Digital Money Forum

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.

More on Payez Mobile

[Dave Birch] I've been particularly interested in the French national NFC payments "experiment", not just because of the practical insight it delivers but also because it is a laboratory for co-ordinated specification development involving both bank and mobile operators. For many of our customers, this bank-operator interface is an important driver and/or barrier in their medium-term strategy, so it's important to understand it.

AEPM, the Association Européenne Payez Mobile, has updated the technical specifications for Payez Mobile, the NFC solution developed by the leading French banks and mobile operators that has been on test in the French towns of Caen and Strasbourg since November 2007. The new Version 2.1 of the Payez Mobile specification incorporates the latest GlobalPlatform specifications and follows the signing of a Memorandum of Understanding between AEPM and GlobalPlatform in July.

[From Payez Mobile updates NFC specifications • Near Field Communications World]

Since I think these specifications are important, I asked my colleague Neil Livingston (who has been leading some of our work in this area) if he could provide a more detailed introduction to the specifications for blog readers, and he has kindly provided the overview that follows. If you're interested in understanding how NFC is evolving in the payments space, it's well worth you taking a few minutes to read through.

contactless and nfc, EMV, mobile

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

Payments aren't just about payments

[Dave Birch] Speaking at the Cards & Payments Quarterly Thought Leadership seminar, Andy Simmonds of Barclaycard was talking about pan-European acquiring. One of the several excellent and perceptive points he made was that large, pan-European merchants will "take matters into their own hands" unless they get better service from banks. What he meant, I think, was that retailers will either issue their own semi-closed loop payment cards, stickers, watches, hat, badges and whatever else or that they will demand direct access to Visa and MasterCard. Contactless, that well-known Mickey Mouse technology will, I think, have an impact here because it gives retailers and others the ability to move beyond the card format. Let's face it, cards are a bit boring to the average consumer (as are payments, frankly) and so these alternative form factors may have attractions beyond rational product evaluation, if you see what I mean.

contactless and nfc, retail

I didn't understand this story

[Dave Birch] Perhaps it's an age-related disorder, but I'm finding it harder to understand news stories. For example, I happened across this a couple of days ago:

Visa recently made a change to the fees that it charges retailers-something called an interchange rate-and it means that retailers must pay them a lot more when a consumer uses a Visa contactless debit card. In other words, when a consumer walks into a Best Buy and buys a $300 Blu-ray disc player, the amount of money the retailer gets to keep will differ sharply based on which Visa card that consumer chooses to use. By increasing those charges, Visa is trying to make up for some of the money lost through the new law.

[From The Credit Card Reform Backlash - CBS News]

What? There's a higher interchange rate for contactless cards and this results in a higher merchant service charge for contactless transactions?

Best Buy pushed back last week (July 16) when it issued a statement to retail technology publication StorefrontBacktalk that was the retailer's equivalent of a shot across the bow at Visa. Best Buy said that it "is constantly looking at ways to reduce the cost of check lane tender. As part of this exercise, we are evaluating the continued acceptance of Visa-issued contactless payment cards in our stores in light of recent price increases."

[From The Credit Card Reform Backlash - CBS News]

Does anyone know how much Best Buy pays for a Visa contactless debit transaction compared to, for example, a Visa or MasterCard credit card transaction for a customer purchasing a $300 Blu-ray player? I don't understand this story, so I was wondering if one of our US correspondents could read between the lines for me. I don't understand why chains like Best Buy and Home Depot, where the average ticket must be more than $25, are considered prime contactless territory -- do people rush in to Best Buy shouting "quick I need a Dolby 5.1 surround sound speaker system!!" and waving their Visa card in front of them?

What will contactless ubiquity bring?

[Dave Birch] Barclays commitment to convert all UK debit cards to contactless, given that they already have a large number of contactless credit cards out there, means that the penetration of contactless cards will go up substantially over the coming year. So what will happen? We have already learned some key lessons. For example, we know that transit has a powerful role to play.

For contactless issuance—card acceptance at transit is a big motivator for issuers. It’s a market that is both high profile and also potentially lucrative for transaction volume. This could definitely serve to motivate issuers to ramp up contactless issuance.

[From Javelin Strategy and Research » ViVOtech, Cubic, Mobile Payments and Transit]

And, in the UK at least, the combination seems to be working in the sense that cards are being issued in large numbers and transit operators are looking seriously at accepting bank-issued cards in their gates. I should note, of course, that is not only bank-issued cards in this environment: there are some new players as well, including Forum friends sQuidcard.

E-money start-up sQuidcard has struck a deal with the Scottish National Entitlement Card (NEC) programme and council authorities in Dundee to provide residents with pre-paid contactless cards. The NEC programme is designed to offer Scots access to council facilities such as libraries, schools, taxis and leisure through a single card. The card can also be used on public transport as well as to access thousands of rewards and discounts... Following the Squid tie-up, users in Dundee will also be able to load the cards with money and make purchases of under £10 in retail stores by tapping them against specially equipped terminals.

