PIS @ POS & ERPF

Michael Salmony 0:12

Hello, this is Michael Salmony and I'd like to welcome you to another episode of The Payments Trilogue. You will know that in past episodes we've looked at lots of banking solutions. This time it's more Ralf's game. We're going to look at alternatives to bank solutions and specifically we want to look at PIS at POS. So how could payment initiation services at the physical point of sale actually make a difference and be an alternative to the various other proposals that are out there?

So Ralf, why don't you take it away and tell us what your thoughts are on this?

Ralf Ohlhausen 0:47

Yes. Okay, where to start. So we have, I think it was about five years ago when the European Commission put up their European payment strategy, how to make European payments great again, the ECB did the same. So and then that has then

raised a number of initiatives, EPI being one. I think EMPSA is already around another way of bringing payments, well, getting the European side of payments more prominent. And of course, from a fintechs and a TPP's perspective, we wanted to show that there is also, there's not just different bank ways of doing this, there is also open banking, bank independent ways of doing this.

So which is when we started our initiative called the European Retail Payments Framework, which is not a one scheme and not for one country, it is a framework for PISPs in Europe to flourish. So what is it that we need for PIS and open banking really to work out in Europe as a framework where, as I said, different players, not just one, different players can

compete and provide open banking services. So it's purely based on PSD2, not another scheme, essentially on SEPA credit transfers or now credit transfer inst, of course. And therefore it is about challenging the existing payment methods with superior technology and better business models. So it's not trying to build better cards or

better wallets or creating another interchange regime. It is about an open banking approach to all of that. Now we had, of course, quite some success on open banking with PIS in the e-commerce world. But of course, these European strategy by the ECB and by the Commission was, of course, had a lot of focus on how to make this work in the physical point of sale. So how can we get

PISPs and PIS, the principle of open banking payments from e-commerce to in-store retail commerce. And that's a bit the tricky bit. And the way our initiative there was explained is, of course, addressing the various objectives. Where are these five top level objectives by the ECB

having a pan-European reach and customer experience. was number one. We have others there, the convenience of the, of course, the sovereignty, safety and security, et cetera. But if we look at the main thing from a PIS perspective, or what is it that we, where we have an edge, where we have something that not every payment method has,

Gijs Boudewijn 3:31

Thank you.

Ralf Ohlhausen 3:57

The number one thing is, is that we have spent five years and billions of making every single payment account in Europe accessible. We have 400 million plus in 27 countries. So we're not starting here with on a green field. We would not have like a few banks in five countries or whatever. This is the largest reach.

that is that is available. It is next to cash this is far beyond all cards, all wallets, all EPI, all EMPSA. It is by far the widest the widest reach. Now, I'm not saying that everyone is using it, obviously not, but they could. And all you need is your bank account. So important to understand you are not in the game. not in the game of onboarding all these customers. We have all 400 million with a payment account could use it.

tomorrow without onboard without signing up without another account without another card without another wallet without anything else, just purely their payment account. So we are not having this two sided chicken and egg problem. We already have all the consumers able to make these payments. Now we need more merchants to sign up for it and to have an interest in this and of course make it work. And one of the problems to make it work.

in physical point of sales is of course the real time aspect because there you're really under time pressure and it has to work right away. You have instant payment certainty immediately or a guarantee you need to have essentially a very, very slick and fast process. You can't have long winded SCAs and going through redirection and many screens. So that will never work at a point or at a physical point of sale. It has to be

slick and basically instant. that's why now with the instant payments becoming a reality in Europe, I think that is one of the big, big problems that we will overcome here in order to make payment initiation possible. Because then we will not just have initiation, but we will have execution, which is the bank side, of course.

that then has to happen or will happen instantly. that's essentially, there can be very, very slick flows on SCA. I know we're not doing it the way in the best ways, but there is a lot of possibility. well, let me put the other half towards the second round here because otherwise I'm talking too much too long.

