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8 posts from May 2011

Bar none

By Dave Birch posted May 30 2011 at 3:10 PM

When I was interviewing Christian Lunden from Nordic Choice Hotels for a podcast about their NFC pilot (using mobile phones as room keys) he mentioned in passing that some bars in Sweden have reacted against the introduction of chip and PIN by refusing to accept cards and going back to cash. This is because with chip and PIN the bar staff have to hand a the POS device to the customer, the customer has to insert the card and then enter the PIN, and this all takes far too long. Under the old (ie, US) scheme, the customer would hand over their card to be swiped at POS and then the bar staff would hand back the card with the a receipt for signature. I don't understand why this was quicker, except I suppose that the bar staff could start working on the next order while waiting for the signature.

The bar owners have now started installing ATM machines (the ATM operators pay rent to the bar owners) so that drinkers can get cash. In a way, you can see that this makes sense for the bar owners. Unfortunately it doesn't make sense for society, but since the bar owners are allowed to externalise the costs of their payment preference, why would they do any different?

Sweden has far more cash-in-transit robberies than its neighbours and suggests an alignment of the private and social costs: the cost of armed robberies, [the deputy governor of the Bank of Sweden] said, should be accounted in the cost of cash. This means that far from being free at ATMs, cash in Sweden should be expensive. He is, of course, completely correct.

[From Digital Money: The Swedish experiment]

A clear case for contactless, you might think. And this reminded me of an experiment I conducted a few weeks ago in a bar! I was trying to show that paying by contactless and paying by cash take comparable time, so off I went...

Damn that Joe DiVanna!!

Anyway, I think that my point was just about made: using EMV contactless for low value transactions works for the tough case of the bar. The problem is that the POS hasn't been configured to take advantage of contactless: I don't think it would be that difficult to put a couple of contactless readers on the bar itself but leave the POS back behind the bar, so that customers could tap their cards on the reader without having the POS brought over to them.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

Who's square? Jesse is

By Dave Birch posted May 25 2011 at 7:38 PM

Some people don't really understand the big picture around innovation, and how it takes inventions and turns them into sustainable new value-adding processes. Here's one example.

Last Friday, Congressman Jesse Jackson Jr. (D-IL) took to the floor of the House of Representatives to decry the iPad as a job killer, as people are using the device to read books rather than buy them from bookstores.

[From Lesson to Congress: iPad Doesn’t Kill Jobs, Government Does - Gary Shapiro - The Comeback: Innovation Economy - Forbes]

But wait a minute: surely books were destroying jobs in the scribe industry. Jesse's job creation scheme ought to be banning books, not praising them. Anyway, many popular books are written by non-Americans -- why should American's hard earned dollars flow to J. K. Rowling's UK bank account? Hold on though -- scribes were destroying jobs in the storytelling industry. Jesse needs to attack the problem at source: we need to stop people from reading and writing. Unless we're going to do that, we should instead welcome and encourage innovation because we need an economy that adds more value. I'm not smart enough to know what that means for individual companies, although I am lucky enough to have a job that means I can experience many different organisations approaches and learn from them.

In 1994, the dominant global provider of mobile handsets was Motorola: its shares were trading at an all-time high and it was seen as an outstanding innovator and even described by a senior consultant at A. T. Kearney as "the best-managed company in the world"

[From Why Nokia's Collapse Should Scare Apple - Patrick Barwise and Seán Meehan - The Conversation - Harvard Business Review]

That's the thing about technology-based innovation: it doesn't follow the smooth distribution of best practice that is the realm of management consultants. It didn't matter if you were the best urine trampler in the land, when a German chemist synthesised urea you were on the scrapheap. It doesn't matter how good your printing company is when e-book sales exceed printed book sales.

Motorola missed most of these market trends, was slow to invest in digital (it was a classic victim of the innovator's dilemma),

[From Why Nokia's Collapse Should Scare Apple - Patrick Barwise and Seán Meehan - The Conversation - Harvard Business Review]

This "innovator's dilemma" analysis, which says that it's just too hard for companies to invest in their own disruptors, suggests that it may be difficult for the incumbents in the payments world to innovate in the right direction. The case study that everyone is focused on right now is mobile.

Bill Gajda, Visa’s head of mobile innovation, is confident that Visa and the other card networks, in conjunction with banks, will be at the center of mobile payments in the future.

[From Leading Mobile Payments | Visa’s Blog – Visa Viewpoints]

I understand where Bill is coming from, but have to admit that I can see other scenarios as well, where Visa interconnects non-bank, sector-specific, mobile-centric payment accounts rather than only bank accounts. It must be said though that Visa have made a number of substantial investments in the mobile payments space and have been actively developing products and services. Not all observers think that this strategy is optimal.

Visa for you to execute in this space, spin out Bill Gajda and team to build a new network. You certainly have the capital and intellectual horsepower to do it.. Don’t think of mobile as a service on VisaN

[From FinVentures]

In the medium term, the existing players (by which I mean banks, the international schemes and processors) will find it more and more difficult to compete with IP-based alternatives because their cost base is just too high. Therefore, it might make sense for a company like Visa to start building one of these, but use their experience to build a better one. Alternatively, they could look for someone else who is building one, and then invest in it. This is what they have done recently with Square (Visa invested an unspecified amount in Square in April 2011). Square is much in the news at the moment, but what is actually interesting about it? As I wrote before, it is not the stripe reader, it's the niche...

So where is Square seeing the most traction? Without a doubt, small businesses, independent workers and merchants comprise most of Square’s rapidly growing user base.

[From Square Now Processing Millions Of Dollars In Mobile Transactions Every Week | TechGoo]

In a way, this real-world PSP is a small but interesting niche play in a large acquiring market, and as we've advised our clients for many years that the mobile-phone-as-POS meme will be more revolutionary than the mobile-phone-as-card meme, it's an existence proof of new opportunity.

