European bankers, fintech entrepreneurs, their lawyers and consultants were all struggling with the still-new concept of open banking at the Innovate Finance Global Summit in London in March.
The notion that individuals might be willing to share their banking transaction details with third-party developers of APIs is a marketing man’s dream, promising a treasure trove of data that might lead straight to customer revenue.
As Deloitte points out: up to now, data profiling based just on online behaviours has some purchase information buried within, but much of the data is about consumer interest and intention, rather than consumer action.
Banking transactional data, by contrast, is all about knowing where, when and on what consumers have decided to spend their money.
The process of prizing open that treasure trove of personal data is likely to be fraught. As bankers huddled at the conference, all the talk was of the collapsing share price of a once-trusted tech leader that had allowed third-party API providers to harvest the personal data of its users and their friends without their knowledge.
“I don’t think you’ll hear too many banks saying they want to be the Facebook of finance anymore,” one contact at a big bank testing a banking platform business model tells Euromoney.
It’s an in joke. Last year, we had enjoyed some to-ing and fro-ing over attributing a quote in Euromoney outlining precisely that ambition. The press handlers won out. The quote was not attributed. Euromoney had advised the banker to grow a pair. Now our advice is to buy the press person an expensive bottle of wine.
Entrepreneurs see the potential for a new type of regtech. Consent management solutions are the new know-your-customer authentication and anti-money laundering compliance.
Priviti is one new start-up that has collaborated with international law firm Pinsent Masons to prepare a consent management policy that meets the interrelated and at times conflicting requirements of the second Payment Services Directive (PSD2) and the General Data Protection Regulation (GDPR).
Dave Cunningham, chief executive of Priviti, says: “We are entering the Age of Consent.” It means something new. “In the open banking world, this is not simply about asking the customer to sign terms and conditions. The ‘three-step consent model’ of ‘consent, authentication and authorization’ must be understood and implemented effectively.”
Open banking still seems a bit otherworldly in Europe, with some bankers asking why there hasn’t been more take-up already in the first few months. Seeking insights from those with practical experience, Euromoney seeks out Tao Tao, business development director for Alipay EMEA.
Alipay is streets ahead of the Western competition in technology, because so many among China’s fast emerging middle class – Alipay counts 520 million of them as its customers, with the wealthiest cohort spending $50,000 a year – simply jumped past credit cards and contactless bank debit cards straight into a world of mobile-only payments.
Tao jokes: “If a Chinese person leaves for work in the morning and realizes they have forgotten their wallet, they’ll carry on and manage. If they’ve forgotten their mobile phone, they’ll turn right round to go and get it.”
The company has been using the spending power of these Chinese consumers to establish Alipay as a payment option with European merchants. Already on the e-commerce sites of many leading European stores, Alipay appears as the default first payment mechanism for visitors from China.
The concept of a closed loop is familiar from how PayPal grew its business with eBay a decade ago as the preferred payment method with the best user experience.
|Tao Tao, Alipay|
Alipay, as it looks to take advantage of its Chinese customers’ spending abroad and to acquire new non-Chinese customers, is now using mobile to develop a closed loop in the real world.
“China is fast becoming a largely cashless and cardless society,” Tao tells Euromoney. “We have launched in 21 countries in EMEA to provide this mobile-only experience to our customers here.
“If a Chinese visitor lands in Helsinki, or London or Madrid, the moment they open what we call our ‘lifestyle super app’, we can provide them with personalized recommendations of where to stay, where to eat and where to shop. These lead them to places that accept payment through the Alipay wallet. They don’t need cash. They only have to bring their mobile to the merchant. We undertake to secure the best wholesale FX rate.”
Statistics from the World Tourism Association show that the overseas spending by Chinese tourists ranked first among all tourists worldwide in 2016 at $261.1 billion, increasing 4.5% over the previous year.
A recent whitepaper from Nielsen finds that Chinese tourists spend more than others on shopping, while the highest spend for non-Chinese tourists is on accommodation. It also found that 65% of Chinese tourists use mobile payments, compared with just 11% for non-Chinese.
What’s more, 90% of Chinese tourists, across the generations, would use mobile payment overseas given the option.
“China has embraced mobile payments faster than any country, and will continue to lead the global charge in this regard,” says Vishal Bali, managing director of Nielsen China. “Mobile payment is on the rise globally, and will continue to support greater connectivity and efficiency across the commercial ecosystem.”
Alipay’s Tao says: “We did a recent study with Finnair. You can see it even before they have landed in Europe. When they can pay with mobile, Chinese visitors begin spending more on duty free when they are still on the plane in the air.”
Alipay is not resting on its laurels. It is adding features all the time.
Tao says: “We have even developed a mechanism for customers that may be due a VAT refund that reads the receipt for the purchase and immediately transfers that refund as a reward to their Alipay wallet.”
In Europe, Alipay is working with point-of-sale payments service providers and merchants. It’s a two-way street in terms of benefits, Tao claims.
“We are also able to develop business intelligence to help merchants that are serving customers through Alipay receive insights about what else they could do for those customers, what they could do more of,” he says.
In the next generation of payments, the tail-end of the consumer transaction – the transfer of payment in return for goods or services received – might start to wag the dog and be the driver of what consumers buy and who they buy it from.
China doesn’t have the same legal protections around data privacy as the EU. Does Tao have any advice for newcomers to open banking beyond the need to tick all the right boxes on consent?
“Alipay started Chinese-style open banking seven years ago by aggregating bank accounts behind the Alipay wallet,” he says. “We’ve been able to understand the value of customer data and by developing technology to transfer payment from customer to merchant in seconds, we have vastly improved the user experience.
“We think this will be a game-changer in Europe where our QR code is a new payment rail, different to contactless which runs on the existing rails. As well as speed, we offer higher security and a lower fraud rate than with credit cards.”
Tao offers: “The key lesson in open banking is that trust is fundamental. You have to explain fully to customers in very simple language exactly what you intend to do with their data and what they can expect in return. Customers need to see a tangible benefit to them.”
In Europe, this thinking is still evolving. The reaction of Facebook’s millions of users remains to be seen, but the key lesson probably boils down to the meme pointing out that “if the service is free, you are the product”. There is a growing expectation that consumers will seek to sell their own data rather than have others harvest it.
Cyber security is turning to ways to prevent scraping of data from open sites. If customers don’t get paid in cash, they might demand discounts or rewards in clubs that start to resemble the famed closed loop.
Euromoney asks Tao about the company’s ambitions to acquire more non-Chinese customers.
“We have 200 million in India via our joint venture with Paytm and we are investing in Pakistan with Telenor,” he says. “We also have partnerships in Malaysia, Thailand, Korea and Hong Kong. This, for now, is our global footprint.”
And outside Asia? He’s not giving much away.
“We are prospecting in Europe where it is very likely that we will also proceed in partnerships,” says Tao.