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"XP payments, especially through Apple Pay and Google Pay, will become increasingly available at more merchants. At the same time, alternative payment options will emerge, some linked to the card, which is what we support, and some built on account payments, that is, from account to account. So to some extent, they will bypass the card," Frantisek Jungr, Visa's product director for Central and Eastern Europe, tells the Adastra podcast.
- Where is there room to improve the user experience when paying online?
- How does tokenization work with Click to Pay and similar alternatives?
- When will we finally get rid of the PIN on payment cards?
- What role will machine learning and AI play in payments?
Listen to the podcast (CZ)
Read the podcast as an interview
Ivana Karhanová: Innovation as a search for a better way. Innovation as an optimistic view of the future. Innovation as a tool for overcoming obstacles. Adastra and Innovation Week 2022 brings you a special podcast series. How can the use of credit cards be improved? Paying by mobile phone using NFC, usually Google Pay or Apple Pay has become a standard for many Czechs. So where is there room to improve the user experience when paying online? Therefore, František Jungr, Visa’s Product Director for Central and Eastern Europe, is a guest in the studio. Hello.
František Jungr: Hello.
Ivana Karhanová: Paying by mobile is easy. I attach, pay, or authenticate with Face ID or fingerprint. Where do payments most often fall when paying online?
František Jungr: You are right to say that over the last ten years, we have managed to move payment in brick-and-mortar stores to where we all probably wish it was. That is, we are in a situation where we don’t think about payment. And that payment is very simple and intuitive for at least 30% of the people in the country who pay by mobile phone today.
That is certainly true. Of course, many of our fellow citizens still pay traditionally by plastic card, which means more frequent PIN entry. There is room for improvement, although contactless technology has certainly helped with that.
As for e-commerce payments, there it is more complex and simpler at the same time. There’s a lot more competition, which means that figuring out how to pay in an online environment is a lot easier than in brick-and-mortar stores. In brick-and-mortar establishments, you need a physical device on which the payment takes place. That device has to be certified, and so on.
In the online environment, from that perspective, we have seen over the last decade and a decade that many more types of payment have emerged. But, of course, not all of them have succeeded, so card payments are under much more pressure.
Ivana Karhanová: But on the other hand, when I want to pay at a lot of e-shops, where they have Apple Pay – because I have an iPhone – it’s cool, and I don’t care if I pay via tablet, via Mac, or if I pay via iPhone. The system is identical. But the moment the e-shop doesn’t accept Apple Pay, and I’m forced to enter my card somewhere, it’s sometimes a problem because I don’t even have the card.
František Jungr: You say that very well. Of course, I’m also an Apple Pay and Google Pay user, and it’s my preferred payment. Nowadays – and I’m rather using a guess here – I would say that about half of the merchants accept this payment option, and the other half that accepts cards as such do not offer this option at the moment, for whatever reasons.
In addition, of course, we still have a large proportion of merchants who do not accept cards. We often don’t realize that, and we are used to buying from the big names, the big players, where we take it for granted. But if we look at the e-commerce world in the Czech Republic, about half of the merchants still don’t take cards.
Ivana Karhanová: You pay by bank transfer or cash on delivery.
František Jungr: Exactly. And again, there are different motivations for why merchants do it. Some do it because they are small, and maybe it’s not worth it to them to even bother. Some still do it because they feel that the extra cost of the card payment is not worth it. We can debate that, too, of course.
And it’s true that the moment you pay at a merchant that accepts cards but doesn’t currently accept XP payments, meaning Google Pay and Apple Pay, you’re still going down the old road. That means you have to physically have the card with you, or at the very least, you have to have a bank that allows you to view the card number within the mobile app.
There are more and more banks offering this today. You don’t have to have a physical card, but you have a phone on which you can view the card and then overwrite that information. If you don’t have that option, you’re back to a physical card that you must go to your wallet and copy and type the information. We think this is an unsustainable system in the long term, but on the other hand, it is universal worldwide.
