This paper sets out some of the major trends impacting the payments industry, as well as some ideas about how important stakeholders can help shape this fast moving public policy environment.

1. Card, Mobile and
Internet Payments
Future Trends
and Scenarios
April 2013

2. This paper from MHP Communications,
one of the UK’s leading public policy and
communications consultancies, sets out some
of the major trends impacting the payments
industry, as well as some ideas about how
important stakeholders can help shape this
fast moving public policy environment.
MHP sees three major changes on the horizon:
1.A sea change in financial
services policy-making
2.The emergence of a
new European regulatory
framework
3.A constantly evolving
payments ecosystem

3. This scrutiny needs to be seen against the
background of the financial crisis, where the
regulation of financial services, including rules
impacting payment systems, has become
highly politicised.
The ownership of financial regulation by
the G20 means that Heads of State and
Government take a personal interest in issues,
which has led to a complete overhaul in the
dynamics of decision-making in Europe.
At the same time, the media and general public
have also become drivers of policy. Public
perception is increasingly forcing companies to
rethink how to engage in a more politicised and
emotive debate. As decision-making on financial
services regulation in Europe has shifted so
decisively from the UK to Continental Europe,
politicians in Germany, France, the Netherlands,
Finland and Spain have gained control of
the agenda. The recent debate over bonus
payments in banks is a clear demonstration
of how the UK’s influence has waned.
In addition public authorities at the EU
(such as the European Commission) as well as
Member States are clearly considering that the
establishment of a competitive level playing
field in the payments industry will help boost
innovation and growth in the wider economy.
According to EU policy-makers, existing
bottlenecks limit competitive opportunities
and remove incentives to innovation in areas
such as mobile payments. From a regulatory
perspective these bottlenecks have to be
removed as soon as possible.
European policy-makers therefore will have to
contend with two countervailing pressures over
the next five years: the need to enforce new rules
across the board in financial services, while
stimulating enough confidence and demand that
lending flows back into the economy, in support
of innovation and growth. For the payments
industry, there is an opportunity to set out some
of the real economy implications of its business
model and regain some influence over the political
and regulatory debate lost in the crisis years.
For participants in the payments sector looking
to have a stake in the future legal framework,
these seismic shifts mean that they need to
engage in a regular and structured dialogue
on policy and regulatory issues - rather than
purely on commercial considerations - with key
decision-makers in Europe, on a sustained basis.
This is where MHP Communications can help;
our role is in helping companies understand
the public policy agenda and how it interacts
in support of your business strategy.
A new public policy environment
The attention being paid to the card payments market by the
European Commission and national competition authorities,
whose aim is to act increasingly and strongly to disrupt the
status quo, is one of the major factors contributing to the
changes the payments industry is going through.

4. Add to that the Durbin amendment in the Dodd
Frank Act, the first moves by US retailers to set
up their own payments networks and concerted
European regulatory activity are creating a new
reality. Zero interchange is now openly being
discussed by policy-makers around Europe -
first on debit cards, with a cap on credit card
payments to follow. The full extent of the
possible changes should become apparent in
June 2013, when the European Commission
adopts a Regulation on interbank fees related to
card payments, which will then be scrutinised by
the 27 Member States and European Parliament.
In parallel, the Commission will continue
competition law-based investigations, with
ongoing scrutiny of Visa and MasterCard
expected to lead to some commitments over
debit and credit card rates in the near future.
With or without commitments, the changing
political agenda in 2014 should keep card fees
high on the political agenda. With elections for
the European Parliament in May 2014, as well
as the selection and composition of a new EU
Commission in Autumn 2014, Brussels will be
keen to show citizens how and why the EU acts
in their interests. Tangible deliverables, such
as capping roaming charges and lowering
interchange will be tempting targets for EU
policy-makers, increasingly seeking legitimacy
and recognition.
Moving away from the debate surrounding
interchange fees, the Commission also identified
other areas, such as co-badging, the structural
separation between card schemes, processing,
settlement, clearing and interoperability,
transparency and technical standards issues.
These are seen as fundamental to solve before
the market can become more fluid and optimal,
and innovation flourishes.
The prospect of negotiations on a Transatlantic
Free Trade Area between the U.S. and the EU
could give additional impetus to the Commission
to act strongly to address many of these issues.
The Commission will also publish a review of the
2009 Payment Services Directive in June 2013
to adapt it to the new payments ecosystem
outlined, alongside a communication on the
governance of the Single European Payment
Area. Associated with further actions in the
field of banking regulations, open technical
standards and favourable consideration of
strategic developments led by mobile operators
and technology providers in the field of mobile
payments, the Commission is clearly willing to
implement a highly aggressive enforcement
strategy to open the market to competition
and innovation.
Finally, Member States could implement far-
ranging policy actions that either anticipate or
complement EU policies. This was demonstrated
by the proposed creation of an economic
regulator for the payments industry in the UK,
in charge of implementing utility-style regulation
to the payments market as well as sector
specific competition law.
Regulation: the end of interchange
The combination of distrust towards the banking industry,
the economic and financial crisis, consumer resistance to
hidden charges, and the increasingly essential articulation
between the physical and virtual / digital retail distribution
channels are driving the debate on interchange.

