Digital Money Forum

Microebb and microflows

[Dave Birch] The subject of micropayments seems to ebb and flow. I've just been putting together some review comments for a European Commission report on some stuff, one part of which asks whether there is a new need for new micropayment systems or not. I've posted an edited version of my response below because I'd like your opinions too. You might want to read "The Case for Micropayments" and "The Case against Micropayments" first! If you do, you may conclude that the mobile phone model of pricing seems right: you pay a fixed subscription for a bundle of services, but if you want more you pay extra, and you pay extra for stuff like ringtones. Seems reasonable: I don't want to be bothered about paying-per-page, but on the other hand I would like a simple way to buy content, just like I do on iTunes. In fact, one of the reasons why I buy music on iTunes and nowhere else is because on iTunes it's easy. Click. Done, One euro.

If we put nanopayments (ie, payments below, let's say, a few cents) to one side, and we assume that payments over ten quid will be dealt with through other channels, there's still a ten pence to ten pounds sweet spot that really ought to be filled by pre-paid offline contactless solutions in the physical world and some sort of equivalent in the virtual world. What that equivalent will be is not clear at all. Just to illustrate with a couple of examples that relate to the two different subsectors (ie, paid content and P2P) that I refer to in my response, I had a couple of e-mails about new micropayment targeting different environments. One of these was sparechange, a Facebook application for sending small amounts P2P between friends, and Znak it!, which is "coin" scheme for the web. In Znak it!, the consumer prepays for coins of predetermined amounts (as they did for Digicash, Millicent and so on) and then spends the coins on paid content at web sites. I'll give it a try when it's up and running. In sparechange the customers load a pre-paid wallet that is then used to fund P2P transactions. Unfortunately, I couldn't try it out because when I tried to load it using PayPal, this happened:

Just when I was complaining about contactless the other day, I found it really annoying to have the transaction declined but not to be told why. Anyway, I gave up, as any normal person (such as all the people who don't read this blog!) would.

Nymity vs. anonymity

[Dave Birch] In The Future of Money by Benjamin Cohen, the author says that one of factors that may make it difficult for e-money to substitute for physical notes and coins ("p-money") is that e-money cannot reproduce the anonymity of p-money. I said that I would come back to this subject when I ad some time to think about. Having done so, it led me to reflect on my experiences in the early days of e-cash, the age of Mondex, VisaCash, DigiCash, CyberCoin and all the others. I had certainly had that opinion in the early days: When I first began working around these schemes, I assumed that anonymity was a key requirement for cash replacement. For one thing, that's what customers said in market research, which was music to Mondex's ears. (Note that consumers also said that they wanted the ability to "lock" Mondex cards with a PIN, a feature that I never once saw used in the live service.) But after some time, I began to realise that I was misunderstanding the customers' desire for anonymity. For the most part, it wasn't a real requirement at all, but a kind of comfort factor introduced into the portfolio of cash-like features. To use the post-modern visualisation of Umberto Eco, we shouldn't have been designing virtual cash, but hypercash: Not an electronic version of cash as it is, but an electronic version of cash as it should be. I'm not advocating the construction of fantasy money that disconnects from the real world (Eco warns of the dangers of feeling "homesick for Disneyland" in "Travels in Hyperreality", whioh was one of those books you enjoy reading, but at the end realise that you haven't understood it) but more of an inclusive approach. We should be able to at least categorise the requirements of the various stakeholders (I don't propose to do that here) to get a better idea of what digital money ought to be aiming for, rather than raise the bar no higher than than an electronic simulation of the plastic simulation of the paper simulation of money that we have now.

(This, incidentally, is going to be my rallying cry: No more e-money, it's time for h-money! More on this later.)

Laundry bills

[Dave Birch] I'm looking at the tension between financial inclusion and KYC/AML (financial exclusion), specifically in the context of launching new mobile payment schemes in developing countries. My thinking is summed up well here:

Strict KYC norms present a big hurdle: The very people who have most to gain from mobile banking are excluded because they don't have identity cards, proof of address and other credentials.

