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Debate at the intersection of business, technology and culture in the world of digital money, both commercial and government, a blog born from the Digital Money Forum in London and sponsored by Consult Hyperion



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15 posts from July 2008

We have not sold any sugar in months

By Dave Birch posted Jul 29 2008 at 9:35 PM

[Dave Birch] OK, so that's one of the more unusual testaments to the continuing success of the M-PESA scheme. You can see it in context in an article about some ethnographic research around M-PESA. Im afraid I can't resist an extended quote...

It is early morning in Bukura, a small village in Western Kenya. The shop-keeper and his wife are preparing to open their small store, which sells household commodities such as flour and cooking oil. They also offer M-PESA services. There is already a queue outside. A group of about twenty villagers are crowding the entrance. “It is always like this,” the shop-keeper complains while pointing to the crowd. “Since we have become M-PESA agents we have no time to rest. This thing has even over-run our other business”. He then holds up a packet of sugar. “We have not sold any sugar in months. They only want M-PESA”.

[From Why has M-PESA become so popular in Kenya?]

This is only one of many, many similar stories that keep cropping up.

...the majority of customers in both the urban and rural areas assert that they prefer M-PESA over other money transfer services. This means that M-PESA must be offering them some kind of substantial benefit. In Bukura, this benefit comes in the form of savings on transport. Customers do not need to travel into Kakamega, the nearest town, to access the service. One elderly farmer commented that “I can just walk from my shamba (farm) and get money. I don’t have to spend and go into town. If the agent does not have cash today, then I will come back tomorrow. It is cheaper to wait”.

[From Why has M-PESA become so popular in Kenya?]

It just goes to show what can happen when the right digital money implementation comes along at the right time: real transformation.

Continue reading "We have not sold any sugar in months" »

Different keystrokes for different folks

By Dave Birch posted Jul 24 2008 at 7:42 AM

[Dave Birch] In a very good piece about the location of risks in retail payment systems, discussing Obopay's decision to end instant bank transfers, Jim Salters from our good friends at Glenbrook reinforces a key point:

it is important to understand that mobile banking and mobile payments are wholly different animals.

[From Glenbrook Partners: Mobile P2P Payments Continue to Evolve in the US]

He's absolutely right, of course, and it appears that as time goes by the two animals are evolving into different species. A great many of the people who want mobile banking are in the developed world, have PayPal accounts and don't need another P2P service (mobile or otherwise). What's more, in the US the services that they are using are not even really "mobile" services at all (in that they don't use any of the services or functions of the mobile network, SIM or handset), just web services jammed on to a smaller screen. Conversely, a great many of the billions of people around the world who want and need mobile payments do not need a bank account or anything like it. What they want is a simple, cheap, transaction system.

Continue reading "Different keystrokes for different folks" »

Sterling service

By Dave Birch posted Jul 22 2008 at 5:51 PM

[Dave Birch] Well this is rather exciting. The writer Bruce Sterling had a tremendous influence on me: his anthology Mirrorshades was one of those books that makes you think about things in a different way. It was one of the key texts in the history of cyberpunk fiction that has ended up shaping some of our collective thinking about the relationship between technology and society. This is why I was so excited to discover that I will be sharing a platform with Bruce Sterling at LIFT 08 in South Korea later this year. We will be speaking in a session on virtual money, where I imagine he will have far more interesting things to say about it than I will.

Continue reading "Sterling service" »

Slightly faster payments

By Dave Birch posted Jul 21 2008 at 10:14 AM

[Dave Birch] Well, the Faster Payment Service (FPS) is up and running and I was thinking about it because I happened to have had a couple of meetings with APACS last week. I made mental note that next time I log in to my home banking I shall attempt an FPS transfer in the spirit of first hand investigation and report back, but I don't think it will have much of an impact on day-to-day life for me in the short term. Where I think it will have an impact is in using secure mobile applications as a 2FA front-end to FPS transfers. If it is simple -- and I mean really simply -- to instruct an FPS transfer from the phone then it may become an established alternative to some other payment mechanisms. Clearly, one of those will be cheques. The Payments Council are studying mobile-based bank account to bank account transfers as we speak, guided by the focus given to mobile in the National Payments Plan published by the Payments Council (I interviewed the head of the Payments Council, Brian Pomeroy, in our podcast series), alongside further consultation on the future of cheques. These subjects are certainly related, since mobile (rather than Internet) payments are the only viable way to replace cheques as far as I can see.

Continue reading "Slightly faster payments" »

Is there money for payments?

By Dave Birch posted Jul 18 2008 at 9:52 AM

[Dave Birch] I've heard two different versions in the last week, both from people in retail banks. The first version says that payments doesn't generate very big returns (banks don't make a lot of money out of payments at all) but they do generate returns. So since the bank has poured billions into Florida real estate, it now needs to invest in more solid businesses that bring in cash. Hence they are about to spend a considerable amount on expanding their card business. The second version says that nothing is happening in the card business, so any investment is pointless, and if the bank does nothing then gross dollar volume will continue to increase anyway. So they're spending nothing.