[From Finextra: Dundee council teams with sQuid on pre-paid contactless card]

On the other hand, the retailers are not, it has to be said, rushing to convert. This is for all sorts of reasons that are not interesting to go into here. Nevertheless, step-by-step, contactless acquiring is spreading.

UK high street retailer Boots is teaming with MasterCard and RBS WorldPay to introduce contactless payments at stores in London and Liverpool... Boots is the first high street retailer in the UK to trial contactless technology, which is swiftly gaining popularity in the country.

[From Finextra: UK retailer Boots to trial contactless payments]

There are some real issues that need to be resolved: it's not just conservatism or resistance to new technology. For example, there is the issue of the transaction limit beyond which contact and PIN is required.

Opinions vary as to whether the current limit of £10 is appropriate. Dave Birch, director of the consultants, Consult Hyperion, which has been closely involved in all three of the first contactless payment schemes thinks this is a difficult question. “Certainly there is pressure from merchants who want a much higher limit,” he says. “I think that will take a little while though because the banks need the experience of running the risk management models and anti-fraud systems first.”

[From StorageExpo08 Show Preview: FST]

But I think a bigger problem is that many of the places where contactless cards use would be desirable and convenient are not places where banks currently acquire card transactions, are not places where retail POS terminals are suitable and are not places where telecommunications networks are ubiquitous. So I'd love to pay at Woking rail station car park in the morning by simply tapping my OnePulse card against the machine, but I can't see how it can happen. Meanwhile, the competition is closing in: Woking now has RingGo mobile payments in place, so you can park and then pay on the train on your way to London. Bank-issued ontactless payment cards are going to have to work harder if they want to get into those markets.

Spanish practice

[Dave Birch] Mobile payments are developing in some pretty interesting ways at the moment. While we tend to think of mobile payments as being some sort of replacement for our familiar plastic cards, this is only one part of the market. In some parts of the world, retail is not the focus, and mobile money transfer has become a serious business and it's already beginning to connect the developed and developing worlds. There's no doubt in my mind that this will be one of the most important uses of the technology, in terms of improving the lives of the most people: making it possible to move money around means inclusion and financial services where there were none before.

Vodafone, Safaricom and Western Union have announced that they will partner to pilot a cross-border Mobile Money Transfer (MMT) service between the U.K. and Kenya.

[From Payments News: Vodafone, Safaricom, Western Union Partner for Mobile Transfers - December 08, 2008]

So you can now use your mobile phone to send money from one country to another. That's not to say that retail payments are not participating in the mobile revolution. If you look at countries such as Japan and Korea -- which I stress are not templates for the rest of developed world, but we can see them as testbeds for certain technologies that will inevitable spread -- mobile payments are part of the mainstream. There, it's the mobile operators who have been driving change and, while using mobile proximity payments to buy cups of coffee have long since ceased to be novel in those markets, those operators are continuing to drive innovation. Oddly, given the focus in the press, one area where contactless payment technologies may have great impact is not in stores but on line.

SK Telecom subscribers, who can already use the "T-Cash" mobile payment system to pay for bus fares, grocery products and parking tickets, will now also be able to purchase goods and services from the Internet... Since launching the service earlier this year, SK Telecom said it gathered more than 200,000 users of T-Cash. The mobile wallets are used for paying bus, subway and taxi fares, buying items at 24-hour convenience stores, and paying for parking at a number of major facilities such as Seoul Station, Gimpo International Airport and Seoul World Cup Stadium. T-Cash will now be accepted as payment at 11th Street (www.11st.co.kr), an online retail and auction site operated by SK Telecom, and Cyworld (www.cyworld.com), the country's most popular social networking service, operated by SK Communications, the Internet unit of SK Telecom.

[From Mobile Payment Extended Online]

I wrote, four years ago, about Cyworld and its role in shaping next generation payments. In the Korean market, the Cyworld connection is particularly significant. So why isn't the activity and energy from the developing world and from Japan and Korea yet having any impact in the mass market in Europe or the US? Well, one clear reason is that it has taken a long time for the GSM world to sort out standards and put the development of handsets on a firm roadmap. And although the standards have firmed up (in fact the GSMA got the standards it wanted) there's still only a couple of handsets out there. A few months ago, the GSMA called for NFC to be delivered in to the mass market, well, round about now.

The GSMA, the global trade group for the mobile industry, today called for full NFC functionality -- including the standardised 'Single Wire Protocol' interface -- to be built into commercially available mobile handsets from mid-2009, in order to ensure that consumers can reap the benefits of mobile payment services as soon as possible.

[From GSMA Calls for Pay-Buy-Mobile Handsets]

It's taken a lot longer for NFC to get near the mass market than many of us thought when the first experiments began four or five years ago. But it does at least seem that it's now practical to begin thinking about the new businesses that will emerge when we combine the GSMA roadmap with the laboratory results from Asia and the game-changing business models from Africa. I'm getting more enthusiastic about NFC as the days go by.

