Payments On Fire

Payments on Fire

Episode 181 – Michael Steinbach, Worldline

Join Wordline’s Michael Steinbach and Glenbrook’s Elizabeth McQuerry and George Peabody to hear the story of SEPA’s creation, the Single Euro Payments Area. You’ll also learn about Worldline, Europe’s largest processor.

It’s an amazing story. If you are concerned with how networks work, or thinking of building network-based processes, there are lessons here – and cautions.

Payments only work because there is a system that was built to move money between parties. How these systems work varies enormously but there’s got to be a system.

There is nothing trivial about building a new system. There is technology. That’s the easy part. There are national regulations to comply with – even new crypto-based systems have to contend with those.

But the hardest part may be getting incumbent competitors, typically banks, to agree on how the system behaves, the business rules for using it, its economic model, and the business case. The card system’s creation story addressed those concerns; our other systems get there eventually. For example, those realities have everything to do with how quickly, or slowly, the RTP Network is building volume.

In this not to miss Payments on Fire® episode, we are given a front row seat to the creation and development of the Single Euro Payments Area (SEPA), the Eurozone payment system that arose in the wake of the euro’s adoption. Worldline’s Head of Financial Services, Michael Steinbach, speaks to the head-spinning formative meeting of European bankers trying to make a SEPA reality. Michael’s observations on the role of a regulatory push are invaluable.

 

 

George Peabody:

Welcome to Payments on Fire Podcast, from Glenbrook Partners about the payments industry, how it works, and trends, and its evolution. I’m George Peabody, co-host of Payments on Fire, and very glad to be here with Elizabeth McQuerry, a partner at Glenbrook. Elizabeth, great to see you.

Elizabeth McQuerry:

Good to be back, George. Good to see you too.

George Peabody:

It’s been a while since we’ve done this together and-

Elizabeth McQuerry:

I know.

George Peabody:

We have a wonderful session teed up today because we’re going to be talking with a special guest, someone you’ve known for quite a long time, Elizabeth. So why don’t I let you introduce Michael?

Elizabeth McQuerry:

Absolutely. My pleasure to welcome Michael Steinbach to the show. Michael, you and I have known each other for probably around 20 years now.

Michael Steinbach:

Yeah, almost. I would say so.

Elizabeth McQuerry:

Yeah. A few payments developments along the way.

Michael Steinbach:

The last 20 years, yeah. No one would have expected it 20 years back.

Elizabeth McQuerry:

Yeah. Good stuff, and you’ve contributed to so many of them. We want to hear all about some of those learnings and experiences that you’ve had, and share them with many folks who tune into Payments on Fire.

Michael Steinbach:

Thank you. And thank you very much for having me here. It’s a pleasure and honor, thank you very much.

Elizabeth McQuerry:

So Michael, Worldline is not widely known to many of our listeners here in the United States. Would you like to give us an overview? What Worldline represents, especially for a US audience?

Michael Steinbach:

Yes, of course. So although I can hardly understand that Worldline is not known, but have to confess it’s mainly known in the industry in Europe and perhaps less in the US, and of course, happy to do so.

Worldline today is, I think, the largest payment service provider and processor in Europe, and number four in the world, in terms of the number of processed transactions, but also in terms of revenue and clients. Worldline has currently, roughly four billion euros in yearly revenue.

We are serving roughly 1,200 financial institutions, banks, insurances, and whatsoever. We have over one million merchants as our clients. Worldline is, of course, a financial services processor, which is primarily dedicated also to the banking industry, but to a large extent, we are also an acquirer of some merchant services and the colleagues there. You might at least have heard one of our, let’s say, most prominent mergers out of the few we did in the last four or five years.

This was the merger and the integration of Ingenico, which we finalized successfully, even within the pandemic in November 2020, which was a challenge in itself, as you might imagine, with lockdowns and non-travels and whatsoever. This is a little bit about Worldline. To give you perhaps a little bit more on figures, to grab it perhaps better, and also, on a day-to-day basis, what this means. We process on a peak day in financial services, which I represent in Worldline, 117 million payment transactions a day. Peak time, the average per day is 60 million transactions, which then brings together 21 billion payment processed total year.

