This work is licensed under a
Creative Commons Attribution - Noncommercial - Share Alike 2.0 UK: England & Wales License.
Please note that by replying in this Forum you agree to license your comments in the same way. Your comments may be edited and used in but will always be attributed.
[Dave Birch] Dan Armstrong is a Managing Consultant at Takashi Mobile and was one of the founders of Rabo Mobiel, the Dutch-based mobile virtual network operator (MVNO) created by Rabo Bank. Dan's global experience at the intersection between banking and mobile gives him a well-informed perspective that he shares with us in this podcast.
Listen here in either [Podcast MPEG4] or [Sound-only MP3] format.
[Dave Birch] I stopped at the Reading services on the M4 to get some petrol and a coffee. I went into the shop and presented my excellent Barclays MasterCard with cashback and PayPass. The Eastern European woman at the counter told me that the chip and PIN machine didn't work, promptly took my card and ran it through a stripe reader, then presented me with a slip for signature. I duly signed and wandered off. Once I got in my car and drove off, I started to wonder about this incident. Because I'm not normal (normal people don't care about payments), the paranoia set in... Now I naturally assume that I have been the victim of a clever card fraud scam: the fraudsters recognised my card and they know that those cards have ICVV, so the details from the chip cannot be used to create a counterfeit magnetic stripe card, so they read the stripe details directly. Even now, I imagine a copy of my card is being used in a Tiranan jewellers. Had this not been late at night, and had I been more alert, I would have gone to the ATM and drawn out cash to pay for the petrol.
Shouldn't a modern payment system free me from these paranoid concerns?
[Dave Birch] At the M-Payments and M-Banking conference in Madrid there was a super presentation by Karin Huber on Mobicom's experiences with mobile payments, ticketing and related value-added services in Austria. One thing that Karin mentioned in passing was that, in the Austrian market, it seemed as if consumers were using fears about security as a means to rationalise their concerns about mobile in general: they didn’t like registration and other aspects of the service. In a way, they weren’t really concerned about security at all. This factors in with something else I'd been thinking, which is that consumers don't really understand security and they certainly don't understand risk (all poll evidence confirms this in spades). Therefore, what consumers want is for their bank, payments providers and merchant to give the appearance of security, which is something different.
I had to phone up to activate a credit card recently, and when I called the activation "hotline" advertised by the sticker on the card, I was put through to someone who tried to sell me identity theft insurance. "Are you concerned about identity theft" they asked me. I said that I wasn't, and the reason that I wanted a credit card was precisely so that if anything went wrong, it was the bank's problem and not mine. This, incidentally, is why I never use my debit card except at ATMs. But after I hung up, I wondered if that is the right image to deliver to credit card customers. Isn't reminding them that card fraud is massive going to drive them away from using their cards rather than reassuring them? Are there any psychologists out there who can help? If people don't, indeed, understand security but are using it is a placeholder for all sorts of other concerns, then it is possible that the payments industry may be making some bad decisions about how much security to implement and how to implement it. Perhaps people might feel more comfortable using their mobile phones (which are perceived as personal devices) rather than dongles, widgets, passwords and PINs and so even if the actual security might be lower than in another device, the overall security of the system goes up because more people use them rather than wholly insecure means such as passwords.
As an aside, for m-payment nerds, Karin also said some very interesting things about Mobilcom's decision to fold TSM functionality into the infrastructure. But that's another story.
[Dave Birch] Appropriately for today I'm reading Jason Goodwin's Greenback. It reminds me just how much the birth of America and the birth of modern money (ie, paper) are intertwined. Regarding the most famous document of 1776, he says
There is a niggling list of grievances right at the beginning of the Declaration of Independence which seemed, at the time, crucially important, though few people nowadays read or remember these. The first two blame parliament for ignoring laws passed by colonial assemblies, and what they actually mean is: we agreed to have paper money, and you simply shut us down.
Remember Patrick Henry's impassioned denunciation of King George as a tyrant? It was about paper money, the latest in the series of experiments -- starting with wampum -- that helped America to develop as an economy in its own right, despite the British mercantilism prevalent at the time. In Britain, money was about custom and generations of practice, implicit in the structures of society. In America, money was invented: a creature of the law, whether seashells, tobacco or paper. As Goodwin so nicely puts it
Paper money cost nothing to produce; it was just a promise, like America.
