PCM Volume 2 - Issue 2: Internet of Things by PCN Magazine

Exciting stories about developments in the payments world 2016 | + Weâ&#x20AC;&#x2122;re diving deep into fraud & compliance

P CM YOUR GATEWAY TO THE WORLD OF PAYMENTS

Vol 2. Issue 2 Feb. 2016

Internet of Things

Blessing or Curse

Welcome to Vol.2 - issue 2 You are reading the second issue of the Payments & Cards Magazine in 2016. In order to keep our clients, associates, subscribers and all payments professionals in the loop, we have decided to create a monthly magazine. The magazine is also a good way for you to keep in touch with what is happening in the Payments world as well as like minded professionals. If you havenâ&#x20AC;&#x2122;t checked in with us lately, we think you will be surprised and excited about all the thrilling things happening in the industry.We hope to hear from you soon, and we welcome your feedback! In this issue, we lead you to the world of fraud and compliance. Engaging stories and guides are awaiting you from Edoardo Fiorentini, a Risk Management expert and another brilliant piece by Mark Taylor, our compliance thought leader. On top of that we feature articles on the transition from regular financial service business environment to Fintech as well as exciting developments on the blockchain front. If you are a thought leader and would like to be featured or present your thoughts, please get in touch. What is more, as a business, the magazine offers you various advertising possibilities. Want to learn more?

For any questions, suggestions, or concerns, please address them to the editors: Amir Abdin - Duc Dang -

amir@paymentsandcardsnetwork.com duc@paymentsandcardsnetwork.com

The Payments & Cards Network team wishes you good reading!

002

Contents thoughtleaders

spotlight

20 4 8 14 STORIES 4 Thought Leaders: Moving from a traditional employer to Fintech

Thomas Strakos shines light on the transition from traditional financial service employee to a fintech focused business.

Infographic: The mobile messaging landscape

Thought Leaders: How to build a fraud team

Thought Leaders: Individual Liability cases unlikely to enjoy Hollywood ending?

mondato looks at the uprising importance of messaging app providers.

Edoardo Fiorentini discusses the most important aspects of setting-up a fraud team within your business.

Mark Taylor gives us an insight into the perspectives and challenges of the ever more relevant cryptocurrencies.

Expoert Interview: How the IoT is innovating Businesses

Spotlight: Coinify

Hot Jobs

Events

Michael Vax outlines the pervasive impact the Internet of Things has on businesses today.

This time we talk to Europeâ&#x20AC;&#x2122;s biggest player in the digital currency landscape Coinify.

Looking for a new role and exciting challenges in 2016? Check out our latest job opportunities!

Here we showcase the most exciting upcoming events in the payment industry.

003

By Thomas Strakos

Thought Leaders Corner

January 25, 2016

Career Choice Moving from a traditional employer to FinTech

ne of the most common questions I get from colleagues working in the banking industry is what to expect when moving to a new fintech job. In these times where fintech is booming and traditional banks seem to be somewhat decaying, there is a huge and growing talent pool flowing into fintech. Fintechs have now grown to a level where they are not just a fashion wave anymore, but have clearly become a force to be reckoned and could impose serious competition to the traditional financial services model. This massive growth also means there is growing demand for top talent, which is naturally being drawn in from other industries such as consulting and banking itself, among others. Younger generations are being attracted to the fintech industry by their search for a new way of doing things. This is mainly because they strongly believe in the social inclusion factors that these technological advances can provide, a way to make life easier by avoiding old brick and mortar branches and jurassic banking bureaucracy and paperwork, or because of the alternative work

004

environments often found in this scene. No matter what your background or motivation is, there are some main differences between working in the......letâ&#x20AC;&#x2122;s call them old â&#x20AC;&#x153;traditional industriesâ&#x20AC;?, versus disruptive financial tech companies. Having done this move myself, I will try to outline here the main differences that stood out to me and that I believe people should pay attention to, including cultural as well as the way of doing business in general. I have come to realize that working in such environment might not be for everyone, so I hope to clear the smoke a bit for whoever is aiming at making the move: The 1st thing that hit me when I started getting involved in the fintech scene was how entrepreneurial and multicultural the environment is. Most companies I have met are a blend of techies, ex-consultants, ex-bankers, and a random pool of generally very smart and talented people mixed together. These different mindsets tend to bring plenty of different angles and perspectives to brainstorming sessions and everyday challenges, which is great to reach the most effective outcomes in a faster way.

empowerement tends to be much higher than in a big corporation. Plenty of people don’t deal well with this work model, but if it is your thing and you like taking on responsibility, you will thrive! Personal growth. All of the items mentioned above result in one thing: a very fast-paced environment! Sometimes a week seems like a month and a month seems like a year. The learning curve is as steep as it gets and I am always amazed at how much myself and people around me have been able to learn in such little time. And trust me, it feels very fulfiling.

