E-Commerce Payments – “Push” versus “Pull”
Last month EBA Clearing announced that it had signed up 11 banks to participate in a live launch of MyBank, a new pan-European Online Banking ePayments (OBeP) service. This could be a highly significant development in the long term.
OBeP is the rather clumsy term for a new breed of “push” payment solutions to the challenge of paying online merchants. At checkout, the buyer logs on to their online banking service and arranges for a credit transfer to be made to the merchant. This is in contrast to the more familiar “pull” payment model where the merchant uses the buyer’s card payment details to complete the payment. In many respects OBeP is a very attractive model. Consumers use their trusted and secure online banking portal, no sensitive card details are exchanged, and the merchant enjoys immediate, irrevocable payment. Moreover, the merchant service charge is typically advertised as being significantly lower.
The best known OBeP service is probably iDEAL, which has been highly successful in capturing about 50% of online shopping transactions in the Netherlands. But there are several other similar services in operation, such as Giropay in Germany, eps in Austria and Secure Vault Payments in the US. They all make use of the Automated Clearing Houses (ACHs) in their respective countries and therefore expansion to cross-border payments has proved difficult. For example, an initiative to link iDEAL, Giropay and eps has apparently stalled. This limited acceptance is, of course, the great weakness of OBeP services compared to the truly global acceptance enabled by the major card schemes with their immensely strong brands.
The significance of MyBank is that EBA Clearing will use a pan-European ACH (PE-ACH) called STEP2 for cross border SEPA credit transfer payments in Euros. If it is successful in establishing “push” payments for online shopping throughout the Eurozone, then it will surely only be a matter of time for ACHs all over the world to link up into a global OBeP. An organisation called the International Council of Payment Network Operators (ICPNO) already exists with just such an objective.
This should be a wake-up call to card schemes and the card payments industry generally. E-commerce and other forms of Card-Not-Present (CNP) transactions form an increasingly large proportion of global card payment volumes, but this growth masks a significant decline in market share versus alternative payment methods such as OBeP, and of course PayPal (which is itself a form of “push” payment). Around 2000, cards accounted for close to 100% of e-commerce payments; over the past decade that share has fallen to about 50% or less in some countries.
The reasons for this decline include a continued lack of confidence in the security of CNP card payments, and a perceived lack of convenience for the cardholder. Somewhat belatedly, the major card schemes are addressing these challenges through a raft of measures including 3D Secure (MasterCard’s SecureCode; Visa’s VbV), EMV chip-based remote authentication (MasterCard’s CAP; Visa’s DPA) and most recently, digital wallets (MasterCard’s PayPass Online; Visa’s V.Me).
Who will win the battle for e-commerce payments – cards or non-card payments; “push” or “pull”; banks or non-banks? It’s going to be many years before we have an answer, but the contest is going to be fascinating to observe!
Nick Collin, Banking Automation Bulletin, January 2013