It is a unified method, and most people, at least card users, know that they will pay on the Internet. However, we’ve known that the UX of the solution is not good for years. Perhaps it’s with the advent of contactless payments that it’s even more glaring that suddenly it’s so simple to pay in a physical store and so, in quotes, complicated to pay there.
So I think there are a couple of things that are going to happen from that perspective. First, XP payments will become increasingly available at more merchants, which is gradually happening, and it’s like introducing anything new. It takes time. At the same time, alternative payment options will emerge, some linked to the card, which we support, and some built-on account payments, that is, account to account, and they will bypass the card to some extent.
Ivana Karhanová: There is about a year in the Click to Pay market, if I’m saying it right, where the system, the card company, or the e-shop should remember the card. I guess you’ll specify how that works technically. But it should work similarly for users who don’t have Apple Pay or Google Pay.
František Jungr: You say that very correctly. Last February, we launched Click to Pay, which is precisely targeted at the user who, for whatever reason, doesn’t use XP or the merchant doesn’t offer that service. And at the same time, we still have users who say they don’t want to put the card in their mobile. By principle, this group is shrinking and gradually shifting, as with any innovation.
In the case of Click to Pay, it’s that you do store the card, but you store it with a particular merchant in the way that you’ve been used to some extent up to now. If you go to a larger merchant, you have no choice but to store your card with that merchant. It can be streaming services where you have no way to subscribe without a card.
They’re international players who don’t want to deal with specific payment methods in each country. With other merchants, you have other options, but it’s still convenient to store your card, and then you can use One-Click Payments if the card is already with that merchant. However, you will probably choose this tendency or option at certain merchants. Either where you don’t have a choice – those are the streaming services, or at the big merchants that are well-known and reputable.
You shop with them more often, and by the time you go to a medium-sized merchant or a smaller merchant or somebody even bigger than that, but you don’t shop with them regularly, the tendency that you would want to deposit your card with that particular merchant is going to be relatively small.
And that’s where Click to Pay is aimed, where the card is stored with the payment scheme, not with a particular merchant. This means that it is as secure as possible. We don’t share the information about that card number directly with the merchant, and it also avoids the possibility of data leakage or anything else.
Ivana Karhanová: That means that it’s tokenized, similar to NFC payments.
František Jungr: Exactly. Currently, both Click to Pay and any similar alternative is tokenized today. That means that we don’t reveal the 16-digit card number. That token can be and often is specific to just that merchant. So misuse elsewhere is minimized. With Click to Pay, we can cover the rest of the market where XP is unavailable, or the user does not use XP, and it is not your top 3 merchant that you regularly shop at and already have your card stored there.
And then that payment works very similarly to being at a merchant where you have the card stored. You could almost say One Click Experience. When you identify yourself to that merchant, in this case, the payment service provider to whom somebody offers that payment gateway, you identify yourself with an email. Based on that, they pair that with other information. Then, of course, additional validation also takes place so that they know that it’s you. So that payment goes through without you having to enter a 16-digit number to enter additional information.
Ivana Karhanová: Do you manage to educate merchants in this regard because, for example, the Czech e-commerce market is very penetrated? There is a lot of competition, and I will pay at a merchant where I can pay with one click. I don’t have to hunt for the card every time, and writing down the number and expiry date is quite important for me.
František Jungr: I think it’s a gradual process, as with any innovation. Our ambition was that the adoption of this service would be faster. However, I think that over the last almost 12 months, we have learned many lessons on how to do it better.
We are currently in the 70 percent of merchants that accept Click to Pay today. However, we are still missing some big players to make the system work and make both the card issuers and the consumers who use the service willing to learn to use the service regularly. We need some kind of market, and we are not there today.
We are targeting the summer of this year, when I think a couple of things will come together. One thing is that there will be enough traders not only in numbers but also in volumes. That means the service will be supported and offered by the big merchants and the names we classically inflect. And on top of that, it will add to the mass that is already there today, and at the same time, banks will encourage signing up for Click to Pay because there is a barrier to signing up for every service and every new service.