Michael Salmony 6:40

Maybe you can pause there and we can just have a break.

Yeah, I mean, there's much to like about what you say. I mean, it's been one of my frustrations having worked in the payments industry for quite a while, that so much has happened on the mobile and on the internet and everywhere. But when I go to a restaurant, I still get this hideous terminal coming at me, which I have to insert a plastic card in, which seems like sort of 1970s, right? So this is really necessary to get some innovation at the point of sale.

So, Gijs, why don't you give us a bit of feedback? Why have the banks maybe been a bit slow in actually changing that part of the payment system?

Gijs Boudewijn 7:22

That's a good one. When I was listening to Ralf, and I love listening to Ralf, know that, one of the things I said to a Dutch newspaper a long time ago in the context of PSD2, and we still thought it was, wow, it was pretty scary, because I said, exactly building on what Ralf said, all these payment accounts at one point in time, they will become accessible for payments initiation.

And if there would be one party that could theoretically do payments initiation to all European payment accounts, it be a party like Google. So we said, well, as a threat and that would fulfill Ralf's dream, what if Google said, OK, we're going to do payments initiation to all 400 million of these payment accounts? Because we had a discussion with Chris Pirkner of EMPSA, the one, the platform.

that wins the hearts and minds of the consumer that owns the customer journey. Well, wouldn't it be great if I could use Google Pay to pay for my grocery anywhere in Europe and do payments initiation any payment account in Europe Ralf? I mean, so yes, the potential is there, but my question would be how are we going to use that potential, those 400 million accounts with instant payments accessible?

also through payments and initiation service, how are we going to organize that in such a way that we have a European solution and not somebody from outside of Europe pulling it off because they have a better customer journey and so on and so forth.

Ralf Ohlhausen 8:55

Right.

Michael Salmony 8:55

So, what's the alternative

then to Visa or Google, right? There must be a third way.

Gijs Boudewijn 8:59

Yes,

so you have to organize that. You can't leave it up to individual payment service providers. It's still a regulated business, right? It's not just banks and non-banks. It's payment service providers in various shapes and forms that play roles here. So it's still a regulated business.

Ralf Ohlhausen 9:02

Yeah, and

Yeah, and I'm all in for achieving European sovereignty, but this can be achieved without discrimination. So it is not about, in my mind, is not about having your worldwide headquarter in Europe. It is all about playing along the European rules and under the control, basically following the policy of Europe. And so it is about

Gijs Boudewijn 9:46

Mm-hmm.

Ralf Ohlhausen 9:48

Here, we're creating a legal framework. So we have a legal framework, we are controlling a legal framework in Europe, we are controlling the access to it. So you need to have a license under PSD2 you got to be licensed in order to get a European license in order to have a you get a European license, you've got to have at least a legal entity in Europe.

Gijs Boudewijn 10:09

Hmm?

Ralf Ohlhausen 10:09

So

maybe not the headquarter, but you have to be established with a legal entity in Europe in order to get a license. And then you have to get the license. So we're controlling the access. We are controlling the standards with eIDAS, with these quality trust providers, with European electronic signature systems, and all of that. We are controlling.

the rails, we are having, you know, our TIPS system, central systems, we have all these European CSMs with their infrastructure interconnecting it all we have. we are controlling the rails, we are controlling the rules and I'm looking at Gijs the EPC is controlling basically all the rule books of all of that in Europe. And

what maybe is a little bit missing is a European identity. I know I've been requesting this for quite some years now that we we start to establish some like a trust mark, a something like a SEPA inside or some logo, something where we can show people or where merchants can show what SEPA payments are accepted here. So account to account payments accepted here.

Gijs Boudewijn 11:26

Mm-hmm.

Ralf Ohlhausen 11:28

It's not just cash. It's not just cards. It's not just Apple, Google, God knows it is SEPA whatever logo, something like that. And that is how to achieve sovereignty and having all the governance in Europe without being a closed, like discriminating region where no one else could come in and play ball as well.