Thomas Strakos Former Country Manager at Kreditech, previously roles include Financial Services Analyst for Emerging Markets at Barclays and Latin American Investment Banking Credit and Risk Management Advisory at JPMorgan. Thomas is also co-founder and advisor of Stratcon, focused on advising international investors looking for business opportunities in Latin America. “It has never been done before”. Fintechs in general, no matter what field they focus on, are building something new. Challenges and obstacles appear every-single-day on a constant basis and things rarely go according to plan. You will often hear people tell you “it can’t be done because it has never been done like that before” you are there exactly to challenge this statement! If you like to question the status-quo, enjoy problem solving and thinking outside the box, and are not afraid of exploring uncharted waters and unexplored grey zones, you will definitely enjoy your life in this environment. Openess to new ideas and recognition. In line with the above, people tend to be much more open towards new ideas and solutions. Different from larger organizations, hierarchy tends to be more horizontal and the ideas of an intern will be valued as much as the ideas of a senior exec. The result is a meritocratic environment where your talents will be more easily spotted and you can boost your carreer by miles. There are plenty of stories out there of people rising from junior positions to C-level at rocket speed.

Obviously, not everything is perfect. Some of these cultural attributes mentioned above are hard to maintain as companies grow larger. Traditional growth pains include lack of proper communication trickling down from management and between teams, and no proper rules/ guidelines/processes are common and can make life and work much harder than they should be. Another common issue are inexperienced management teams. Very often, young founders end up as CEOs, CFOs, and in other managerial roles without any previous experience. This means they sometimes struggle to deal with classic organizational topics, from innapropriate product strategies to bad leadership and people management habits. This is can be a massive demotivational factor for employees, but it is usually easily spotted. When deciding to join a company, don’t forget to do your research. Talk to employees outside the interview process and pay attention to their motivation levels when asking their opinions on the job or the state of the company. Check for news in specialized internet portals/forums, and try to find information about the employee turnover levels and ask outsiders for their opinion about the company. These are some of the general observations I have from my own experience and there are certainly different opinions out there, but most of the above factors can be extrapolated to the general fintech industry. Overall, I believe this is an amazing scene which is just at the beginning of its lifecycle and potential, and being part of this new age is an exciting opportunity which should not be ignored. It is up to you now to judge your appetite for this new challenge!

Work independence. The teams and people in general have a high level of freedom to come up with solutions and new ideas for their tasks, without having to go through a huge approval chain to get it done. In short: there is much less micromanagement and the level of

005

Infographic description Messaging services have surpassed other mobile applications in both popularity and usage, with more than 2 billion users. These service providers are expanding their value propositions and reaching into new markets through innovation and partnerships. Consumers now demand more sophisticated commerce services, and messaging apps are aggressively responding, eclipsing many digital app and commerce competitors. With increasing smartphone penetration and improving network infrastructure in developing markets, the opportunity is bound to only expand. To learn more about opportunities for mobile messaging and commerce trends, please visit www.mondato.com

About mondato Mondato is a boutique consultancy specializing in the provision of strategic, commercial and operational support across the mobile finance and commerce (MFC) ecosystem. Established in 2008 on a foundation of years of experience in the telecommunications, technology and financial sectors, Mondato possesses a unique understanding of the fast evolving, ever expanding MFC space.

007

How to build a fraud team

et’s start with the easy part: there is no magic formula as to how you should build your manual review team. It requires some hard work to define what you are trying to achieve and what would the success metrics be while building it. You might be already feeling the frustration but it’s not as difficult as it may sound. The basics would be to know your sales volumes and your fraud levels along with the rejection rate trends. Here, it is important to ask yourself: Are my rejection rates reliable? Is the system rejecting automatically too many orders? Do existing fraud detection rules need tweaking so there would be more conversions? Or do we accept too many orders, including the fraudulent ones? Depending on the region you are doing business, the market segment, the type of product and its value, you should use a risk assessment platform to begin with. The beauty of it is that there are many providers out there that could offer you the right solution for the right number of transactions per year. Therefore, before engaging in discussions with any of them, make sure you know your numbers in advance. Should the scale

008

of your business places you in the lower tiers of annual transaction turn over, you might be asked to pay more for the services. While you have set your eyes on a provider and test their services, make sure you identify peers within your professional network and seek their opinion too. Try to review it from a 360 degree angle before signing up. Given you have followed the tips mentioned above, your platform would require for a series of criteria to be defined. These are usually called “rules” and this is where your operational headcount would start: you need a risk analyst. The Risk Analyst is the professional that ensures the effectiveness of the platform. By monitoring the incoming sales patterns and declines, he/she is responsible for the optimization of the existing rules, the introduction of new ones and when needed general revision of the rule set in order to improve the ratio of the good orders that are being passed through to the logistics team. He/she will be also responsible for constantly reviewing and maintaining the white & black lists as well as reaching

out to external data sources in order to provide you with more customized reporting and metrics. Now that you have your chosen risk management platform in line with your business needs, you will easily spot the grey areas where the system will not be able to provide you with a decision on some of the transactions screened. Depending on the market vertical and the product, you may face some really weird combination of data points that may suggest that the order is highrisk, while other data points suggest completely the opposite.

However, you want ALL the mistakes to happen in manual review - also called “outsort population”. If chargebacks and complains on cancelled order are originating from transactions processed automatically by your platform, it is the Risk Analyst work that needs to be reviewed. Moreover, since we are dealing with a system, its low performance is what actually scares me. The reason is simple. As any order flow processed by your rules could be tested with malicious intent by a fraudster or a group of such, causing a potential financial disaster. From a manual review perspective, you can and will get chargebacks and “bad cancels”, but this should be under control and not considered a big financial loss. Plus, it should be something that can be fixed with additional training of the Analysts.

Every risk platform out there will suggest an action on these orders by sending them into a queue for review. The review means that the system will prompt you to provide feedback or additional information to complete the action. Here comes your second wave of recruiting: your Manual Review Analysts.