[Dave Birch] Here's another good reason for replacing paper money with electronic money: it's filthy and contaminated. Apparently there's not that much real money laundering going on!
public health authorities say these tests show that paper money is dirty - and an effective vehicle for the spread of germs through the population. While minute amounts of cocaine might be harmless, bacteria, viruses and spores clinging to banknotes passed from hand to hand might not be.
[From Paper money makes the germs go 'round]
The mention of cocaine is almost mandatory in these reports, since almost all banknotes in Western countries are contaminated by the drug. I wonder if we might discover something about our societies by delving into the statistics?
German Euros contained levels of cocaine that were five times lower than the Spanish ones. For Irish bank notes, one statistic suggested that of 48 notes studied the highest concentration found was 0.5 micrograms. The chemists found U.S. bills contained an average of between 2.9 and 28.8 micrograms of cocaine depending on the year and city, with a maximum of more than 1,300 micrograms found on some 1996 bills. One study based on 356 notes showed just 6 percent of Swiss francs were contaminated with cocaine at levels above one nanogram per note... between 40 percent and about 50 percent of British pounds were contaminated with cocaine at levels of about 0.0011 micrograms per note.
[From U.S. money contains highest traces of cocaine - LiveScience- msnbc.com]
This looks like scientific proof that drug dealers prefer U.S. dollars but money launderers prefer Swiss Francs. It seems a shame to lose this rich ecosystem by replacing it all with mobile phones and chip cards!! (I do remember though that I once met a chap who had a business cleaning disinfecting mobile phones that had been returned for repair under warranty before they could be refurbished and sold, and he told me that mobile phones were covered in germs too.)
[Dave Birch] Steven J. Murdoch is a researcher in the Security Group of the University of Cambridge, based in the Computer Laboratory, a fellow of Christ's College and a member of the Tor project. In this podcast, he discusses a number of security issues around "chip and PIN" in the UK and makes some helpful suggestions for improving security in the next generation of retail payment systems.
Listen here in either [Podcast MPEG4] or [Sound-only MP3] format.
[Dave Birch] I think I've spotted a meme. The second serious story in a month talking about the economic benefits of getting rid of cash. First Willem Buiter, a former chief economist of the European Bank for Reconstruction and Development and former external member of the Bank of England's Monetary Policy Committee said that we should
Abolish currency. This is easy and would have many other benefits. The main drawbacks would be the loss of seigniorage income to the central bank... Advanced industrial countries can move to electronic and bank-account-based means of payment and media of exchange without like problem. [From FT.com | Willem Buiter's Maverecon | Negative interest rates: when are they coming to a central bank near you?]
I discussed Willem's article in more detail over at Kashklash, but suffice to say that it seems a plausible strategy. And now I read in The Times that
Japan may start mulling the most radical monetary policy of all — the abolition of cash... Several MPs in the ruling Liberal Democratic Party believe the abolition of cash, though politically radioactive, might be technically feasible.
[From To fight deflation, abolish cash.]
I agree with both sets of commentators that new technology means that we could move whollly to e-payments without a problem, because of technological advances made in the last couple of decades. I've written before about the situation in Japan, where the introduction of contactless payments and phones had led to a decline in the use of coins, but it's also important to point out that cash use in Japan remains high. Nevertheless...
A significant milestone in the penetration of electronic cash within Japanese society has been reached, with this survey conducted by goo Research and reported on by japan.internet.com into electronic cash showing that now over half the population (of internet users) carry some form of credit-card form-factor electronic cash.
[From e-money » 世論 What Japan Thinks]
Let's imagine that Willem's version of the future of money is adopted. What would the retail payments landscape look like? Well, not entirely unfamiliar, because he suggests not getting rid of all cash entirely.
As a concession to the poor, we could keep a limited number of 1$ and 5$ bills (1€ and 2€ coins and 5€ bills) in circulation.
[From FT.com | Willem Buiter's Maverecon | Negative interest rates: when are they coming to a central bank near you?]
