Digital Money

Finnish line

[Dave Birch] I had a few questions from journalists about the announcement of the Nokia Money service. We'll get on to the service itself in a minutes, but the dreary pedant inside me can't resist first pointing out that most of the headlines were on about mobile banking:

Noki­a is to enter the mobile banking market

[From Nokia to Launch Mobile Banking Service]

The announcement from Nokia, of course, says nothing of the kind, and for a very good reason. In most countries, if you decide to launch a mobile banking service then you need to be a bank. An if you offer a banking service without a banking licence, you will tend to get arrested. The Nokia press release very clearly calls the service a "mobile financial service", and says that

we are enabling services such as payment of utility bills, purchase of train and movie tickets, top-ups, all through their mobile phones

[From Nokia - ShowPressRelease]

Quite. Nokia Money is a money transer service, not a banking service. If someone else want to run a banking service that uses Nokia Money as money transfer and payment mechanism, then that's great. My guess is that people will want to do this, although whether the operators will be sanguine about them doing so with Nokia rather than with the operators themselves remains to be seen.

There is every reason to see this business model as sound. There is a latent demand for financial services amongst the unbanked and there are organisations perfectly capable of delivering those financial services once the mobile money transfer service is in place. A good example of this is in the Philippines, where the G-Cash mobile money transfer service forms the payments platform for a growing range of financial services, including banking. This is how I would expect Nokia Money to evolve. To see an example, check out what Green Banks is doing with the Microenterprise Access to Banking Services (MABS) infrastructure

Now, rural banks are no longer just traditional depositories; it has also become a venue for clients to make the following transactions:

1. make loan payments (Text-A-Payment)
2. make deposits (Text-A-Deposit)
3. make withdrawals (Text-A-Withdrawal)
4. send and receive remittances (Text-A-Remittance)
5. disburse salaries (Text-A-Sweldo)
6. pay bills for schools and utility cooperatives in remote areas (Text-A-Bill Payment)

[From Mobile Phone Banking Blog]

A few years ago, I was involved in a study for a customer in Latin America who was looking at the business opportunity just for this last service, the bill payment. Without breaking any confidences, I think I can say that the business opportunity was substantial, but only available to an organisation with a large enough cash-in network, which meant agent networks rather than banks (either through retailers or specialist outlets) because it would be too expensive for banks to build big enough networks from scratch.

banking and finance, legal and regulatory, mobile, money transfer

The raid in Spain

[Dave Birch] Police investigating a drugs ring in Spain busted a counterfeiting operation. The counterfeiters were, naturally, producing their own versions of the drug smugglers' best friend, the 500 euro note.

Spanish police have seized fake banknotes worth eight million euros (£7 million) in the biggest single haul of counterfeit money ever recorded in Europe.

[From Spanish police seize largest haul of forged banknotes in European history - Telegraph]

The article goes on to say that Spainiards call the 500 euro notes "bin Ladens" because, like the world's most wanted man, everyone knows what they look like, but no-one has ever seen them. The newspaper points out that the notes are frequently used in "black money" transactions and it is thought that Spain has more in circulation than anywhere else in the Eurozone. Frequently? I'd be curious to hear from anyone who has ever used one in a legitimate transaction! The haul, incidentally, easily beat the previous record set only a few months ago.

Italian police conducted an early- morning dragnet across the country to round up more than 100 people in what they described as the largest bust of a euro counterfeiting ring ever... Four laboratories for printing fake euro bills and minting phony coins were discovered, and 1.2 million euros ($1.6 million) was sequestered during the investigation

[From costa confidential: largest bust of a euro counterfeiting ring ever. Euros were tracked out of Italy to Spain]

It's not surprising that the records are falling, because the counterfeiting of euro notes is steadily and, it appears, inexorably increasing.

The number of seized counterfeit euro notes jumped by 17 percent in the first six months of 2009, the European Central Bank said on Monday, marking two years of constant increases. In January the central bank had reported a six-month increase of 13 percent while stressing that the scale of counterfeiting remained small, a comment it did not repeat this time.

[From Fake euro seizures climb by 17 pct: ECB — EUbusiness.com - business, legal and economic news and information from the European Union]

Oddly, given these newspaper stories of police raids, fraud factories and international fake note smuggling, the ECB says that no "new" sources of counterfeits were discovered.

The ECB said however that the fake notes seized in 2009 had the same origin as previously discovered notes, meaning that no new sources of counterfeit money had been found.

[From Fake euro seizures climb by 17 pct: ECB — EUbusiness.com - business, legal and economic news and information from the European Union]

So who cares if there's some counterfeit cash out there? Well, by itself it has an almost undetectable impact on the money supply (especially compared to the current "quantitative easing") but it does provide a kind of venture capital for the bad guys. Criminals use the counterfeit money for all sorts of things. One gang was found with a large stock of cannabis for distribution, but

Some of the forged money was used to buy more than 16,000 € worth of jamones in Guijelo, (prized ham from the Iberian pigs, traditionally fed on acorns for their flavour) in Salamanca province.

