Digital Money

It isn't black and white

[Dave Birch] A couple of days ago I made a presentation on the mobile payments market for one of our customers -- the purpose to and details of which are naturally not germane to this post -- and I mentioned in passing some of the dynamics of the Japanese market. At the time I made a mental note to make reference to this on the blog. First of all, let me set some context by noting that a model of the marketplace that simply divides the globe into developed and emerging markets, while widely used, is not sophisticated enough to help with strategic perspectives.

The mobile payment services market, while stagnating in the developed markets amid the abundance of alternatives, is accelerating rapidly in the emerging markets because of the lack of alternatives.

[From Pricing the key to success of mobile payments | Telecom Asia]

I don't think it's that straightforward. If it were simply a matter of alternatives, then no developed markets would be using mobile payments, and this is obviously not the case. Perhaps people who talk about stagnation might be thinking of Japan, where the proliferation of mobile and e-money schemes means that e-cash transactions only grew 197% in the last two years. Oh wait... What's the explanation? Japan and Korea have plenty of alternatives yet mobile, e-money and mobile e-money are already in the mass market. Maybe it's because in Japan and Korea it's MNOs, transit operators and retailers who are pushing e-money that interesting things are happening?

In the twelvth regular survey into electronic cash... it is now not just credit card electronic cash that has passed the 50% penetration mark, but also mobile phones have reached that milestone, although the majority of the mobile phone contactless IC chips are lying idle.

[From Majority of mobile phones now have IC chips | What Japan Thinks]

In fact, if you read the actual survey it shows that while the penetration of e-purse cards has continued to climb, the penetration of mobile e-purses appears to have got stuck about a sixth of mobile phone users. The use of all e-purses is still rising, however. The statistics show that 3% of e-purse users in Japan are spending more than $1,000 per month on them, an astonishingly high figure for Europe and the US but Japan remains a cash-oriented society and this prediliction extends to the virtual.

Note also that while the survey data shows that the penetration of mobile phones for proximity payments appears to have plateaued over the last year, the penetration of mobile proximity for other applications, particularly ticketing, is still rising.

banking and finance, contactless and nfc, mobile, prepaid

Koichi Tagawa, Sony

[Dave Birch] Koichi Tagawa is the General Manager of Global Standards and Industry Relations Department that is in charge of technology standards and technology industry relations of the FeliCa Business. Since 2002, he has supported the popularization of NFC and FeliCa from the standardization point of view. He actively contributed to the establishment of the NFC Forum, holding the position of Vice-Chairman from the start of the Forum in 2004 until becoming Chairman in September 2008. He enthusiastically continues to contribute to the enhancement of the NFC ecosystem throughout the contactless application industry.

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

cash and cashlessness, emerging markets, money transfer

Transports of delight

[Dave Birch] As we have often discussed, transit is turning out to be the key battleground for mobile, contactless and mobile contactless technologies. In a city such as London, where several million people use contactless cards every day, the relationship between transit and payments is actually shaping the evolution of payment products. I read today, for example, that London continues to be in the vanguard of the transport revolution and next year people will be able use bicycles. OK, so bicycles were invented some time ago, but these will be bicycles with smart cards (hence of interest to yours truly).

By May 2010, Londoners will be using contactless smart cards to access a new public bicycle sharing program. The project will include 431 bicycle docking stations installed in nine of London’s boroughs and parks.

[From ContactlessNews | London to adopt bicycle sharing program in spring]

Unfortunately, you won't be able to use any of the contactless cards that you already have (eg, your Oyster card or your EMV card) because in the great British tradition of transport-related foresight and interoperability, the system is going have its own new contactless scheme. However, the London interoperability news is far from bleak, because Transport for London have already said that their new gates, to be introduced in 2011, will read EMV cards as well as Oyster cards and both Visa and MasterCard are working on extensions to the EMV specification so that terminals can write small amounts of service provider data back to cards (I imagine other retailers will want to take advantage of this in the future, not only transit operators). Their joint (and rather appealing vision) is that when visitors come to London in the future then they can use their bank cards to ride on the tube and the buses instead of having to get an Oyster card. If only TfL were to extend Oyster in the other direction as well, so that you could use your Oyster card in shops...