I don't think I agree with him here, as cash isn't a concession to the poor: it forces them to pay higher transaction costs than their better off neighbours. And if the amount of cash falls, then the cost of the whole infrastructure of ATMs and cash registers, armoured vans and night safes will fall on the poor, thus further raising their transaction costs. Surely it makes more sense to simply switch off cash. Willem summarises thus:
Do we really want to retain cash just because it (1) allows us to hide some of our legitimate financial transactions from the government (as insurance against government abuse of the information), and (2) is a source of revenue to the central bank? These arguments pro are surely dominated by the two arguments against currency, (1) that, as currently construed [...] currency imposes a zero lower bound on nominal interest rates and (2) that it subsidises the grey and black economies and makes life easier for the global criminal and terrorist fraternity.[From FT.com | Willem Buiter's Maverecon | Negative interest rates: when are they coming to a central bank near you?]
Do we really want to retain cash?
[Dave Birch] Roy Vella is the Director of Group Mobile at RBS, with a global role in helping RBS to exploit mobile across all areas of retail bank business. Prior to this he was head of mobile for PayPal in Europe. The first person to be interviewed twice in this series (!), in this podcast he explains the importance of mobile to a global retail bank.
Listen here in either [Podcast MPEG4] or [Sound-only MP3] format.
[Dave Birch] One of the very first projects that Consult Hyperion worked on was the Bank of England Central Gilts Office (CGO), way back in the days of "Big Bang". We were subsequently chosen by the Bank of England to work on the Central Moneymarkets Office (CMO) and then CREST, the equity settlement system that they created when the Stock Exchange's TAURUS project collapsed. These are now part of Euroclear, which makes the card scheme networks look like loose change: it currently handles an average of HALF-A-TRILLION pounds per day in gilt, equity and money market trades. At times of stress, these systems are critical to the economy.
There’s also the interesting fact that on separate occasions during September and October 2008, the UK’s Continuous Linked Settlement system broke its previous record daily volume by over 35 per cent; ‘Crest’ saw a 33 per cent increase in the highest value settled before September 2008; and ‘Swift’ saw new record volume days on four occasions. Essentially, a lot of people moving a lot of money in a very short period of time. [From FT Alphaville » Blog Archive » Financial crisis, UK payment system edition]
All of the systems stayed up, which is a testament to the designers. These systems generate a huge amount of data as a by-product of their operations and I wonder if this data is captured and used effectively? I mentioned before about using the data from payment systems to create a kind of weather map for regulators and supervisors so that they can pick out major "fronts" and see storms brewing. Perhaps the web 2.0 way forward is to anonymise the data in some way and then just put it out on the Internet so that people can see (and mash up) the financial weather for themselves: a picture of where the moving is moving through Europe in real-time might be fun. By the way, we talked about the money forecast, but here's a money map of Europe that I just love.
[Anthony Pickup] To get an up-to-date understanding of the context for m-payments, I went along to the Mobile Retail Show at the Institute of Engineers (which reminds us what the UK engineers have done for the world) and Monetising the Mobile Internet at the Royal Statistical Society covered similar issues around how to extract value from users of the mobile internet, from advertising, m-commerce and so on. They both had some discussion of the payment methods available.
Let's look at the mobile internet – shall we start by thinking about the device interface. Well there is the size, the variability of functionality from text-only through to near full colour and functionality with all being in use. I do remember devices that were non-colour but I am old and the majority of these devices were the human interfaces into large computer systems – indeed the computer workers of the world may still use ‘TSO’ screens to access ‘REAL’ computers. Interesting there are now similar band width issues on the communications channel from GPRS through to HSDPA. (This is not quite as bad as dial-up / PSTN through to broadband / ADSL and beyond.)
So what, you may ask. I see this as the creation of another digital divide created by market forces and the speed of mobile technology development. I ask you who changes their laptop or desktop computer more often than their mobile phone? We will create a market where some people are able to access information and services on the move and others that can not. One area where the opposite is occurring is mobile network delivered internet access (the world of dongles). This technology is reaching a tipping point where it is easier, quicker to get working and for some users cheaper to access the Internet this way than over the classic ADSL (fixed line) technologies. I have had my dongle now for 15 months, during which time it has gone from a niche ‘3’ product to a core service for all operators, and now I think I will pass my device up to my mother-in-law to replace her dial-up access. It took my wife four years to teach her to text and boy does she text now - even though severely disabled with arthritis. I doubt it will take that long to get her on Skype messaging, voice and then video calls with her daughter – who does not know what Skype is yet. This I believe will be cheaper easier to use and probably more reliable that here current dial-up even though she is North of Stirling.
Continue reading "Payment revolution needs identity revolution" »
