Interview with M. Dominique Buysschaert, Founder and President of PayFair
With the adoption of the SEPA Cards Framework (SCF) in 2006, aiming to deliver wider card acceptance for consumers in Europe, European authorities encourage the emergence of a new European card scheme to compete with the international card schemes duopoly. Currently, there are 3 contenders (EAPS, Monnet and PayFair) to develop such a European card scheme, which are all at a different stage of development.
To better understand card market evolutions, Sia Partners interviewed Dominique Buysschaert, Founder and President of PayFair, a private and Belgian initiative to propose a new European card scheme.
Sia : Could you briefly introduce PayFair to our readers?
M. Buysschaert : PayFair was created in the context where the Belgian banks had decided (2006-2007) to eliminate the well known, widely accepted, reliable and "low cost" domestic scheme and migrate to a global scheme with higher costs which was completely not transparent.
PayFair takes profit of the new regulatory environment created by the adoption of the PSD (Payment Services Directive), that created the possibility for non banks to enter into the payments market, and the SEPA (Single Euro Payments Area) program, that created a couple of harmonized standards which are indispensable to allow the set-up of an alternative European payment scheme. PayFair was set up as a neutral alternative between banks and merchants with innovative new features and an open governance, and respects entirely the SEPA philosophy of unbundling the scheme and its processing.
PayFair has now a complete end-to-end scalable SEPA compliant electronic payment system (switching, acquiring, clearing & settlement) that is up & running after more than one year successful piloting in Belgium. PayFair offers attractive and reliable solutions for debit cards, credit cards, prepaid cards, vouchers and gift cards, both contact and contactless, as well as for mobile and internet payments, Low Value Payments and remittances.
Sia : Could you present your role within PayFair? And explain us your career before joining PayFair?
M. Buysschaert : Before starting the PayFair initiative, I was a lawyer at the Brussels bar for almost 20 years, ending as partner in one of the major law firms before joining one of the biggest European large retailers as general counsel. As founder of PayFair and before becoming President of PayFair, I acted as CEO during the first 4 years of the project during which the system was built and the visibility of the project among all stakeholders was achieved. Now that we have started a new phase of PayFair's development, with more focus on operations, we have attracted another CEO, Stephan Becker, who has been working in the card payment industry for more than 25 years.
Sia : How do you consider PayFair's future perspectives in the current European cards market and within the context of the SEPA Cards Framework?
M. Buysschaert : All domestic schemes having to migrate to a SEPA compliant solution, there are quite a lot of changes to be expected in the coming months. As all stakeholders prefer to remain less dependent towards the dominant international schemes (Visa and MasterCard), the expected trend is that domestic schemes will probably choose to migrate/adopt a European alternative, being an option also preferred by the European authorities. PayFair offers them the possibility to continue their activities by adopting the available SEPA compliant PayFair system that will be a common technical layer between all of them, allowing interoperability and economies of scale, and this without having to spend huge amounts in the investment of their own and geographically limited SEPA compliant solution.
There are currently 3 contenders to become the "third" and European scheme (besides Visa and MasterCard): EAPS, Monnet and PayFair. The two first initiatives are purely bank controlled and owned. With our specific open governance and the support from retailer's side as well as from the European authorities, our objective is to provide a low cost scheme that is a perfect solution for all involved stakeholders and subsequently create a virtuous circle for all of them.
Unfortunately if there is no mandatory end-date, nothing will happen as parties who have interest in delaying the adoption of new SEPA compliant solutions will find themselves in the very comfortable position to continue to preserve their current model and remain very reluctant towards any migration.
Sia : Could you detail us what do you expect to happen as "virtuous circle"?
M. Buysschaert : Expert literature teaches us that only 1 on 7 transactions in Europe are paid electronically. So there is a huge market potential, at least in certain countries where there are still many cash transactions, which are very costly. Like very often, a lower and more attractive transaction cost does not have as a consequence a reduction of the revenues of the issuers. Indeed, this reduction will be compensated by higher volumes since the more attractive the transaction cost is, the more there is an incentive for retailers and merchants to promote electronic payments. With its lower scheme fees, PayFair is therefore a very attractive opportunity, also for issuers.