So this gives you a little bit of perspective into that. Of this 21 billion, one billion are currently already, I have to say, instant payments, which makes Worldline today the largest instant payment processor in Europe. We do this, of course, for several banks, but we also do this for communities. For example, here we take care of all the domestic payments in the Netherlands.

As you might have heard, the Netherlands is one of the rare countries, actually globally, decided that all domestic payments they do, are instant payments. We have good positioning, if I have to say so, to process all of that. We are a full-service provider, covering the entire end-to-end value chain of payment processing, credit transfers, direct debits. But we are, of course, as I said, also very much related to the cards business. We process, of course, also all transactions, how we call it, the usage of cards. We call it issuing, processing. We, of course, also take care of processing the payments of the merchants, which I’ve mentioned earlier.

Then the issuing processing, more and more. Our new kid on the block, which is already now also four or five years old already, is the digital payment services, which is one of our four business lines where we develop wide label services and products, contactless payments with wearables, biometric solutions.

All of that is also part of it. I hope this gives a little bit of an idea. Servicing banks also in their back office. Also, some of them source back office processing to us. But we’re also purely a CSM, Clearing and Settlement Mechanism, where we get already the payments via them, settle them. But we are not a bank so we don’t have accounts. Only “process” them, and with that, of course, also a regulated entity under let’s say, oversight of the European Central Bank.

George Peabody:

Given all of that breadth, no wonder you were shaking your head about Worldline’s less-than-major familiarity in the US. That’s a remarkable technical stack or remarkable breadth that you have.

Michael Steinbach:

Yes, of course. When you look a little bit into history, things were brought together. Now consolidation in the last four years, which I think is a necessary process, especially also in Europe where we still have quite some fragmented industries here and there. Of course, we benefited also from that, but also have grown quite substantially organically in this context.

Elizabeth McQuerry:

It’s great to have more of a context on all of the things that Worldline does globally. Truly on a global basis. What do you do all day, Michael? How do you take care of some part of all of this?

Michael Steinbach:

As you or some of the listeners of this podcast, might also perhaps sometimes think in the evening, “What have I actually done today?” You feel really, that you have done a marathon, seriously. Of course, a lot of video calls in heading this global business line. But seriously, payments is still a people business, although very much intruded by IT and so on. But our business is primarily also people business, interaction, exchange, communication. This is I think, what is key also to my role here. It is also a lot of traveling with that, and happy to do so again. Of course, in a reduced way.

We are in a business where the clients or the prospects don’t come to us, so we have to go there. This is also my understanding. We are a service provider. This is my understanding also, that we need to go to the clients, get in touch with them, communicate and build a relationship because payments is also a lot about trust. It’s a very serious business.

So as I said, we process billions of payments and you get a routine, and this is, let’s say, our biggest enemy. I’d say to my people, because each and every single payment is very serious, I always tell them, “Take into account you are the person which payment goes wrong, how you would feel?” This is why I think it’s always in our business, important to know what we do here. Payments is very serious stuff and very serious business and sensitive business to everyone. This is a lot about communication outside but also inside. Internal communication, through staff meetings, webinars, management alignment, we do there within the financial service business line, but for me also, across with the colleagues and group functions in Worldline.

On top of that, doing this primarily in Europe, we have also quite a sizeable business in the Southeast Asian region. Since already 30 years, have grown this. It’s very much related to issuing, processing, so cards business. We have over 100 banks as our clients in Southeast Asia. Also, this needs to be taken care of as our business becomes more and more global. Not only since today or recently, but already since, I think, 24 months, roughly. We look more and more on our business from a global perspective because this is our clear mission also, that we will go directly into an instant global world, in processing. This is why also these far regions from Europe, it’s a 12-hour flight actually, it’s in a way, on the other side of the world. But this grows together. Things are coming together. We need to leverage our experiences, our capabilities and skills.

This is also a major part. To start this, to bring people together. In a way, sometimes even lecture. Last, but not least, as a member of the Executive Committee of Worldline Group, I am, of course, very much involved in group financial planning, compliance, risk topics, which very much relates to the financial service business line, as I said. A small part of our business, where we do clearing and settlement, we are a regulated entity for this part. But at the end, the same rules apply for us and for banks. This is a burden on the one side, but also a gift on the other side because it makes us a special company in that way.