5. The Payments Ecosystem
Policy-makers understand the essential role that
payment cards have played in the growth of
e-commerce. Cards have, for many years, been
the key instrument allowing customers and users
to purchase, sell, subscribe and trade over the
Internet - providing the essential infrastructure
to support the emergence of new services and
new market participants. This transition was
further facilitated by the substantial growth of
card payments in Europe, where the “plastic-
based” economy developed into the principal
way for consumers to pay for goods or services.
With their widespread and commonly accepted
use in the offline and online world, card
payments are currently the predominant force
globally. This unique market position reinforces
the close links between card payments and
emerging innovative systems such as mobile
payments, which could underpin new products
and services that are drivers of new economic
growth.
Mobile payments have the potential to contribute
to more socially acceptable banking products
such as micro-loans, financing, trading and
person-to-person money transfers that can be
used more responsibly by all citizens, including
those most impacted by economic and social
challenges. Mobile payments and banking
services developed in emerging markets in
Africa and Asia have demonstrated the viability,
attractiveness and success of such business
models, particularly for the so-called ‘unbanked’.
This growing segment could create new realities
for traditional payments market players by
moving from the bank account or card-based
payment environment to mobile device-based
wallets and accounts. This will increase the
growing importance of mobile operators and
technology companies, combining residual
cooperation and increasingly fierce competition
between the players of the global ecosystem.
These new realities resulting from both
commercial, market and societal evolutions such
as mobile device penetration rates, increasing
use and role of social media, geo-location and
requirements for localised information whilst
on the move) are opening new segments and
patterns such as Social Local Mobile (SoLoMo)
or Research Online, Purchase Offline (RoPo)
that will support a range of innovative new
payment options.
The payments ecosystem has now become
increasingly complex:
ICT Businesses
The pre-eminent place that major technology
companies such as Google, Amazon and PayPal
are now holding has contributed to a large
extent to stimulate the high level of competition.
There has also been an emergence of smaller
start-up companies proposing new technologies,
products and services with a more specific focus
on a vertical market, customer base or
communities.
As a new set of policy-makers arrives in Brussels in 2014, it is
incumbent on the payments industry to educate stakeholders
on the evolving nature of the industry and its development.
From our point, we see a much more complex ecosystem
where market players are at the same time cooperating and
competing quite fiercely.

