Digital Money

Contactless #pass and #fail

[Dave Birch] Having been focussed on some other initiatives for a while, I hadn't been paying much attention to the contactless roll-out in the UK. However, in the last couple of days I've had a couple of interesting experiences. First, I popped into Pret a Manger near Euston to get a latte while I was waiting for a customer. I noticed that they had contactless readers, correctly positioned and apparently turned on. So I paid using my splendid Barclaycard OnePulse card.

That's the story, basically. A contactless terminal, in a useful location, properly installed and working without a glitch. I paid in a couple of hundred milliseconds and left.

Not everything in the garden is rosy though. Yesterday at Cafe Nero I noticed another contactless terminal, once again correctly positioned and turned on. So I tried to pay using my splendid BarclayCard Cashback card but got the message "not authorised". Ever vigilant to explore the contactless envelope on behalf of digital money denizens, I tried a couple of other devices about my person (a sticker on the back of an iPhone and a mobile phone) and the terminal read them correctly, so there was no doubt that it was working. I tried my BarclayCard again. "Not authorized".

I was really surprised by what happened next though. The chap at the till explained to me that contactless cards could only be used a few times before they must be used in a regular chip and PIN terminal ("to make sure that it is really your card") and invited me to use the contact interface. Incidentally, he also told me that more and more people were using the contactless terminal. That's a good sign, and it's from the horse's mouth, so to speak. I knew the offline no CVM count wasn't the problem (you get a different message on the terminal) but did it anyway and, of course, the transaction worked perfectly. So having done the chip and PIN transaction, I then bought a cookie (any excuse) and tried to use the card contactlessly again. "Not authorized". Barclays #fail.

The point of this anecdote it not that one of my cards didn't work properly but that the retailer had clearly trained the staff properly and they understood how the product worked, which I think is evidence of progress that deserves reporting.

The research conclusions identified merchant acceptance as a critical factor in promoting consumer use of contactless payment technology.

[From Alliance Activities : Publications : Issuer and Merchant Best Practices: Promoting Contactless Payments Usage and Acceptance - Smart Card Alliance]

This is undoubtedly correct, but it's not just the terminal penetration that is the measure. It's whether the merchants have trained their staff to exploit contactless properly so that people will be encouraged to give it a try and, when things don't work properly on occasion, help them sort out what's going on. Well done Cafe Nero.

contactless and nfc, retail

Eiso Kant, Twollars

[Dave Birch] Eiso Kant is the CEO and Founder of the Spanish startup Twollars. Twollars is a kind of virtual currency that exists in the world of Twitter and it works on new innovative products to encourage publishers and companies to allocate part of their marketing budgets to good causes. It hopes to creating marketing value while while encouraging donating. In this podcast Eiso explains the concept and speculates as to where it might go.

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

innovation, internet, podcast

The way to a mans heart

[Dave Birch] One of the most basic dynamics in the retail electronic payments world is the cost of transactions and the comparison of costs from the retailers perspective. If we assume honest retailers (ie, they are accounting all cash transactions and not using them to avoid taxes, enable money laundering and so on) then what is the real picture? It's honestly hard to say, clearly one factor is that type of retailer and their average transaction size. Another is whether we account the retailers private costs or the total social costs. I think it's a mistake for regulators to account for the retailers private costs only, especially given my pro-electronic payments perspective! If we only account those private costs then for many retailers, electronic payments will always seem more expensive and therefore it appears that (for example) card users are getting a good deal.

This is clearly unfair to consumers who use cash. They face a higher cost for goods or services through no fault of their own. In a user-pays society, those using a service should expect to pay its full cost.

[From Editorial: User-pays for credit cards fairer for all - Personal Finance - NZ Herald News]

Indeed. I don't use cash except when I am forced to. So I don't want to pay for ATMs, police escorts to ATMs, security vans, police escorts, tax evasion and all the rest of it. Surely merchants accepting cash should be required to pay a special tax that goes to the police, the revenue and the customs?

OK, perhaps not. But retailers do complain about the cost of electronic payments, claiming that cash is less expensive. There are, however, businesses that have started to refuse cash. One New York restaurant "Commerce" has looked at the bigger picture and come down firmly on the e- side. The owner Tony Zazula, hereby declared a Hero of the Order of Digital Money (my newly-created elite secret society), takes a robust line. Has has stopped accepting cash altogether and is clear about his strategy.

"If you don't have a credit card, you can use a debit card," said the restaurant's co-owner, Tony Zazula. "If you don't have a debit card, you probably don't have a checking account. And if you don't have a checking account, you probably shouldn't be eating at Commerce to begin with."