The more you work directly with the card issuer – that is, in mobile banking, you push the card directly into Click to Pay, so to speak, without having to register again somewhere and fill in the details – the more consumers will, of course, sign up.
And the question about whether some merchants will prefer that versus what they already offer today, I guess it will be a mix as it always has been. I’m sure there will be merchants who will continue to prefer that the customer deposit the card directly with them. However, they must consider that not every consumer is willing to store a card at all. A large group of consumers still do not want to store their cards with a merchant, either because they lose track of where they have stored them or do not trust the system that much.
And even though it may not be based on realistic grounds, the moment we tell them and communicate to them that they are storing it with the card scheme, the data is not shared with that merchant. So, we think the group of consumers willing to store and use the card will increase.
Ivana Karhanová: Do you know what prevents merchants from adopting these technologies faster?
František Jungr: I think it’s a combination of factors. The payment is just a small part of the whole chain that the merchant is dealing with, and it’s the last step.
Ivana Karhanová: Well, and the most important thing, right? You need to get the money.
František Jungr: Yes, very important step. But before that, of course, the merchant has to ensure that the consumer ends up on his website, that he chooses the product, and that he goes through the whole flow, the UX that he offers. And yes, that last mile, maybe not even a mile, but the last hundred meters is really about that payment, so it’s important. However, there are plenty of alternatives that merchants offer today.
There are some services out there that will provide that consumption, that need in some way. But as we said, the UX is not ideal. So we think adoption will accelerate as awareness of the service increases and all the groups start to come on board. That means there will be more registered cards and more merchants.
And then, of course, it’s also about the marketing, the education that we do together, whether with the payment gateways or the card issuers because education on the end consumer is necessary. Today, if you tell the average consumer what they think about Click to Pay, they probably won’t know what you’re talking about.
We hope that in twelve months, when you say – maybe not Click to Pay – but store your card with Visa, most consumers will know the added value it will bring them.
Ivana Karhanová: Do you have any idea what, on the other hand, annoys customers the most when paying online?
František Jungr: There are several surveys on this every year. It’s not just about payment. It’s also about some simplicity and, of course, as in everything, about price. That is, it’s not about payment as such, but it’s about finding the optimal price and, of course, going through some process.
There are more and more users, and it’s more of a younger group of eighteen to thirty years old, who are more resistant to signing up somewhere. They want to buy something somewhere, and they want to buy it easily, but they don’t want to go through some registration, either because they don’t want to share their personal information, or they think it’s just a one-off, or they don’t have the time.
This is called guest checkout. We think this group will grow, and we must adapt the access to that. And that’s when we see Click to Pay as optimal.
Ivana Karhanová: I’m outside the age range you mentioned, but my willingness to register for purchases is also low because I don’t see why. I want to buy and go away, and I don’t need to keep in touch with the e-shop.
František Jungr: We think it is a certain barrier and will increase. And then, of course, it’s the payment. Of course, more and more people are moving away from cash-on delivery nowadays. Five or six years ago, it was still more than 50 percent. Today, we are talking about a number below thirty percent, but it is still a relatively high number. However, they often argue that they want to hold the goods in their hands before paying for them.
It’s a bit of an odd one because they may hold a package in their hand, but they don’t know what’s in it, they don’t know what the quality of the goods is, and so on. And they can’t take advantage of the services that come with card payments, like chargeback, which means that if the goods or the service delivered doesn’t match what was agreed, they can claim the goods.
So it’s more of a habit that persists here, but it’s gradually decreasing in the Czech Republic and central Europe in general. A similar system operates in Poland, Slovakia, Romania, and other countries, and everywhere we see that the number is falling rapidly every year.
Ivana Karhanová: Do you think the time will come when we will get rid of the PIN on payment cards?