TV times

[Dave Birch] We spend a lot of our time looking at technology roadmaps for customers in different sectors, and these roadmaps have a lot of different technologies on them. Obviously one of the key ones is contactless and one of the challenging aspects of turning a technology timeline into a technology roadmap for particular markets is trying to understand the relationship between technology decisions and the business "layer". Its natural to look around the world for similar examples, to help understand this relationship, but we have to be careful they are not misleading. So, for example, while we may look at (say) the Japanese market and obtain interesting ideas from it, it's not a template for the (say) the European market. Apart from anything else, it is based on a different contactless standard. It happens, though, that some people think the standard may be coming our way.

The Japanese government’s Ministry of Internal Affairs and Communications has announced plans to work with mobile phone makers worldwide to increase the use of Sony’s FeliCa chip in handsets, according to an Associated Press report. The ministry’s work may help speed the adoption of phone-based payments options in western countries.

[From NFCNews | Government boost for global FeliCa adoption]

Personally, I'm not sure that is the trajectory. There is already a join venture (Moversa) to make NFC chips that work with both ISO and Felica standards, so I think that will do more to spread phone-based payments than the wider adoption of Felica. So, if you look at the phone we are using for the Orange / Barclaycard NFC product, the 6212, it can't currently interface with Felica. This makes it unattractive in Asian markets where Felica is used for payments and transit, or even just transit. But in Europe it's no problem, because payments and transit all use the ISO interface.

Does contactless change the landscape?

[Dave Birch] One of the Consult Hyperion projects that I'm working on at the moment involves looking at ways to take simple financial services (in particular, payments) out to the less well-off. These people are dependent on cash, and therefore pay much higher transaction costs than the more comfortable members of society. Part of this work rests on the availability of products, specifically pre-paid products, and part of it depends on technology. Unless technology can make payments as easy as cash, it will be difficult to persuade people to give them a try even though they might be financially better off using the new technology. We all understand that customers value convenience. This is one of the reasons why contactless "touch and go" technology in general and the combination of contactless technology with mobile has so much to offer. We have a way of making electronic payments as convenient as cash.

Actually, it seems to me the given certain bounds, contactless technologies can exceed this expectation and deliver an experience that is much better than cash. Paying with an offline contactless product (such as a prepaid card) is quicker than paying with notes and coins (even without having to wait for change) and the fact that a mobile phone can manage "cash" for you is transformational, since we know that one of the key factors in driving up the adoption of prepaid products is the ready availability of balance information.

I tend to think, therefore, that bringing contactless technology into the payments space will do more than make credit and debit card use more convenient. It may well have much more of an impact by driving a wider range of prepaid products into the market and and driving a more significant displacement of cash than either magnetic stripe or chip & PIN have achieved.

Cards aren't just about payments

[Dave Birch] There was an interesting development in the world of payments and cards recently when the Utah Transit Authority went live with a new ticketing system that accepts contactless payment cards as well as contactless tickets: not as a pilot or trial but as a live system supporting the three main brands.

UTA's new EFC system accepts major contactless credit and debit cards such as Visa payWave, MasterCard PayPass and American Express expresspay for a single adult cash fare on more than 600 buses and a fleet of light rail and commuter rail trains.

[From Utah Transit Authority Showcases Open Payment System - Government Technology]

Mass transit has become a focus of activity and innovation in the contactless world, not just because of the scale of mass transit systems but because of two intersecting drivers that lead to a win-win. From the transit side, many operators don't actually want to run ticketing systems if someone else can provide a working payment solution.

The MD of London Underground Tim O'Toole said the ability to use near field communication-enabled phones and other next-gen ticketing tech on London's public transport will be enabled by the new deal.

[From Oyster deal lights touchpaper for new tech makeover - Financial Services - Breaking Business and Technology News at silicon.com]

There has been one interesting barrier to the integration of payments and transit in certain markets, and that is that the ISO-based contactless interfaces and the Felica-based contactless interfaces have required separate chips. This has now changed, as the Moversa joint venture between NXP and Sony starts to bear fruit.

Moversa will unveil the capabilities of its latest security chip – the Universal Secure Access Module (U-SAM) – at this year’s Mobile World Congress. The chip manages contactless smart card applications, regardless of protocols and operating systems, in Near Field Communication (NFC)-enabled mobile devices... Moversa’s U-SAM supports two of the most widely installed contactless smart card technologies in the world, NXP’s MIFARE™ and Sony’s FeliCa™ systems, as well as a number of other contactless operating systems and applications. The chip will enable mobile device manufacturers to design products which are interoperable with existing contactless infrastructures.

[From MOVERSA - PRODUCT NEWS FROM MOVERSA]

It's a terrific time to be looking at the future of cards in that space, as mobile and contactless technology continue to revolutionise the customer experience.