One way to deal with this problem would be to allow ``KYC- lite'' that restricts the amounts per transaction to minimize risks while ensuring that the poor aren't left out.

[From Bloomberg.com: Opinion]

I've argued before -- in other fora -- for a much stronger KYC/AML break at the low end of the market since it would provide a low-cost means to improve the lives of a large number of the poorest people. The main argument against this, naturally, is that the break might then be exploited by criminals, terrorists and so on. I don't buy this at all, but do need to address it.

Money museum

[Dave Birch] Wallowing in nostalgia over coffee today -- and spurred by Ian Grigg's comment about innovation and Steve Klebe's mention of Cybercoin -- I was reminded that our good friends at Payments News pointed me to the VisaCash and Mondex testimonial web site, every page of which is laden with memories for many of the Digital Money denizens.

Climate change, whatever

[Dave Birch] It's odd how memory works. I read in the newspaper that several thousand people have burned millions of gallons of aviation kerosene flying to Bali (these things are never in Barnsley, are they) to discuss climate change, and it reminded that several months ago, amongst all of the vital global stuff being discussed by the great and good at the World Economic Forum in Davos, Bill Gates told a breakfast meeting that Microsoft is developing on an online payment system that will be cheaper than credit card transactions, making it possible for companies to charge small fees for Web-based content and services they now offer for free. Apparently he described a system that would undercut credit card fees, making it profitable for an online newspaper to charge small fees for individual articles, for example. He said:

"If you want to charge somebody $0.10 or $1 a month, that will just be a click...you won't have to manage some funny thing or pay some big credit charge, where half of it goes to the clearing."

This sounds like a great idea, and I'm really looking forward to trying it out.

Technorati Tags: credit cards, internet, micropayments

What are "low value" payments?

[Dave Birch] There are different groups vying for the "low value" payment market at retail POS. Hence there's the potential for some real innovation. But what is the "low value" market? I was in a meeting recently where the discussion took an interesting turn. One group of retailers were unhappy with the UKP10 limit (fifteen euros on the continent) for contactless payments in London and the suggestion popped up -- which I thought was reasonable -- that the low value cut-off might well vary between retailers or categories. But it might also depend on the channel. In the mobile world, the Payforit scheme has a UKP5 maximum purchase value but some operators are already saying that this should be raised to UKP10 (as I'm sure it will be soon) because the fiver limit doesn't cover a broad enough range of content. We don't want to end up with a confusing landscape for consumers though: it would, surely, be more sensible to have a universal definition of low-value payment across all channels and categories so that both customers and shopkeepers knew exactly where they stood: if the payment is under X then there's one set of rules and rights, above X then there's another set of rules and rights (eg, Consumer Credit Act-style rights). This would also simplify implementation and customer education at the same time.

Technorati Tags: cashless, contactless, retail, SEPA, smart cards

Japanese money supply

[Dave Birch] Why are we all so interested in Japanese e-money statistics? Setting aside that when I say "we", I of course mean "me", it's because of the clues it may contain to the evolution of electronic money in a rich mobile-centric environment. According to the Nomura Research Institutethe Japanese e-money market grew from 180 billion yen in 2006 to 690 billion yen in 2007, including EDY's 100 billion yen share and Suica's 50 billion yen share. The market is expected to be worth 2.8 trillion yen in 2011. With the spread of e-money, concerns have been raised that the money supply --one of the elements that the Bank of Japan uses to map out its monetary policy -- may not reflect the actual state of the economy, as the money supply data does not include e-money (and nor, I suspect, does anyone else's, although I'd love to hear from anyone who can prove me wrong).

Technorati Tags: e-purse, mobile

Transport tales

[Dave Birch] I was on a train, in the UK today, and I was in the line at the buffet car trying to buy a couple of coffees.  The guy in front me bought a drink and a pastry, which came to 2.10 and all he had was a ten pound note.  The guy serving didn't want to take the note because it would use up all of his change, so he asked the customer to pay by card instead.  Which he did.  And he signed for it, because it wasn't a chip and PIN terminal, even though it was clearly working off line.  How much easier life would have been if the customer had used one of these new "contactless" credit cards that I heard about on the BBC this morning while I was getting ready.  The supreme irony, of course, is that I paid my 2.90 with the exact change.

