SECCION PRELIMINAR DEFINICIONES

Several trends within the development and prevalence of new solutions are seen globally. Among these are1_:

1. The market for new payment solutions is dynamic but fragmented.

2. Several innovations in the payments area aim at speeding up the payment process. 3. Other providers than banks play an increasing role.

4. Mobile phones are used more and more to make and receive payments. 5. Traditional distinctions in the payments area are being blurred.

6. Major global firms are expanding in the payment market.

This list should not be considered exhaustive, and the trends are described in detail below.

Dynamic but fragmented market

The market for payment services seems to be very innovative these years. Every day new solutions are launched around the world and extended to consumers and retailers or tested in specific environments. To this should be added that the Internet has made it easier to disseminate information about new solutions, amplifying the impression of a dynamic market.

The technological development, which has created new opportunities, is a major contributory factor, e.g. the growing prevalence of advanced mobile phones – smartphones – which are used in connection with several new solutions. Moreover, the users have probably been gradually prepared for new payment solutions in step with using new technologies in other contexts.

1 _{See also Bank for International Settlements, Innovations in retail payments, May 2012.}

• Online banking solutions • Online accounts • Prepaid cards

• Mobile phone payments1

• Overlay services • Card with contactless technology • Mobile terminals • Online digital wallets

However, so far only few new solutions have succeeded in capturing significant market shares from the traditional types of payment, and these are mainly solutions that are only applicable at a national level and typically only for specific purposes such as payment of public transportation, etc., and an extension of their use is typically not in the pipeline.

Focus on faster payments

Several innovations in the payments area aim to reduce the payment time, i.e. the time spent on making a payment, as in the case of solutions based on contactless technology. With this type of solution payment is made by holding a device to a reader, which usually reduces the payment time compared to cash payments or payments made by inserting a card into a terminal.

Consumers generally value short payment times, which is demonstrated by the preference for cash in connection with small purchases as this is often faster than paying by card, cf. Chapter 4. This could be a barrier to measures to improve the security of online payments as these typically prolong the payment time.

The wish for faster payments also involves the time it takes to transfer money from the payer to the payee, which depends on the design of the payment system. Several countries have redesigned their national payment systems in recent years with a view to reducing settlement times. As mentioned, this is also the case in Denmark, cf. Chapter 2.

Other service providers than banks play an increasing role

Traditionally, providers of payment services have to a large extent been banks or firms owned by banks, reflecting that a number of payment services are based on deposit accounts, which may only be kept at banks. Moreover, by virtue of their homogeneity, banks have been in a position to establish national and cross-border collaboration agreements, which are preconditions for payment transfers.

In the past few years, other service providers than banks have started to play an increasing role in the payment services market, both as providers of payment services and of more technical services. This trend strongly reflects new solutions that offer other business opportunities and in some cases require the involvement of other providers than banks.

The growing significance of other providers is supported by legislation. The EU has adopted directives regulating new types of payment service providers such as e-money and payment institutions. These institutions are allowed to carry out cross-border activities if they comply with harmonised requirements, including capital requirements and rules for the protection of customer funds.

Payments using mobile phone

As mentioned above, several of the payment solutions that are being launched these years are aimed at mobile phones. Several surveys show that the number of payments made by mobile phone is growing and it is firmly believed that this trend will continue. Also, a new solution involving the use of mobile phones to accept payments by card, cf. main type 2 below, is gaining ground.

A major driver of this trend is the strong prevalence of mobile phones, including smartphones, and their significance to many consumers, who hardly ever leave their phones behind. Add to this the wide

functional applications of the mobile phone; it can be used for e.g. payments via text messages, contactless technology and smartphone apps.

Moreover, the use of smartphones as a payment instrument will be strengthened if they become a more prevalent trading platform in the future due to their Internet access. For this type of transaction it is natural to make payments using the same smartphone as the one used for surfing the Internet for goods to purchase. It could be in the form of an app offered by the payee or a digital wallet, cf. below.

Distinctions are being blurred

A number of traditional distinctions in the payments area are gradually being blurred by new payment solutions. One example is the distinction between payments by card, mobile phone and online banking. For example, a smartphone can now also be used to make online banking payments via a downloaded app, just as it can be used to make payments using the consumer's card if registered in a digital wallet. Other prevalent distinctions are those between proximity and remote payments or physical and non- physical trade. This distinction is largely rooted in the fact that the two payment situations place different requirements on the solutions used. However, a host of new payment solutions work identically in both situations, for instance in connection with the use of text messages or smartphone apps.

Further, new measures may be in the pipeline in the retail sector that will contribute to playing down the distinction between proximity and remote payments, such as retail stores making computers or tablets available to customers for their purchases. Another example is self-scanning solutions, e.g. unmanned checkout terminals, which are considered non-physical trade under Danish legislation.

Large firms are expanding

These years, large global firms are expanding their activity areas to comprise payments. One such example is Google, the IT provider, which has launched a digital wallet. The motives may differ from those of traditional providers. For example, the purpose could be to collect data that is useful for the planning of marketing and sale of advertisements, rather than earning an interchange fee.

In addition, existing providers of payment services are seeking to gain ground in new areas. A firm such as PayPal has extended its activities from offering a service that was primarily aimed at payments of online shopping and person-to-person transfers to offering solutions for payments in retail stores. PayPal and its activities are described in greater detail in Box 3.5.

In the card area, the large actors appear to be gaining importance. In several countries, national card schemes have been replaced by – or combined with – international cards such as Visa or MasterCard. International card companies also make important contributions to innovation. Both Visa and MasterCard have introduced solutions for contactless payments and digital wallets, cf. below.