Gijs Boudewijn 11:52

Yes, so I like that by the way, that it really triggered me and I loved what you said. So we need to control the rails and the rules. That's what we need to do for European payment solutions. Sorry I interrupted you Michael.

Michael Salmony 11:53

Where should this be organized?

No, no, I was just trying to enlarge on your question, Gijs, because I think you rightly said, you know, Google will jump on this if there's such a possibility or Visa will, MasterCard will continue. Who is the organization who will pick this up, Ralf, right? Who will define these rules? Who will create this logo? You know, who is the European entity for this?

Ralf Ohlhausen 12:25

Well, for

PISPs in Europe, we have taken up this role as ETPPA. So we are the organization that is leading this market initiative of the PISPs. So similar to EPI or similar to EMPSA doing it for their version of payment solutions.

Yeah, for PIS, we're promoting this here in the name of or via the vehicle of ETPPA, our industry association.

Michael Salmony 12:53

That's an association. You need to create a commercial company.

Gijs Boudewijn 13:02

But, are you basically

saying you're promoting because to me, if it works like a scheme and cracks like a scheme, it probably is a scheme. Why isn't ETPPA creating a pan-European PIS OS overlay scheme? Why not?

Ralf Ohlhausen 13:16

No, no, no, hang on, hang on, because it's not a scheme. It is a framework. So I tried to explain. So the difference

between the scheme is a scheme is like one commercial model is like one company, maybe more than one company, but it is one commercial organization. And here we're talking about different companies, a framework, it is just it is basically setting

the rules or the possibilities enabling a PIS across Europe. you know, that does the scheme thing like, you know, the EMPSA model is you have all these national players, and then you have the scheme or the like the EMPSA coordinating in the roaming agreement thing. Here we have PIS is intrinsically multi country. So there is there are no national PISPs.

Gijs Boudewijn 13:46

He does.

I fully

understand, but I think we agree, Ralf. What I mean with the scheme, you need a set of rules on how it works, how it is, is it a QR code? What does the QR code look like and whatnot? You need some standardization stuff. You need a level of standardization and agreements on top of which these commercial models can be built. And you need a technical scheme,

Ralf Ohlhausen 14:21

Yep. Yep.

Yes. And,

right. And you know, you know, very well, we discussed before here for me, this like a pure open banking, a pure bank independent PIS open banking approach, like what, what I'm just talking about, will have its limits in order to reach like the holy grail of retail payments to really

compete eye-level with the best in the world, Visa, MasterCard, PayPal, etc. You need to have this collaboration, you need to have something like SPAA. So that is where SPAA and the collaboration comes in. and maybe, well, hopefully, that SPAA is maybe not just there for TPPs and, and banks to

Gijs Boudewijn 15:07

Mm-hmm.

Ralf Ohlhausen 15:23

to do on the open banking side, but maybe also could be a glue for getting EPI and EMPSA and other players closer together because at the end of the day, I think what will it all boil down to is money and trying to minimize additional expenditure, additional infrastructure, etc. and leveraging what we already have done.

Michael Salmony 15:52

But Ralf, can you take us?

Ralf Ohlhausen 15:52

And so that's why building

on top of open banking, which is SPAA is the first level, and then there is maybe cooperation with others.

Michael Salmony 15:59

We understand that.

What we need is a sort of journey, right? There's the framework from the ETPPA, then a scheme needs to be built either within EPC or like SPAA, and then on top of that needs to be a commercial company which takes this and makes it happen. What does that journey look like?

Ralf Ohlhausen 16:17

Well, I'm not so sure it does need that single thing. I'm more into more diversity and more competition between different approaches. And I'm not trying to get all the PISPs in the same boat. We have every PISP in Europe as it stands today, to my knowledge, are competing with each other. None of them are collaborating. They're all competitors. So this is about...

not about getting them all into one big PISP because then we would have a whatever a bigger scale. It is about creating a framework that we could have more of them and have them grow each individually. don't want to I'm not in this or this framework here is not about getting them all merged together into one.