Where there is more direct competition between transit payment products and bank payment products, one might expect to see more competition and more innovation. I think an interesting case study right now is Singapore, where the government helped to co-ordinate the development of a common electronic money standard to be used by all sectors (the Common Electronic Purse Specification for Singapore, or CEPSS) and consumers can now use either card in any terminals.

COMMUTERS will now have two payment cards to choose from to use on buses and trains, to pay for road tolls and carparks, and to make purchases from stores, eateries and entertainment outlets. On Friday, Nets (the Network For Electronic Transfers) launched its long-awaited multi-purpose contactless card, the first to break EZ-Link's longtime stranglehold on the $1.3 billion transit market. Like ez-link [which has 4.6m cards], the Nets Flashpay card has multiple uses, giving consumers wider modes of payment at a greater range of outlets. In November, local banks UOB and OCBC will come on board, followed by DBS next March, to offer bank debit cards that also double as Flashpay cards. This means customers can top up their cards directly from their bank accounts.

[From Nets, more uses than one]

Meanwhile, in a related tale, imagine my shock when I got on the bus this morning and discovered that it is making the transition directly from the 19th century to the 21st: you can't use cards, but now you can use mobile! Hurrah! The bus is my bellwether for cash replacement, and I particularly hate having to scrabble round the house in the morning trying to find change on the days when I am riding the bus into town. I'd prefer it if I could use my Oyster card, frankly, because then all of incidental travel would be going on to one card, but no matter: the future has arrived!

Customers across Arriva’s regional bus businesses in England, Scotland and Wales, will be able to buy daily, weekly and four-weekly tickets via their mobile phones following the national launch of Arriva’s m-ticketing service on Tuesday, 17 November.

[From ARRIVA - Bus users get mobile with Arriva m-ticketing launch - News - Arriva buses]

I asked the bus driver if this technological revolution were exant, or if it existed only on someone's Powerpoint somewhere, and he told me that yes, indeed, you could now use your mobile phone to get to Woking Station. He did point out that he might not let me on the bus, though, because he wasn't told by the company what "colour each day was". I had no idea what he was talking about. But it turns out that it's something to do with the barcodes that are displayed on the phone by the ticketing application.

Anyway, when I got home I rushed to sign up and... found out that the mobile ticketing system doesn't work with my iPhone. Oh well.

contactless and nfc, prize, transit

What's the alternative?

[Dave Birch] There are plenty of extinct "alternative" payment mechanisms already: c2it, Yahoo PayDirect, Billpoint, eMailMoney and so on. And there are a few that survive. But where does the label come from? I saw the comedian/musician Tim Minchin tell an excellent joke when I went to see him earlier this year. I paraphrase, but the joke was essentially:

Q. What do you call an alternative medicine that he been tested and shown to work in double-blind clinical trials?

A. Medicine.

Quite. So when we call something an "alternative" payment method, what do we mean? What is it the alternative to? I made a note to ask a couple of people about this last year, when I read that

During this year’s holiday shopping season we project $7.8 billion will come from alternative payments versus $35 billion from traditional online payment methods.

[From Payments News: Javelin's 2008 Online Retail Payments Forecast - November 10, 2008]

The forecasts for the coming holiday season will be out soon, and they'll be even bigger despite the recession, and I never got round to asking the question then, so I'm going to ask it now. How are payment methods that account for more than 20% of the market "alternative" in any sense?

payment cards, retail

"I Know Nick Hughes"

[Paul Makin] I went to a very enjoyable event yesterday evening, held to launch a joint DFID/CGAP report, entitled "Scenarios for Branchless Banking in 2020". There were presentations by two of the report's authors, Mark Pickens and David Porteous, describing two of the four scenarios mapped out in the report:

• "Bharatia", which explores how a new market entrant can succeed in a saturated market by adding extra value and innovative products;
• 
  
• "Telmar", exploring the potential for development in a post-conflict country, using a mobile money solution developed in part using funds from international donors to distribute government aid directly to recipients.

These were followed by a valuable discussion amongst panellists, my only complaint being that an extra couple of hours would have been useful.