6. Banks
Financial institutions need to keep control of
new products that could potentially compete
with their own, whilst providing customers with
innovative products and services. Innovation
is crucial for them to rebuild loyal and more
trustful relationships that have been damaged
since the start of the financial crisis in 2008.
PSPs and Schemes
Payment Service Providers and card payment
platforms need to maintain their positions as
the core of the payment system and maximise
their market share by anticipating technology
and market evolutions. These include MNO-
independent solutions as well as embedding
their mobile payments solutions directly on
mobile devices through partnerships with
manufacturers, such as Visa and Samsung
integrating NFC-enabled payments.
MNOs
Mobile Network Operators (MNOs) need to
generate new income in a maturing market
with decreasing revenues, saturated penetration
rates and an economic crisis, while also facing
important investments into 4G. They have to
increase traffic on their networks, further grow
ARPU and reduce churn rates.
MNOs could decide to take off the gloves and
show a far more aggressive attitude by breaking
the traditional cooperation with banks and other
financial services players, and taking advantage
of regulatory developments at EU level. MNOs
are not hesitating to acquire E-Money or
Payment Institutions Authorisations in a
number of key EU markets, as seen by
Telefonica O2’s acquisition in the UK in 2012.
Mobile operators are also extremely eager
to avoid the “dumb pipe” sickness and to
increasingly become a commodity, producing
low added value and stagnant revenues. They
are keen to be an attractive partner to content
providers, leverage their huge customer base
and acquire a fundamental stake in the
payments system.
Other constituencies are important for the
mobile payment ecosystem in particular:
• Mobile device manufacturers are trying to
increase and maintain attractiveness of their
devices and for some of them re-imagine
themselves with a survival imperative.
• Consumers are looking for more personalised,
competitive, convenient, secure systems for all
payments on the go.
• Merchants need cheaper, diverse, secure,
faster, customer-friendly, integrated payment
options than currently available.
• Governments want to promote more
competition in the payment market, achieve
less reliance on PSPs, create new tax revenues
and promote economic/technological progress
by offering new opportunities for companies
and citizens.
The Payments Ecosystem continued

7. At MHP we help our clients understand
and engage with the key financial services
policy-makers in Europe. They include:
• The Heads of Government, finance ministers,
administrative heads of the finance ministries
and central bankers or regulators of France,
Germany, Poland, Italy and Spain.
• The leaders of the opposition in France,
Germany, Poland, Italy and Spain.
• Key Committee Chairs of the national
Parliament; where appropriate.
• The Heads of Government and finance
ministers of the country holding the EU
Presidency (rotating every six months).
The next Presidencies are Lithuania and
Greece.
• The National Regulatory Authorities in
charge of the sector.
The key players in the European Union
institutions are:
• The President of the European Council in
Brussels, currently Herman van Rompuy.
• The President of the European Commission
José Manuel Barroso and the Commissioners
for the Internal Market and Competition as
well as the Commissioners for Justice (e.g.
new Data Protection Regulation) and for the
Digital Agenda (ICT policy). The Commission
will be renewed in 2014.
• The Directors General in the European
Commission in DG Internal Market and
DG Competition.
• The President of the European Parliament,
Martin Schulz, the Chair of the Parliament’s
Economic and Monetary Affairs Committee
Sharon Bowles and the coordinator of the
largest Group in the Committee the French
Conservative Jean Paul Gauzes.
• The President of the European Central Bank,
Mario Draghi.
MHP helps our clients develop coherent
strategies underpinning engagement with the
European Union institutions, measured against
previously agreed benchmarks. In addition, we
help clients to create, maintain or change their
external perception in the market place
by creating a constructive dialogue with the
key media.
The opportunity is to take greater control of
the regulatory environment and where possible,
to positively influence the thinking of the above
target group of senior key decision-makers on
financial services regulation in the European
Union institutions and Continental Europe.
Doing this successfully, you open the way to
becoming the industry partner of choice for
regulators, policy-makers and businesses in
Continental Europe in the payments arena.
Working with MHP
About 50% of all European legislation originates from the European
Union institutions in Brussels, but in financial services this figure jumps
to near 100%. Over the past five years of Single Market Commissioner
Michel Barnier’s term, in the region of 70 pieces of legislation have been
proposed, debated or implemented at European level with an immediate
impact on the financial services sector.

8. For more information about MHP Communications
and for specific questions on mobile payments
please contact:
Alisdair Gray
Brussels
Robert Roessler
London
Jean-Stéphane Gourévitch
London
payments@mhpc.com
www.mhpc.com
tel 0044 203 128 8100