Managing chargebacks and customer complaints is the third part of the process. It also represents an additional group of hires: Order Recovery Analysts (or Chargeback exper ts). These professionals will manage all incoming chargebacks, customer payment and return/refund issues that if unresolved may potentially trans form into chargebacks later. The Order Recovery Analysts will report to the Manual Review Agents the chargebacks and customer complaints (basically, the bad decisions) and will work closely with your Risk Analyst to adjust the platform rules

to achieve better results. Now some important questions to consider: Do you need only one Risk Analyst? How many agents in manual review do you need? Which markets and languages would they cover for if you are selling internationally? How many Order Recover Analysts you need based on the number of chargebacks received? There is no golden formula. It always depends on the type of transactions you see. It depends on how many chargebacks you will have to manage and how often the fraud pressure shifts between patterns. And of course, it depends on your average order value (AOV). For example, if your AOV is below 5€, you can’t really afford to have a manual review team. However you will need more than one Risk Analyst to fine-tune the rules and act faster depending on how the fraud attempts change. And with this AOV, it wouldn’t be wise to have someone manually disputing chargebacks. But you may want to invest into the development of a chargeback dispute process requiring very little need of manual intervention. As an additional example, if your AOV is above 1000€, the whole picture shifts dramatically. You would need fewer Risk Analysts and more Manual Reviewers and Chargeback Experts. The later will dispute and recover back some revenue that would go completely lost if no action is taken.

Such profiles are usually sources within the company mainly from the call center or other departments. Internal hiring is the preferred strategy but it depends on certain variable, which if not met would drive you hiring someone with that specific knowledge and background within e-commerce. Here, it is good to point out that you might need the Manual Review Analyst to be fluent in a different language. In general, the profile of the Manual Review Analyst is of a person who understands the particularities of these “grey area” spots and why the system is not able to make an automatic decision. He/she will have to validate the provided information and take a call on accepting or cancelling the order. Of course, you should expect some mistakes here.

009

Customer ser vice representatives should cooperate closely with the Fraud team. They are the pulse of what is going on in your otherwise almost fully automated fraud management process. They are the experts who will report a higher number of complaints on missing refunds that, shortly after, may become chargebacks. In my professional experience I also get many reported fraud orders via phone that almost coincide with the time when the order has been placed. As you have learned already building the balance between fraud management and conversions is consisted of several parts. Keeping them efficient for as long as possible will be described in another article.

by Edoardo Fiorentini Risk Manager, Magento

Edoardo â&#x20AC;&#x153;Edoâ&#x20AC;? Fiorentini is currently the Risk Manager of Magento Commerce, co-chair of the Fraud Committee and European Advisory Board of directors of the MRC (Merchant Risk Council). He describes himself to be a passionate risk professional with years of experience with CNP transactions. Edo has been fully dedicated into achieving and maintaining the difficult balance between fraud management and conversions in e-commerce.

About Magento A powerful and unrivaled commerce platform, Magento Enterprise Edition is designed to empower merchants to rapidly innovate and deliver engaging experiences to customers across all channels and devices. The platform delivers rich, out-of-the-box functionality, enterprise performance and scale, and seamless integrations with third-party solutions to keep you ahead of increasingly complex commerce operations, and growing customer demands.

010

eCommerce Africa Confex

commerce

WATCH OUR VIDEO

Africa

Follow @eCommerceConfex and @KineticEventsSA on Twitter for daily updates and news feeds.

17 & 18 FEBRUARY 2016 | THE CTICC, CAPE TOWN WWW.ECOMMERCE-AFRICA.COM

Advisory Panel RAPHAEL AFAEDOR

EMILIAN POPA

Sponsors,Exhibitors & Partners

VINNY LINGHAM

JOE OKLEBERRY

SIMDUL SHAGAYA

CAREN GENTHNER-KAPPESZ

DiGAME

Co-Founder, Jumia/CEO & Co-Founder, Supermart

Principle, Digital Growth Africa & Middle East

Co-Founder and CEO, Gyft

Internet Strategist, Naspers

Founder and CEO, Konga Online Shopping

CEO, MIH/ Naspers

An award winning and celebrated businessman in Africa, Raphael heads up the biggest online retail platform in Nigeria, Supermart and has taken the African business scene by storm. His previous work with one of the biggest online companies, Jumnia, launched him to success, and cultivated his passion for Africa and its development.

Emilian’s passion for eCommerce and online trends shines through when he speaks. He describes himself as an eCommerce and global entrepreneur and has headed up some of the biggest companies in South Africa, as well as the rest of the world including Rocket Internet, Groupon and Zando among others. He is currently living between South Africa and the Middle East with his investment initiatives.

Most will instantly recognise Vinny straight from the small screen and his position on South Africa’s Dragons Den, and others will know him as the co-founder of some of the biggest initiatives in online tech in South Africa: Clicks2Customers, Gyft and Silicon Cape Initiative. He has since moved to the actual Silcon Valley and is rubbing shoulders with big names like Richard Branson among others.

It has been said that anything that this man shares will be deep and thought provoking. Joe used to be Mary Meeker’s right hand man, and was part of the team that took LinkedIn and MailRu public. Described as the most experienced man in internet in Africa, his skills and expertise are in high demand and he was pounced on by Naspers to hold a position here in Cape Town.

