exchanges her/his money in an M-Pesa agent obtaining electronic credit that is available in the current account associated with the customer’s phone number. Later, (s)he transfers money to the recipient (s)he indicates, as long as this is recorded in the operator’s network. The electronic transaction is driven by Short Message Service (SMS) to enable a simple mobile phone to operate. The beneficiary, if (s)he needs cash, can withdraw it in any M-Pesa agent.

Other solutions similar to the M-Pesa are the GCASH platforms in the Philippines, UPI in India and Wizzit in South Africa.

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