[From Spanish Police uncover 'ham-loving' counterfeit criminals]

Well, even counterfeiters have to eat.

crime and fraud, notes and coins

Cross-bored

[Dave Birch] Just as the discussion about whether to start using "chip and PIN" in the US is starting to get under way (more on this in a future post), and people are beginning to find it harder to use stripe cards at some European acceptance points, it's also getting harder to use chip cards over there. This is because the introduction of chip and PIN cards -- without any corresponding enhancement to terminal security or CNP security -- has caused a massive increase in card fraud (it's now triple what it was when the migration started). A lot of this fraud has been exported to places without chip and PIN infrastructure and, in particular, without chip and PIN ATMs. In a perverse way it also seems to have nudged criminals towards the Internet, and once they get there they go nuts because it's so easy.

A spokesman for the UK Cards Association trade body said the figures were 'not good', but insisted they should be seen in the context of the massive rise in on-line shopping.

[From 'Dynamic' security system developed as cash card fraud spirals out of control | Mail Online]

Fair point. The figures are not good (and getting worse) but they are not growing as fast as overall e-commerce. This is no comfort. The absolute level of card fraud, already a billion dollar business in the UK, is an unacceptable subsidy to the criminal fraternity. And law-abiding citizens are collateral damage (damn, I am spending too much time watching The Wire).

cross-border, payment cards

Blums Pineda, Exicon

[Dave Birch] Blums Pineda is Managing Director of Exicon, a mobile and internet consultancy based in Hong Kong. He was formerly a Vice President with Globe Telecom, where he was a member of the Wireless Management Committee, and responsible for the 3G and Wireless Data VAS Business. He launched the 1st 3G/HSPA network in Asia Pacific and introduced Mobile Broadband. He also held the top strategy and wireless business planning roles during his early career at Globe. In this podcast, Blums (who has an MBA with Honors from the University of Chicago Graduate School of Business and double baccalaureates BS Management Engineering and BA Management Economics) talks about the introduction of GCash.

Listen here in either [Podcast MPEG4] or [Sound-only MP3] format.

banking and finance, emerging markets, mobile, money transfer, podcast

Not quite a thousand flowers

[Dave Birch] Central to the deployment of mobile proximity payments in the mass market is the well-understood problem of the connection between (and control over) applications and service providers. How does a bank's payment application get into a consumer's phone, to put it simply. Well, the GSM Assocation set out a "standard" architecture that has a box called a Trusted Service Manager (TSM) to take care of that problem. The service provider tells the TSM to send a bank card to your phone and the TSM makes it happen. It's actually fairly straightforward to do this.

DnB NOR and Telenor have been working together on NFC since April 2008 when they formed TSM Nordic, a joint venture charged with creating a trusted service manager to handle the introduction of NFC in the Nordic region.

[From DnB NOR and Telenor begin NFC field trial in Oslo • Near Field Communications World]

Now, the bank or the operator could load the application themselves, so why would they introduce the extra box? Well, we all understand the basic problem, as clearly stated here by Jonathan Gould.

As additional service providers join the ecosystem – such as loyalty operators, ticket issuers and pre-paid cards providers (e.g. transit) – then the possible number of TSMs explodes, increasing the level of complexity accordingly.

[From Asia Pacific Smart Card Association - smart,contactless and NFC business & technology]

Actually, I think the problem may be a little more complex still. But let's look back at the simple case first. A single bank (let's say Citi) does a deal with a single operator (let's say M1 in Singapore) and they need a "TSM" to get applications to the phones. In that case, what has turned into almost a default option is that the personalisation service provider connects their system to the operator OTA:

Gemalto is entrusted with the management and preparation of sensitive user information from Citibank and to perform secure Visa personalization services on the phones enabling subscribers to gain access to the Visa payWave service on Singapore M1's mobile network.

[From Finextra: Citi selects Gemalto personalisation services for Singapore m-payments trial]

Outside the case of banking, where mass personalisation supply chains, certified to a high level o fsecurity, already exist, the emerging supply chain may well be different: it doesn't have to follow the bank model, where multiple banks outsource to bureaus and some banks have their own systems in house. This is because different kinds of services require different kinds of TSMs. The TSM capable of delivering military ID applications into USB tokens may have very different security, reliability and flexibility requirements than a TSM capable of delivery a sports ticketing application or a corporate login application. If you are a transit operator, you may find that sharing a TSM with other transit operators makes sense, whereas sharing a TSM with banks doesn't. Therefore, we're unlikely to end up with a single TSM per country, or per region, or per MNO, but we may end up with one TSM per sector outside banking and one TSM per bank/operator service inside banking, which isn't what many people imagined when the TSM model became current. A single TSM just doesn't look right.