Sim is the Founder and Executive Chairman of DealDey Limited. He has over 13 years experience in New Media & Investment Banking and worked with leaders such as MicroStrategy, Lucent Technologies and Real Networks. Sim also served as the Africa lead for Google. He graduated from George Washington University, Dartmouth College & holds an MBA from Harvard Business School.

Former CEO of Kalahari. com, Caren was relocated to Cape Town from Berlin, with prior roles including a nine year stint at eBay as general manager for shopping.com Germany, and as a director and GM for eBay Express Germany. Caren has also worked as COO at brands4friends, an eBay subsidiary in Germany.

The eCommerce Africa Confex gathers 1500+ Exhibition Visitors, 70+ Sponsors & Exhibitors, 500+ Conference Delegates and 90+ Guest speakers. Connecting the regions’ leading merchants; major retailers; brands; developers; designers and eCommerce experts, the summit is focused on exchanging inspired and innovative ideas, discussing emerging trends and making lasting connections. Organisers, Kinetic, have secured some of the best global solution providers who are ready to provide the African continent with great products and services at the most exclusive and by far the largest Commerce gathering on the African continent. To get involved with the show, fast track your sales or even network with industry leaders; Click here to get your free expo pass OR Register for a full delegate pass at 15% discount. For general enquiries and/or information about sponsorship, contact marcia@kineticevents.net

011

By Mark Taylor January 26, 2016

Individual Liability Cases Unlikely To Enjoy Hollywood Ending A wave of financial crash nostalgia is sweeping the globe as fears of a repeat of the 2008 crisis have sent shockwaves through markets.

scar hopeful ‘The Big Short’ hit cinemas, gently reminding us that some actually profited from the bubble, which threatened to collapse major institutions until governments bailed them out. Inside an altogether different bubble, those tasked with helping stave off disaster met at the Davos 2016 World Economic Forum recently to discuss what could be done to prevent a reoccurrence. Rubbing shoulders with celebrities, the world’s great and good decided that blockchains, ledger technology, can help us take that next financial evolutionary step as nervous glances were cast at oil process and share index value. Much hot air has been expended arguing over the ‘why’s’ and ‘what if’s’ but despite the festering public resentment over the fact, there has been little talk of punishment for wrongdoing. There were famously no US or European prosecutions in the wake of the 2008 meltdown, no accountability, and a bemusement that despite a spectacular and unprecedented mishandling, it turned out no one was to blame. One man who may have a view on where the buck stops, but whom we are unlikely to hear from for some time, is the former chief compliance officer for global money remitter MoneyGram, Tom Haider. While politicians, actors, activists and economists quaffed Dom Perignon at the Swiss retreat and heralded the rise of automated technology in financial services, Haider had more immediate concerns to attend to. He is being prosecuted by the US Treasury, and is the first person to contest Bank Secrecy Act charges. In January his argument to have the case thrown

012

out was denied and it will now proceed to federal trial. The Financial Crimes Enforcement Network (FinCEN) is seeking a $1m penalty against Haider, who is accused of overseeing significant money laundering failings during his time at the money transfer company. He is accused of failing to maintain an adequate compliance program and file timely suspicious activity reports. Haider, protesting innocence, believes the company itself, which agreed to a $100m penalty following admission it violated anti-money laundering laws, should be held fully to account given his attempts to flag problems. Despite little public fanfare of it, the financial crash did create a new type of regulator in its wake; aggressive and driven by a public desire to see someone, anyone, culpable for a major financial error. The “high risk, high reward” compliance profession saw salaries top $1m a year in some cases, but with a heavy load that they bear individual liability for company-wide failings. In January 2013, Humberto Sanchez, the compliance officer of a money services business in Los Angeles, was handed an eight-month prison sentence after pleading guilty to failing to have an effective AML program in place, in violation of the Bank Secrecy Act (BSA). In 2014 the Office of the US Attorney in Manhattan charged Charlie Shrem, chief compliance officer of Bitcoin company BitInstant, with money laundering conspiracy as part of the notorious Silk Road online drug marketplace case. In July 2013, James Green, the Chief Compliance Officer of foreign currency trading firm FX Direct Dealer was hit with a $75,000 penalty by the National Futures Association (NFA), the SRO of the US futures industry. Legal experts believe those in the payments sector are in a particularly perilous position, as enforcers such as the Consumer Financial Protection

Bureau (CFPB) target companies which process fraudulent payments despite proof that the company itself has been defrauded. Michael Zeldin, special counsel in BuckleySandler’s Washington, D.C. office and a principal in the firm’s financial crimes practice, told me he was concerned 2016 could be the year of individual liability. “Compliance for global organizations, especially for companies that rely on agents, branches, affiliates all over the world, is a very challenging undertaking,” he said. “Regulators and prosecutors need to understand just how difficult it is. If we find ourselves in an environment where the government believes that someone always must be left standing when the music stops, that worries me greatly.” Given that financial compliance officers are often at the mercy of budget constraints, it may result in senior management being drawn into compliance rows if officials look further up the chain for a culprit. The need to be seen to be aggressive is always most pressing following high profile cases, but while the global economy teeters again it is perhaps time to show a little more caution.