Elizabeth McQuerry:

I can imagine why you sit back at the end of the day and try to figure out what you did because you did a lot of things. Too many to remember.

Michael Steinbach:

I’m not the only one who is busy. I think we are all busy in this industry, which is good, even in that times when we are.

Elizabeth McQuerry:

Yeah. I’m going to ask you, your recent European payments history. I mean, you’re German. When I first met you, there wasn’t a single Euro payment area. It was in the planning or in the run-up. Now that’s just standard way of business. What are your reflections on that transformative period when you went from national to a regional payment system?

Michael Steinbach:

For me, it was a big steep learning curve. At the beginning, quite painful. I still remember when we first met in Europe with the bank at that time, around 2000, 2001, with the introduction of the euro here, coming together in Brussels with a lot of colleagues from other banks from different countries. It was the first time, at least for me as a German, to speak in English, the whole day to write things in English. It started with that. I still remember this three-day kickoff meeting, which today is known as the European Payment Council. This was the starting point. I had the pleasure and honor to be part of it because my bank sent me to that meeting.

As a good German, you go there with your mindset, agenda item number one, two, three, four, of course, in this order. You discuss this. Already after the first day, I was completely exhausted. First, by talking English, by not having understood everything what they told because there was the Italian-English, the Dutch-English, the English-English, and all dimensions. Looking at the agenda, I recognized that it was hardly to see what we have now finally all discussed because we were hopping from item number 11 where we started to the introduction on top one to top four. It was for me at that moment, after this first day, complete chaos. It continued in that three days and I think I was ready for holidays.

It’s funny today. After this three days, it was really serious. Then it started. I still remember it was a really very remarkable step, but after a year, I think, and always accommodating and, of course, improving, we all together, I learned that this world is more than one country. The strength of this world, is bringing the strength of all the individual countries together to make it even stronger. That every country has its downsides, but also it’s upsides. That pictures you have from a country, from an outside-in, changes completely sometimes. And that the power you can develop with bringing this together is enormous.

We have not done everything right. The launch of SEPA, took us approximately seven, or eight years. In 2008 we started with the credit transfer followed by the direct debit, one year later. But I think this was very remarkable for me, this period. I also recognize thinking we can do everything by ourselves. Meaning, one industry, at this time it was the banking industry, to make such a big move building a European payments area was, I think, not fully thought through. We made clearly a lot of painful experiences. When we started to recognize this, that we need politicians, that we need other industry, that we need authorities, only with bringing them all together behind this high-speed train, only then it works.

The second experience is when you want to build something as big as that, to leave it to the market to make it happen, where I’m really also a fan of, but it not always works in the direction that things are speeding up. Because you can really recognize that even within countries, everyone has different views and different interests, and this hinders this development. At least in the case of SEPA, personally, I believe it worked also when finally, politicians or the banking authority took it in their hands and made a regulation part of that. A mandatory regulation.

George Peabody:

Mike, I’m wondering if you saw another geographic area, other countries trying to replicate the work and accomplishments of SEPA, I take it then that you would be recommending that a government mandate would be a great boost to putting that into effect?

Michael Steinbach:

I don’t want to be misunderstood here. I’m a fan of market and competition, so absolutely. But to make basic things work, and I’m talking about here, credit transfer, direct debit with a single European format. The ISO 2022, which we know still today, is even more prominent globally. This sometimes needs really my conviction, my experience, even if it is perhaps not that prominent and positively to some, needs some regulation, and then it works.

The experience was, from that day when this was clear that the regulation will come, we stopped the unbelievable discussions of, “What is the business case of bringing a single European payments area?” There is no business case. It’s not a financial business case at the end. It is, let’s say, much more. It is bringing Europe together. It is a social step. Much more for every citizen.

It is a very important part of the political agenda of building Europe. This was, I think, what we also missed in a way, because we looked on our banking. From that point of view, that is an experience I made. I don’t say that this is everywhere in the world the same. No, this is my experience, my view in Europe, also looking from the outside.

