We met with Sergiy Ravnyago — a guru of electronic payments and electronic commerce — in a cozy downtown Kyiv cafe. “On the way from San Jose to San Francisco,” Sergiy spent the last 12 months in the very heart of the Silicon Valley. Sergiy agreed to tell FUETE magazine about current trends of US electronic payments market from the point of view of the expert with wealth of experience in development of innovative technologies in Ukraine.

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Sergiy, what is happening in the US in your field of expertise?

First of all I would like to mention a very important and long awaited event, i.e. liability shift* in card payments to go into effect in the US October 1, 2015 (except for part of Cardholder Activated Terminals). After October 1, 2015 the largest payment card market will join the rest of the world in terms of commonly accepted set of rules. In other words, the US began its journey on the same path as Ukraine did a number of years ago and which UK launched in the early 2000s: to issue EMV payment cards, to equip ATM (Automated Teller Machines) and POS (Point of Sale Terminals) with chip readers, to upgrade the hosts, etc.

Liability shift is a program of major international payment systems to promote implementation of EMV standard. The key aspect of that program is introduction of the principle of shifting counterfeit fraud liability towards the party either issuer or acquirer — which has not adopted chip technology.

How is it that for years now Ukraine has been ahead of the US in electronic payments technologies?

A number of reasons could be mentioned. First of all, the sheer size of the US market is mindboggling: according to the Javelin Strategy and Research consultancy and the World Bank estimates, there are around 6.5 million of POS terminals in the US, i.e. approximately 40 times as many as in Ukraine (for your reference: US population is only 7.5 higher, than the one of Ukraine). When I just began to seriously work on chip technologies (including EMV ones), which later on created the foundation for modern day systems, in Ukraine we had rather compact and highly concentrated market. In contrast to the giant US market, in Ukraine more than a half of POS terminals population were owned by just one player, while 10 largest acquirers covered 97% of the whole market. We just could not afford to miss a chance to implement fast and radical technological reform on the national scale! The sheer scope of work in transition from magnetic stripe technologies to the chip ones is of titanic proportions — both on issuing and acquiring sides. One must radically redevelop all of the technological threads, including leveling up of cards personalization, upgrade of ATM and POS terminals hardware and software, beefing the processing hosts, cryptographic equipment enhancements, etc. When this mega scale project was launched, I was in charge of getting all technology elements perfectly aligned, as well as making decisions on all key issues — beginning with macro parameters, including VisaNet (which connected issuers’ hosts with acquirers’ terminal equipment) settings, and down to micro parameters of certain card products issuance like regimes of operations, etc. Even though it was a very complex endeavor, we succeeded in all aspects of implementation of absolutely new to Ukraine standards, including unique technological solutions which we had to invent, test and launch on the fly. Secondly, US market participants believed for quite a while that they would manage to resolve the problems of fraud and personal data theft, while holding to magnetic stripe technology platform. Unfortunately, their hopes did not come true. The third and probably the main reason is that Ukraine is very rich with welleducated people with huge appetite for innovative technologies. Due to that, the growth in numbers of experts in chip based electronic payments technologies domain has been explosive. While in 2003 there were around 5 of us who managed to go through the 4 volumes of EMV standard and tons of ISO 8583 manuals as well as other related documents, today we have thousands of such professionals in Ukraine.

Does the US have enough experts for taking on similar revolutionary tasks?

Well, lack of experts in electronic payments technology domain in the US seems to be serious and getting more acute with each coming month. The market includes around 7 thousand of banks (I mean banks, not branches; the total number of bank branches is about 100 thousands) and almost 28 million of nonfinancial companies. All of them will have to redesign their systems so that they could handle chip technologies based on EMV standard. It will take thousands of experts who cannot be trained overnight. The only plausible solution for such a problem is to invite experts from other countries who have made the change, including Ukraine. Without a doubt, many experts from Ukraine would be extremely useful in the US. However, even the most intensive import of technology expertise as evidenced by my experience of similar endeavor in Ukraine, would not probably allow to build ubiquitous environment for EMV card acceptance in the US earlier than 2019. One of the significant complications lies in overlapping of the two major technology revolutions: implementation of EMV chip standard and migration of electronic payments functionality from plastic cards to mobile phones.

What is happening in mobile payments technology domain?

Well, in mobile payments technology domain Ukraine seems to be significantly ahead of the US.

Which problems have you — a pioneer of mobile payments technologies — encountered while successfully taking over the Ukrainian market?

In Ukraine we began to experiment with mobile devices based payments a number of years ago. We, a group of enthusiasts from several banks, processing companies and vendors where I often had to play a role not only of a technology expert but of a pivotal coordinator of the whole endeavor. We tried and tested all of the existing technologies of the day: mobile payWave, mobile PayPass, MOTAPS, etc. In addition to that, we developed a number of our own unique technologies (I even had to use one of my personal inventions, patented during my post graduate studies). Among everything else, I was involved in the design and implementation of all of the significant elements of technology. First of all, ones related to POS terminals for mobile payments acceptance, NFC controllers and software for mobile phones, host based solutions and lots of other — and less visible things — like HSM (Hardware Security Module) upgrades, etc. At the end of the day, all of them composed the national system of mobile payments — one of the most advanced in the world. On the issuing side, we developed the products, analogous to Apple Way and Android Pay, way ahead of the US and other countries. In addition to that we created one of the world’s most advanced environments for mobile payments acceptance: in Ukraine more than 50% of POS terminals now process NFC transactions, while in the US — around 4%. In Kyiv subway you can pay for your transit with NFC capable mobile phone there are only 5 such cities in the world. It was a gargantuan job from start to finish, but its result was worth the efforts devoted to the nationwide project of worldwide importance. Indeed, mobile transactions are becoming ever more important part of electronic payments, since mobile devices became seemingly indispensable to daily routines of people, especially the ones, born after 1980. That is probably why, in the US the volumes (in terms of transactions numbers) grow rapidly, while the ones of practically all of other financial services decline year on year. That is why Ukrainian experts in mobile payments technology experience will be not less valuable for the US market players in coming years, then the one in EMV domain.

Even more so, since there are ever more players in the electronic payments domains…

Absolutely, according to AngelList web site, there are more than 4,000 financial technology startups, mostly US based, and billions of dollars have been invested into their business, while investment volumes continue to increase. They will all need to employ experts who possess knowledge and experience in implementing complex technology solutions. The pros from Ukraine would have enough challenges to take on.

Presented by the editorial board of the magazine Fuete