František Jungr: I think it will come, but we are not talking about a horizon of a few years. Again, everything needs time. In payments, this is often doubly true because it is money. And when money is involved, we are doubly careful. I think in terms of paying in physical stores, because we’re not talking about PIN in the e-commerce world, it’s going to be with the advent and further acceleration of biometrics.
Today, as we mentioned here, when we pay with XP, we don’t enter a PIN. It’s either a fingerprint or a face. Today we are talking about 30 percent, as I mentioned, in the country. It is good to say that the Czech Republic is the European leader in the proportion of mobile payments in total payments. On the other hand, we are not the leader in how much is paid by payment cards.
The Scandinavian countries lead in this respect, where credit cards pay 80 percent of all retail trade. In the Czech Republic, we are between thirty to forty percent, although this rises yearly. That is why we are the leader in the proportion of mobile payments but not in the proportion of what is paid. The more that number increases, the less PIN will be needed.
And the other thing that is good to mention is that most European countries have raised the limit under covid, where you don’t have to enter a PIN. For example, in the Czech Republic, it’s 500 crowns if you pay by card. I almost don’t remember it because I hardly pay with a plastic card. Still, when you pay with a plastic card above 500 crowns, you enter a PIN, plus you enter a PIN if you exceed some cumulative limit that you have on the card, either the number of transactions or some amount.
In the UK, it is currently £100, that’s two and a half thousand crowns. In most European countries, it’s 50 euros, the equivalent of twelve hundred crowns. The Czech Republic currently remains almost at the low end with its limit; thus, the need to enter PINs is more common than elsewhere in Europe. We hope we will be able to increase the limit in the Czech Republic this year so that convenience and security will remain. This will reduce the number of PIN entries.
However, this disappearance will be related to the transition to XP or to the transition to what we often talk about – that the world between e-commerce and physical Card Present is beginning to merge. That means you buy something online, then you pick it up in a physical store, or you pick something up in a physical store, and then it comes to you online. But even that payment is going to start to blend here. It’s going to be that even though you purchase in a physical store, there can be an e-commerce payment with the card being stored somewhere, you’re registered somewhere, and I’m not even talking about more futuristic scenarios like the Amazon Store where you walk into a store, you pick up the item, and the payment takes place somewhere in the background.
We have those too, not only in America in the Amazon Store, but there are several cases like that in Poland. In the Czech Republic, these are rather isolated examples. However, it will become more and more common for payment to take place purely in e-commerce, even though you are in a physical store. And then, authentication will be linked not to the PIN but to the payment method you use.
Ivana Karhanová: You mentioned the word security and customer concerns when paying by card several times during the call. The fact is that security in recent years, at least from my point of view, has reached extreme levels. I can also explain that fraud is shifting from misuse of the card to the fact that you voluntarily misuse the card. What are the trends in this direction? Are we at the edge of what we can police with users?
František Jungr: I don’t know if we are on edge, but it has to be said that security in Central and Eastern Europe is at a high level, and card misuse or so-called fraud is very low in our countries compared to the rest of Europe, not to mention countries outside Europe. It is perhaps five to ten times lower in terms of physical payments and perhaps two to three times lower in e-commerce.
Ivana Karhanová: What do you explain that with?
František Jungr: It is due to various factors. It is due to 3D, i.e., additional validation, which is often annoying to some extent, but it is important.
Ivana Karhanová: I confirm the payment on my mobile with my finger or code.
František Jungr: Which are you confirming that way? We hope to see more and more consumers like that. And banks today often offer keys that you use to track that service. However, historically, it was a 3D code that was texted to your mobile phone, and then you copied it somewhere. Not a very convenient way, but quite good from a security point of view.
Again, the penetration of these services in the Czech Republic and Central and Eastern Europe was very high compared to Western Europe, which was pushed into this to some extent by the PSD2 regulation, which somehow mandated this.
So it’s about some long-term habits, some long-term learning, and maybe some caution that may be inherent here and somehow connected to that. So the abuse of cards in the Czech Republic is very low. We hope it will remain at that level and everything is being done to ensure that. That is the tokenization introduced years ago, although it is often used as a new concept.