While merchants have to qualify for the app, Square’s qualification rules are more relaxed than those of standard credit card processors.

[From Square Now Processing Millions Of Dollars In Mobile Transactions Every Week | TechGoo]

Never in a million years would I consider signing up as a merchant with my bank. Yet I went into an Apple Store in the US last time I was there and bought a Square (actually, we bought eight of them to play with). It took a couple of minutes to sign up on the web and I accepted my first payment (in Stuart Fiske's iPad) a minute later!


Pretty cool, although naturally I was outraged when I got off the plane in the UK and discovered that my lovely Square only works in the US. Anyway, Square were making me think about innovation again yesterday. They just announced their wallet product, Card Case. Once you've paid with your card at a retailer once, Square's server stores the card details, so from then on the merchant has only to identify you. They can even do this without you having a card or phone, because they can look up your picture (although I have good reasons for thinking that this won't scale).

The obvious idea is to make payments "frictionless" -- easier and faster for the user and merchant. (Assuming that the app is fast enough that it is actually more convenient to pay this way than just to have your card swiped. Wireless data networks aren't always reliable, etc.)

[From Jack Dorsey's Square Starts Its Bid To Kill The Credit Card]

Indeed, they're not. But imagine what this will look like with NFC in place: you have an iPhone, the merchant has an iPad, you place your iPhone on the iPad, they beep, done. And it's a card present transaction. Now, we all know that Square Card Case isn't the only wallet game in town, because anyone with any sense is already developing a wallet proposition since that's what the merchants want. Right now we are helping clients in the financial sector and the telecommunications sector with ideas in this space. Visa, being smart, are of course already in the game.

Fourteen US and Canadian banks have signed up for the launch later this year of a multi-platform digital wallet that can be used for e-commerce, m-commerce and mobile contactless transactions and includes mobile payment, NFC and coupon capabilities.

[From Visa unveils mobile wallet plans • NFC World]

But now continue the Square-related thought experiment. Suppose that Square are successful at signing up lots of people, so that people don't want an AT&T wallet or a Citi wallet or a Visa wallet? If all of the transactions are now between the secure element in a mobile phone, via Card Case, to the secure element in another phone, via the Square app, then aren't Square at some point going to get rid of intermediaries and just move the money from one bank account to another, in a retailer-centric decoupled debit proposition (which won't be called debit, because of Durbin) that is proactively marketed by the retailers? That really would be disruptive.

just as the iTunes store completely upended the sale and distribution of digital media, Square just might upend the entire real-world payments industry--whether it meant to or not.

[From How Jack Dorsey's Square Is Accidentally Disrupting The Entire Payments Industry | Fast Company]

So, in response to the e-mails I've had over the last couple of days, let me say that the Square trajectory confirms the strategic advice that we gave our clients some years ago (which is great!) and that is it not a "rival" to NFC but an exploiter of it. Square might be a niche in the payments business, but it shows a really interesting innovation path that sees payment cards going the way of books, and probably without Jesse Jackson Jr. to plead their case. That doesn't mean that Square will succeed, but if they don't, them someone else following that same path will.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

Day zero

By Dave Birch posted May 20 2011 at 9:16 AM

Today is rather an interesting day in our tiny corner of the digital money universe. Today, the first NFC mobile phone with a contactless EMV application on the SIM goes on sale in the UK. It's the Samsung Tocco Quick Tap, a version of the best-selling Samsung Tacco Lite with NFC, a product developed by Orange and Barclaycard.

Before I go any further let me make an explicit declaration of interest. Consult Hyperion has provided paid professional services to companies mentioned in this post in connection with the development of the products and services discussed in this post. As you may well remember...

...the public launch of a product that Consult Hyperion has been working on for some time for Barclays: Mobile operator Orange UK and credit card company Barclaycard have announced a long-term strategic partnership to develop m-payments technology including mobile wallet handsets.

[From Digital Money: Some real mobile, nfc and payment stuff in the UK]

Back to the story. Today, (well, yesterday, actually) I used one of these phones to buy a cup of coffee in Eat. And it worked. Perfectly. You might not think that's amazing, but I do, because I know how much work has gone in to implementing a standard contactless EMV application in a standard mobile handset with a standard SIM for use in a standard terminal on a standard network. And it's for use by normal people, not geeks like me.

The phone has a J2ME "Orange Wallet" that is connected via JSR177 to a Barclaycard MasterCard pre-paid EMV card application on the SIM. The application uses SWP to access the NFC interface. You can either connect this prepaid card to one of your existing Barclaycards or an Orange Credit Card that you apply for on the spot. There's no "untethered" version that you could not link to an existing card but simply top-up online or in store. It works as you would imagine: for payments under £15 you just tap and go. The wallet contains the basic services you would expect: you can look at transactions, top up the card (I have my phone linked to my Barclaycard OnePulse with the built-in Oyster card) in a simple one-button plus PIN action

MMP_6301 logoNO EAT_pay_scr

Though I say so myself (as a big fan of stickers!!) the integration is nice. The phone implements the usual NFC tag reading, so you can tap things and have URLs or phone numbers pushed on to the phone (the phone comes with a bunch of tags for you to try it out on) and I'm sure that people will find fun things to do with these. I suppose like a lot of people I'd rather have my Orange Wallet running on my iPhone, but this is a great first step and, most importantly, it actually works, it's not just some Powerpoint at a conference. It will be spreading to smartphones soon and the knowledge and experience gained by Orange and Barclaycard ought to stand them in good stead.

Last week Google confirmed that Android 2.3 will support Near Field Communication, as will Nokia and RIM smartphones, starting next year. And judging from Apple’s recent hiring of an NFC expert , and patent filings for a probably-NFC-powered iTravel app, the iPhone 5 will boast NFC too.

[From I Have Seen The Future, And It Looks A Lot Like Bump (Without The Bump)]

When I took the phone home last night and showed it to a statistically-invalid sample group of four teenagers, I was quite surprised as to how much they liked it. They were familiar with the handset and they like prepaid instruments and all wanted to try it out.

