Volume 15 (2021)

Each volume of Journal of Payments Strategy & Systems consists of four 100-page issues, published both in print and online. Articles scheduled for Volume 15 are available to view on the Forthcoming content page.

Volume 15 Number 2

  • Editorial: 
    Gerard Hartsink, Editor, Journal of Payments Strategy & Systems
  • Practice papers
    Payment infrastructure trends in Japan: Emerging technologies and alternative infrastructures
    Eiichiro Yanagawa, Senior Analyst, Celent

    Countries and regions around the world are improving their financial market infrastructure at an accelerated rate. These efforts go beyond initiatives to provide 24/7, real-time, payment infrastructures, into entirely new areas of innovative value-added services. This paper examines advances in payment infrastructure, promising new technologies, emerging service providers and the relationship between the inherent new value and related risk.
    Keywords: financial market infrastructure (FMI), 24/7, real-time payment infrastructure, next-generation financial services, value-added services, Zengin System, BOJ-NET

  • Establishing the trust anchor in the digital economy: The case for banks to become ‘data custodians’
    Mounaim Cortet, Senior Manager, Maarten Bakker, Partner, Pepijn Groen, Manager and Denise Hoppenbrouwer, Consultant, INNOPAY

    This paper argues that the entry of non-bank and/or non-financial players (eg FinTechs and Big Techs) into the payments and banking industry is eroding the role of banks as ‘money custodians’. To survive, banks must therefore embrace new strategic initiatives. This paper discusses how banks can establish themselves as the trust anchor in the digital economy and secure their future relevance and business. Specifically, it presents a strategic roadmap for banks to assume the role of ‘data custodian’ in the everyday lives of their customers. This role will enable them to provide the secure and reliable exchange and management of data-driven digital transactions across all sectors in the digital economy. The proposed roadmap describes the key implications for banks to succeed in their new role. The paper concludes with three critical transformation success factors for bank executives to consider in their transformation journey.
    Keywords: data custodian, data economy, digital ecosystem, digital transformation, open banking, digital identity

  • Preparing euro payments for the future: A blueprint for a digital euro
    Eric Wagner, Group Product Owner Compliance Advanced Analytics, Erste Group Bank, Diederik Bruggink, Head of Innovation and Payments and Alessia Benevelli, Adviser, European Savings and Retail Banking Group

    In its 2020 report on a digital euro, the European Central Bank (ECB) created a starting point for a broader dialogue on the topic. The initiative behind the digital euro, supported by the European Commission, draws on best practices and promising approaches, but is also predicated upon the idea that electronic identity schemes and central bank digital currencies (CBDCs) should be developed in concert. This paper discusses the ECB’s report, before examining other global CBDC initiatives and then proposing a possible blueprint for a digital euro. The paper argues that if the key parties continue to combine their expertise, Europe will not only have a world-class blueprint for a digital euro, but also a template for the creation of a future digital world currency based on European design principles.
    Keywords: central bank digital currency, CBDC, digital euro, digital currency, electronic identity, euro area

  • Consumer behaviour in a health crisis: What happened to cash?
    Kevin Foster, Senior Survey Specialist and Claire Greene, Payments Risk Expert, Federal Reserve Bank of Atlanta

    This paper uses data from the Federal Reserve Bank of Atlanta’s 2019 Survey and Diary of Consumer Payment Choice and interim rapid-response surveys in spring and late summer 2020 to give some insights into consumer cash holdings and payments behaviour during the COVID-19 pandemic. The paper describes several key findings from the survey, most notably that US consumers increased their cash holdings at the time of the pandemic lockdowns. More consumers held at least some cash, and almost half of consumers had more than US$100 in spring and late summer 2020, compared with one-third in autumn 2019. In spring, just one-third of consumers reported making an in-person payment, compared with almost everyone in autumn 2019. People who paid in person, however, were about as likely to use cash in the spring as they had been in the previous autumn. Payments of unemployment benefits appear to have affected cash holding for some consumers. Similar to the behaviour of some consumers in advance of hurricanes, some consumers reported getting precautionary amounts of cash.
    Keywords: COVID-19, cash, US currency in circulation, consumer behaviour

  • The impact of merchant and mobile payments on financial inclusion in Asia-Pacific
    Zennon Kapron, Managing Director, Kapronasia Shanghai