[From New York Restaurant Loses Its Appetite for Cash - WSJ.com]

Now that's what I call KYC (Knowing Your Customer). And the abandoning of cash helps with Anti-Money Laundering (AML) as well I should imagine. While Tony's firm line on the folding stuff may inconvenience the occasional drug dealer or corrupt politician (which might be a reasonable fraction of the customer base in that area!!) it seems to me that both the restaurant and society benefit: the private and social costs fall together.

cash and cashlessness, costs, notes and coins, retail

Innovation that matters for the majority

[Dave Birch] That there is an interplay between the technology and monetary policy is obvious. Look what is going on in Africa. People who aren't allowed to hold dollar bank account hold dollar-denominated mobile top-up vouchers instead. Ugandans without an effective electronic payment system are using M-PESA from Kenya to execute local transactions in Kenyan shillings. Congolese without access to any banking network use mobile money instead (and may never, ever, want or need a bank account as a result). In India and elsewhere the banks have managed put a regulatory finger in the dyke but the pressure is building and money is already leaking away from conventional institutions and networks into newer, mobile-centric, customer-facing organisations. The dam will, at some point, burst. How will governments be able to "manage" the money supply when it is being zipped across borders by mobile phones, global handset hyper-hawala.

At the very first Digital Money Forum, the late Professor Glyn Davies (author of the magnificent "A History of Money") said that every technology revolution in money led to less centralised control. That's a good thing, but it also explains why the conservative nature of governments and regulators comes to the fore in questions concerning money. If anyone anywhere in the world can transact in any currency, then the weak will go to the wall very, very quickly. Gresham's Law on a global scale.

banking and finance, currency, mobile

Where is the next NFC breakthrough?

[Dave Birch] We've all been a bit fed up with NFC recently, having got carried away on a tide of hype that didn't take into account the complexity of the relationship between banks, operators and manufacturers. This relationship does not seem to have advanced much in last year: the operators want a business case before they order handsets, the manufacturers want commitment before they invest in handset production, the banks can't see an opportunity without handsets. So no NFC>

As my colleague Neil Livingston pointed out in his workshop at NFC World in Singapore, there are actually a range of practical uses for NFC, beyond payments, where there do seem to be business cases and it was interesting to me that much more of the discussion at NFC World today in Singapore was about consumer electronics opportunities rather than just about mobile-related opportunities. So there are no handsets, but that doesn't mean there are no NFC opportunities. Nevertheless, we have to be realistic. It hasn't taken off the way that many had hoped. It's not because of the consumer proposition. The fact is, however, that in all of the pilots and trials to date, the response of consumers has been overwhelmingly positive. They like NFC. So the fact that some stakeholders have been unable to agree a basis for moving forwards in the co-operative world of "apartment" USIMs, shared TSMs and revenue sharing (GSMA model) is, I think, unlikely to put the brakes on NFC completely.

contactless and nfc, mobile, retail, smart cards, stickers

Sarah Rotman, CGAP

[Dave Birch] Sarah Rotman works on the project and research agenda of the CGAP Technology Program, designing innovative projects in branchless banking that deliver financial services to low-income customers. Her research projects include the business case for agents and future scenarios of branchless banking. Prior to joining CGAP in 2008, she interned with Urwego Opportunity Microfinance Bank in Kigali, Rwanda. She was a Peace Corps volunteer in Benin and later worked for a development nonprofit on education projects in Haiti and Africa. Rotman has a master's degree in International Relations from Johns Hopkins University. In this podcast she shares some of her conclusions about e-money cash replacement schemes (including Mondex, Simpay and Movilpago) from the CGAP report on Going Cashless at Point of Sale which she co-wrote with Ignacio Mas.

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

cash and cashlessness, emerging markets, micropayments, mobile, payment cards, podcast, smart cards

Drifting eastwards

[Dave Birch] I'm spending a lot of my time at the moment, because of a variety of projects, building up roadmaps linking business, social and technology change to try and help our customers to make better decisions about their next round of investment into the retail electronic payments space. If we assume that the key technologies for the medium term already exist, so we can try and assess the relationship between those technologies and business and social change without drifting into science fiction, then we still have to make some informed decisions about which of these technologies will shape the roadmap. Moreover, if we are trying to look at the payments roadmap over the medium term, another factor that we must take into account is the global shift in focus away from the current developed markets. Thus, we need to look at the dynamics of the payment sector and how different technologies are affecting the dynamics in different markets. One of the easier predictions to make is that China will have much bigger role shaping the future roadmap than it has done over the previous 3-5 years.

China is fast catching up with the US and Europe as a growth market for non-cash transactions, according to the latest edition of the annual World Payments Report from The Royal Bank of Scotland, Capgemini and Efma.