According to the recently released results of a survey from MasterCard; it looks like the public, especially the younger generation, are willing to embrace NFC if it ever becomes the standard method of payment in the future... From their findings, 63% of the US population aged 18-34 would be at ease with using mobile phones to make payments, while in the 35 or older age group, only 37% are comfortable with the idea.

[From MasterCard says NFC will be embraced by the younger generation in the US | Ubergizmo]

All in all I had rather an exciting day of contactless activity, because I popped into Tesco Express to buy a cold drink and noticed that they had installed contactless terminals. But more importantly, they've installed them properly. What I mean by this is that when you buy something, the checkout operators scans it and then contactless terminal lights up automatically. You tap and go. Or you tap and wait for a receipt to print out, and go. I was so shocked to see contactless payments implemented so well that I made a video:

Put these two things together: contactless rails and the mobile carriage and you finally have a genuinely new and attractive customer experience. No-one is mad enough to believe that people are so wild about payments that they will buy these phones just because of the on-board Barclays MasterCard (the mass market needs a portfolio of interactive services), but it's a super first step. Today was a good day and naturally I'd like to share the excitement. I happen to have on my desk a spare pay-as-you-go Samsung Tocco Quick Tap, so if you'd like to dip your toe into the ocean of future payments, all you have to is be the first person to respond to this post telling me what the acronym SWP -- used above -- stands for. (Hint: it's not the Socialist Workers Party).

In the traditional fashion, this competition is open to all except for employees of Consult Hyperion and members of my immediate family, is void where prohibited and has a new and improved formula. The prize must be claimed within three months. Oh, and no-one can win more than one of the Digital Money Blog prizes per calendar year.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

I see your 14443 and raise you 18092

By Dave Birch posted May 12 2011 at 1:56 PM

A couple of people asked yesterday about the comments from Google concerning "card emulation" in Android phones. The twitterverse had noticed these remarks from Nick Pelly, the Android lead for NFC, concerning the lack of API support for NFC card emulation.

The problem is that the hardware out there today, you know, if you buy an NFC controller, it typically is only going to be able to emulate one of those RF-level technologies. So as an application developer, you don't know which — when it's getting deployed to a phone, which one is on the phone. So I guess until we see the industry standardize around maybe one RF-level technology or until we see NFC controllers able to support multiple of those

[From Google raises concerns over the viability of NFC card emulation mode for mobile payments • NFC World]

At first I just thought... wow, that's smart. If Android phones won't allow ISO 14443 card emulation (which is part of the NFC standard) then that means that Visa and MasterCard won't be able to use them for payments, thus locking them out of the POS terminals that Google is developing for retailers. As I thought about it, however, and actually read what Nick had said, I realised that I couldn't understand his comments, since phones are perfectly capable of dispatching to different applications depending on which card they read, so I thought I'd go and ask a couple of the world's leading experts on implementing secure NFC applications in mobile phones. Fortunately Stuart Fiske and Neil Livingston both work for Consult Hyperion, so it was easy to find them. They told me...

We know that NXP and Inside Secure NFC controller devices support A, B, B’ and Mifare, all on the same chipset. GP provides mechanisms to manage protocol conflicts, etc., when multiple applets relying on incompatible protocols are trying to be active on the interface at the same time.

I thought this must be true, since I had in my office a Nokia handset with NFC that supports both contactless EMV transactions and contactless Oyster (ie, MiFare) transactions and it worked perfectly. I read a little further, and once again became confused. Due to my lack of experience, I was unable to determine what this means:

Typically, the hardware is set up to do card emulation through the secure element. Right now, we don't have any APIs to talk to the secure element. And we think that we probably won't be getting APIs to do that anytime in the near future in the SDK.

There are a bunch of different reasons. Again, the secure element is a very limited resource. It can't hold a large amount of data in there. And if we open it up to any third-party application, there's going to be a huge resource contention over the secure element.

Additionally, to talk to the secure elements, even from applications on the phone, you need to authenticate yourself properly.

And if you improperly authenticate yourself a certain number of times, there are secure elements out there that will physically destroy themselves and can never be recovered. So that's something that we really think would be a bad experience for users

[From Google raises concerns over the viability of NFC card emulation mode for mobile payments • NFC World]

I have absolutely no idea what he's talking about. I have never heard of a handset secure element (SE) that will physically destroy itself if authentication fails. I've checked the SmartMX data sheet this morning and I can't see any such logic.

Screen shot 2011-05-12 at 11.03.45.png

If I put the wrong PIN into an EMV application in the secure element three times, it will lock and then require an over-the-air PIN unlock from the application issuer, but that's a good thing. It's certainly true that there's a problem with secure applications controlling the screen and keyboard during authentication, but that's because the Nexus doesn't have any form of trusted execution mode and this is a well-known and well-understood (at least it's well-known and well-understood by Consult Hyperion) constraint that feeds into the kind of risk analysis that we do for organisations who are thinking about developing transactional applications. The authentication itself is done within the SE, naturally, but you may have a virus that's capturing the PIN, for example.

Meanwhile, I was thinking about the SE more. If I buy a Nexus S, how would an application provider request a Security Domain (SD) from Google? How would it be provisioned? Is Google building a Trusted Service Manager (TSM) to sell such a service? I haven't got a clue. The guys told me (these are edited highlights, by the way)...

In J2ME, it’s typically the SE issuer (ie, Google, in this instance) that decides who can access the SE from apps in the phone, and sets up the access conditions on the SE to manage this (the ACF file). Essentially, what we need the Android stack to do is deliver what J2ME (and it’s JSRs) have been doing for several years now. That is, include APIs that provide the app with a mechanism to access an applet in the SE, and for Android to interact with the SE to manage access condition verification. You can’t block the SE if you can’t access it!...