Michael Salmony 17:06

I don't think anybody's saying that, but I mean even within a scheme or within a commercial arrangement you have competitors who work together under particular rules.

Gijs Boudewijn 17:13

Of

Ralf Ohlhausen 17:14

Yeah, but, but you know,

in a scheme, you have two sides or multiple sides, you have like a multilateral scheme. So you have that got to be a whatever the common interest and maybe the common interest is something like SPAA. So where then you Yes, you have that scheme. So it's the SPAA scheme is indeed a possibility to bring PISPs, maybe not together, but to bring them in a

into the possibility to have like one contract with all the thousands of banks, not with the other PISPs, but with the other side of the scheme. So you have the two sides of the scheme.

Gijs Boudewijn 17:52

And

then what would this whole thing look like from the retailer perspective? Because in the traditional four corners, the retailer has an acquirer, pays some fees to his acquirer. How would it look like?

Ralf Ohlhausen 18:08

Yeah, well, is

the classic. We're not talking about changing the PIS business model. It is the same business model. The PISP is acting on behalf of the merchant, is a merchant service. So for many who don't know, don't understand, it is typically not a service to the consumer. It's a service to the merchant. So we are like an acquirer.

for the merchant. So we are charging the merchant a fee for the merchant for helping the merchant to initiate a payment that the customer then has to authorize and then the bank has to execute. But it's the merchant who initiates with the help of a PIS. So we are it's a service to the merchant. And of course, it therefore competes with all the other services or the other payment methods in there on their checkout page.

And therefore we got to be as cheap, if not cheaper, as fast, if not faster, as certain, as much certain as all the other ones. that is one of the key issues, as I has been the certainty.

Gijs Boudewijn 19:16

And you would not

need any enrollment from the consumer side, from the payer side.

Ralf Ohlhausen 19:19

And exactly

no and absolutely no enrollment that's that's that's the point. So if the beauty from the merchants perspective is that it is an account to account payment with with all the advantages of like a push payment and without the downsides of a pull payment with all the charge back in the risk of the fraud and all of that. So you have all the beauty of account and you can reach it is open for everyone if if I'm as a merchant if I add a

pay by bank pay open banking checkout point. Everyone who comes onto my page can make their payment. They don't have to sign up not with me not with the PIS not with anyone else. As long as they have one of those 400 million payment accounts. They can make that payment first time use

Gijs Boudewijn 20:06

And how would you

solve them? Because you've been raising hell about that for the past couple of years. Those 400 million accounts all have different SCA customer journeys and whatnot. How would you solve that?

Ralf Ohlhausen 20:20

Yeah, well, you know,

one of these objectives here has been what they call it, the ECB was saying a single customer pan-European reach and customer experience. That was the number one objective, pan-European reach and customer, pan-European customer experience. Now, here, we are the only one who can actually do this pan-European reach.

Gijs Boudewijn 20:42

What a different era, mean.

Ralf Ohlhausen 20:49

because we have all those 400 million payment accounts, no other payment method has that. And now pan European customer experience. Now, here, here, here's the thing. So there's many hundred different ways of doing SCA's, unfortunately, but each customer has typically only one. And wherever they go in whichever shop they shop,

Gijs Boudewijn 21:12

Mm-hmm.

use

their familiar way.

Ralf Ohlhausen 21:17

or whichever

country other country they go and shop there, they will always have their home bank SCA experience. It's the home SCA is the is the home payment flow, essentially driven or dominated by the SCA part of it that they have to have the same experience each customer each customer the customers have different experiences, but each one has the same wherever they go.

Gijs Boudewijn 21:26

The home SCA thingy.

Yeah.

But how are we going to beat the contactless debit customer journey experience?