I don't know enough about business to know who's right, but the latter example seems a little short term to me. It's easy to make a business look better by not investing in new products and services and then getting the hell out before your successor has to deal with falling market share.

Continue reading "Is there money for payments?" »

Microebb and microflows

By Dave Birch posted Jul 17 2008 at 6:28 PM

[Dave Birch] The subject of micropayments seems to ebb and flow. I've just been putting together some review comments for a European Commission report on some stuff, one part of which asks whether there is a new need for new micropayment systems or not. I've posted an edited version of my response below because I'd like your opinions too. You might want to read "The Case for Micropayments" and "The Case against Micropayments" first! If you do, you may conclude that the mobile phone model of pricing seems right: you pay a fixed subscription for a bundle of services, but if you want more you pay extra, and you pay extra for stuff like ringtones. Seems reasonable: I don't want to be bothered about paying-per-page, but on the other hand I would like a simple way to buy content, just like I do on iTunes. In fact, one of the reasons why I buy music on iTunes and nowhere else is because on iTunes it's easy. Click. Done, One euro.

If we put nanopayments (ie, payments below, let's say, a few cents) to one side, and we assume that payments over ten quid will be dealt with through other channels, there's still a ten pence to ten pounds sweet spot that really ought to be filled by pre-paid offline contactless solutions in the physical world and some sort of equivalent in the virtual world. What that equivalent will be is not clear at all. Just to illustrate with a couple of examples that relate to the two different subsectors (ie, paid content and P2P) that I refer to in my response, I had a couple of e-mails about new micropayment targeting different environments. One of these was sparechange, a Facebook application for sending small amounts P2P between friends, and Znak it!, which is "coin" scheme for the web. In Znak it!, the consumer prepays for coins of predetermined amounts (as they did for Digicash, Millicent and so on) and then spends the coins on paid content at web sites. I'll give it a try when it's up and running. In sparechange the customers load a pre-paid wallet that is then used to fund P2P transactions. Unfortunately, I couldn't try it out because when I tried to load it using PayPal, this happened:


Just when I was complaining about contactless the other day, I found it really annoying to have the transaction declined but not to be told why. Anyway, I gave up, as any normal person (such as all the people who don't read this blog!) would.

Continue reading "Microebb and microflows" »

User inexperience

By Dave Birch posted Jul 15 2008 at 8:41 AM

[Dave Birch] So I'm a big e-money fan, and I really don't want to bother with cash, and I want to pay everywhere using cards, phones, psychic power, whatever. Yet my cash replacement experiences are so poor I'm being to lose heart. I tried to pay for my coffee (and a colleague's Snapple -- note the journalistic accuracy) using my contactless Visa card. The UOB terminal said that it read the card, then a red light flashed momentarily and I got the message "transaction failed". Why? I didn't know, and nor did the shop assistant. Wrong card? Wrong card scheme? Gone over my limit? Offline No CVM counter reached zero... now I'm thinking "shall I waste money on an international mobile call to Barclays, shall I waste money on a call to UOB, shall I have to pay another ATM fee" as well as "how many times have I used this card without the PIN, is it 9 or 10 you're allowed before you're declined... but hold on, shouldn't the terminal say if there's a routine security check... no, what's the phrase on the terminals in our office..."

Wait a minute: Normal people don't start thinking about Cumulative Offline Value and other EMV risk management parameters, they just think "what a bad system, I won't bother to use it again". If we want to replace cash, guys, we're going to have to do better than this. I'm hope that London taxi drivers have been given a full briefing on extended risk management in EMV Level 2 transactions over a wireless interface...

RBS will pilot contactless card acceptance in association with MasterCard in 25 London-based taxis owned by Xeta. If demand meets expectations, rollout of contactless card readers will be extended to Xeta’s entire taxi fleet.

[From ePaynews.com - the payment news and resource Center]

As was discussed back at the Digital Money Forum, after an excellent presentation by Ronnie O'Toole from National Irish Bank, a significant step toward cash replacement would be for taxi regulators to insist that cabs take contactless. This was part of the bank's submission to the Irish Department of Finance:

The taxi regulator should make it compulsory for all taxis and hackneys to accept payment by debit or credit cards by the 1st of November 2008.

[From Digital Money Forum: I don't care too much for money...]

I think I'm going to write to Boris about this.

Continue reading "User inexperience" »