I strongly recommend you download the report. But then I would, wouldn't I, since I was one of the contributors. It's available from the CGAP site, at:

http://www.cgap.org/p/site/c/template.rc/1.26.12247/

Nick Hughes of M-PESA fame was there, and the most amusing part of the evening was one of the presenters mentioning how many people in the field of mobile money seek to give themselves some credibility by mentioning that they know Nick. There was then a Spartacus moment, as the next speaker stood up and began with "I know Nick Hughes", making Nick visibly squirm.

emerging markets, mobile, money

Regulation isn't a bad thing

[Dave Birch] One of the areas of great interest for this blog is the evolution of "alternative" payments in different environments. As a consequence, I am always very interested to see how alternative payment system differ between markets. For example, the Russian market for alternative payments is very different from the European market. This year, broadly speaking, it will break down into

• About 14 billion Roubles spent via the leading e-wallet schemes Webmoney and Yandex.
• About 9 billion Roubles spent via mobiles for digital content.
• About 10 billion Roubles spent via the near-ubiquitous "terminals", the reverse ATMs that are on every street corner in Moscow (more on these below), some of which goes into loading e-wallets and mobile prepay accounts.

So a big chunk of the alternative payments market in Russia is taken up by a payment system that simply doesn't exist in Europe (or, in fact, anywhere else so far as I can see), which is the near-ubiquitous "cash in" terminals or, as we tend to cal them, "reverse ATMs".

In the last ten years, a rapidly growing shadow banking system has sprouted up in Russia to service these small payments by turning cash into electronic currency, or e-money. And now that this sector has reached the $1 billion mark – and this in a crisis – and has expanded to include 10 million customers, e-money business owners are getting antsy about government regulation.

[From Crashing Russia's all-cash culture - Fortune Brainstorm Tech]

Estimates vary, but there are somewhere in the region of 400,000 of these terminals in use right now. On literally every street corner is a terminal that Russians feed with banknotes to top up their mobile phone, pay utility bills, obtain pre-paid virtual credit cards (I did this: you feed the cash in and the Visa card number, expiration date and CVV are sent by text to your mobile phone). You can see from this screenshot the wide range of services available:

It seems like a bizarre market arrangement, one that the laws of economics should mitigate against. As Evgeniya Zavalishina, the General Manager of Yandex Money put it rather neatly, people are taking money out of an iron box, walking a metre and then putting the money back in another iron box. Incidentally, Evgeniya will be joining an excellent line-up of speakers at the Electronic Money Association's 3rd annual conference in London on 24th November so if you are interested in learning more about the evolution of e-money regulation around the word, head on over to the EMA web site and sign up. But back to the iron boxes. By astonishing coincidence, the restaurant where I went to dinner with Evgeniya and other members of the Russian E-Money Association (set up by a good friend of the Digital Money Forum, Victor Dostov) had precisely such an arrangement!

How can this be economic? Surely you would expect banks to incentivise the terminals to take chip cards so that people could pay their bills with a debit card. Come to that, why can't they do that from a bank ATM in the first place instead of going to a terminal at all?

Well, one reason might be a lack of regulation. At the excellent Russian E-Money conference I attended, one of the speakers placed Russian banks as the 53rd most efficient in the world, but the Russian non-banks as the 4th most efficient in the world (for payment services). Yet both the banks and the non-banks would benefit from a better regulatory infrastructure. The problem that was discussed at the event was that everyone knows that regulation needs to come, but no-one is sure what that regulation might look like (and some of it, such as impending regulation on data protection) simply won't work technologically. Nevertheless, a good infrastructure for electronic payments would, I'm convinced, help both the alternative payment providers (ie, the terminal networks) to invest further and develop new services while at the same time enable banks to invest in their own terminal and enhanced ATM services. Everyone would benefit.

This reinforces something that has been said before on this blog: no regulation is not a way forward. We want to see digital money deliver real solutions to real problems all around the world and a good regulatory framework helps in this enterprise.

banking and finance, atms and kiosks, currency, emerging markets, notes and coins, virtual worlds

Not on the money

[Dave Birch] I'm always keen to try out innovative new payment products. And I'm an O2 Premium Customer, or whatever it's called. So when I was idling around in London yesterday and happened past an O2 outlet offering the new "O2 Money" prepaid card, I thought I'd pop in a get one. Since it's a prepaid card, I assumed it would be a bit like getting one at the newsagent or supermarket. I wandered in, expecting to hand over £50 and walk out with a card with £50 on it. But it turns out that despite the big advertising poster in the shop window, the doesn't actually sell them. The guy told me I had to go home and apply on the interweb. Oh well. One night I was bored enough at home to try and do this, so I went to the O2 Money web site. I thought I'd get a card for my son to use. The web site asks you to put the mobile number in and sends you a code. I did this, and got the code. I typed it in expecting to see a screen saying "congratulations" but instead I got another form asking me to top up the phone using one of my other cards. Naturally I couldn't be bothered to do this, so I still don't have a card and nor does my son.