Furthermore, the increase of electronic payments will make the use of cash less frequent. When you know the huge cost for banks related to cash money (ordering, counting, transportation, ATM servicing...), it appears that lower revenues from card transactions are also largely compensated by a lower cost of cash. As an example, a brief estimation can be done on the Belgian market. If you take the interchange fee at 5,6 eurocents and 1 billion transactions per year, you have a global revenue of 56 million euro. And if you take a look at the annual cost of cash in Belgium, which was estimated by the National Bank of Belgium around 650 million euro, you understand that a decrease of the merchant service charge is easily compensated by the huge potential of cost reduction regarding cash.
Sia : With the launching of the PayFair initiative, how did the market react and what support did you receive from European authorities?
M. Buysschaert : The call for a new scheme besides the dominant international schemes comes not only from the European authorities but also from the merchant side as well as from the bank side, all looking for more competition in the market, concerned about too high dependence towards the international schemes as well as about their high scheme costs.
Being a neutral initiative with no retailers and no financial institutions as shareholders, PayFair is the only solution that has an open governance, which is probably one of the reasons why it has a huge support from retailer's side as well as from the European authorities which are calling for more than several years now for a new European SEPA compliant scheme.
Finally PayFair has the advantage of being a small structure offering innovation and flexibility at lower cost. This allows us to react more rapidly to new innovations and market trends.
Sia : What are the development objectives of PayFair in the coming years?
M. Buysschaert : PayFair is now in a new phase of its development and has started constructive discussions with issuing banks, processors, PSPs as well as with large retailers and small merchants associations to implement PayFair in the market. In other words, now that our system is completely achieved and tested, we are ready to start operations with our customers. Just as an example, in Belgium the implementation of PayFair in all terminals will be achieved by end of Q1-2011 to allow payments with the new upcoming electronic lunch passes.
PayFair has the ambition to be adopted by different domestic schemes, providing them an affordable, fast and easy way to implement a SEPA compliant solution while allowing them to have a pan-European (and later on even a global) reach thanks to a wide spread PayFair acceptance network, even if they want to preserve the domestic brand. The processing of domestic transactions can be done whether via the PayFair processor or still via a local processor chosen by local banks.
The adoption of a SEPA compliant solution by domestic schemes will foster new technologies and innovative payment solutions as the one PayFair is proposing. This will with no doubt offer new payment possibilities with a high degree of convenience for consumers, which will help to increase electronic payments.
Sia : Regarding this possibility to migrate to a SEPA compliant solution, how do you see the evolution for domestic schemes in Europe?
M. Buysschaert : Some have already decided to migrate to another solution while others have decided to stay "alive", even if not yet clear how they will handle to become SEPA compliant. Probably that due to conditions related to certain bigger markets, there can be a business case for some domestic schemes to afford a technical SEPA upgrade, but this is more often not the case for the majority of other domestic schemes in smaller Member States. This is why the solution proposed by PayFair is in fact very interesting and attractive for them, as well as easy to implement.
Sia : If we imagine an adoption of PayFair by several domestic schemes, what would be the policy regarding tariffs and fees?
M. Buysschaert : PayFair will keep things simple and have only a few possible fees. Of course, there will be an adapted migration plan for each country as each country starts from a specific history and position, with its own consumer's behavior and not comparable maturity of infrastructure. This migration plan has to be agreed within the specific PayFair open governance model in each concerned Member State, with all concerned stakeholders.
Sia : Could you tell us briefly how do you think new actors can be introduced successfully in the card market?
M. Buysschaert : Innovation is undoubtedly one important factor. New innovative solutions will certainly be introduced thanks to the technological progresses recently introduced into the market (PayPal, Google, Apple, Facebook...) but our conviction is that these new solutions are just other payment methods and that schemes will always remain necessary, even if they have of course to adapt their rules and regulations accordingly.
But also the necessary dialogue between the concerned stakeholders to create the necessary ecosystem for new alternative solutions to be adopted easily by a high number of parties, being consumers, merchants, banks, Telco's, processors and other PSPs. Only this cooperation will allow to build the conditions and environment that will provide the indispensable trust and confidence but also profitability for the concerned stakeholders to agree to "play the game" and make a success of it, to the benefit of all. And PayFair has already taken some initiatives in this perspective...