Nymity vs. anonymity

By Dave Birch posted Jul 14 2008 at 9:31 AM

[Dave Birch] In The Future of Money by Benjamin Cohen, the author says that one of factors that may make it difficult for e-money to substitute for physical notes and coins ("p-money") is that e-money cannot reproduce the anonymity of p-money. I said that I would come back to this subject when I ad some time to think about. Having done so, it led me to reflect on my experiences in the early days of e-cash, the age of Mondex, VisaCash, DigiCash, CyberCoin and all the others. I had certainly had that opinion in the early days: When I first began working around these schemes, I assumed that anonymity was a key requirement for cash replacement. For one thing, that's what customers said in market research, which was music to Mondex's ears. (Note that consumers also said that they wanted the ability to "lock" Mondex cards with a PIN, a feature that I never once saw used in the live service.) But after some time, I began to realise that I was misunderstanding the customers' desire for anonymity. For the most part, it wasn't a real requirement at all, but a kind of comfort factor introduced into the portfolio of cash-like features. To use the post-modern visualisation of Umberto Eco, we shouldn't have been designing virtual cash, but hypercash: Not an electronic version of cash as it is, but an electronic version of cash as it should be. I'm not advocating the construction of fantasy money that disconnects from the real world (Eco warns of the dangers of feeling "homesick for Disneyland" in "Travels in Hyperreality", whioh was one of those books you enjoy reading, but at the end realise that you haven't understood it) but more of an inclusive approach. We should be able to at least categorise the requirements of the various stakeholders (I don't propose to do that here) to get a better idea of what digital money ought to be aiming for, rather than raise the bar no higher than than an electronic simulation of the plastic simulation of the paper simulation of money that we have now.

(This, incidentally, is going to be my rallying cry: No more e-money, it's time for h-money! More on this later.)

Continue reading "Nymity vs. anonymity" »

Lighthearted? You can judge!

By Dave Birch posted Jul 11 2008 at 3:18 PM

[Dave Birch] Digital Money denizens will undoubtedly have been following the evolving MiFare security story (basically, researchers discovered the secret algorithm used in MiFare Classic products -- in quite a clever way, it has to be said) with great interest. The details are not relevant to this post, but you'll recall that the essence of the story is that some researchers reverse-engineered a MiFare chip to discover the hiterto secret algorithm used to protect chip contents and discovered a weakness that enabled them to obtain keys. NXP were not terribly happy about this, as you might imagine. This problem is potentially serious, because millions of MiFare chips are used for applications ranging from public transport tickets to corporate access control. There is no arguing with their findings, and the inevitable consequence is that the MiFare Classic implementations will need to be replaced with the new MiFare Plus chips when they reach commercial shipment volumes next year sometime. MiFare Plus differs from MiFare Classic in that it uses standard AES encryption: The algorithm is public, and the security of the system relies on keeping the keys secret, which is the preferred way of handling transaction security nowdays. Anyway, last week we heard that

Chipmaker NXP, formerly Philips Semiconductors, is taking Dutch Radboud University to court on Thursday to prevent researchers publishing their controversial report on the Mifare Classic chip.

[From NXP sues to silence Oyster researchers | The Register]

We don't yet know what the outcome of this was, and I have no idea of the legal rights and wrongs, but I did notice this response this morning:

Dutch semiconductor manufacturer NXP is making a mistake suing Radboud University Nijmegen in the Netherlands, says Karsten Nohl, a University of Virginia graduate student who worked with others to break the MIFARE cryptographic algorithm.

[From Nohl: NXP making ‘terrible decision’ : Contactless News]

I'm very interested in Karsten's opinions, especially because we're going to be having a little chat in Vienna at the end of September at Mobile Banking Security. As the brochure says,

In this interview style session, chairman David Birch, Consult Hyperion, will lead a more light-hearted and informal discussion with Karsten Nohl, University of Virginia, about his research team’s experiences of cracking the security of the MiFare chip.

I'm not sure either NXP or Karsten will be especially light-hearted if they are still in court, but I'll do my best to help.

Continue reading "Lighthearted? You can judge!" »

BarCampBank "near money"

By Dave Birch posted Jul 10 2008 at 1:02 PM

[Dave Birch] James Gardner is absolutely correct that the lack of a set agenda is the power of the BarCamp format. I wasn't really intending to talk about alternative, complementary or community currencies when I went along last week -- I was really thinking more about mobile, to be honest -- but when I saw a sticker on the wall, I couldn't resist and I got to take part in an excellent round (well, oval) table discussion about "near money" (ie, things that aren't really money but can be used as money). The reason that I'm interested in this is because I'm working on some big picture stuff about the long-term impact of technological change on money, and it seems that one of the key trends that needs to be considered in the analysis is the tendency of the technological change to convert stores of value into means of exchange, thus "monetising" assets. The extent of the shifts are very significant in the history of the financial sector: Consider that before the introduction of the cash management account (CMA), something like two-thirds of Americans' savings were in demand deposit accounts, whereas afterwards something like two-thirds were not. Following Nick Szabo's thinking about commodity derivatives, I was musing whether technology push or business pull would dominate an evolutionary period. On the one hand, the technology means that we can trade new instruments, but on the other hand someone needs to invent the new instruments to trade.

But suppose the next evolutionary period is different, in that the technology has decentralised invention to the point where rapid experimentation can take place "at the edge" as the OpenTech crowd would say, not business pull as in the past but business experiment on a large scale. Well, it may be that the next near-money to shift from store of value to medium exchange might already be being traded in some small community somewhere, just waiting for the dynamics of networks to take their course. So what is it? Linden Dollars or Pieces of Telefonica Eight, Microsoft Moolah or Google Groats? To cross the chasm into the mainstream, the near-money would need to be something that it is easy for people to understand and easy for them to visualise holding and using: My candidate is access to telecommunications services (mobile minutes or broadband megabytes or similar). What's yours?

Continue reading "BarCampBank "near money"" »