...These comments from Google make it sound like Google won’t be doing anything with card emulation any time soon. If that’s the case, then what’s with all these stories about Google trialling contactless card payments in SF with MasterCard and Citibank, uing Verifone and Ingenico POS terminals? These POS terminals implement 14443 to read contactless cards, and I doubt that Google are going to develop custom terminals that implement P2P ISO 18000 instead. But who knows - it would be cool if they did...

...Perhaps the Android stack doesn’t need to implement card emulation mode if the underlying hardware implements it, i.e. if the NFC controller and SE together support 14443 and card emulation mode, then they can talk to the reader via the antenna independent of the Android stack. The stack needs to provide an access API to allow phone apps to access applets over the contact interface (if there is one, e.g. SIM), or the wired interface for embedded, or via the SD interface....

...So perhaps there is no need for a card emulation stack in Android after all? But we still need ot be able to switch the PN544 into card emulation mode and an SE access API supporting a decent access control mechanism...

That's the actual problem, then. Developers can get to the SE interface but they can't do anything with it (eg, load a payment card into it).

As of the 2.3.3 release of Gingerbread the Secure Element functionality has been enabled (but the API Hidden). You can confirm that there is a Secure Element (SmartMX) in the Nexus S just by looking at the debug log using adb logcat and switching on NFC via settings... That said I'm assuming that the keys etc are controlled by Google so actually doing anything with the embedded SE will be difficult/impossible at the moment.

[From Secure Element - SmartMX - seek-for-android | Google Groups]

What has happened is that Google used an NXP NFC stack when building the Android operating system image for the Nexus S, but switched off the card emulation using compiler switches. (There's nothing to stop you, by the way, from recompiling the stack with those switches set to allow card emulation.) My interim conclusion is, then, that I have no idea what is going on. I don't understand what Google mean and I don't see how they can stop anyone from accessing secure elements. Sure, they can stop you for doing anything with the embedded SE (theirs) by not giving out any keys, but if there's a UICC SE (from the operator) you can access that and if there's an external SE (eg, a DeviceFidelity SD card) you can access that. If there's no Google Android API elements for any of these, someone else can simply add their own.

After all, Google ordered the Nexus S with embedded secure chips, the PN65 from NXP Semiconductors, which can store applications. The NFC controllers in the phones also support applications for card emulation on SIM cards.

[From Card Emulation Expected Soon Despite Doubts from Google Engineers | NFC Times – Near Field Communication and all contactless technology.]

Indeed. So why the fuss? What does it matter whether Google want to provide card emulation APIs or not? The things is that Google's opinions about NFC have taken on more and more significance recently as it has become clear that whatever mobile operators and banks may think about NFC, Google thinks that it is important and will drive it into the marketplace.

Google has obviously made a decision that NFC is an opening into something more interesting and lucrative than transforming a phone into a payment card– advertising and marketing opportunities at the point of sale – the physical point of sale. And, it has done a deal with VeriFone that takes the economic sting away from the merchants who need to buy into their vision to make it work – and who have by and large turned their noses up at NFC up to this point. Layer on top of that their Google Checkout asset and their newly launched One-Pass wallet application and you have the makings of an interesting new payments player.

[From Google Takes on NFC, Will They Crack the Code? at The Catalyst Code]

Karen is, as usual, spot on with this analysis. But I'm not so sure about this...

What’s amazing is that Google was the first to connect all of these dots

[From Google Takes on NFC, Will They Crack the Code? at The Catalyst Code]

This doesn't seem amazing to me, because I've been involved in numerous attempts to develop mobile proximity payments for banks and operators. A month before the Google announcement, I wrote on Quora that "I'm sure [loyalty and rewards] will be Google's strategy too. Payments are not an interesting enough application to persuade people to go out an get an NFC phone." Years ago, I made a presentation (I think at NFC World but I can't find it!) in which I said that no consumers will go into retail outlets and buy an NFC phone because of payments. They will buy the NFC phone so that they can read tags, swap Facebook profiles or (now, it seems) play proximity Angry Birds. But once they have that handset, then we need to make it easy and attractive for them to use it for payments.

Incidentally, Dean Bubley, who is in my opinion one of the very best analysts out there, called these non-payment applications "valueless" in a twitter exchange. He's referring to things like "0-click" checkins and similar.

Starting tomorrow, just tap your NFC-enabled phone (most newer Android devices have it) against the poster, it’ll check you in with foursquare

[From Experimenting with NFC check-ins for Google I/O | Foursquare Blog]

I'm convinced that valueless is the wrong word. If Google (or Apple) or whoever track where you are via mobile location and then send you special offers, it's creepy. But if you reach out tap when you enter the shop, or restaurant, or hotel, or office, that's what advertising folk label "a call to action" that gives them permission to send you things, to steer you, to deliver added value. That's what retailers will pay for -- they'll get the payments part for free -- and that's why the ecosystem will deliver real value.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

Prepaid could be, should be, great

By Dave Birch posted May 11 2011 at 10:51 PM

At the risk of turning into the Victor Meldrew of retail payments, I want to make a point about something. When I wrote about some bad experiences with contactless a couple of weeks ago, I did it because I genuinely care about this stuff, and I genuinely want the contactless experience to get better. I don't think the blog would be useful, particularly to my colleagues in the industry who read it, if it never contained criticism, so long as that criticism is well-founded and honest. Similarly with prepaid. I really like prepaid, I really want it to succeed and I really get upset when it doesn't work as well as it should.

Prepaid is growing. In the last five years, the volume of card transactions in Europe has grown about 9% per annum but the value has grown 7% per annum (because the average transaction size has fallen) and most of that growth has actually come from prepaid cards [F. Burelli. "Profitability dynamics of card payments" in Nordic Card Markets, Stockholm (Jan. 2010)]. Looking forward, the outlook appears to be pretty rosy. Yet I can't help feeling that prepaid isn't where it should be. My recent experiences with prepaid have been pretty good. I had a Visa prepaid card (which has just expired) that we were using as our "house" card at home: the kids used it when they needed to run to the supermarket or buy stuff for school. It had a simple web interface, I could see what they had been spending the money on and I could easily top it up from my debit card. Best of all, it didn't have a name on it, so if they lost it then no-one could use it in shops (because it's a chip and PIN card) or online (because they wouldn't know the name or address associated with the card). Now that it's expired, I got my eldest to go and get an Orange Cash card which annoyingly has a name on it (review to be posted shortly), so we'll see if that can take over as house card.