In other regions of the world, I might see some similar patterns, but it’s absolutely not up to me then to argue or to comment on that. I only can share this because I was at the forefront. I was part of this, not always very efficient, and sometimes very painful process. I was part of that. This is why I said I had a steep learning curve, and I still have a learning curve today. I think I also learn every day, today still.

Elizabeth McQuerry:

This is a really fantastic perspective on the incredible accomplishments throughout Europe. Of course, this is an enormous project. One of the things that’s remarkable when you look from the outside, from the US perspective, is, of course, how far the community has come in Europe towards standardization and alignment. But yet, we still see so many different, in a way, country personalities. You mentioned that the Netherlands has made a decision to… Most payments should be instant payments. In other countries, we still see domestic clearings and domestic payment services that are entirely unique to, well, Spain. Bizum, for example. It’s not full uniformity that is being achieved, it is efficiency in many ways. Do you have a thought on that balance?

Michael Steinbach:

First of all, I think it’s important to understand that Europe is not one country. I think this is what you are also recognizing, Elizabeth. It is, of course, a number of countries. Each country has its history and therefore, also this is in the genes, this is culture and culture you cannot wipe away. You have grown up and you need to understand this and you need to recognize this. This was, by the way, also one of the big learning curves I did with building Equens, and building now up with EquensWorldline, and adding a country there and a country there. It’s very important to understand that each country has a different culture and that you also take this into account. Now clearly, we have SEPA. SEPA has become in processing, a kind of uniformity after a very rocky start.

When we started in 2008 and 2009, we had a rulebook for SEPA Credit Transfer and Direct Debit, which was not sufficiently detailed. We offered too many room for interpretations. This means the result was, we as a service provider with multiple banks in different countries at that time already, experienced that we had over 100 different subsets of this rulebook, but all of them are, of course, SEPA compliant.

This was really a challenge. Even within the same country, because the interpretation was done individually, to a large extent. This has now shrinked and came together.

I think today this has a uniformity where we can build up. Now you’ve mentioned Bizum, you’ve mentioned other initiatives, instant payment. The Netherlands decide, for them everything is instant. Others, sometimes you think do not even know that there is an instant payment product. But this is, let’s say, the individual view, interest strategy, of a bank, of a country of market participants. However, having said that, my personal belief is that we will see for instant payment in Europe, in a not too far future, a similar process as I’ve just described for SEPA in 2008 and 2009, meaning a regulation. I think it will become mandatory. My personal belief, I don’t have any deep insights, but looking around, listening here, listening there, seeing where Europe is with instant payment, I believe it will become a mandatory service for everyone in Europe.

Elizabeth McQuerry:

I think all those insights from your perspective in being part of this are really valuable. So many regions undertaking a similar initiative and look to SEPA as a true standard, a paradigm for having achieved what they would now like to achieve. I very much appreciate these insights.

Michael Steinbach:

I do not know if it is a good benchmark or not. I think there are different viewpoints. It was painful, but I think some lessons learned, you can take out. You can look on your own process in the US, in Asia, or wherever this discussions are ongoing. But my viewpoint is, try to find a way in the non-competitive space, a process which then ensures that this product, this service, or whatever, is broadly in the market. Then let the market go and develop the competitive space on top where you compete. I think that’s the big picture to build such a house. I would say have a fundament where everyone agrees, yes, that is, and we use it all mandatory, and then let’s start competing in the market.

Elizabeth McQuerry:

I want to be sure we touch on another area that had a lot of focus on it, perhaps still needs much, much more, but cross-border. You and I have collaborated on a few initiatives there, most recently the International Payment Framework Association, and let’s be totally frank, we didn’t succeed. We had a great idea. The market didn’t pick it up at the time. I see many, many things that resemble the International Payments Framework, being played out today, but by different parties. When you look back, what could we have done differently in trying to improve the cross-border standardization or efficiency increases?

Michael Steinbach:

Looking back to, and I think this goes back to the times when we started out 20 years ago to know each other, this cross-border business was a complete different business at that point in time. Correspondent banking, at that time, was still big. Very important in the banks. So it is here and there still today, to be very frank. I think with our interest and intention at that time, to build a global payments area, if I may take this word, was at that time, too early.

