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Swedish businesses making an impact on digital payment systems


Pej and Kalrne

writer icon Juan Samper     ISB   |   Tech     🕐 06. Feb. 2018


Digitisation of payments has been happening for a while now. However, there remains a hindrance in person-to-business (P2B) physical payments. As opposed to P2B online payments, such as paying for a product bought on Amazon, and person-to-person (P2P) payments, like a bank transfer from one person’s bank account to another’s, P2B physical payments aren’t quite as smooth.

A variety of firms, from tech giants like Apple and Samsung, through banks and money transfer companies to Fintech startups, are all trying to develop solutions to bring P2B physical payments up to date with online and P2P payments.

The obstacles ahead
There are considerable difficulties that impede a smooth transition to a completely digital experience in P2B physical payments because many parties are involved, and they must all work together: the buyer’s bank, the seller’s bank (which may or may not be the same bank) and the third party coordinating the payment.

The following are proving to be the biggest challenges:

Overload of actors
Firstly, both the customer and the business must have the tools necessary for the transaction to happen. On the customer's side this might be a credit or debit card, the smartphone software (like Apple Pay or Samsung Pay) or another payment app. On the business side, the hardware and software tools that read the customer's payment method. This usually comes at a cost for the business. As a result, they usually only support two or three of these payment methods.

Secondly, the third party coordinating the payment must be able to access the information of both bank accounts to instruct the buyer’s bank that a transfer must be made to the seller’s account, and to notify the seller’s bank about the upcoming transfer their client’s account will receive from the buyer’s account. This whole process might take up to three days.

The first challenge has long been resolved by traditional credit card companies. But the card payment method is starting to seem outdated in territories that have achieved high levels of digitization, such as Europe and the U.S. In these places, countless software companies are developing different tools to make the physical payment experience more efficient and comfortable. In this sphere, Sweden seems to be leading the way with emerging companies like iZettle, Klarna, Trustly and Pej, who have already raised hundreds of millions of euros in investment.

The ongoing concern for these startups is whether businesses will be reluctant to embrace so many different payment systems, which may incur extra costs.

Built-in software tools are still highly dependent on card readers provided by card companies. A situation which only adds parties to the physical purchase process. Apps, on the other hand, usually require businesses to register to their systems and sometimes even make use of hardware tools. So businesses would end up having to pay for their cashing machine, the card reader and the rest of the tools needed to support payment through apps and built-in software.

Multiplicity of systems
Then there is the second challenge. Banking systems are completely different from each other, and there are many banks out there. This means that anyone who attempts to digitize physical purchases must have a system that is compatible with each one of the banks they support.

The European Union has recently achieved a major regulatory stepping stone for the financial industry with the Payment Services Directive 2 PSD2. This requires banks “to make it easier to share customer transaction and account data (where the customer has given their consent) with Third Party providers, including fintech and retail businesses, telecommunications providers, payment services, and financial account aggregators”. By the 13th of January 2018, all members of the European Union implemented this directive within their national laws.

However, this is not case for the rest the rest of the world and, even in Europe, payment services still must overcome the first obstacle in a way that not only helps customers but is also cost-friendly and effective for businesses.

One goal, different approaches
Some of the most interesting approaches to overcome the challenges posed by P2B physical payments are being made by Swedish companies Klarna and Pej.

Klarna, who started as an online payments solution that allowed customers to pay for their online purchases in more than one instalment, has now made some crucial advances towards physical payments. They recently obtained a banking license, which will allow them to scale up their loan scheme and have direct access to client information as people open bank accounts with them. They recently made public their deal with KappAhl, which ensured that their payment method is available in at least 327 physical stores. 173 KappAhl and Newbie stores in Sweden, 96 in Norway and 58 in Finland.

Pej, a Malmo-based startup, is entering the market with a diverse and rather interesting approach. Currently, they are improving the experience of purchasing in restaurants, cafés and big event venues like stadiums, by creating digital spaces with the help of devices’ location systems. This way, once a customer’s device is inside the Pej digital space of a restaurant, café or stadium, the customer can purchase anything without going to a cashier, making a line or even asking for the credit card reader.

Is Samsung Pay ahead of the curve?
We should also look at Samsung pay. In February 2015 Samsung Electronics acquired a company called LoopPay, which had developed a technology called Magnetic Secure Transmission (MST). This technology has been included as a built-in feature of Galaxy phones from the S6 onward. It lets the user pay at almost any terminal where you can swipe a card by replicating the magnetic code from credit cards. In other words, Samsung seems to have solved the two main obstacles mentioned earlier, but they now face a new one. The payment system is only available for Samsung devices.

Physical payments seem to pose the biggest challenge in the field of payment services. The presence of so many agents like software companies, terminal operators, card issuers and banks in even the smallest of transactions has made progress towards an efficient and cost-friendly payment environment very complicated. It seems to still be a long road to reach this goal, but many new companies are beginning to join the fight. A recent case is Amazon Go, Amazon’s physical grocery store that opened its doors in Seattle on January 22nd, 2018. It has no cashiers or checkouts at all. Only walk-through gates where customers swipe their Amazon Go app and then, with the help of ceiling cameras and electronic sensors, the store tracks customers and the items they select.





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