As 2022 draws to a close, we’re already setting the stage for an eventful 2023. While regulation will once again keep many of us on our toes, I’m also eagerly anticipating the future composition of the payment mix. With the dawn of Corona and at the height of the pandemic, there may have been one primary focus: venture more contactless – for retailers and consumers alike. The issue of interchange and processing fees, although ever-present, took a bit of a back seat. This attitude should now be passé The crises of this year have unleashed a new dynamic, especially in the last few months.

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With fees calculated as a percentage of sales, up to 10% inflation means a not inconsiderable increase in the total cost of processing card-based transactions. With energy costs as a main driver of inflation, which have risen for everyone, only few companies and industries have seen margins grow at the same rate as costs. In view of this, sooner or later in the coming year merchants will want to sit down at the negotiating table more often again with their payment service providers. This will affect both the market-leading debit and credit card schemes and their acquirers, most notably girocard and its merchant concentrators. Equally, however, doors (and perhaps hearts) are opening again for new or recently far less popular payment methods v v This affects both the market-leading debit and credit card schemes and their acquirers, most notably girocard and its merchant concentrators.

Appearance of the good old ELV (one-off direct debits)

Partly ridiculed, partly spurned, ELV, the “Elektronisches Lastschrift Verfahren” procedure was always a significant competitor in the German POS payment market, especially to the girocard, until a few years ago. Recently, however, it had become very quiet around the payment method, which could never quite decide what it was: card payment, direct debit or – as is common practice – the best or at least a mixture of both worlds. No contactless function, miles of extra receipt rolls and worn-out pens in times of pandemic – everything seemed a little out of date. What’s more, the long-standing cost advantage was being made up for bit by bit by other payment media – not least because movement was coming into supposedly still non-negotiable interchange rates. The much-vaunted risk of payment defaults can be left aside at this point with a clear conscience. Let’s face it, in the land of poets, thinkers and insurers, this is a manageable cost factor. All too often already priced in and for very few payment managers a reason for sleepless nights.

ELV providers have not been idle

New contactless standards for ELV were developed and a solution was also found for the noCVM limit of 0 euros, i.e. for the amount limit up to which the entry of a PIN or signature may be dispensed with. New contactless standards for ELV have been developed and a solution has also been found for the noCVM limit of 0 euros, i.e. for the amount limit up to which the entry of a PIN or signature may be waived. Until now, this has effectively meant that each Tap&Go attempt was still given a “&sign” and thus a decisive process disadvantage. The process simplification is made possible by the conversion to a card-initiated recurring direct debit and is already on the tableau of the first providers. The result: only a signature is required for the first transaction, after which the existing mandate is serviced. Beyond the noCVM limits of competing card products, Tap&Go will become the standard for ELV and, as such, will certainly be watched closely by the other market participants. Fortunately, it’s been possible to digitize the signature on the receipt for quite a few years now. Should a major retailer dare to make the switch back to ELV in the coming year, e-signature pads will certainly be part of the bargaining chip.

A look into the crystal ball

It should also be a fact: The longer inflation continues, the more the model of uncapped transaction fees will be questioned, even beyond the relative caps at 0.2/0.3% of the transaction amount. Rather, merchants will be demanding an absolute maximum fee amount per transaction. Card scheme fees in all their wonderful to whimsical forms are likely to be another thorn in the side of many merchants and increasing pricing pressure will only be further borne to a certain extent on the shoulders of acquirers who continue to consolidate. Another endangered species that I believe has a chance of recovery in the medium term, albeit probably under a new name, are the hippos (short for the German term: Händlerinitiierte Instant Payment am POS which translates as merchant-initiated instant payments at the POS). This is because the aforementioned cost pressure can not only spur competition among inventory solutions, but also prepare the ground for new approaches. Many attempts have been made to “make the hippos fly”. Few to none have been crowned with success, which in the past was especially due to the fragmented product and contract landscape for instant payments. Additional fees charged by the banks to their customers, diffuse information (after all, one has often heard the question whether SOFORT and real-time transfers are not the same thing) and the lack of widespread availability of instant payments have so far blocked the emergence of a serious POS solution. Rather, one will be around an absolute maximum amount.

 

Focus on instant payments

Now, the EU Commission has recently announced the IP obligation for European banks and should thus give new impetus to merchant initiatives. Capping costs for end customers? Check. Widespread availability for all? Check. Ambitious targets for implementation? Check. It almost seems as if the central bank wants to express that they have created a suitable framework for clearing/settlement. What is still missing now are use cases with a suitable front end. Or loosely based on the former German football player and trainer Franz Beckenbauer: “Go out and make payments”.

Speaking of regulatory initiatives

The digital euro will also be further explored by the ECB in 2023, but I don’t see big successes and announcements coming up in the next year (yet). However, great transparency in the publication of interim results has been announced. Thus, from the middle of the year, one can at least look with some curiosity forward to the findings of the prototyping phase that has started. Since there will initially be a greater focus on the retail CBDC (central bank digital currency), the name-giving retail area should hopefully also become the center of attention of the central bankers soon and thus the closing of ranks will be sought. 

Last, but not least

When it comes to the POS, I’m always a little hesitant about the girocard. Not because I have reservations about the product, but because as the undisputed POS top dog with the concentrated argumentative power of large numbers, it actually needs the least encouragement. #Rootingfortheunderdogs But also for the girocard – and with this I will close the topic block – I expect a lot in the coming year. The consolidation of DK products (kwitt, paydirekt, giropay), which has been driven forward for some time now, should bear the first noticeable fruits next year away from the pure brand presence. First online capabilities, digitized cards, Apple Pay – many topics have been pushed recently. If it is now possible to get the online payment function (beyond paydirekt… I mean giropay, of course) available on a broad scale, it should finally be possible to close the often-criticized technological gap to the online capabilities of other card schemes. This is not a real POS issue, but the border is admittedly becoming increasingly blurred. It will be a while yet before we can see whether I am right with at least some of my expectations for 2023. In the meantime, I wish you all a nice and contemplative end of the year, happy holidays and a happy new year.

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