    Financial inclusion is one of the biggest impediments to growth in South-east Asia. Access to financial products or even financial institutions is very limited in some countries, constraining both individual and company access to capital. This phenomenon has only intensified during the COVID-19 pandemic, and is especially problematic for those individuals and companies with largely offline businesses. This paper argues that the roots of change are starting to take hold, as payment service providers and business-to-business players are helping bridge the digital divide. Payments services are increasingly likely not to be standalone products, but rather to include a myriad of both financial and non-financial products and services that can help individuals and companies increase their economic empowerment.
    Keywords: financial inclusion, Southeast Asia, platforms, digital payments

  • Acceptance of digital payments among rural retailers in India
    Surabhi Koul, Assistant Professor of Marketing, School of Business Management, NMIMS, Sahil Singh Jasrotia, Assistant Professor of Marketing, Jaipuria Institute of Management and Hari Govind Mishra, Associate Professor, SMVD University

    The growing acceptance of digital payment instruments among rural retailers in India has significantly enhanced people’s livelihoods, and represents a positive step in the country’s journey to being a cashless economy. This paper uses the technology acceptance model as a theoretical platform to understand better the drivers of these developments. The study concludes that retailers consider it risky not to accept digital payment modes at the point of purchase as they fear losing customers if they do not.
    Keywords: digital payments, rural retailers, structural equational modelling, technology acceptance

  • Wholesale payment systems: Modernisation of the liability framework
    Robin Doyle, Managing Director, J.P. Morgan Chase

    Wholesale payment systems are potential targets for fraud and cyber attacks due to the scope of activity they cover, the high value of individual transactions and the trillions of dollars they move across the globe daily. These risks have increased due to the increasingly sophisticated methods malefactors are using in their attacks. While payment system operators are modernising their infrastructures in response to these threats, there is still work to be done. Payment system control and governance frameworks must be strengthened in accordance with guidance from regulators and marketplace best practices. There is also an urgent need to examine the liability frameworks under which payment systems operate as some may not be adequate to protect participants and owners from either business-as-usual or catastrophic losses, and participants may be expected to bear uncapped, unpredictable liability for losses. This paper suggests that all participants in the payments ecosystem should consider the strength of their resources to cover potential losses, adopt guidance on endpoint security provided by the regulatory community, and engage in a collaborative effort to ensure that appropriate incentives exist for all parties to maintain enhanced defences against fraud and cyber attack, thereby better supporting financial stability.
    Keywords: wholesale payments, liability, fraud, cyber attack, controls, governance, financial stability

Volume 15 Number 1

Special Issue: FinTech’s Impact on Payments - Part 2

  • Editorial: FinTech’s impact on payments - Part 2
    Harish Natarajan, Guest Editor, Lead — Payments and Market Infrastructures, World Bank
  • Practice papers
    Sovereign digital currencies: Reshaping the design of money and payments systems
    Ross P. Buckley, KPMG Law — King & Wood Mallesons Chair of Disruptive Innovation, UNSW Sydney, Douglas W. Arner, Kerry Holdings Professor in Law and Director, Asian Institute of International Financial Law, University of Hong Kong, Dirk A. Zetzsche, Professor of Law, ADA Chair in Financial Law (Inclusive Finance), Faculty of Law, Economics and Finance, University of Luxembourg, Anton N. Didenko, Research Fellow and Member, Centre for Law, Markets and Regulation and Lucien J. van Romburg, Research Fellow, Asian Institute of International Financial Law, University of Hong Kong

    This paper focuses on how technology might reshape payments going forward. It considers the policy issues and choices associated with crypto-currencies, stablecoins and sovereign digital currencies and emphasises that there is no single model for sovereign digital currency design. While Bitcoin and its progenies could be safely ignored by regulators, Facebook’s proposal for Libra, a global stablecoin, brought an immediate and potent response from regulators globally. Any proposal by the private sector to move into the creation of currency — the traditional preserve of sovereigns — was always likely to trigger such a regulatory response, as well as the launch of sovereign digital currencies by other major central banks. While China has moved first, dozens of other countries are now investigating their own central bank digital currencies or other forms of sovereign digital currency. This paper argues that central banks should first focus not on rolling out novel new forms of sovereign digital currencies, but rather on transforming their payment systems. In time, domestic money and payment systems are expected to evolve so that central banks cooperate with (new and old) private entities to launch digital currencies that better underpin monetary and payment systems at the domestic, regional and international levels.
    Keywords: sovereign digital currencies, central bank digital currencies, Libra, digital yuan, COVID-19, payments, stablecoins, blockchain

