Transformation in Payment&

Fraud Prevention

Payment transformation and its relevance in the distribution

Pascal Burg - Director, Edgar, Dunn & Company

Thierry Stucker - Director, Industry Financial Program, IATA

Payment regulations: What are the latest news?

IATA World Financial Symposium

September 2018

© Edgar, Dunn & Company, 2018

Drivers of change in the payments industry

4

Regulations is one of four key factors driving significant change and disruption in the payments industry

2. New technologies & services

3. Newentrants & products

4. New client behaviour

1. New Regulations

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Why focus on payment regulations ?

6

Looking back at first : which deadline took place before this summer ?

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Mr AlbrechtHow the GDPR Will Change the World

7

Update 1 : Interchange fee regulations

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Interchange fees will be reviewed and most likely further regulated in the EU, but timing is unclear

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In other markets, regulators are also reducing interchange fees …

ConfidentialNotes: Israel (Feb 2018) : http://www.boi.org.il/en/NewsAndPublications/PressReleases/Pages/25-2-18.aspxCanada (Aug 2018) https://www.bloomberg.com/news/articles/2018-08-09/visa-mastercard-amex-agree-to-trim-interchange-fees-in-canada

The Bank of Israel accelerates the path of reducing the interchange fee

Visa and Mastercard agreed to cut Canadian card transaction fees

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… or even contemplating an interchange fee ban, as suggested in Australia

ConfidentialNotes: Australia (Aug 2018) http://paymentsjournal.com/credit-card-interchange-australian-regulators-gone-wild/https://www.pc.gov.au/inquiries/completed/financial-system/report/financial-system.pdf

The Australian Productivity Commission recommended a ban on interchange fees

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Update 2 : Wide range of EU payment regulations

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EU’s payments reform agenda has been a constant and ongoing process to ‘open up’ the payments market

* Dates indicate when legislation was formally adopted by EU Council

2000:Lisbon Agenda

2000:1st Electronic

Money Directive

2010 2020

2007:1st Payments

Directive

2012:Updated 1st

Payments Directive

2001:SEPA regulation on cross-border

2009:2nd Electronic

Money Directive

2016:2nd Payments

Directive

2015:Interchange

Fee Regulation (IFR)

2000

2009:Updated 1st

Payments Directive

2025

IFR 2.0

PSD 3.0

High Level Timeline Of Key EU Payments Legislation*

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Key PSD2 Concepts & Principles

Access to accounts (X2A)

Access to customer accounts by Third Party Payment Providers (TPPs)

Open Data

Provided by new Account Information Service Provider (AIS)

Security

2-factor authentication, Strong Customer Authentication (SCA)

EBA & RTS

European Banking Authority (EBA) Mandates

EBA: independent authority accountable to EU Parliament and Council

PSD2 conferred 11 mandates on the EBA

Mandates ’tasked’ EBA to define RTS

Regulatory Technical Standards (RTS)

Regulations, including RTS, directly applicable law and no interpretation by EU member states is permitted

PSD2 provides the conceptual pillars and regulatory principles for EBA’s Regulatory Technical Standards (RTS)

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Strong Customer Authentication

Acquiring Fee Transparency

Access To Accounts (XS2A) via APIsPSD2 adopted by EU in 2015 and Member States have to implement into national law in 2018

Instant payments and other innovation driving change in the financial service environment

2nd Payment Services Directive (PSD2)*

Third Party Payment Providers (TPPs) Account Information Services (AIS)

Payment Initiation Service (PIS)

Interchange Caps & Surcharging

* Post-regulatory environment PSD2 & other regulatory events as well as additional drivers of change such as service innovation (i.e. Impact of Instant Payments)

Instant Payments

Regulators in Europe are trying to promote innovation via PSD2

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Access to accounts and Instant Payments are likely to be game changers

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Access to accounts Instant Payments (or real-time payments)

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Strong Customer Authentication (SCA) is one of eleven EBA mandates

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SCA requirements will be implemented soon, but a lack of clarity and direction is making balancing security and the customer experience difficult for merchants

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SCA requires at least 2 of 3 factors of authentication*...

…there are some exemptions to help reduce checkout friction…

Remote transaction <€30

(SCA required after 5th

transaction or once value hits €150)

Issuers can apply exemption & their fraud rate is below

threshold rate

SCA not required when a payer adds merchant

to list of trusted beneficiaries

…as well as certain transaction types being completely out of scope of SCA

Specific use cases only -payee initiated payments

e.g. mobile telco payments

SCA not required for the likes of gift cards

SCA not required in specific use cases; e.g. US issued

card used online at EU merchant

*For card transactions and for credit transfers

Low Risk

Merchant Initiated Trn

MOTO & Anonymous

Paym. Instrum.

One Leg Out Transactions

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SCA comes into force in September 2019 - after an 18 month transitionary period

13th Jan 2018 Deadline for member states to

transpose PSD2 into law

13th March 2018 RTS on SCA & SCS was published in the

official journal of EC

14th September 2019Implementation deadline for RTS on SCA. Member states

through their regulators responsible for ensuring compliance

2018 2019 2020

14th March 2019Deadline for bank interfaces (APIs)

and testing facilities

High Level Timeline Of SCA Implementation

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Phase 1360° payments

diagnostic

E.g. what are the major regulations impacting

your business?

Phase 2Payments strategy /

roadmap

� E.g. how to avoid negative impact of

SCA on sales?