Mark Taylor

News Editor for PaymentsCompliance & Blockchain Briefing

Mark’s regulatory coverage of the payments industry touches on a wide variety of subjects from cryptocurrency, international sanctions and anti-money laundering laws to innovation

Haider’s case throws up an interesting puzzle, as in MoneyGram’s admission it includes detail that his calls to flag up a number of fraudulent transactions was overruled by internal officers. It is unlikely that there will be a Hollywood movie made about Haider’s fate, but it is a tale everyone should be aware of as it may ultimately turn away talented individuals at a time the fintech space needs them the most. Compliance officers in the payments space will be hoping it doesn’t turn into a horror story.

About PaymentsCompliance PaymentsCompliance is part of ComplianceOnline. ComplianceOnline is the leading provider of business intelligence for the gambling, payments and blockchain industries. We specialise in providing high level and independent news, analysis, data, eLearning and research through our primary services GamblingCompliance, PaymentsCompliance and BlockchainBriefing. Request your free 14-day trial at www.

013

How the internet of things is innovating businesses Product innovator, software executive, and blogger, Michael Vax is passionate about envisioning and building great software solutions that open new markets and opportunities. For more than 20 years, he is leading development of cutting edge and innovative Internet systems focusing on omnichannel Ecommerce solutions for a variety of industries.

Michael Vax Principal Product Manager at hybris (an SAP company) Michael Vax has spent more than 30 years in software development. During his career, he has worked as a developer, an architect, a development manager, a VP of Development, and a CTO. After living in Vancouver for more than 20 years, his passion for travel brought him to Munich where he joined Product Management team at Hybris. Hybris (an SAP Company) is one of the leaders in enterprise omni-channel commerce systems. Before hybris, Michael worked as a CTO of the Canadian e-commerce company Elastic Path. His first projects at hybris were to introduce online commerce into industries that don’t consider themselves as being in E-commerce business. For example, the team around Michael implemented solutions for TelCo, which is very successful. Moreover, they implemented E-commerce solutions for insurance and banking sectors, later extending to travel industry and public sector. This gave Michael the

014

opportunity to look at E-commerce from a different perspective and analyze how it affects business processes in different industries. This also led him to analyze how the upcoming Internet of Things revolution is going to change the business and commerce models of companies involved.

this company differs from regular car manufacturers. They treat their product as a software. Elon Musk, CEO of Tesla, calls Tesla an app on four wheels. And, there is a lot of truth to it. Visiting the Tesla website, you can see what version of the operating system they are currently running. Tesla upgrades its cars wirelessly and introduces new features via s/w updates.

How would you briefly define the concept of Internet of Things (IoT) and what is different about IoT products?

Tesla approaches its customers dif ferently by of fering them, for example, a beta version of an app that automatically parks the car. This indicates that the perspective has changed on how your product interacts with the customer and vice versa. Tesla claims that it sells the first car that improves and increases in value after you bought it.

PRegular products are physical objects that are neither smart nor connected. While within the IoT domain, you mainly deal with connected devices. IoT devices are connected to a cloud and their “smartness” comes from cloud software that processes information collected by devices and controls them. With IoT transition, manufacturing companies that have previously exceled in producing physical goods, all of the sudden, find themselves in the software business. That’s a huge change and challenge. To meet it, businesses need to adapt their culture and drastically increase pace of innovation. The business shift form being a hardware business towards a software business brings a lot of implications to business models, payment methods and commerce systems. To give an example, you can look at Tesla and how

isa, and Netflix. This organisation is trying to create a standard for online authentication. In fact, they are trying to establish a standard for the removal of passwords and authentification via additional means (devices). And then you think about the connecting piece. It’ll push the landscape to be a slicker and more frictionless process. Let’s take another example and look at LifeFitness, a company that produces exercise equipment for gyms. LifeFitness designs exercise machines as smart,

cloud connected IoT devices. As part of their package they now sell services that monitor the usage of the gym equipment to allow gym owners to keep track on how their equipment is used and optimize their business based on collected data. On top of that the new approach allows their customers to upgrade their gym equipment software and introduce new services as well as innovative advertising spaces. Besides, consumer software has been developed that memorizes preferred exercise settings and provides additional services to gym members. These new smart products communicate to the central service in the cloud, where all data is collected and ready to be used by both business and consumer. How is the Internet of Things changing business models? Fundamentally you need to be ready to sell both services and products. Selling services is very different and many companies are not set up for this kind of mix. When you are providing services you need to implement subscriptions. While not easy, it brings a lot of new opportunities to adjust your business and pricing models. You can read more about it here. On a basic level, when you sell a product you can control its price by either increasing it or decreasing it. When you are selling subscriptions there are many more ways to adjust your offerings. For example, you can offer contracts, which requires a two years commitment for customers to receive a lower price or

you can offer pay-as-you-go, you can include a sign-up fee or no sign-up fee. You can offer monthly fees or apply charge per usage, or a combination. Due to this variety of possibilities you usually have more than one market segment that you can address with such business models. People trusting your product and brand are likely to make the two years commitment while others see the value in your product but prefer to use it rather occasionally. Even without changing the product itself but by adjusting your pricing structures you can address more segments in your market, which will eventually result in potentially more revenue. How do companies need to adjust their commerce and business systems to take full advantage of new business models opened by IoT? I think it’s very important to understand that with IoT products you’re going to have long term relationships with your customers. Standard approach to selling online is to bring customers to your website through advertising, word-ofmouth or other marketing campaigns. Once the customer is on your website you’re trying to make sure that he or she isn’t only browsing but actually adds a product to a shopping cart. Next to that, your intention is to increase the average order value, which is a very important metric in E-commerce. And, eventually you have to make sure that the customers are pressing the Buy button. That’s the end of the story in most cases.

