“Sometimes you have to shake up the banks a bit.” Ten years after he started gently shaking up the banks with Digicash on 15 November 2012, Raoul Mulheims, now CEO of Finologee, looks back at the most common predictions at the time and what has actually become of them.
Banks will disappear
The term ‘fintech’ appeared in 2014. At the time, the first conferences and discussions were held on the future of banks, which were not capable of reinventing themselves, and were too wary of technology... There was a lot of bank bashing. Some people were enjoying themselves, especially the former bankers... It was said that Big Tech was going to take them over, perhaps underestimating that Big Tech has only been interested in the parts that either make sense for their core business or are highly profitable. Apple Pay is using its market position through devices and forcing banks to give up some of what they get for credit card payments.
Other areas, such as credit, which is the foundation of banking, have not been affected. There is ‘buy now pay later,’ but for the rest, neither big tech nor fintech have gone there because it implies more complex procedures, risk analysis, etc. We don’t see so many new products launched by banks either, but a massive digitalisation, yes. Cooperations like the Apple card in the US with Goldman Sachs, things like that. The bankers understood that they had to offer a user experience, interfaces, that were up to date. That’s where it really accelerated.
Covid has also helped to change the mentality of banks regarding digital processes, both for consumers, who are no longer comfortable going to their bank for more personalised or detailed meetings, and for bankers, who have digitised the channels. Increasingly, cost and regulatory pressure to reduce human error is accelerating back-office transformation.
Mobile payment will replace bank cards
Card payments are made up of two elements: the token or identification tool, at the point of sale or elsewhere, to say that it is me who wants to make the transaction; and the financial exchange network. There have been advances on both levels. For example, Digicash on the one hand, which completely replaces a card payment because it uses a new token to trigger the payment, and on the other hand, a new channel--the old channel, in fact, the bank transfer, as an alternative to the bank card--operates.
There have been developments like Apple Pay, which replaces the card token to put that element on your smartphone on the secure element and still uses the card network and card acceptance. Again, how difficult is it to go in one direction or the other, to make habits evolve and change the organisation that exists? Obviously, it’s much easier to evolve the token than to say you’re moving to another brand of card acceptance system.
Mobile payment is going to be rapidly adopted
There are merchants, especially in e-commerce, who think that the more payment methods they offer, the more payments they will get. As the technological effort, especially for e-commerce, is not very high, especially with the development of payment method aggregators, they go for it easily. One of the major players in the Luxembourg retail sector told me that they were not there to favour one payment method over another, but to surf the markets and trends. However, they expected at least two or three banks to issue this solution, and that the solution would bring in a minimum number of payments. In 2012, Cora had agreed from the start to be part of the Digicash adventure. The consumer’s emotions don’t really come into play. For them, it is a technological innovation that is easy to adopt. The retailer will adopt not only the means of payment but also the payment facilities that go with it! Selling more will always be the merchant’s benchmark.
The smartphone must have enough added value to be adopted
Back in the day, people already said that you had a very powerful computer in your pocket with which you could do a lot of things. The disadvantage is that there are different layers of control from the device: the manufacturer, the mobile operator, the issuer of a card or a means of payment and the acceptance on the merchant side. A lot of players that can affect the user experience. If today you have to swipe your smartphone to the side and check that it’s you to unlock the phone, it’s because these are Wordline terminals, which have won lots of design awards but were designed at a time when people didn’t use their smartphones to pay.
The phone for authentication with facial recognition was not designed for the moment of payment. In time, and take the experience of bill payments, it is very powerful with a QR code. Powerful in recognition, in speed and in execution... You have to work on the details. The more of the chain you control, the better. That was the aim with Digicash, to try to influence everything we could, the bank’s experience, the merchant’s experience, which we couldn’t necessarily always do, hence the interest in using smartphones. At the time, we couldn’t use the NFC chip, Apple was against it! Today, it is partially possible but we had to use QR codes anyway, even though we knew that the experience would not be any better than with a card or with Apple Pay.
With giants like Apple or Google, you don’t always have control. That's why it’s hard to appreciate the user experience. Will it be enough to convince? To convince the consumer and the merchant? It was said that it had to be at least three times better than any other experience to have a mass effect. After that, sometimes the experience is not necessarily better, but consumers--if they have it because they use it in different contexts--may well accept it. If your experience is not significantly better than others, you will have a much harder time breaking through.
Wallets will replace bank accounts
Today, we have added a lot of additional uses to the word ‘wallet’ compared to the old days but with one common point: to hold a value of a bank account. Any other approach, whether it's FlashIZ or Satispay for payments or whether it’s in crypto, NFTs or other security tokens, is outside the banking framework. Funding a wallet from a bank account since 2012 has become easier. There are automated withdrawals, like the neobank Revolut. When you look at what they accept to fund your account! They even pay credit card fees when you want to put €100 on it.
With instant payments, you can trigger both PSD2 and a wallet feed more easily than in the old days, when it took one or two days until it was credited. If it was by credit card, the fees were exorbitant, so you really had to sponsor or subsidise the models that were getting into this... We asked ourselves at the time how many problems we could solve, how many battles we could fight at the same time... We had to establish a new brand of payment method, take up the technical challenge, the regulatory challenge and the challenge of trying to control the account--to start with an electronic money logic, i.e., a wallet--because you are going to have a lot of difficulty finding partner banks that will let you touch the accounts. And they weren’t wrong.
But we came across a bank that had a certain appetite, Spuerkeess, because they were able to think ‘Why not trigger the payment from the account?’ Afterwards, we made our calculations, we looked at how much it would cost us, how much investment we would have to make and how many challenges we would face at the same time. We had to remember the trader. We gave up on this account control and relied on the partner banks to promote it and to ensure the security and confidence of the consumer. Wallets, in different contexts, can make sense but do not always make sense.
What will we be talking about in 2032?
And if we were to talk again in ten years’ time, what would you say you are betting on?
Raoul Mulheims: I'm betting on a generic identity that will allow you to make payments and store all the information you need to verify your identity in a central environment, whether it’s for your identity, your payments or your driving licence. It’s not the smartphone anymore. Contrary to what was said ten years ago, the wallet ++ version of 2032 will probably be a storage wallet somewhere. The biometric identity could be the device you have on you and that will almost automatically or completely automatically trigger payment, the right to access or anything at all.
This story was first published in French on Paperjam. It has been translated and edited for Delano.