Since O2 already know my address, phone number and bank account details, and have a decade-long credit history on me, Wouldn't it have been cheaper and simpler to have a "text 'yes' to XXXXX and we'll post you a card" option? Why no integration?

contactless and nfc, mobile, prepaid

Because that's where the money is

[Dave Birch] The electronification, virtualising and dematerialising of money means the electronification, virtualising and dematerialising of crime, because (naturally) criminals go where the money is.

FBI officials say a mix of banking Trojans and phishing attacks has plagued victims - mainly public institutions and small and midsize businesses - to the tune of $100 million in attempted losses as of October.

[From FBI: Online Banking Attacks Reach $100 Million Mark]

Note, by way of comparison, that about $60m was stolen in physical bank robberies throughout the USA in the whole of 2008. How stupid do you have to be to walk into a bank with a gun when you could just stay at home and send out some e-mails? We must find a way to accelerate the transition to e-payments and at the same time make e-money more crime-resistant than cash.

banking and finance, cash and cashlessness, crime and fraud

Janine Firpo, IFC

[Dave Birch] Janine Firpo is President of Sevak Solutions, a nonprofit company that she co-founded to promote inclusive systems for the delivery of financial services to the world’s 1.7 billion urban and rural poor. Janine is based in Jakarta, Indonesia, where she is working with International Finance Corporation (IFC), a member of the World Bank Group, helping regional advisory teams to accelerate the development and large-scale roll-out of mobile money solutions. In this podcast, she talks about mobile money in developing markets and the practicalities of managing and regulating agent networks.

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

emerging markets, money transfer

Viking expedition

[Dave Birch] I was in Copenhagen recently, so naturally I went along to the national museum to see their notes and coins exhibition (galleries 141 to 146, if you're interested). It was really good, and I particularly enjoyed the display of Swedish copper money from the 17th century. Sweden had lots of copper, so that's what it used for coins. But copper isn't worth very much, so the coins were huge -- the one thaler "coin" was a block of copper weighing a couple of kilograms.

While pottering around between the 10th century Islamic coins found in Viking treasure hoards, the short-lived Norwegian privately-issued banknotes that preceeded Denmark's first paper currency and the English gold nobles from the time of Henry II, I happened across some other long-forgotten artefacts from the story of the evolution of the means of exchange in the world's oldest kingdom...

Danmont cards! I have to admit to a moment of melancholy while gazing at the cards, notes and coins. Some of them were ugly, some of them were beautiful, and all of them tell a story. Such as, for example, you've been cheated.

A one euro coin has turned up in Spain bearing the face of cartoon couch potato Homer Simpson instead of that of the country's king

[From Spanish shopkeeper finds Homer Simpson euro | U.S. | Reuters]

So when cash disappears, and there are no more portraits of heroic characters or Latin inscriptions, what will take over the narrative? Facebook, I suppose. But wiping away the tears, I remembered that there are a great many people around the world who can't wait to replace coins with mobile phones. The truth is, coins today are as much hassle as the Swedish copper currency from the days of the Carl Gustav wars.

Mr. Zhang of Shenyang carried two bags of coins to a bank outlet in the city, having accumulated 37,000 coins, more than 600 yuan, over the past decade. According to the rules of the bank, there is a one-yuan service fee for counting every 50 coins. If he were to hand the money over to the bank, the service fee would amount to more than the total value of his 37,000 coins... Shenzhen, Shanghai and Beijing banks have charged counting fees since 2005... the most affected were bus companies. In order to save counting fees, the Shenyang Bus Company handed out change to its employees as their wages.

[From China sees change scarcity -- china.org.cn]

Enough is enough.

history and future, notes and coins, smart cards