But we are talking about the fact that the service has been around for about seven years, where originally it was primarily linked to XP, and today it is about trying to roll out tokenization everywhere where card payments are made, so there is no need for that number to be recorded, to go somewhere. And that again increases the security.
Ivana Karhanová: Where don’t have those additional verification or confirmation options? Do you have the tool I’m envisioning? Some brutal machine learning algorithms are running over it, looking for abnormalities.
František Jungr: That’s right. It’s a bogeyman for some consumers because they’re saying: Gee, what’s going on with my data somewhere? However, the data is, of course, anonymized, it’s very well secured, and yes, there is a huge machine running over it that analyses the billions or trillions of transactions. Based on that, it analyses whether each transaction is somehow out of line with what it should look like and where it should take place, and then it removes the subsequent necessary validation.
And, of course, it’s then always up to the decision of each bank, each card issuer, how much they want to use additional validation. And, of course, they are looking for a balance between security and convenience so that those payments are not abused but are convenient for the user. Another factor plays into it, and that’s the user themselves because some users get into an uncomfortable zone if they don’t do additional validation.
They say: I validate the payment every time, and it suddenly doesn’t ask me to validate it. That means we must be careful not only about the theory of security versus convenience but also about what users are used to. Some users are used to validating every payment, so for them, it’s some reassurance, and some convenience, whereas, for someone else, it’s something annoying that they have to do. So finding a balance is not easy, but the trend is clear.
It will be towards machine learning and artificial intelligence running over these payments. Then banks can then use that information in the form of, for example, our code or a number that banks use along with the transaction. And based on all the transactions we see, that code tells us how risky that payment is.
And that bank can decide whether or not to use additional validation based on that number, which is from one to a hundred. And at the same time, of course, combining that with what they have in-house, that is, additional data and things that they associate with, putting us in a relatively safe zone.
Ivana Karhanová: We have already discussed when the PIN will end. When do you think the physical cards will end if they end? But I don’t need the cards physically.
František Jungr: I don’t need them either. Sometimes I have to take out a plastic card at an ATM somewhere. And there I have a big problem remembering the PIN I have for the card because I probably haven’t taken it out for two months. At the same time, more and more ATMs are contactless, so it’s possible to withdraw money with just that mobile phone.
So I think for some users, plastic cards are over. On the other hand, when you travel, you can’t rely on the contactless world working as well everywhere as it does in the Czech Republic or maybe in central Europe. You just can’t go without a plastic card. However, when I travel to Poland, where I go regularly, I know that contactless technology works there as it does in the Czech Republic, and I don’t need a plastic card.
But when I go to Italy, Germany, or outside Europe, of course, it happens that not one hundred percent of the time can it be used. So, for this reason, the plastic card will probably remain relevant for at least some users who travel for a long time. And there is the second dimension of the shift toward a cashless economy.
The example that is often given is Scandinavia, where they are addressing the opposite problem, namely how to preserve cash, and they are addressing cash conservation laws and things like that, although that is also emerging here, perhaps a little prematurely. I think that trend will continue, and there will be more and more people who don’t need a plastic card and only have it on their mobile phones. But we’re talking in the next ten years when I think there may be some more fundamental change, that we don’t need plastic or cash. We all have some experience.
We were talking here before the show about traveling when you go somewhere. It happened to me recently in Germany, when I was in the Bohemian Forest crossing the border, and suddenly I had 20 euros in my wallet. I found that across the border in Germany, I could not pay by card anywhere. So suddenly it was a problem because I hadn’t expected something like that at all.
So there are places, there are countries, there are localities where the card is still not the standard, and thus one has to either have a plastic card in case there is no contactless terminal, or one still has to have that pesky cash, which is not exactly the most convenient way.
Ivana Karhanová: Thanks for the interview. That was Frantisek Jungr, Visa’s product director for Central and Eastern Europe. Thanks for coming into the studio.
František Jungr: Thank you very much.