Business Irish

Thursday 17 January 2019

Lyon seeking to fire up competition in the online payments sector


‘Competition and innovation in payments has been very slow,’ says Colm Lyon, who has the credit card and debit card industry in his sights with his licence to enable businesses to pay for goods and services directly out of their bank accounts in a simple fashion'
‘Competition and innovation in payments has been very slow,’ says Colm Lyon, who has the credit card and debit card industry in his sights with his licence to enable businesses to pay for goods and services directly out of their bank accounts in a simple fashion'

Colm Lyon

Bitcoin's got a lot of bad press of late. The digital currency has been at the centre of a speculative bubble that has popped in the last six months. It's also been criticised for the advantages it affords to criminals who want to carry out transactions while shielding their identity.

All of this has served to obscure somewhat the genuinely revolutionary technology behind bitcoin. It allows people to send money to each other without having banks in the middle to verify that the currency being sent is genuine.

Instead, the technology itself carries out this check.

The problem, of course, is its volatility which makes it essentially useless as a currency. What good is it if something that costs you 100 bitcoin one week costs one bitcoin the next?

A more immediate threat to the banks comes in the form of a new piece of EU legislation known as the payment services directive. This law, in place since January, is designed to split apart access to a bank account from the provision of the bank itself.

That opens up a world of opportunity for fintech businesses who want to make the clunky online payment experience better.

That's where Colm Lyon comes in.

Mr Lyon (55) is a veteran of the payments scene. He was the founder of Realex Payments, an online payments processor for retailers that he sold for €115m in March 2015.

Now he's back with Fire, his new startup that wants to make it easier for people to make payments online.

The company has just won an important licence to operate as what is known as a Payment Initiation Service Provider. This enables it to make a payment from a person's bank account to a third party, with the account owner's consent.

It means that Mr Lyon has got the credit card and debit card industry in his sights.

"Competition and innovation in payments has been very slow," says Mr Lyon.

"There is a definite impact on the cards industry here in terms of what's going to happen. Throughout Europe, for example, people often shop online and pay directly from their bank accounts, and they actually don't use cards. We actually wouldn't be that familiar with that in the UK and Ireland but in Europe that's quite a familiar process."

Fire's plan is to create a better user experience both for businesses and for ordinary consumers who are paying online.

For businesses, instead of having to enter a payee's IBAN and the like, the idea is that you will be brought to a new interface developed by Fire which will enable you to make the payment more quickly and in a less cumbersome fashion.

The same interface would also be used for customers who want to buy goods from a retailer online, instead of having to enter their card details. The licence it has just won enables the bank to see that the outgoing payment is being made by an approved party.

"You're sharing much less data... what this is geared towards is how we can create a standard within the industry," Mr Lyon says.

"Charities can display QR codes on social media, which can be scanned so potential donors are directed to their bank to authorise and approve the payment.

"Businesses can sell online; when someone checks out, they are directed to their bank to authorise the payment - straight from their account to the online retailer. Utility billers can add 'pay from your account' links to emails, enabling people to click and pay from their accounts without using a card or sharing any details. It opens up so many ways for payments to change."

Probably the key challenge for the company is to build scale once it has its technology in place. "As we add in the functionality, the platform becomes more attractive to more people all the time - and so what we'll be doing is just continually building up that functionality while also building up the sales team.

"The big thing that caught us by surprise was Brexit... leaving Brexit aside we probably would have gone down the route of looking for external funding.

"But now we're looking at Brexit and saying we probably need to address that issue before we look for external funding. We need to be regulated in the UK as well as in Europe. We've already commenced the process as it happens but it's a big process.

"Having to have two regulators involved and two firms regulated in order to provide the same service you have now anyway - it's a big overhead and it's a big opportunity cost for us."

Alongside the payment initiation service technology Fire also provides digital accounts for its customers who are mainly businesses. The idea is to enable online banking to become easier by having "digital accounts that are quick to open and easy to use". It has a partnership with Mastercard that enables debit cards to be linked to the account for customers who want these.

"We've about 2,200 businesses now and they use Fire for a range of different things. They use it to split payments, to open up multiple accounts, multiple debit cards... we're finding that the user cases are very varied and in some ways that's a bit of a problem. You could meet one guy one day and think this is a great solution and then you meet another guy another day and you haven't really thought of what he wants."

For this new ecosystem to work, banks have to open up their systems to approved third parties like Fire.

Mr Lyon says he believes this process will accelerate in the period ahead, saying many banks have already done so.

But some lenders have been complaining about what they see as a potential conflict between the new payments rules and the new EU data privacy rules known as the GDPR.

"You are left in the position where you risk PSD2 non-compliance or you risk jeopardising the protection of my customers' data by sharing it with someone," said Brad Carr, a senior director at global trade group the Institute of International Finance. "It's not a great dilemma to be in."

As a result of the uncertainty, banks may have an incentive to declare a lot of their client data as sensitive, meaning it doesn't have to be shared with anybody, even under new payment rules. The result of such a strategy would however mean that competition in the financial technology sector may not become as lively as policy makers had hoped.

Valdis Dombrovskis, the EU commissioner in charge of payment services, said in April that the practicalities "of protecting personal data in the use of third-party services will have to be clarified in the coming months."

Mr Lyon and his peers will be watching closely to see what is said. (Additional reporting Bloomberg)

Indo Business

Business Newsletter

Read the leading stories from the world of Business.

Also in Business