“ If you went to bed ...

last night as an industrial company, you’re going to wake up this morning as a software analytics company.” — CEO GE (2014) General Electric

However, when you have a long term relationship with your customer and you offer services, you have the insight to customer purchase history and, with IoT products, how the products are used. That is the key difference. With IoT products we are moving from just knowing the purchase history to knowing how customers are using the products they bought. Based on this insight you obtain more knowledge on what else you can sell to that customer and when. As a result when you target specific customers your offers are more relevant to the customers and with the collected data you can also better estimate when for instance they would need a service appointments or replacement. It opens this window of life after checkout. That certainly brings a lot of new opportunities. On another note, there are also challenges, such as security or privacy issues. No data can be collected without the user’s consent. Additionally, it only works if your customer sees the value in it. First of all, the consumer must feel comfortable with your brand and have a long term relationship with your company. So, if you position the collection and presentation of data as a service to consumers or clients then I think it wouldn’t be a major problem. Nonetheless it’s a very sensitive subject and companies can get into trouble easily by breaking the trust with their customers. At the same time, IoT is not only about consumer even though it’s the most visible part of it. From an opportunity and revenue perspective there is more potential in B2B.

Always connected throughout the day

015

What impact does the IoT has on the ecosystem of the payments industry? IIf you are used to selling physical objects within your line of business, then your business is transactional. Transition to the IoT adds services to your business and will require much more flexible payments processes than in the transactional environment. You should be able to support recurring and consumption based payments. Subscription brings a lot of complexity into payments. The same product can have multiple prices. With varying pricing models of services you also must deal with recurring prices, free trial periods, or reduced pricing for a certain period of time. Moreover, businesses today need to be able to support consumption based prices as there is a huge trend towards this pricing method, partly caused by the fact that people of today’s sharing economy prefer to pay for usage rather than for ownership. In addition, some per-usage charges could include tiered pricing. All these factors add even more

complexity to the payments ecosystem. I believe that this will be the bread and butter of the payment industry evolving alongside the IoT economy. What’s the one piece of advice for a business leader interested in the Internet of Things? It comes down to start thinking and doing business like a software company. This will lead to changes in how you manufacture your products, how you distribute them, and how you charge for them.

About SAP Hybris The core hybris solution ranks consistently among the top commerce software platforms worldwide. Hybris B2B and B2C commerce applications include an Omni-Channel Offering, Product Content Management, Order Management, hybris Marketing Conversion, and powerful search and merchandising. As a blogger, Michael focuses on omni-channel Ecommerce and disruption that it brings to traditional business models across different industries. Follow Michael’s blog at https://www.linkedin.com/today/author/2326200?trk=prof-sm

016

Spotlight Think you have what it takes to start a business in a super-hot market? PCM takes a close look at some of the most innovative and promising startup companies in the payment industry.

“BLOCKCHAIN PAYMENTS WILL BECOME CRUCIAL FOR BUSINESSES IN THE FUTURE” Mark Højgaard, CEO, Coinify

Pioneering mobile payments and mobile remittance back in 2006, Mark has been involved in the Fintech space for more than a decade already. A very early project involved sending money home using mobile phones targeting so-called Blue Collar workers in Dubai. This was even before the SmartPhone boom! And also before the Fintech business was even called Fintech. Mark’s goal back then was to primarily find ways for people to send value or money as cost effective and efficient as possible. The reason behind this goal, was that each day learning more about the financial ecosystem the more it became apparent that it was - and still is - running using quite outdated mechanisms. Most of the architecture we still see being used today was built back in the 1950s - it’s a bit like driving a heavy vehicle without power steering. So needless to say that when Mark was introduced to the whole new phenomena of bitcoin using blockchain technology 3 years ago, he was amazed and thrilled! When he found out the technology has been around since 2009, he was surprised how it had been evolving that long under the radar, and without his knowledge. Mark instantly began investing time and

020

effort in this new promising business space of cryptocurrencies - leading to the beginning of a new plan. How did your idea for Coinify originate and what is your mission statement? When I began looking into the Bitcoin and Blockchain space, I realised that one of the entrepreneurs and Bitcoin thought leaders globally was actually a Danish person. His name is Kris Henriksen and he initiated one of the very first commercial online bitcoin payment processors back in 2011. Much to my surprise that one of the first movers in this space was in fact a Danish guy and so soon! I also realised that one of the first adopters of bitcoin trading services was likewise Danish, Lasse Birk a young entrepreneur living in Asia at the time. Lasse had a company called Bitcoin Nordic and Kris ran a company called BIPS. My partner and I established a brand called Coinify and when we secured funding for the company, we acquired the services from Bitcoin Nordic and BIPS. We streamlined and professionalised the two companies into Coinify while having all the synergy of both a trading and a payments platform. 12 months ago we were only 4-5 people sitting in a tiny boutique style office in Copenhagen suburbia. Today we are 18