But I digress. Right now, I am annoyed with prepaid. Just as I was leaving for the airport, I remembered that I had less than $100 on my Travelex US Dollar prepaid card. As I was going to be in the US for a few days, I'd need a bit more to cover meals etc so I decided to load a couple of hundred more dollars. Now, obviously I wasn't going to bother to do that at the airport given the palaver I went through last time: I had £50 in cash in my pocket and I stopped at a Travelex booth in Heathrow to add it to my card and it took about a quarter of an hour and involved taking photocopies of my passport, the card, the receipt as well as answering security questions. The process was, presumably, designed to drive up the cost of prepaid cards to keep them beyond the reach of the poor.

Naturally, I thought that there would be some way to top up online, so I entered my 16-digit card number, my username and password and logged in to my cash passport account, only to find that there is no option for reloading (only for changing PIN and looking at transaction history). I went back to the home page and found that there's a separate option for reloading, I clicked that, and was asked to enter the first six digits of my card number. This took me back to the account screen. I went back round again, and somehow found another link (I can't remember what it was now) that asked my for the first six digits again and then took me to a reload screen. I entered the number of my Visa card, my address, the CVV and the amount, and was met with a screen saying tough luck.

Screen shot 2011-05-02 at 12.24.53

I wondered if it might be something to do with credit vs. debit, so I went round the loop again, this time using my Visa debit card instead. After typing in the amount, card number, address, CVV again, I got the same results. Much against my better judgement I decided to call, so I phoned the (mercifully) free phone number on the back of the card. I stupidly chose the option for speaking to an operator, and the line just went dead. So I dialled back and chose account services and then something else and then talk to an operator. I was shocked when a woman answered. After giving her my (I'm not making this up) card numbers, address, name, date of birth and a couple of other things, she put me through to another chap who said he would top up the card. I asked him if it was possible to do it via home banking and he said that it was and that he would e-mail me the details. After asking some more security questions, I started to give him my debit card number and he stopped me and said that he first had to check whether I was on the electoral roll at that address. I gave up, grabbed my BA Amex card and my John Lewis MasterCard and my Visa OnePulse and jumped in the cab.

All the way to the airport I was wondering why it was all so complicated. Why can't I load via the ATMs at the airport, or using an app on my iPhone or by PayPal. Prepaid should be a simple, inexpensive alternative to cash, not something that has you jumping through hoops! When I got the US, I decided to get another prepaid US$ card, but this time I would register it in the US so that I could have a US BIN and billing address (some stores, such as Levenger, will let you ship internationally but will only accept payment from cards with a US billing address). Although in the end I didn't have time, because I got sidetracked playing with my new Square, this does illustrate (once again) that there are lots of good reasons for wanting prepaid cards that are nothing to do with not being able to get a credit or debit card.

From the consumer side, prepaid allows consumers to test new opportunities and options without risking a lot of money or putting their bank accounts or credit cards on the line.

[From PaymentsJournal - When It Comes to New Payments Technology, Prepaid Will Lead the Way]

This is a good point, but I feel there's another reason for thinking that prepaid will be developing in interesting directions, at least in Europe. You don't need to be a bank to offer prepaid services: the combination of an Electronic Money Institution Licence (ELMI) and a Payment Institution Licence (PI) means that any company can offer a full service: an open-loop prepaid card. I suspect that many of the companies applying for these licences are doing so because they want to use new technology to deliver new services that need payment, if you see what I mean. That is, they don't expect to earn money from the payments themselves, but from the value-added services that need the payments to take place.

I'll be looking out for trends around value-added at this year's Prepaid Conference in London on 13th-15th June 2011. In an act of magnificent generosity, the wonderful people at Clarion have given me a delegate pass for the conference -- worth an amazing ONE THOUSAND FOUR HUNDRED AND NINETY FIVE POUNDS -- to give away on this blog as a competition prize. So if you are going to be in London on those dates and you'd like to come along to meet practitioners, thought leaders and me, then all you have to do is be the first person to respond to this post telling me what the conference sponsors MasterCard were originally called when they started in 1966.

In the traditional fashion, this competition is open to all except for employees of Consult Hyperion and members of my immediate family, is void where prohibited and has been designed to be carbon neutral. The prize must be claimed within three months. Oh, and no-one can win more than one of the Digital Money Blog prizes per calendar year.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

Top and bottom

By Dave Birch posted May 4 2011 at 2:18 PM

I just applied for yet another credit card, this time because I fancied a contactless Amex ExpressPay card to play with (I already have contactless Visa PayWave and contactless MC PayPass cards). When I read this...

MBNA today announced that the first American Express-branded, contactless credit cards in the UK will be issued for use by MBNA's customers.

[From MBNA introduces contactless Amex card in UK]

...naturally I couldn't resist applying. The online process was pretty painless, I have to say, and my card is apparently going to arrive in 5-7 business days. Excellent. American Express marketing has been a bit of a theme for me recently. A few days ago the morning's junk mail included a new special offer from American Express. Now, my British Airways American Express card is my top of wallet card, for about the first four months of the year. That's because it gives you BA miles -- which are not much of an incentive -- and a free BA companion ticket -- which is a great incentive -- once you have spent £10,000 in a year. But you can only have one. So like, I'm sure, many other who travel on business, l spend £10,000 on the BA Amex card to get the companion ticket and then I go back to using my "Middle-Class Maestro": the John Lewis MasterCard that I pay off in full every month. This delivers an excellent 1% cashback in the form of John Lewis vouchers that are valid in Waitrose.