There's a pressure in the opposite direction, which serves to stop us from having a thousand TSMs. As has been discussed before (by Consult Hyperion and others), there is a substantial economic advantage to sharing infrastructure and interoperability means significant growth in services. Therefore, in a market such as the UK, one might expect to find four or five TSMs in time. That seems reasonable, so let's move on to another question. Who will run them?

I argue that the MNO should take over the role of the TSM. The MNO already has a Call Center which can be used for the new service support. With the Secure Element (SE) on the MNO SIMs, ( which looks like the most viable option to deploy NFC), the operator already carries out essential activities such as provisioning, SIM blocking, etc.

[From ForumOxford: NFC Trusted Services Manager]

There's a logic to this, although I have to say that many MNOs seem unenthusiastic about the opportunity. They don't personalise the SIMs themselves, so to build this kind of facility would cost them a lot of money and they'd have to comply with all sorts of security requirements. If an MNO outsources to the same (for example) G&D centre as its bank partner does, then G&D will become the TSM in practice. As the always thoughtful Dean Bubley notes in the ForumOxford piece, the business model for the operator depends substantially on reduced churn, but banks (and their customers) won't want to be locked into to a particular operator unless the operator pays heavily for the privilege.

It's different in the markets that we look at as being the most advanced mobile transaction (eg, payments, ticketing, loyalty, coupons) markets, Japan and Korea. In these markets, there is no concept of a TSM because everything goes through the operator. While there may be arguments about the long term efficiency, innovation and operation associated with this architecture, there's no denying it's an effective way to get markets off of the ground. In the Japanese market (where DoCoMo recently announced their target of moving from around 9 million to around 11 million DCMX customers this year), the delivery of (for example) train tickets to the contactless interface in the handset is routine

mobile

Don Lisle, Citibank

[Dave Birch] Dion Lisle is a Senior Vice President of Citibank’s Growth Ventures team within the Innovation office. After a 20 year career in high technology, Dion joined Citibank’s Growth Ventures team from a Silicon Valley startup called Obopay to drive innovation in the area of mobile financial services. Dion’s responsibilities cover working with Citibank’s vast array of business and geographic leaders to drive innovation within mobile financial services. In this podcast, he talks about Citi's focus on the mobile future.

Listen here in either [Podcast MPEG4] or [Sound-only MP3] format.

banking and finance, mobile, podcast

All mobile, all the time

[Dave Birch] The foreseeable horizon for electronic transactions is, as far as I can see, dominated by mobile. Most people, in most organisations, in most countries, most of the time, will be using their mobile phones to access financial services and (in particular) to instruct transactions. The people who use PCs and the web to access, manage and instruct transactional services are already a minority and for some of us the extent to which mobile is beginning to dominate in some countries is almost shocking.

While on a trip to South Korea, Chen, a 24-year-old graphic designer from Sacramento, Calif., noticed how people whipped out cell phones when it came time to pay. One of her friends had a mobile phone from SK Telecom, South Korea’s biggest mobile operator, that let her fill her commuter train account when it fell below a certain amount, and remotely send the charges to her Visa account. “She just held out her phone as we walked through the turnstile,” said Chen. “I got spoiled. Now I want to do the same with my phone.”

[From Mobile Payments: Will That be Cash, Check Or Cell Phone | VASreport.com]

I noticed this sort of thing on my last visit to Seoul as well. It's not even regarded as novel any more: the mobile phone as transaction device is part of normal life. Back home, we're nowhere close to this. At the time of writing I can't use my mobile phone on the Tube, let alone to pay for the Tube, and the proposed mobile front-end to the Faster Payment Service (FPS) -- which I've always been keen on -- seems quiescent. Having said that, I noted over at the VRF blog that the "pay your plumber" scenario has receeded somewhat, at least for my plumber who now has a chip and PIN terminal. We seem slow to notice the mobile revolution and act, yet surely many people recognise the transformational potential for mobile in the payments space. I found it odd, when leafing through the old APACS paperback "Payments Past, Present and Future", published in 1996, that it did not even once mention mobile phones, despite the fact that (according to the BBC):

Once beyond the reach of most mortals, mobiles really took off in 1996, becoming fashion accessories for all.

[From BBC - Cult - I Love 1996 - Fashion]

Fair enough: it's really hard to see what technologies are going to have an impact when they are all around you, let alone when you are trying to imagine technologies of the future. But mobile phones aren't "the future", they're now.

You've probably heard it before – mobile banking is the next big thing. It's about to take off. But this time, analysts say it's poised to happen, and the numbers seem to back that up.