[From Finextra: China emerges as a growth market for non-cash payments]

China accounts for about 9% of global non-cash transactions, and is growing fast, but it's important not just because of the size of the market but because of the nature of that market. It is interesting to speculate whether China will see a market maturing towards a "Western" model of card-based retail payments or whether "Asian" models informed by new technology will dominate. I mean, as you might expect, mobile. In-Stat says that the mobile payments in China will approach $18 billion in 2013, split between $14 billion in remote payments and $4 billion in local payments.

Recent research by In-Stat [in China] found the following:

• SIM cards with RF SIM solutions customized by China Mobile are expected to launch in mid-2010, and the company is currently working to develop retail partners and deploy POS devices.
• Over half of respondents to In-Stat’s survey express interest in using their mobile phones as a payment tool.
• The largest proportion of current mobile payment services users (36.7%) responded that they prefer to use payment platforms funded by banks, indicating that the banking sector is the most trusted by Chinese consumers.

[From In-Stat - Press Releases]

To see these figures in context, bear in mind the most recent Juniper Research forecast for the total world NFC payments market:

the application of NFC as a mobile retail marketing tool via coupons and smart posters will support the growth of NFC mobile payment transaction values from $8bn in 2009 to $30bn within three years.

[From NFC Mobile Payments to Exceed $30bn by 2012]

So the Chinese local and remote mobile payments market roughly equates to about half of the total world local mobile payments market, just to give an indication of comparative scale. The point is that from Western Europe, then, we may find ourselves looking east for inspiration. Look at the great work already being done on mobile platforms in Eastern Europe (where mobile banking has been growing rapidly), on the internet in Russia (look at the growth of Forum friends WebMoney) and in the mobile proximity worlds of Korea and Japan. The CEE and Russia mobile markets are huge, which is why they are fertile ground for mobile payment initiatives.

On a proportionate basis, MTS Group, which runs networks in six Eastern European markets including Russia and Ukraine, is now the second-largest operator group in Europe, trailing only Vodafone. MTS Group's main regional competitors - VimpelCom and MegaFon - are also now among the top ten largest groups, in both cases due mainly to their operations in Russia.

[From Developing Telecoms - Russian mobile firms are now among the largest in Europe - Wireless Intelligence]

In these markets, mobile payments occupy a more central position in the payments roadmaps than in some Western markets, although the fact of the matter is that any medium term roadmap of retail payments now has mobile as a key path.

Mobile isn’t “just” another credential to be utilized for payments. In fact, mobile payments are likely to emerge as the primary payment channel substituting the incumbent’s cash and plastic in less than five years.

[From Bank Systems & Technology: The Blog: Creating New Revenue Streams With the Mobile Channel]

For most people, in most of the world, for most of the time, electronic payments means mobile payments.

banking and finance, emerging markets, mobile, prize

Willem Buiter, LSE

[Dave Birch] The noted economist Willem Buiter was a member of the Bank of England's Monetary Policy Committee from June 1997-May 2000. He joined the London School of Economics as a chair in the European Institute in September 2005. He writes the "Maverecon" blog for the Financial Times. In this podcast, he discusses some reasons for getting rid of cash.

Amongst other things, he says that no-one hold 500 euro notes for honest purposes and that there is no reason for a developed economy such as the UK to issue currency at all...

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

cash and cashlessness, crime and fraud, money, notes and coins

Paris match

[Dave Birch] We still have a couple of places left for the (free) CSFI Roundtable discussion on "Innovation and the Internal Market" at the OECD in Paris on Friday. See the research fellowship invitation for all of the details.

banking and finance, innovation, SEPA and PSD

What's in a name?

[Dave Birch] I got caught out in a meeting referring to the APACS Card Payment Group, which of course no longer exists. I thought I'd render a quick public service to help other people to avoid similar mistakes. Here's your handy cut-out-and-keep guide to the UK's new payment organisation landscape.

The Payments Council was created in March 2007 to set out the national strategy for UK payments. It has a Payments Council Board made up of banking representatives, some independent directors and an independent chairman (Brian Pomeroy). The principal UK payment schemes (listed below) have a contract with the Payments Council to set out rights and duties.

The UK Cards Association is the successor the much-loved APACS Card Payments Group (CPG). It is the trade body for the UK cards industry. Its 14 members, the major card issuers and acquirers, work together here on non-competitive issues.

Financial Fraud Action UK was created earlier this year to work alongside the UK Cards Association on the specific issue of reducing fraud.

The Dedicated Cheque and Plastic Crime Unit (DCPCU) is a specialist law enforcement unit made up from officers from the City of London Police and the Metropolitan Police and funded by the banking industry. It investigates serious and organised cheque and card fraud.

SWIFT (UK) Limited is the membership organisation representing the UK's SWIFT users.

banking and finance