Anyway, I got some junk mail from Amex which says that if I go and register my Amex card at some website and then use it in eight different stores before the end of June then... sorry, I lost interest at this point and threw it into the recycling bin. It was only when I got home in the evening after a meeting with a card marketing specialist today that I determined to retrieve it and read it. As it transpires, the offer was that if I go and register my card at a particular web site and then I use it in eight of the stores listed in the leaflet before the end of June then I get a bonus 2,400 BA miles. But surely, I thought, their computer would have noticed that I stopped using the card as soon as I had the companion ticket. If BA miles were an incentive to me, then I'd still be using it, so clearly they are not. The bottom line is that I don't understand card marketing and have absolutely no idea what the marketing people are thinking about when they come up with their special promotions. For example...

KFC outlets have been promoting the cards, ranging in value from $10 to $500 and to be used within 12 months, as a "thoughtful gift idea for any occasion''... Preventative Health Taskforce chair Professor Rob Moodie said he was shocked when he learned about KFC's latest marketing ploy. "It's marketing gone berserk,'' he said.

[From Fury over $500 KFC gift cards as nation battles obesity crisis | News.com.au]

Personally, I think that marketing may well have started off beserk, but I get his point.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

They're not playing games

By Dave Birch posted May 4 2011 at 2:18 PM

It was obvious a few years ago that not only were virtual worlds going to be big business, but that they would have an impact on the payments market. I used put things like World of Warcraft into product and service roadmap discussions for our clients in the financial services space, and I'm sure that they thought I was doing it just for fun, just to get some discussion going. But having played around in the space, I could see it would lead to some new thinking. When you're sending World of Warcraft gold pieces to a friend in Asia via an elven intermediary (quicker and cheaper than banks, by the way) you can't help but wonder at the "real world" instruments to hand. This from three years ago...

Well it wouldn’t surprise anyone then, that most of our partners report they have a completion rate of 0.5-1% when they present a credit card payment page to their users for virtual goods...Mobile on the other hand... takes 15 seconds, and off goes the user to his virtual good or points that will enhance his game or app experience immediately without ever leaving the environment of the app.

[From Virtual Goods / Currency and Mobile Payments: the business model for Social Apps]

Note that figure: one in a hundred transactions complete. People playing at being virtual farmers want to buy some virtual cows, so they click to buy, but when they see a credit card payment screen, they can't be bothered. So there was a demand for a new kind of payment instrument that was not being met by the banks. Look how much things have changed since then, with the incredible boom in app store and in-game payments. There's no doubt that the retail payments roadmap is indeed being affected by the world of games.

Now I'm not implying that it's only payments will be impacted, because in the longer run it will be many kinds of financial service, including banking.

The publisher of the online science-fiction game "Entropia Universe," set on the planet Calypso, received a banking license from the Swedish Financial Supervisory Authority last week and plans to open a real bank within a year, albeit one without physical, walk-in branches.

Players of "Entropia" already exchange real money for a virtual currency that is used for their expenses on Calypso. And virtual money they make in the game, through hunting, mining, trading or other activities, can be cashed out into real money. The virtual currency, Project Entropia Dollars, has a fixed 10-to-1 exchange rate to the U.S. dollar.

By setting up a real-world bank, Sweden-based publisher MindArk PE AB gains the protection of the Swedish government's deposit insurance for these accounts, up to about $60,000 for each customer.

[From The Associated Press: Online game gets real-world banking license]

A healthy development! My younger son spends a lot of time online with his friends at the moment, hanging out not at the mall but at the WoW auction house (this is where he learns about economics, I'm happy to say). That's where our clients' next generation of customers are learning about money, payments and financial services. This from two years ago...

Today, Facebook application developers monetize their games and other applications by accepting payment directly using PayPal, Google, Amazon FPS, or SocialGold. Or developers may opt to receive direct payment via mobile phone via Zong, Boku, or another mobile payment provider... game developers in particular, often accept payment via a prepaid card sold in retail establishments, such as the Ultimate Game Card. The social and gaming web is exploding with virtual currency offerings, yet thus far no one model or payment brand dominates.

[From Purchasing Facebook Credits with Zong Mobile Payments — Payments Views from Glenbrook Partners]

Now, forward-looking organisations could see what was going on and began to target R&D appropriately.

Google is developing a micropayment platform that will be “available to both Google and non-Google properties within the next year,”... The system, an extension of Google Checkout, would be a new and unexpected option for the news industry as it considers how to charge for content online.

[From Google developing a micropayment platform and pitching newspapers: “‘Open’ need not mean free” » Nieman Journalism Lab]

The idea was then that micropayments would be a payment vehicle available to both Google and non-Google properties within the year. The idea was to allow viable payments of a penny to several dollars by aggregating purchases across merchants and over time. Google planned to mitigate the risk of non-payment by assigning credit limits based on past purchasing behavior and having credit card instruments on file for those with higher credit limits and using proprietary risk engines to track abuse or fraud. Merchant integration through Checkout would be extremely simple. Google, in fact, subsequently decided to purchase an in-game payments company rather than build it themselves.

Facebook and Google are poised to challenge the banking industry in online payments.

[From Facebook and Google Encroach on Banks Turf - US Banker Article]

Is this really true? I think the answer is yes and no, in the sense that I can't see any reason why Facebook or Google would want to be a bank, unless it's to get some sort of government handout, but I can see why they might want to get involved in payments in order to make money (not from the payments, where margins are thin, but from new products and services that have payments integral to them). This is why the news that Facebook had also begun experimenting with a payment system was hardly unexpected, but was notable nonetheless. There was an expectation that the existence of a secure and convenient micropayment scheme for Facebook users (of which there now more than 600 million) would stimulate the development of a new marketplace within Facebook's "barbed wire". This seemed plausible to me -- if it had been up to me, I would have added a spurious green element to the proposition somehow (getting merchants and other organisations to give out Facebook credits to reward environmentally desirable behaviour) -- and I was sure it would do well. I wondered in a number of forums as to who else might enter this more competitive currency market?

