ABBL, December 2013

Mobile payments: Innovation, (r)evolution ….

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The emergence of mobile payment services accompanied by the launch of a number of innovative solutions is evidence of the commitment of all stakeholders involved: new technologies, telecommunications and banking sector.

The use of mobile payment services is becoming increasingly widespread, as a study on “Smart Commerce” undertaken by EY, which has surveyed managers from the banking and telecom sectors, illustrates. 

The study concluded that mobile payments will become an established means of payment within 5 years, albeit only if it manages to gain consumer trust.

Seeing it as a real development opportunity, the ABBL is convinced that cooperation amongst the main actors involved will be beneficial for the establishment of an attractive legal and regulatory environment with a view to play a leading role in Europe in the area of mobile payments.

Around a dozen companies specialised in payments and e-money are  already established in Luxembourg.

The ABBL has met with Patrice Fritsch, Executive Director at EY Luxembourg, to discuss mobile payments

Could you provide us with a brief overview of existing services in Luxembourg?

Patrice Fritsch: In cooperation with new technology service providers, a number of Luxembourg Banks have launched various solutions.

Some Banks have taken the approach to use directly existing solutions to launch their Smart Commerce products, while others have taken the decision to invest into solutions.

As no standard has clearly emerged yet, part of the Banks are also following and supporting multiple solutions.

As important as the Smart Commerce solutions are, the users’ access to technologies and point of sale  equipment’s are key to the success of Smart Commerce. Even if the market share is still small, the growth will be exponential. Users in Luxembourg are often well equipped with Smartphones and merchant network able to generate QR codes with the payments and supporting a Smart Commerce solution is also growing.

Finally, a key success driver for the Smart Commerce solution is the added value for the merchant and the user including management of loyalty programs, customer data management, market studies, and reduction of time at the moment of the cashier check out by combining all the previous elements into one task.

How do consumers perceive the services, as the main concern seems to be data protection?

Patrice Fritsch: EU commission and local regulators included payment institutions and electronic money institutions in their regulations, laws and circulars. Therefore, these institutions need to comply with similar data protection requirements that are also imposed to other payment means.

As far as data protection is concerned, it is true that consumers often have little or no knowledge about mobile payments. It is also up to the concerned stakeholders to inform consumers about the security of this type of payment when proposing these services.

Given the high number of market players involved, do banks run the risk of losing a potential new market?

Patrice Fritsch: Banks regard the main threat related to Smart Commerce as the customer disintermediation and the decline in Bank relevance to consumer commerce. There is a risk of losing business for non-bank players. There also is a threat, if the banks do not react, that they would only be used as the conduit for payments, while the value would be taken by another. Indeed, banks risk seeing their profit margins shrink to the benefit of third parties, and their role reduced to being that of an intermediary. But, the major threat is the loss of customer relation that the Banks have been building during decades. The contacts and knowledge of their customers’ needs will reduce. As a matter of fact, similar impacts have already happened with consumer or car credits that are offered by merchants to the consumers without contacting the “usual” bank of the consumer. It is therefore absolutely necessary for banks to enter into strong partnerships with other operators and actors or to develop their own Smart Commerce solution if they do not want to lose clients in the benefit of other providers.

Of course, in order to meet this challenge, financial institutions must challenge themselves and offer new solutions, supporting innovation and ensure the continued protection of their clients.

How may Luxembourg’s financial industry further develop this type of activity?

Patrice Fritsch: Banks must seriously consider integrating mobile payment offers into their banking offers.

The major challenges are the implementation of the changes, overcoming conservative internal cultures and selecting the “best(s)” solution(s) when there is no clear winner and data security risks are a key concern.

As today there is no standard in existence, neither globally nor at the European level, a key element in the success of the solutions will be the interoperability between systems, currencies, phones and digital supports, people, social networks, recognition and authentication tools, etc.

Moreover, banks would be well advised to improve their marketing policies in order to better capture clients at the beginning of their working life.

Some investments are of course necessary, but they remain small compared to the implementation of new requirements resulting from the recent regulatory changes.

Where do we stand today as far as regulation is concerned?

Patrice Fritsch: The Payment Services Directive (PSD) of 2009 provides a legal framework for this type of activity. Nevertheless, the EU Commission Green Paper “Towards an integrated European market for card, internet and mobile payments” has demonstrated the necessity to update certain legal aspects: the Commission has thus proposed a review of the PSD and also of interchange fees.

How can the various initiatives be optimised?

Patrice Fritsch: Operators are aware of what is at stake and now offer a whole range of additional services to merchants: loyalty programs, geolocalisation, customer behaviour analysis tools, etc.

Banks might start with one Smart Commerce solution via different  media (ex. Sponsoring, distributing, financing) but future development can also pass by the adoption of multiple approaches and solutions by the same actors.


The country’s small size is a non-negligible factor in the short-term development needs of this type of activity in Luxembourg.

An optimum partnership between operators and banks, backed by secure technical solutions could lead to guaranteed success. Operators are nevertheless aware that long-term success can only be ensured if mobile payments become interoperable.

The ABBL believes that is highly important to define the right services, i.e. user-friendly payment services that are reliable and secure and that provide added value to users in various cases.