Ralf Ohlhausen 21:52

Yeah, well, you have you have to have a yeah, so you can't have a flow where you have to enter your IBAN, obviously ridiculous, you can't have a flow. If you do QR code, it's already at a disadvantage versus NFC. We know. But nevertheless, I think there is a case and there is some, you know, more and more people are using these codes. So I think QR code is not that bad.

From our perspective, the way we've designed this ERPF in terms of creating the best possible flow, the proposal that we put on the table is actually based on Bluetooth because Bluetooth allows more data to be exchanged between the customer phone and the terminal of the merchant. So there is more bandwidth. There is more information that can go back and forth. For example, NFC

is rather limited in terms of that bandwidth. which is the reason why the merchant and NFC checkout identifies the payer, but not the merchant. So as the as the the payer, I'm not actually know, I'm can't be sure that it's actually that merchant, okay, in physical store, I'm, you know, pretty sure that this terminal

will not cheat me and I'm at the right merchant. which is why that is maybe not that important. But the more we are looking at identity at more we're looking at combining the payment with maybe other things. Yes, I'm 18 or whatever. So that in that communication exchange is important. And there is more more required than NFC is like a one tap to go if you can't

And some of the data you need, you can't do in one source, you will you would need two tabs, which is already then not good. Also, you have to go to the checkout to the cashier to do it there. While Bluetooth, you would have all of that you could be anywhere in the store, you could just walk in walk out and everything without queuing up anywhere. The big downside technology wise so far is that it is shaky in the in the build up, which is why in our design, you use a QR code to facilitate the connection.

not because it's needed, but it's because it to make the connection more imminent. Anyway, so it's too technical. but...

Gijs Boudewijn 24:14

Well, you're becoming too technical for me. But if

I may put the question, how are you, mean, on the consumer side, you will probably win the heart and mind of the consumer. But the heart and mind of the retailer is much harder to win because it's about money. I've always learned from retailers, we love innovation, but don't come to me.

Ralf Ohlhausen 24:35

I just saw.

Yeah, no,

Gijs Boudewijn 24:42

that is written with

new innovative products unless they are better, faster and you best it cheaper than what I already have. So how are you going to win the minds and hearts of European retailers here?

Ralf Ohlhausen 24:56

Retailers, I think, from the ground up love the idea of open banking. It is very, it doesn't have that many parties. It is usually cheaper. It is a push payment. has many, many advantages. For example, also it helps retailers to not have to deal so much with it with the data because, you know, as a push payment, I don't have to get the customer data. I don't have to control it. I don't have to secure it. They don't have to go through all these PCI Triple-DES, whatever.

overhead, I don't have the chargeback problem, I have, there are so many problems I'm not having as a retailer for with account to account payments. So I think there is a long list of advantages. And as long as we make sure that it's not more expensive, I think they will want to use it. But but but and the one big question mark around open banking is the payment certainty.

Michael Salmony 25:43

One thing to smell.

Ralf Ohlhausen 25:51

That is the big question mark, like the flow, the fast flow. So it's not the reach, so we are best on reach. And we are probably best on price, but the conversion. it's the third, or actually it's the second element from a merchant's perspective. The conversion is where we have to get better. And that's where we need the standardization and having these tools work together more technically, the SCA, the Bluetooth and all of that has to be slick and fast.

Michael Salmony 25:53

irreparable instant payment, right?

I'm least concerned about the merchant, quite honestly. mean, they have lower costs, they have more direct interaction, they have instant, irrevocable payments. I mean, that has a lot, that takes a lot of huge reach, as you say. The thing that I do, maybe you can help me there, Ralf. I mean, request to pay has been a scheme which has a lot of the things that you also take, right?

Ralf Ohlhausen 26:21

invisible ideally.

Michael Salmony 26:42

Instead of having this ghastly machine that comes at me in the restaurant, I put in a plastic card and type in numbers and the Wi-Fi doesn't work. You know, this ghastly experience that we now have. Request to pay, I could just pull out my banking app and the restaurant says that'll be 80 euros. Do you want to add a tip? And it's done, right? You know, it's a modern way of doing it. How does ERPF compare to that?