In the coming months, facebook users will be able to obtain facebook Credits using MOL points purchased through MOL's network of more than 500,000 outlets, which are mainly in Malaysia, Singapore, Indonesia, Philippines, Thailand, India, Australia and New Zealand. In addition to outlets such as 7-Eleven stores and cybercafes, customers will be able to purchase Credits through MOL's network of online banks in these countries.

[From Finextra: Facebook moves virtual currency offline]

I gave a talk last year when I mentioned that I thought that Facebook credits would become the biggest virtual currency in the world fairly quickly. Unusually for my glib and sweeping predictions from the conference platform, this one appears to have come true, and even more quickly than I had imagined.

By the end of the year, Facebook expects that Credits will be used to buy the vast majority of virtual goods sold on Facebook. The fast-growing market is expected to reach $835 million on Facebook this year, according to the Inside Network... Through Credits, Facebook will take a 30 percent cut... To bolster that market, Facebook began selling Credits gift cards at Target stores across the country this month.

[From Facebook Promotes Its Credits as Path to Dollars - NYTimes.com]

Now this will one day become a standard business school case study. Talking of which, a few years ago, as part of a course I was teaching at Visa's Bank Card Business School, a colleague and I mocked up a future Visa card that drew on a World of Warcraft account rather than a fiat currency account. This was photoshopped up to make a point, and at the time it was supposed to be a totally out-of-the-box crazy picture of the future. About two weeks after we made it up, I read that a US bank was issuing a Visa card with cashback in World of Warcraft gold. Oh well. It did help to make one of the points that I was trying to get across, which is that the future of payments will extend beyond the "traditional" bank, consumer, merchant and acquirer for 4-party model.

Vegetable company Green Giant is offering an unlikely reward for purchasing their products: virtual currency in Zynga's hit social game FarmVille.

[From Wacky: Zynga Gives Away Free FarmVille Cash With Purchases Of Real Life Vegetables]

That was bad timing, coming just as Zynga (the people behind Farmville) caved in to Facebook and agreed to replace Farmville cash with Facebook credits, but it was an interesting development nonetheless, showing that virtual money is just as valuable as "real" money. Facebook's tactics show they undoubtedly have a strategy in this field.

First Facebook turned off notifications for applications, taking away the primary mechanism for social games to go viral. Now if a company wants a massive audience for a new game, they almost certainly have to buy it through Facebook advertising.

Now Facebook is rolling out Credits as the preferred method of payment for games on their Platform, and taking a 30 per cent cut of the transactions. That’s a much larger percentage than the social games companies were handing over to the small payment companies that had sprung up to fill this niche, and higher than the fees charged by PayPal and credit card companies.

[From Zynga says it’s not leaving Facebook | Tech Blog | FT.com]

Now there's something to be said for the creation of a single currency area as a way to encourage trade and therefore prosperity.

Besides leading the creation of a more people-centric web, it could also end up having the dominant virtual currency, according to an early adopter of Facebook Credits. PopCap Games has been using the service, which is still in the beta testing phase, as the sole payment method for Bejeweled Blitz on Facebook.

The game is free to play and attracts 11m monthly players, 3m of them playing it daily. PopCap sells extra power-ups, which boost players’ capabilities, and is moving onto sales of virtual items. It has decided to ignore offering other virtual currency options and only accepts Facebook Credits. Users can buy them with credit cards, Paypal or through their mobile phones in $5, $10 and $20 increments for 50, 100 or 200 Credits.

[From Facebook’s Credits Bank of the Web | Tech Blog | FT.com]

These are all useful case studies, showing how a new currency can develop and evolve.

Facebook has certainly tried to guide the development of its online economy, almost in the way that governments seek to influence economic activity in the real world, through fiscal and monetary policy. Earlier this year the firm said it wanted applications running on its platform to accept its virtual currency, known as Facebook Credits. It argued that this was in the interests of Facebook users, who would no longer have to use different online currencies for different applications.

[From Social networks and statehood | The future is another country | Economist.com]

I think I've seen the playbook before.

That means all Facebook game developers will be able to start using Credits as their payment system for virtual goods — in fact, Facebook is requiring them to make the switch by July

[From All Facebook Games Will Have To Use Facebook Credits Starting In July]

This comes from the Great Khan's playbook for monetary and fiscal policy. Not Genghis Khan. His fiscal policy was confused: when he took control of China in 1215, his pacification plan was to kill everyone in China, no small undertaking since China was then, as now, the world's most populous country. Fortunately, one of his advisors, a man who ought to be the patron saint of Finance Ministers everywhere, Yeliu Ch'uts'ai, pointed out (presumably via a primitive Treasury model of some sort) that dead peasants paid considerably less tax than live ones, and the plan was halted. In 1260, Genghis' grandson Kublai Khan became Emporer of China. He decided, much as Mark Zuckerberg has, that it was a burden to commerce and taxation to have all sorts of currencies in use, ranging from copper "cash" to iron bars, to pearls to salt to specie, so he decided to implement a paper currency.

Here's what Marco Polo had to say about it...

[From Digital Money: Lucky, for me anyway]

His monetary policy was refreshingly straightforward and more robust, even, than Mr. Zukerberg's: if you didn't accept his money, he would kill you. Naturally, in a short time, the new single currency was established and paper money began to circulate instead of gold, jewels, copper coins and metal bars. If you think talking about a new currency is crazy, take a look at Facebook Deals. According to Facebook, at launch, you will not be able to buy physical goods with Facebook Credits. Rather you will be able to get things like vouchers that you can redeem at events: now this is, frankly, a paper-thin distinction. I can't use Facebook Credits to pay for, say, a Coke at a pop concert but I can use them to pay for a voucher for a Coke at a pop concert. I am not an economist, but...