Phase 3� Paymentsoptimization

�

E.g. RFPs to select payment partners

EDC would suggest a three-phase approach for Airlines to identify, evaluate and address payment opportunities and threats such as regulatory changes

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If you want to discuss payment trends and opportunities

Edgar, Dunn & Company1bis rue du Havre75008 ParisFrancepascal.burg@edgardunn.com

Tel +33 1 4007 9224Mobile +33 6 7937 5547

Pascal BurgDirector

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Edgar, Dunn & Company (EDC) – global strategy consulting firm focused on payments and with a Travel practice since 2002

Global Experts in Financial Services & Payments Consulting

Edgar, Dunn & Company (EDC) is an independent globalfinancial services and payments consultancy

Founded in 1978, the firm is widely regarded as a trusted advisor to its clients, providing a full range of visionary, fact based strategy consulting services, knowledge, subject matter expertise and market insights in payments

Travel practice since 2002 for clients including airlines, hotels, travel agencies, rail operators, GDSs, IATA, etc.

EDC has offices in London, Frankfurt, Paris, San Francisco, Istanbul and Sydney

Office locationsShaded blue countries represent markets where EDC conducted client engagements

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This document is protected under the copyright laws of the United States and other countries as unpublished work. This document contains information that is proprietary and confidential to

Edgar, Dunn & Company, which shall not be disclosed outside the recipient's company or duplicated, used, or disclosed in whole or in part by the recipient for any purpose other than to

evaluate this document. Any other use or disclosure in whole or in part of this information without the express written permission of Edgar, Dunn & Company is prohibited.

� 2018 Edgar, Dunn & Company (unpublished). All rights reserved.

Creating a digital payments platform for growth

Ray ChesworthPayment Solutions Business Development Manager, Accelya

Deliver a Payments Strategy for Growth

Ray Chesworth, Business Manager – Payments Solutions, Accelya

&

Nigel Allen, Director – Product Management, Mastercard

Without change there is no innovation, creativity, or incentive for improvement.

Those who initiate change will have a better opportunity to manage the change that is inevitable.

William Pollard

Global Payment Trends

key trends are shaping the global

payment landscape:

4Technological AdvancesDigital payments have changed more in the last 5 years than in the previous 20. Mobile devices are becoming central to both online and in-store shopping.

GlobalizationLeads to borderless industry and the increasing ability of global super brands to enter local markets.

CrimeFraud is constantly evolving, which can make it difficult to manage, and merchants need to protect data security and prevent consumer fraud.

Strategic PartnershipsWith an expanding number of players in the payments ecosystem, partnerships are essential to fulfil consumer needs.

* Mastercard-commissioned study by BCG and the “Market Forces” project.

$6T

$0.7T

Digital

Traditional

$14Tin 2013

$23Tby 2023

Device-based contactless15% of commerce

In app5% of commerce

Browser6% of commerce

Traditional

Digital26%

By 2023, 26% of retail purchases will be digital, and there is growing diversity in channels.*

The Emerging Digital Market

The Evolving Ownership of Payments provides opportunity for airlines that pursue a holistic payments strategy

Drive Growth, Reduce Cost, Maintain Compliance

Finance CommercialTreasury

Introducing the Accelya Payment Gateway

Providing airlines with the means to optimize their digital payments

programme

+

Centralize, Simplify, Automate and Control

Payment Gateway

Clearing

Reconciliation

Chargebacks

• Brand-agnostic• Global connectivity• Powered by Mastercard

• Centralise• Minimize acquiring fees• Boost sales

• Control compliance• Control fees• Control payments

• Recover lost income• Synergies with Payments &

Fraud

Designed exclusively for airlines

Independent, neutral & flexible

PCI-DSS compliant environment

Direct interface with acquirers, ERP, GDS, banks and others

Reporting Accounting

Benefits to Airlines

Reduce costs

Maintain ultimate control

Increase / protect

market share

Questions?

Blockchain for ICH: Beyond the hype on consumer facing initiatives, materializing how blockchain can truly transform

corporate payments

Juan Ivan MartinHead of Innovation, IATA

BLOCKCHAIN TECH ACROSS AVIATIONWFS – Madrid 20th Sept 2017

linkedin.com/in/jimartin

Juan Iván MartínHead of Innovation, FDS, IATAmartinj@iata.org

AREAS OF APPLICATION IN AVIATION

ProvenanceCertificationCodifying AgreementsTokenizing

ValueIdentity

Management

IATA BLOCKCHAIN PROJECTS

IATADCA

IATA COIN

TRAVEL BLOCKCHAIN

FFP

Digital Finance

IATA Coin

DCA

ID Attributes

x y

z w

AIRLINES Travel Agents OTHERS

Blockchain

Enroll

x y

3rd Parties

z w

Travel Blockchain

THANK YOU!

linkedin.com/in/jimartin

Juan Iván MartínHead of Innovation, FDS, IATAmartinj@iata.org

IATA to facilitate airline acceptance of instant bank transfer

Benjamin Madjar - Director, Global Head of Cross Product Solutions, Deutsche BankJavier Orejas - Head of Banking, GDC and DB, IATA

World Financial Symposium 2018

Panelists:Javier Orejas, Head of Banking Management EMEA and Americas, IATABenjamin Madjar, Global Head of Cross Product Solutions, Deutsche Bank

PSD2, Open banking, Instant Payment: a game changer for the Airlines industry and the online payments in general

World Financial Symposium 2018

World Financial Symposium 2018

World Financial Symposium 2018

Instant payments with no cards or costly fees

Reduced working capital and operational costs

Better shopping experience

Open Technology Authentication

World Financial Symposium 2018

World Financial Symposium 2018

World Financial Symposium 2018

World Financial Symposium 2018