people and last summer we acquired one of our larger competitors, Coinzone, making us the biggest European blockchain payment service boosting the largest volume in Europe today. We are servicing multiple PSPs with our vast range of digital currencies - 17 in total as of today and our speciality is enabling reselling opportunities for PSPs. We like to brand ourselves as the first true blockchain payment service provider, although bitcoin is still by far the most used and also where most of our revenue still originate from. What is your core product or service and what makes it different? Our mission is to offer Payment-ServiceProviders the best tailored blockchain payment technology platform combined with the highest governance and compliance standards. So what have we’ve done to differentiate us? First of all, we’ve made a customised solution for the PSP industry whilst being able to still serve single merchants directly. And we’ve been able to gather top notch PSP professionals joining our team. As an example, our CTO is a former CTO of one of the biggest European PSPs. Furthermore we have professionals from the banking sector boosting us with the best compliance level possible,

even though blockchain businesses are not regulated yet. Backed with this team we can provide the best knowledge in serving the PSP industry. Another aspect is that we have always been aware, that a trading facility in terms of selling and buying digital currencies combined with a payment service will ultimately give you an advantage. The result is forming a very strong ecosystem with currencies both coming in and going out. To give an example; when someone is buying an item on a website using bitcoins, which is one of our services, we keep the bitcoins and pay out dollars, euros or the local currency by choice of our merchants. The advantage for us is we can keep the bitcoins paid by the consumer and thus have the opportunity to sell them via our trading platform since we also have people demanding bitcoins. The dollars, euros and local currencies we receive from customers buying bitcoin, we can then use to make payouts to our merchants. Our merchants in return won’t have to face the challenge of storing bitcoins in terms of fluctuations, or physically storing them, accounting or similar problems. However they can still benefit from all the advantages of the technology. In more specific terms regarding merchant advantages; they can receive a payment without paying a card fee, without facing the risk of chargebacks, and they’ll receive the funds faster than what traditional international payment cards would allow. Hence we provide

them with a faster more cost effective way to receive payments and still get paid out in local currencies. The result is business as usual for merchants as well as the ability to utilise the advantages of the blockchain technology. Ultimately our business model is based on trading coins and our main revenue is derived from the mark-up we make of these trades. We have a strong position on the market by having a very high governance in our company and serving the PSPs with a customised product, easy to adopt for merchants as they will still receive payouts in local currencies. What kind of year do you foresee for your company and the industry as a whole? Within the blockchain industry and especially in the payments industry we’ll see a year in which increasing consolidations and/or mergers will occur, as well as new strategic partnerships amongst industry leaders. I can foresee this trend happening both within the financial industry and the Blockchain industry - and also across industries. I believe that the entire traditional financial industry by now have opened their eyes to the blockchain world. I think they’ll be aiming to team up with many of the thought leaders. This will be followed by acquiring initiatives, setting up strategic partnership or similar processes. So, in my opinion there will be a mix of partnership and a M&A´s blend of the blockchain payment world market leaders and the more

traditional payment institutions during 2016. Many of the larger banks and financial institutions are eager to get access to blockchain knowhow, as well as getting access to its resources. It’s likely that they’ll acquire small startups heavily involved in specific niches of the blockchain technology. You can actually already see this development with the R3 blockchain consortium which includes some nine of the world’s biggest banks in the midst of working together on the blockchain. And since they need more resources and recruitment for further development, I foresee more mergers and acquisitions happening than we’ve seen before. Another interesting event dates only a few months back. The EU Top Court declared that there are to be no value added taxes on bitcoin transactions. Thereby it also ruled that bitcoin is regarded a currency and not a commodity. If it was to be treated like a commodity, value added tax would have to be applied on each transaction. This is viewed as being the first big step towards regulation Bitcoin in the EU And I believe that in 2016 you’ll also see a first EU legislation draft. A legislation which perhaps will be implemented already by the end of 2016 or early 2017. Consequently, the EU market is likely to pioneer the whole industry by having a very clean regulated mindset for the entire blockchain payment system. This will be a great step forward because more opportunities to merge with the regulated financial businesses will then open their doors. What are the key hurdles for growing your business in the coming years?

The Coinify Management Team. CEO - Mark Højgaard (front), CPO - Lasse Birk Olesen (left) and CFO - Christian Visti Larsen (right). Photo: Joachim Adrian

Firstly it can be said that one of the key hurdles, in this still very young industry, is that there is no regulation, and secondly Bitcoin has not yet reached a mainstream level. The daily transaction volume of Bitcoin is 25.000.000 USD, the number of transactions are increasing and today you have around 9 million digital wallets downloaded. In my vision you need to reach 100 million users before you can talk about a real disruptive business as a mainstream player. Getting the growth from 9 million to 100 million is the challenge though. How will that happen? What will be the reason for such a huge uptake? If the number of transactions increase at the same pace it does today, then there will be more transactions on

021

the blockchain than with Visa in only 8 years time. However, I still think it needs to be faster than this in order to reach global success. Being a transaction based company we only make a small margin on each transaction. As such, a huge amount of transactions are needed to run a profitable business in this sector. When you then only have a small market, you need to have a big market share to become a big player. So it’s all about surviving in the years to come, until the market grows to a size which is big enough for other big players to get their share. Lastly, being a non-regulated institution working with regulated institutions is always a challenge. Once we have regulations in place, it will be much easier to set up bigger partnerships with financial institutions going from first-movers to mainstream. To that end, I think the payments industry itself is in need of a new set of regulations all together - and that more than any other industry. What are your thoughts on the current state of the industry and what will the most important opportunities be in this regard? I think a very exiting future is ahead of us. Somehow there is a clash wich will be interested to follow. The blockchain

payment industry is right now facing several new versions of the blockchain and also new crypto currencies is being introduced – so called altcoins. Even the traditional finance Industry has opened up their minds for this technology and now 40 of the largest bank has made a consortium (R3 initiative) working on building their own blockchain solution. It will be a year where many new initiatives of crypto coins and blockchain initiatives will be launched to succeed or to fail. Personally I think that hybrid models such as the Tunisian E-dinar project is a great experiment. Tunisia is introducing a national currency on the partly using the blockchain. This could be a role model for digitalizing an entire national currency. Coinify as a payment aggregator thinks this is a great initiatives and will do our best to enable the e-dinar t be accepted at merchants online and offline. Any recent exciting news you would like to share with the payments community?

