PPRO at Money 20/20: PSD2 and local payment methods for merchants

In a world of ever-expanding markets, merchants need to be as all-encompassing and flexible as they can be. That means allowing as many payment methods as possible, from as many regions around the world. That’s where PPRO come in.

I sat down with Ralf Ohlhausen, Business Development Director, PPRO at Money 20/20 EU, Amsterdam, to discuss the rise of local and alternative payment methods and the evolution of PSD2 – something that Ralf and PPRO have been greatly involved with since the beginning.

Tell me about ‘Who wants to be a payments millionaire?’

We adapted the game for Money 20/20 and I hope it was a bit more exciting than your standard presentation here. We had four partner companies answering some interesting and funny questions, including some about PSD2. You couldn’t win a million, I’m afraid, but you could win €2020 for a charity of your choice. The purpose was to educate the audience about what we’re doing – the areas we’re working in, our partners and the benefits of our service.

What are you here to shout about?

Firstly, the two different sides of our business. We are a processing acquirer – we have one of the largest selections of alternative and local payment methods from around the world, that we aggregate, and then wholesale to merchant aggregators, i.e. not to merchants directly. These fall into three categories: eCommerce PSPs, card acquirers who want to complement their card payment methods, and marketplaces.

On the issuing side of our business, we provide prepaid Mastercards with e-money wallets, both for the retail sector, which is called VIABUY, and the corporate sector, called Crosscard.

Why it so crucial for merchants to accept local payment methods?

In the Netherlands, most of payments made with iDEAL, which is a non-card payment, directly from a bank account. This form of payment is probably the most important form of non-card payment. On average merchants needs 4 or 5 payment methods in their checkout page to cover about 80% of the population.

There aren’t many companies who can offer the range we offer, and if they do they often aren’t licensed to collect money, which we are. Having payment methods connected technically and having just one API into all of them is great, but it’s only half of what’s required. You also need a contract and an account to collect money. If you had to do that yourself, the more payment methods you allow the more difficult it becomes, because you’d need one contract each and accounts in all those countries to collect via the different payment methods. So we’re not just a connector of all those payment methods, we acquire all of them. We collect the money and pay out to our customers, meaning they only need to have one contract, and that’s with us. It’s one connection, one contract and one settlement.

If you combine this with the third element – which is that we’re wholesale only, i.e. not competing with our customers for the merchant – we’re totally unique.

Which of those local or alternative payment methods do you perceive to be the most prevalent?

It’s those with the biggest market share. So, iDEAL has 56% of the market share in Holland, Bancontact has the lead in Belgium. If merchants don’t offer Alipay or WeChat Pay in Asia, there’s no way they can effectively operate there.

Why do some countries take to alternative payment methods and not others? The UK, for example, is still solidly card and cash-based.

We had a booth at Money 20/20 a couple of years ago with alternative soft drinks. Thinking of Pepsi and Coke as being Visa and Mastercard, there are many other soft drinks in different countries all over the world that people just like. For the UK we had Irn-Bru, which never really established that market share anywhere besides the UK. It’s the same with payments. It’s simply down to taste. We’re trying to encourage people to refer to them as ‘local’ payment methods, as opposed to ‘alternative’. In many countries these payment methods aren’t alternative, they’re mainstream and fully established.

What’s next for PPRO?

We’ve been growing 50-100% year-on-year. When we started out in 2006 we were initially more like other PSPs, it was a couple of years later we stepped up the value chain to become a wholesaler, basically selling shovels instead of participating in the gold rush that occurred with PSPs popping up everywhere. Initially we were allowing smaller ones to compete with the bigger ones, but in the meantime the bigger ones are also using us as the specialists to supply them with all of the payment options they need. It’s very difficult for a company to do that alone, there’s a great deal of technical integration involved, and getting a reseller or acquirer contract is even more difficult

So we had a lot of growth already, but that growth will continue, as alternative payments are set to overtake cards in total market share.

You’ve been involved a great deal in regulation, including PSD2. What’s your opinion of PSD2 so far?

Yes, I was already involved in the discussions that led up to first considering a revision of PSD1, which were all about regulating services that aren’t bank integrated. The view was that non-bank integrated services needed to be regulated somehow to ensure their security standards, so PSD2 was born. But then we had the initial RTS proposed by the EBA, which seemed to turn PSD2 on its head, as they were trying to outlaw what PSD2 was intended to regulate. This is when we got involved in lobbying in Brussels as one of the leading parties on the TPP side of PSD2, aiming to get the RTS changed to a more acceptable version, which was achieved but still very much compromised.

Even though that’s now finished, there are ongoing disagreements between banks and TPPs over quite fundamental questins. For example, we’ve been debating authentication methods, as the banks think that customers should always be redirected to a bank’s website to enter their credentials, which is a no-go for TPP’s as they want to control that end-to-end user experience. This is where they want to differentiate and be better than the banks, and it also adds an extra layer of friction to the payment experience. We’re still working on this and hopefully we’ll come to suitable compromises for both sides.

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