When beloved national retailers start offering goods and lower prices to customers who pay with a new, virtual currency - that's when said virtual currency becomes a force to reckon with. Somebody call Congress and the Federal Reserve - it's time to start having some serious conversations.

[From Facebook Deals Launches Tonight & Groupon Doesn't Stand a Chance (Updated)]

There's a warning from history here! Unfortunately, the Khan's paper money ended in disaster because the money supply was not managed: it collapsed in hyperinflation, because in the days after Yeliu Ch'uts'ai, the temptation to print money was just too great for the monetary authorities too resist. Let's hope that the Emperor of Facebook finds an advisor of the calibre of Yeliu Ch'uts'ai.

One possible future might be that, just as China turned in on itself and stagnated, leaving technological and commercial progress to other people, Facebook will become an inward-looking economy while others take up the torch! Perhaps competition in currency, not only in payment methods, is need to keep an economic space vital.

The new program, announced today at SXSW, is called RewardVille, which will give players zPoints and zCoins in CityVille, FrontierVille, FarmVille, Mafia Wars, Zynga Poker, Café World, Treasure Isle, YoVille, PetVille and Vampire Wars.

[From Zynga Rolls Out New Virtual Currency in Addition to Facebook Credits | Tricia Duryee | eMoney | AllThingsD]

Competition. This is the American way, not going complaining to Senator Durbin.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

Some observations on Japan

By Dave Birch posted May 4 2011 at 12:56 AM

Someone interrupted one of my rants against cash the other day by pointing out that in the last resort, cash is the only payment mechanism that society can depend on. Their trump card was reference to the aftermath of the recent Japanese cataclysm, where following a magnitude 9 earthquake and a tsunami, the nuclear reactors didn't melt down but the payment system did.

I think this is wrong lesson to draw from it. Yes, there were some temporary problems with the card networks because of the disruption, but it's important to note that this did not impact all cards: Japan has quite a rich retail payment landscape, as shown in this diagram (which I drew a couple of years ago, so it's a bit dated, but you get the point).

Japan Landscape

I saw Nobuhiko Sugiura, Associate Dean of Chuo University Business School, give a good overview of the current situation at last year's E-Money, Cards and Payments conference in Moscow. He said that e-money usage in Japan is growing rapidly but still a small fraction of total consumer spending (¥1 trillion out of a total of ¥300 trillion, a 300% increase in the last three years). A third of the population use e-money and half of them (ie, one sixth of the population) use it in their phones. It's a competitive market, centred on non-banks because the Japanese banks have no real interest in handling small payments because or their cost base. The non-banks, as I've often noted on this blog, have different business models, not based on transaction fees. The railways, for example, don't expect to earn anything from their e-money system, it's about reducing their costs. In comparison, convenience stores want to issue e-money to reduce their cash float. The bottom line is that the of cash at POS in Japan is "already falling" because of e-money.

After the earthquake and tsunami, the offline electronic money systems (such as Edy and nanoco) carried on working so long as there was power and the backup battery systems or generators were working, so you could still pop round to 7-Eleven and buy your staples. In fact, it was people who kept their money in cash who suffered greatly.

In Japan, lots of people -- especially older people -- keep their life savings in cash in their homes. (The country's banks pay very low interest rates, so the incentive to deposit that money into bank accounts is lower than in other countries.) This is all well and good, until a tsunami destroys your home and washes your money out to sea.

[From Schneier on Security: Unanticipated Security Risk of Keeping Your Money in a Home Safe]

That's not to say that people didn't want cash after the event.

The tragedy playing out in Japan this past week highlighted that in times of crisis, there's nothing like cash in hand as the universal method of payment. By all accounts the banking system in Japan survived and is functioning well after the earthquake and tsunami - such is the level of disaster preparedness.  But Mizuho, Japan's second largest bank, reported outages in its payments and ATM networks - coincidentally as demand for cash surged.

[From The end of cash for payments? Not so fast! - Microsoft Perspectives on Payments and Core Banking in Financial Services - Site Home - MSDN Blogs]

So they wanted cash, but did they need it? In this kind of catastrophe, where the online POS network goes down but the ATM network stays up and the ATMs remain stocked with notes, you could see people going and withdrawing cash. But suppose there are no ATMs?

Imagine that there was a magnitude 9 earthquake and a tsunami in Woking (unlikely - our last natural disaster was an ice age in 18,000 BCE) and when I go round to Waitrose to buy some bottled water and rice my John Lewis MasterCard proves useless because the acquiring network is down and the ATM proves useless because the ATM has no power. The store manager at Waitrose can leave the food to rot on the shelves or he can accept a signed IOU. He could accept no sale because of flaws in the electronic payments or he could develop a rational fall-back strategy. We discussed this a couple of years ago, with reference to the famous case study of the Irish bank strike.

The owners of shops and pubs knew their customers very well and so were perfectly capable of deciding whether to accept cheques (or just IOUs) from those customers. And since the customers also knew each other very well, they too could make sensible decisions about which paper to accept.

[From Digital Money: Payments without banks]

If I was the manager of Waitrose after the Woking earthquake, then I would simply accept payment by writing down card numbers, or photocopying driving licences, or taking pictures of customers, or whatever. The core of the issue is identification and trust, not the payment instrument. As many media commentators noted, society in Japan did not collapse. My conclusion: natural disasters are not a convincing argument for cash.


By the way, I case anyone was wondering about the origami cranes that I was giving out in Chicago this morning... My wife is a teaching assistant in a primary school in Surrey. The seven year old brother of one of the boys who was in her class (they boys have a Japanese mother) has been spending two hours every day for the last month making these (they are a symbol of peace in Japan) to raise money for the British Red Cross appeal for Japanese tsunami victims. Consult Hyperion have purchased a hundred of these beautiful and special cranes, so if you come to our office anytime over the next couple of weeks, please feel free to pick one up with our compliments.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]