excited about that because that is likely greatly increase our market share and especially across the Asian market by providing them the option to buy digital currencies, and hopefully this will help boost the user adoption. Also only a few days ago we released our agreement with bitcoin Vietnam facilitating blockchain payments for merchants all over Vietnam and lastly we signed an agreement with an Malaysian Payment Service Provider. Other good news for us is that Coinify was listed by KPMG and H2 Ventures Coinify among the leading global fintech innovators of 2015 in Fintech. We feel honored, to be considered among the top players in that league. In addition, we’ve also won other payments awards like IFM Award for the Best Electronic Payment Solution category and nominated for the Red Herring Europe Top 100 award, which is very motivating for us as a company and at last invited to speak at the Money 20/20 Europe.

The best news is that it seems the EU is finally taking the regulation issue seriously. If they will launch a regulated scheme for people working within the blockchain industry, it’ll be a major step. News from our side is our new service that enables anyone with a payment card to buy digital currencies on our platform globally. We’re very

About Coinify Coinify drives mainstream adoption of blockchain currencies, for merchants and consumers. Merchants benefit from Coinify’s Payment Service (PSP), enabling free, instant settlements in a fraudfree and chargebackfree blockchain payment environment, while consumers get access to secure, oneclick payments that reveal no sensitive information. Coinify is backed by a multimillion dollar capital injection from SEED Capital (funded by the Danish government) and Accelerace, and is the leading blockchain payment service provider (bPSP). For more information about Coinify, visit their website at coinfy.com.

022

Hot Jobs b

Senior Software Engineer

Business Development Manager

Ireland

Hong Kong

Senior Cross-Border Risk Expert/Director China

Director of Business Development

Product Marketing Manager Payment & Start-ups

Payment Product Marketing Manager Financial Services

California, US

Amsterdam / Brussels

Amstrerdam / Brussels

Senior Mobile Payment Application Consultant

Senior (Technical) Advisor Transaction Security

Senior Consultant Cloud-Based Payments

Leiden, The Netherlands

Product Manager Fraud

Business Development Manager

Sales Manager, Corporate Cards

Brussels

Madrid, Spain

Amsterdam

023

Events

Date: Feb. 2-3, 2016 | Lagos - Nigeria

024

Date: Feb. 3, 2016 | Mumbai

The event connects stakeholders in the remittance, digital money transfers, card processors, mobile payment technologies, agent networks discussing new opportunities and how to lower remittance cost at the last mile.

The Payment Cards Summit focuses on the latest trends and disruptions that are turning Indiaâ&#x20AC;&#x2122;s payments industry on its head. Itâ&#x20AC;&#x2122;s all about who innovates first, market share and making a profit in this competitive industry.

Date: Feb. 3-4, 2016 | London

Date: Feb 9-10, 2016 | London

This event is your one stop shop to equip you with the inspiration, practical insights and cutting-edge solutions you need to create first class Mobile UX. Mobile Shopping is Europeâ&#x20AC;&#x2122;s only eCommerce event designed by Retailers for Retailers.

At FinovateEurpe2016 over 70 handpicked companies will take the stage at FinovateEurope 2016 in London to demo their most innovative financial and banking technology innovations.

Events

Date: Feb. 16-18 , 2016 | Berlin

Date: Feb. 23-24, 2016 | London

The Merchant Payment Ecosystem conference will cover areas like Business Intelligence Hub focused on card acquiring, merchant services, POS, mobile, on-line payment acceptance and interaction beyond payments.

The Retail Banking Innovation Conference will feature a â&#x20AC;&#x2DC;map of the future of retail bankingâ&#x20AC;&#x2122;, as shaped by changing consumer behaviors and compliance issues. You will hear examples of internal innovation from conception to execution that utilize a design-led, customercentric approach to enhance your digital product development.

Date: March 7-10, 2016 | Las Vegas

Date: March 7, 2016 | London

MRC Vegas is the industryâ&#x20AC;&#x2122;s premier conference and trade show with more than 1500 attendees, including over 450 companies from over 30 countries, expected at our 2016 event. MRC Vegas is the largest global event focused on payments and financial services innovation for connected commerce at the intersection of mobile, retail, marketing services, data and technology.

This one day immersive course is for individuals who have heard of blockchain and want to build a deeper understanding the fundamental basics of blockchain. The course is designed for non technical professionals who want to grasp the concept as well as the practical implications of this disruptive technology.

025

Payments and Cards Network Driving Innovation through knowledge

You have any suggestions or ideas for the next issue of our PCM eMagazine? Get in touch today and maybe you will be featured in the next edition:

Amsterdam Office Herengracht 576 1017 CJ Amsterdam The Netherlands Email: info@ paymentsandcardsnetwork.com Tel: +31 20 3030 257 Fax: +31 20 8208 295