  • Two paths to tomorrow’s money
    Tony McLaughlin, Managing Director of Emerging Payments and Business Development, Citi Treasury and Trade Solutions, Citibank

    Payment systems need to be modernised to meet the needs of 21st-century digital economies, but which road to follow? The publication of the Bitcoin white paper in 2008 raised the prospect of global digital currencies without central issuers or intermediaries. While cryptocurrencies have yet to achieve the status of money, the underlying ‘token’ technology has prompted big tech interest in stablecoins and central banks to evaluate novel forms of national currency issuance. Although crypto has captured the column inches, most real-world action in payments since 2008 has been elsewhere — the rollout of instant payments schemes, the adoption of electronic money wallets by hundreds of millions of people and the FinTech revolution. This paper suggests that we stand at a crossroads. Will the future of money be digital tokens, restructuring the financial system as we know it, or a much needed overhaul of account-based payments?
    Keywords: crypto-currency, Bitcoin, blockchain, central bank digital currency (CBDC), Stablecoin, instant payments, digital identity

  • Money and customer funds in the world of digital finance: Who really owns what?
    Biagio Bossone, Senior Advisor, World Bank

    This paper addresses the moneyness of fully backed digital currencies issued by the private sector in the form of electronic monies, stablecoins and ‘synthetic’ central bank digital currencies. Are these true monies or are they just services provided by FinTech companies to facilitate the use of funds? Furthermore, who actually owns the funds that back these monies? Distinguishing between money, claims on money, and money claims that eventually become money, this paper compares the development of the above types of digital currencies with bank deposits as these have evolved in the banking practice over the years. The paper points to the apparent inconsistent treatment between issuers of digital currencies and banks as issuers of deposit claims, and indicates how addressing this inconsistency could change the rules that govern the provision of digital currencies, reallocate the responsibilities associated with their issuance and use, and redesign the measures to protect stakeholder rights. The suggested measures call for existing regulations to be revisited in some important respects.
    Keywords: bank deposits, customer funds, digital currencies, e-money, stablecoins, synthetic CBDCs

  • Innovation and competition in payments: Evolving policy challenges
    Pablo Urbiola, Head of Digital Regulation, Lucía Pacheco, Digital Regulation Manager and Jesús Lozano, Digital Regulation Manager BBVA

    Technology-led innovation in payments has been a constant over history. Nevertheless, the ongoing process of digital transformation is proving to be radically different from the previous waves, as it is leading to a more profound reconfiguration of the financial industry. By facilitating the entrance of new players, particularly FinTech and big tech companies, technological innovation in payments has increased competition, further inducing innovation and efficiency gains. Despite having obvious benefits, payment system innovations and the associated changes in competition dynamics have implications for consumer protection, financial stability and market integrity that require an adequate response from supervisors and policymakers. This paper explores how the digital transformation of financial services has led to the opening up of the payments market to new providers, initially specialised FinTech companies and increasingly large technology conglomerates. The paper also discusses how regulators and policymakers have already responded to the evolving nature of the payment ecosystem, and key issues that policymakers should take into consideration to define a forward-looking approach. Finally, it calls for a balanced regulatory intervention that promotes electronic payments adoption and responds to the challenges posed by this unprecedented transformation trend in payments.
    Keywords: payments, financial regulation, digital markets, competition policy

  • Did Wirecard ever matter? Reflections on the structure of the German e-commerce payment service provider market
    Niklas Bartelt, Lecturer and Ulrich Hommel, Chair of Corporate Finance & Higher Education Finance, EBS University of Business & Law

    The scandal-ridden collapse of Wirecard AG in June 2020 raises three important issues regarding the German e-commerce payment service provider (PSP) market. First, what do we know about the structure of the PSP market and, more specifically, its concentration when Wirecard was still ‘in the game’? Secondly, in the light of the evidence on market concentration, was the disruptive fallout following Wirecard’s demise based on realistic concerns? Finally, would linking company reporting to market data have allowed for a more precise gauging of Wirecard’s market relevance ex ante? To explore these questions, this paper draws on a data-driven market survey, expert interviews and confirmational reverse data engineering. The paper concludes that market power on the supply side of the market is not only limited but also sufficiently counterbalanced by market concentration on the buy side — among other factors. Simply put: Wirecard was not a systemically important PSP; indeed, it was not even a major one. The insights provided by this paper should invite further forensic analysis to better understand why many market observers got it wrong.
    Keywords: payment service providers, PSP, digital payments, e-commerce payments, market structure, Wirecard AG