Revenue [inaudible 00:29:36] of the cross-border business were big, fees and so on. All of that. This was too important. In a way or the other, it was from my perspective today, too early. However, as you know, we as EquenceWorldline or Worldline, we use the rulebook we developed there, still today, since 10 years, day-by-day, live production with the [inaudible 00:30:09].

Not everything was for nothing at that time. I think we developed in the last 10 years together a very intense trustful and valuable partnership. I think I can say from both sides, also for us, in the last years’ experience that this bridge across the Atlantic was, and still is, very much valued by quite a number of our clients who use this bridge because it has certain benefits. Looking now at the times where we are, going into an instant payment world globally, coming technically more and more all together on the ISO 20022, looking at certain initiatives now which are launched, SWIFT, EBA, Clearing House, and so on, to be very honest, I clearly recognize that this is one by one what we tried to implement at that time. I am very sure that borders will go down across the currencies and that we will still be part of the world when we have a global instant payment world like my every time used example, how we are used since many years in the meantime.

That via Google we can get information instantly everywhere in the world. If we have a connection of course. And we get this information instantly. This will be also the world of payments in the future. Independent from, is it a high amount, a small amount, is it a “credit transfer” where a business is accorded to, or I only pay my bill in the parking garage or whatsoever. For all of these payments, it will be instant. Also, in Google, we would not accept, “Thank you for your request, we will send you the information in two days or tomorrow.” What’s that?

So it is also there. You can long talk about business case of a global instant payments world. It’s not about the business case. It’s about the time when we are living.

It is about the expectation, which is completely normal for the younger generation but even also for us potentially, having now gotten used to this new world, it’s completely normal. Why does a payment when I push the button, not immediately go into the account to my friend living across the ocean or wherever? What is the reason? We know technically, it is not that difficult.

Of course, we need risk, we need compliance, we need legal to make all this happen. But for me, it’s clear this will come. The only question is, when? I would bet it’s not too far away. It is from my perspective, between the next five to seven years, where we will have this to a large extent. But of course, I can be completely wrong. But still, then it is after 10 years. I’m sure we will get there. We will get there.

Elizabeth McQuerry:

Five to seven years? We’ve got still a good bit of work ahead of us in those five to seven years.

Michael Steinbach:

Of course, of course. But even the Fed and FedNow, I’ve now learned, has heavily accelerated time-wise the launch of FedNow. So take this as a good example.

Elizabeth McQuerry:

Absolutely. We’re in the beginning days, very much still, here in the United States of our instant payment journey. Let me ask you a couple of other questions. From your global vantage point, getting to work in all the markets through Worldline, what are one or two things that you see out there that are really fascinating to you?

Michael Steinbach:

I was growing up in payments in time when we only had voucher business, credit transfer, direct debits, checks, completely vouchers. I have grown up and I had I think, the advantage to grow into this, today, digitalized world, also in the payments sector. For me, one of the most interesting developments is this development from the pure physical payment, cash or voucher. Today, completely there of course, but more or less cashless, but also digitalized electronic way of payment. I think this is a fabulous journey looking back to when I started in 1990, something like that, in that world.

Now, some years later, I think this is a very remarkable journey, which I definitely don’t want to miss, and to understand which of this new possibilities we now have. What potentials are in for that? I think this is one of the most interesting developments to see, being now in a way, already in this digital world, but still having also a little bit of the old world. It depends from country to country also, or region to region. I think it’s really interesting. I’m way proud to be part of such a time and to be there also, of course, to steer in the small here or there also in the direction. I think for me, very, very important and very remarkable.

Elizabeth McQuerry:

I’m really glad you bring this up because we, in many ways, take for granted the tremendous transformation over the past couple of decades from largely cash to largely digital. It’s our current way of life, our current way to pay, but it has created a new foundation. If you look where is the industry going or how we pay domestically, cross-borders, it’s just building on, now, a totally digital foundation. Who thought five years ago that every morning we would get up and see a new digital currency-type experiment. That’s now totally possible and will be our reality very soon.