[From Mobile Banking Poised for Takeoff]

I don't think it's a particularly controversial view to say that the future of electronic transactions and the future of mobile phones (or, at least, the devices formerly known as mobile phones) are inextricably linked.

id and authentication, mobile, prize, security

Third men

[Dave Birch] Way back in 2007, Peter Jones of Payment Systems Europe published a typically perceptive paper on the potential for European ATM networks to form the basis of the European Commission's "third scheme" for debit cards. This has become a reality, at least in embryo, through the Euro-Alliance of Payment Schemes (EAPS). So will the existing banks and the existing switches become the unopposed third way? I suspect not, because more possibilities already exist. I wrote some time ago about First Data's moves in that area and the possibilities that might emerge as they push their FirstNet offering in this direction. Now, with the landscape becoming richer -- additional third scheme candidates Monnet and PayFair are in town (by which I mean Brussels, of course) -- and the Commission continuing to press for a "European" SCF debit scheme, it looks as if things might get interesting. PayFair, a private initiative that is targeting merchants, is already trying to get off of the ground with a Belgian pilot in the autumn and Monnet has said that it intends to form a company in the not too-distant future:

However, Hermann-Josef Lamberti, COO of Deutsche Bank, is again talking up the prospect of a third pan-European debit scheme, telling a conference in Frankfurt that several financial institutions, including Société Générale and BNP Paribas, are planning to formally establish a group of banks by October 2009 to move ahead with the Monnet scheme.

[From CardsInternational.com - VRL KnowledgeBank]

Despite the economic circumstances, now is a pretty good time to be thinking about launching a new debit scheme, since customers are moving away from credit and toward debit in a big way in the US and Europe.

Quantitative consumer data indicates as a shift from “pay later” options (credit card) to “pay now” or even “pay before” options (debit cards and prepaid cards).

[From Javelin Strategy and Research » Thoughts on “Premium Debit” as a Component of an Enterprise Payment Strategy]

And whatever the rights or wrongs of the interchange debate, now isn't a bad time to approach merchants with lower-cost alternatives either. So the European debit marketplace looks like it's going to get interesting.

debit cards, payment cards, SEPA and PSD

SEPAaratists

[Dave Birch] At a SEPA seminar I went to -- at which, as an aside, the delegates agreed overwhelmingly with the statement that "bank payment products are inadequate for the Internet and mobile world" -- we were given a curious pamphlet from the European Payments Council (EPC) called "The most popular misunderstandings about SEPA clarified". One of the statements was "SEPA is a demand-driven initiative" (which, of course, it isn't). The clarification from the EPC says "European integration is rarely carried forward on a wave of popular support" (I'll say!) and goes on to say that monetary union did not materialise by distributing euro banknotes and coins and hoping that national currencies would be enthusiastically abandoned. Indeed. But that's not say that that idea was wrong: on the contrary, national currencies would have been forced to keep their value up relative to the euro or begin losing seigniorage (and influence). That was one of the points in favour of dear old John Major's plan for the hard e-euro.

cash and cashlessness, legal and regulatory, notes and coins, SEPA and PSD

Has cash jumped the shark?

[Dave Birch] The internet generation (Generation Y, or in my household, Generation Whatever) have a lovely phrase for deriding something that has outlived it usefulness, something that is going through the motions without contributing creative or positive to society. They say it has "jumped the shark", a phrase that comes from television criticism. A show jumps the shark at a point

where a show with falling ratings apparently becomes more desperate to draw in viewers. In the process of undergoing these changes, the TV or movie series loses its original appeal. Shows that have "jumped the shark" are typically deemed to have passed their peak.

[From Jumping the shark - Wikipedia, the free encyclopedia]

The origin of the phrase is an episode of the popular television programme "Happy Days". I'm sure you will all recall the engaging and innocent teenage antics of Ritchie Cunningham, Arthur Fonzarelli and their chums. I never liked it that much, personally, because it portrayed a world that seemed a little remote from my Swindon council estate, but that's by the by. Anyway, in an episode first broadcast on September 20, 1977, "Fonzie" wearing swim trunks and his trademark leather jacket, jumps over a shark while water skiing, for reasons that need not detain us.

The phrase has been used more recently [when?] outside the realm of popular culture, representing anything that has reached its peak and has declined in quality.

[From Jumping the shark - Wikipedia, the free encyclopedia]

This is the sense I mean in the title of this post.

Has cash jumped the shark? Cash use is certainly declining, and it's hard to say that cash is of the same quality (ie, purchasing power). It certainly doesn't contribute anything to the world around it. Look at the evidence. It subsidises organised crime, encourages tax evasion and wastes resources. The private costs are not aligned with the social costs, and the social costs are distributed very unfairly so that the poorest people pay the highest transaction costs. Lots of reasons to dislike it, but because I've become a major fan of the unbelievably brilliant television series The Wire, it's cash's promotion of crime that I'm concerned with most this week.

cash and cashlessness, crime and fraud, notes and coins