  • Digital wallet war in Asia: Finding the drivers of digital wallet adoption
    Putri Natasya Fanuel, Graduate Student in Management Information Systems and Ahmad Nurul Fajar, Associate Professor in Computer Science, Bina Nusantara University

    Using data sourced from a quantitative study of 457 digital wallet users in Indonesia, this paper aims to find the drivers of digital wallet adoption. The study uses a comprehensive technology acceptance model that combines both social environment and technological characteristics in order to predict intention to use digital wallet services. The study finds that the drivers of intention to use digital wallet technology are usefulness, ease of use and innovativeness. The study also finds that digital wallet adoption is influenced by personal experience, perceived security, subjective norms and job relevance. The paper discusses both the theoretical and practical implications of the research findings so that digital wallet providers can devise appropriate business strategies to encourage the wider acceptance of digital wallet technology. The paper also enhances the current knowledge about the drivers of digital wallet acceptance using modified TAM2, which has never been done before.
    Keywords: digital wallet, mobile wallet, FinTech, technology adoption, technology acceptance, innovation diffusion theory

  • Factors influencing the acceptance of proximity mobile payment in Germany: The example of Apple Pay
    Silke Finken, Professor of Innovation Management, International School of Management and Louisa Heiduk, Consultant, Horváth & Partners Management Consultants

    This study is one of the first to analyse the factors driving the adoption of proximity mobile payments in Germany, with a specific focus on Apple Pay. It employs a mixed-methods approach based on 14 qualitative interviews with specialists from the financial service sector and a quantitative online survey with 617 participants. The aim is to better understand the factors enhancing and inhibiting the growth of proximity mobile payment solutions, and to generate insights regarding the characteristics of early adopters of Apple Pay in Germany. The authors investigated a range of factors from existing technology acceptance research as well as additional aspects concerning brand perception and sociodemographic factors to identify significant differences between users and non-users of Apple Pay. The most pronounced differences concerned personal willingness to innovate, followed by perceived concerns regarding the risk associated with mobile payments, the perception of Apple as a secure provider, the perceived trustworthiness of technology providers in general, social influences, gender, and the user’s desire to be perceived as tech-savvy. Additionally, the perceived benefits of mobile payments, reasons for non-usage, as well as further potential value-added services to enhance future user experience were analysed and appropriate recommendations derived.
    Keywords: Apple Pay, proximity mobile payment, NFC, mobile payment, diffusion of innovation, technology acceptance

  • How small and medium-sized retail enterprises can make the best use of payment innovations
    Maria Iride Vangelisti, Director of the Financial Education Department, Banca d’Italia

    Recent years have seen great innovation in the field of payments. This paper discusses which aspects of the payment process may be relevant for retailers and the innovations that may be useful for meeting retailers’ needs. Special attention is devoted to how small and medium-sized firms (SMEs) can make effective use of such advancements to simplify the payment process, ensure a frictionless experience for their customers, speed up the finality of fund settlement and reduce processing costs. The paper discusses the importance of giving careful consideration to the selling mode and size of the firm, as well as the implementation costs. The paper shows that while some innovations are easy to implement, for instance, because banks and service providers supply turnkey solutions, others require more complex arrangements and the involvement of third-party providers. The paper highlights the importance of cooperation agreements between SMEs, specific awareness campaigns and financial literacy initiatives to put SMEs in a better position to leverage payment innovations and improve their business opportunities.
    Keywords: payment innovation, payment acceptance, small and medium enterprises (SMEs), retailers, cooperation agreements, awareness campaigns

  • FinTechs and payments for international education
    Venkataramani Prakash, Vice President and Head Retail Business, EBIXCASH World Money

    This paper examines the landscape of global student mobility, giving special attention to the emergence of FinTechs in the international education payment space. Banks, which have at best been participants in the market for cross-border remittance of person-to-person and person-to-business/university payments, are now seeing new innovative FinTechs solving customer pain points, making transactions more efficient and simple. This paper maps the huge market demand for speed, safety and security in education-related payment instruments. With COVID-19 creating a new normal, the paper also describes how various FinTechs have launched creative solutions to solve payment issues for students and reconciliation-related challenges for universities and other beneficiaries by setting up smart digital interfaces. The issues faced by students and parents at a larger level are very similar to the frictions and challenges seen with peer-to-peer payments.
    Keywords: FinTechs, cross-border remittance, education payments, tuition fee, peer-to-peer, digital payments