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"We already have a perfectly fine way to make non-cash payments"

By Dave Birch posted Apr 2 2011 at 12:11 AM

On "Slate" there was an article entitled "Paying With Your Phone Is Awesome, Because … Because" with a sub-headline

We already have a perfectly fine way to make non-cash payments.

[From Paying by phone is insecure and unnecessary. - By Farhad Manjoo - Slate Magazine]

Really? That didn't seem to be the case in my household this morning when my wife was hunting for the chequebook because she needed to pay for a school trip and settle a dentist bill. I wanted to pay my son's school £20 on Thursday morning because he was going on a school trip, and I turned the house upside down looking for the chequebook, which I couldn't find. I couldn't pay them with a debit card, or cash (I didn't have £20), or credit card, or bank transfer or any of the other "perfectly fine" ways to make the payment. Which boring tale illustrates the real point, that is, not that...

We already have a perfectly fine way to make non-cash payments.

[From Paying by phone is insecure and unnecessary. - By Farhad Manjoo - Slate Magazine]

...but that we don't have a perfectly fine way to take non-cash payments. Mobile payments will be a disruptive force because the devices will serve both roles. Richard Johnson of Monitise made this point very well at the Intellect Payments Workstream meeting that I chaired last week. But it isn't only the cheque that is set for extinction because of mobile. Anthony Jenkins, the chief executive of Barclaycard (Britain's biggest card issuer), said that

"In 50 or maybe even 10 years' time, we will still be using cash but I don't think we'll have plastic. It is comparable to the move from CDs to MP3 music files," he said. "If I had said 10 years ago that you couldn't pay with a cheque at the supermarket, you wouldn't have believed me. That is now the reality, and we see plastic cards going the same way."

[From End of the road for flexible friend as Barclaycard goes 'contactless' - Telegraph]

Now this seems a little far-fetched on first reading. But perhaps, once mobile payments cross the cusp into the mainstream (at, I would guess, around a 25% penetration in the consumer market), the move away from plastic could take place in a generation, much as the move into plastic did from the introduction of the magnetic stripe in the early 1970s.

Coins, paper money and plastic cards are going to be the next casualties. Don't believe me? Then visit Korea. The only people who own a plastic credit card there are the ones who travel abroad; everyone else uses their mobile phone.

[From Peter Cochrane's Blog: Near-field tech edges closer | CIO Insights | silicon.com]

The combination of mobile and contactless seems to accelerate the transition: individually they are great, but together they are something special. Mobile payments by themselves have been around forever and have made little impact in the physical world (except for special niches like car parking). I still can't use my mobile to buy a bottle of cold water from a machine in the Tube.

The first case of a mobile phone being able to be used to handle a payment was in 1998 as an experiment in Espoo Finland just outside of Helsinki, where two Coca Cola vending machines were installed with a mechanism to accept payment by SMS text messaging

[From Communities Dominate Brands: End of Cash? First blog in a series examining the pending doom of minted coins and printed banknotes]

Adding contactless transforms the proposition from fiddling about sending text messages to a quick tap. As far as I can tell, from the pilots that we have been involved in, customers are not a barrier. They like it. So why doesn't my phone have NFC in it right now, and why doesn't the drinks vending machine on the Tube have a reader?

Why is it taking so long? As with Faster Payments, the problem lies with the marketing teams in the major banks.

[From The innovative world of UK payments]

I disagree. I'm no fan of marketing departments, but the problem with mobile payments is different. Banks have never had to deal with payments in this way before: they can control ATMs and POS terminals, EMV cards and FPS. But they don't control mobile, and in particular they don't control the Secure Element (SE), the tamper-resistant hardware that transforms mobile phones from being content devices to transaction devices. There are different ways of dealing with this, but I think it is fair to reflect that the specific tension between banks and mobile operators remains problematic. In some countries they are joining forces, in others they are forging bilateral agreements, in others they are going their own.

while credit card companies might need the carriers to get into mobile payments, they might soon learn that the carriers don't need them.

[From In mobile payments, credit card companies might be a third wheel | Econsultancy]

Indeed they don't, but that has no relevance to the Isis initiative that is the subject of that post because

Verizon, T-Mobile and AT&T are entering into an agreement to let customers pay for products with their smartphones... they are not working with Visa, MasterCard, or American Express on this venture. They're not working alone either, instead partnering with Discover and Barclays on this venture.

[From In mobile payments, credit card companies might be a third wheel | Econsultancy]

Hhmmm. So in this particular case, the carriers are partnering with a credit card company and a bank. So do they have somewhere to go? Well, let's return to the point. We don't have a perfectly fine way of taking non-cash payments, but soon we will because of mobile phones. And there are some dynamic go-ahead organisations that have already recognised this.

the local Girl Scout group there has teamed up with Intuit to accept credit cards using the company's GoPayment app (and accompanying card reader) for iOS and Android

[From Teh Gay Geek: GIRL SCOUTS IN OHIO TAKING MOBILE PAYMENTS FOR COOKIES]

Back in the 1980s, there were people who said that mobile phones would never sell because there were payphones everywhere (eg, McKinsey). The POS terminal of 2011 is the payphone of 1981.

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Comments

It's seems pretty clear to me that there's going to be a huge bunfight over the secure element thing. Mobile operators want to control it via the SIM, handset vendors & OS providers will want it in the phone (especially Apple & Google), and probably others like Amazon will have yet another approach.

There's clearly not going to be a "one size fits all" here. Different people will use different approaches to mobile payments - and this risks them not working, or taking even longer to make practical. It also raises the possibility of various proprietary approaches exploiting the delays.

My view is that interactions come before transactions as far as NFC is concerned. You'll use the contactless capabilities for 10x or 100x the number of non-financial actions (eg swapping email addresses, doing a "like" of a venue etc) before payments comes in at Phase 2 or 3. The open question is what user expectations & behaviour will be ingrained during the non-transaction Phase 1, and how that impacts subsequent service flows.

One thing that will certainly fail is any heavyhanded attempt by mobile operators to use payments aas a way to "lock in" their access customers and reduce churn. If it's a pain to change payment details when customers move from Orange to Vodafone, nobody will use the platform in the first place. They will need to implement simple "payments portability" from Day 1 - and I see little evidence of this occurring.

Dean Bubley
Disruptive Analysis

"My laptop doesn't have one, I use it for payments all the time."

Indeed. Card-not-present (CNP) payments. An SE allows card-present (CP) payments.

Why is the secure element so important in mobile? My laptop doesn't have one, I use it for payments all the time.

Surely it's a secure path problem? (Like the ones Microsoft tried to solve with the Secure Desktop and CardSpace.) There's no point in your smart phone having a SE if it's malware compromised. And no function the SE would perform on a smart phone who's OS was perfectly secure.

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