Ralf Ohlhausen 27:08

Well, it is an alternative actually, because every PISP has its own version of request to pay. So we have a request to pay solution that we offer on merchant, with the merchant signs up, we add our he has access to our platform and the merchant requests the payment and the PISP is then initiating that payment through PSD2 APIs at the bank.

So it's like each PIS having their proprietary version of request to pay. And participating in like a scheme, an open scheme, like the SEPA Request To Pay of the EPC is therefore not really a necessity from a PIS perspective because you're doing it anyway. However, and that's, I think we'll hopefully we'll discuss maybe more detail sometime here. The reason.

I have participated in this SEPA request to pay multi-stakeholder group to make it relevant also for TPPs and not just for banks, because what you described works perfectly for banks. You don't need a PIS anymore in this scenario. But in order to make it relevant for TPPs, there is a solution. it was actually implemented as part of the rulebook that as a

As a PISP, you're dealing with the initiation of the payments, etc. But now you don't have to sign up every single merchant or biller yourself anymore. But you can use SRTP scheme to reach the other side of like the billers, the merchant, the merchant aggregators, the biller aggregators, the merchant aggregators, so you can use them. So you're basically getting your request not from a single merchant, but from an aggregator through

SRTP rails and then the PIS puts it onto the PSD2 rails to initiate the payment and get the customer or authorize it and agree to it.

Michael Salmony 29:11

Well, that's nice.

Yeah. Yeah. Ralf, Gijs, do you have anything else to add? I guess we're gradually getting towards the end of our time.

Gijs Boudewijn 29:19

Well, no, none other than that. do believe that Ralf's thinking is one ingredient to reach the pan-European payment solutions next to bank led, consortium led solutions or interoperability based solutions like EMPSA. I think it's all complementary. mean, pan-European payment solution will not just

come up with a big bang at whatever point in time and maybe the digital euro is a unique thing, but let's, apart from that one, it's going to be a long and winding road with different speeds. There is no European customer, the needs are different in countries, so it's going to be a long road, long converging road to something truly European.

But we have to cater for everything just to keep all these volumes European for better days. It sounds a little bit negative. But there is no silver bullet that will give us a private party-based payment solution in the coming five to ten years. It's going to be AND, AND, AND, it's going to be EMPSA, it's going be EPI, and it's going to be open banking-based solutions.

and then it will still not be perfect, that's probably the most realistic scenario.

Michael Salmony 30:44

Yeah, that's probably a fair summary. Ralf, do you have anything to say? Do you want to make one last comment about why the APIs are breaking?

Ralf Ohlhausen 30:49

Yeah, no. But

I think SPAA is absolutely key to what you just said, Gijs. So which which is like our first attempt to get that things working together and to have to turn it into a win win. So now we need a SPAA2 or SPAA3 or whatever that that would extend to include the initiation of a Bizum payment or a whatever.

Gijs Boudewijn 31:16

Yeah.

Ralf Ohlhausen 31:17

other EMPSA payment or an EPI payment or whatever. So and I think the main thing is that we avoid spending more and more money into creating new additional infrastructures and rather focus it on making the infrastructure that we have better, the APIs better and usable by everyone, not just TPPs.

Gijs Boudewijn 31:38

Yeah.

Michael Salmony 31:42

Yeah, that the APIs aren't working well is of course a fundamental problem that we still have, right? But that's not the case. We did address that another episode. Okay. I think time to wind it up. Thank you, Gijs and Ralf. This was rather dominated by Ralf selling his amazing new, not scheme, but framework. And yeah, so sounds exciting. We could really use some innovation in that space. So thanks to everybody watching. Thanks to my co-presenters here.

Gijs Boudewijn 31:46

That's still some work to be done there, I guess.

Michael Salmony 32:11

and look forward to seeing you at the next episode.