Michael Steinbach:

Absolutely, yeah. It’s also important to understand, especially from the banking side, I believe, that this world now has changed. Of course, the banks have recognized that they’ve changed, but recognizing is one thing. Acting on it and taking measures to accommodate this new situation is something else, sometimes. There, of course, it is important to recognize that there are also other players than the banks now stepping in. The prominent ones Etion and [inaudible 00:38:42] and whatsoever. Of course, they are as an intermediary between the bank and the client. They put themself inbetween. This is something which I think, needs to be more intensively looked at and taken into account in strategic setups of the banks, especially in the times where we are today with these uncertainties on the geopolitical, but also macro economical situation, when we look at that, because what we see now currently, end of September 2022, banks are benefiting from rising interest rates.

At the same time, when we look on our world today, rising costs everywhere across the globe, for everything. You might also see at the horizon, not too far away, the situation where you are faced with potentially tremendous credit losses. Also, this from my perspective, needs to be taken into account in how I set up bank, the operations, the business model related to that.

Products like Buy Now, Pay Later, which are of course, across the globe, discussed. We have very, I think, important and well known brands who serve this. In the times where we are, I think it’s a very, very critical and difficult product what we are facing.

Some of the market participants which have launched this as their main service are already suffering, what we can read out of the press. This is what I see also a little bit on a horizon of the next, let’s say, two years, which is very important. Take up and here we see us as Worldline, as a partner also to the banks, [inaudible 00:41:08] partner, and sharing with them our views and so on. This is what I’m really looking forward to. We are looking forward to it in the next coming weeks and months.

George Peabody:

Michael, I’m struck by this dynamic of market competition and regulation. As you look at, well, the US market, which is dominated by market competition, do you see a role or an opportunity in the US for regulation to help guide the development of this digital world that you’re describing?

Michael Steinbach:

Who am I to give the US some advice? No, no, as I said, I only can share my experience, and how I was part of it in Europe. I think it’s clear you cannot compare US with Europe. Two different things. At the same time, also very similar. If you go further back in history, I think also the US was not that united in a way of how the states individually were set up, how they were working. It was a little bit of a situation we still have here in Europe. But for me, out of my experience, I have to say, yes, regulation can help here and there to avoid useless discussions and time, and help saving money at the end, and can help focus on the important things which are upcoming, to focus on.

George Peabody:

I’m struck by your observation that regulation can build this foundation on which competitors can use that infrastructure, use that foundation, and then they are free to compete, using that common infrastructure.

Michael Steinbach:

Exactly.

George Peabody:

Well, that really, from a non-government regulation, but from a rules point of view that really recapitulates what the card networks did. Common set of business rules around which competitors were able to agree, then as you say, compete on the merits.

Michael Steinbach:

Exactly. I think we see it here. An industry by itself cannot change the world. It always needs other stakeholders to contribute. The industry who want to change something important, needs to invite the other stakeholders and to make them part of this journey. In Europe, we have also thought from a banking perspective, we cannot let in other industries or politicians because they will tell us how things are going. This was a wrong perception and a wrong way to do it. This is why we have to run through this painful process. If you think it was seven, eight years. And if I look back, how many days, nights, weeks, months, we have spent on whatever concepts, I think we would have been able to save us at least from the seven or eight years, two or three years. That is a little bit my view. Make it less emotional. Understand that the foundation is the non-competitive one, which everyone needs. Build it and then start competing and go out and fight for your market shares.

George Peabody:

Oh, great. Michael Steinbach, thank you so much. I’m going to have to leave it there on a great note.

Elizabeth McQuerry:

Thank you so much, Michael. I’m so glad that you stayed through those difficult, challenging early meetings of the European Payments Bank, the bankers coming together for the payments area, and that you took the time to share insights and thoughts with our listeners. Thank you so much.

Michael Steinbach:

Pleasure. Thank you for having me here. It was a pleasure, thank you.

Elizabeth McQuerry:

All right.

George Peabody:

Michael, thank you. That was fascinating. Thanks everyone for listening yet again to Payments on Fire. If you’ve got questions about what we’ve been discussing or you’ve got suggestions for who we should have on the show, just drop us an email at paymentsonfire@glenbrook.com.

That will absolutely get our attention. Until the next time then, I hope all is well. Do good work and we’ll see you the next time.

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