Technorati Tags: cashless, coins, contactless, credit cards, EMV, payments, transport

More from the war on cash

[Dave Birch] Linkdump pointed me at McKinsey's "golden rules" for the "war on cash". These are:

 

• The stakeholders must agree that substituting debit cards for cash is beneficial to society (This consensus will be hard to reach, as the parties involved do not agree on the true costs of cash and the other payment instruments involved).
• The debit product must be enhanced.
• Acceptance of debit cards must be vigorously promoted, both in terms of personal acceptance of cards and in the world of remote commerce (mail and telephone order, e- and m-commerce).
• Banks must develop segmented card offerings.
• Cash needs to be priced appropriately.  The fact is that, today, the pricing of cash is not in line with its costs. Consumers and merchants in most countries do not pay the real cost of cash, and so merchants and consumers have no reason to reduce their use of cash.  One problem is that there is no clear ownership of cash. Another is that governments often position cash as a public good -- to be offered free by banks -- thereby inhibiting an economic debate on cash versus other instruments.
• Finally, we will need to see significant targeted marketing efforts to promote debit over cash.

If by "debit" they mean debit products, pre-authorised debit products and prepaid products, then I think I agree with all of these points, especially the ones about segmentation and costs.

Technorati Tags: cashless, debit cards, SEPA

If you must use cash

[Dave Birch] Then you'll first want to check out the top 10 places to hide it around the house.  But for how much longer will you be doing this?  There are people out there who want to create an economy free of paper money and coins.  The revolution (Money 3.0?) has already started.  Millions of consumers rolling through tollbooths without stopping, their in-car transponders beaming information to an RFID (radio frequency identification) reader and triggering a process by which tolls are transferred from a credit card or bank account to the highway authority.  Millions more use SpeedPass devices to pay for gasoline, simply waving a key fob in front of a reader built into a gas pump, paying for gas without every opening their wallets.  Millins more have started to use contactless payment cards for small purchases.  The technology is now here, but how long will the cultural change take?  Tim Attinger, SVP Product Innovation and Development for Visa USA (who describes himself as being in charge of ridding the America of cash and cheques) says that the next frontier is to delete even the plastic from "plastic".  He says "I dream of a day when kids on the corner selling lemonade will take Visa payments".

Technorati Tags: ATM, cashless, payments

John Hill, Transys

[Dave Birch] What's going on in London with Oyster card, Barclays and other contactless schemes continues to attract attention. A chat with John Hill from Transys helps to explain what's behind the Oyster system for public transport and where it might go in the future.

Technorati Tags: contactless, payments, podcast, transit

I get the concept

[Dave Birch] There's something of cash replacement meme running around at the moment.  I was interviewed by a major UK-based broadcasting corporation on the subject again.  Why has it become topical again?  I'm sure it's something to do with the imminent arrival of contactless.

Technorati Tags: payments

More on contactless UK

[Dave Birch] At the APACS briefing back in December, arranged through Vendorcom, there was an announcement about the roll-out of contactless payment cards in the UK. The deployment of terminals will begin in south east London in September 2007, and I thought it might be mildly useful to post a quick update on the roll-out including information and highlight one or two areas that have been touched on in recent posts, where I think some more work may be required by the industry in 2007 to make sure everything goes smoothly.

Technorati Tags: contactless, credit cards, debit cards, payments, retail

Where's the Walmart?

[Dave Birch] I've been thinking about an insightful question about payments innovation posed on Payments News. Scott points out that while merchants (mainly) are always complaining about the high cost of payments, no low cost alternative has emerged. He puts it succintly: "Where's the Wal-Mart or Southwest Airlines of payments? Where's the Dell, the Ikea, even the ING Direct of payments? How about the Intuit of payments - radically changing the economics of payments in the same way that Intuit completely changed the ecosystem of tax preparation?". Good question.

Technorati Tags: e-purse, payments, regulation

Richard Mould, Barclays Bank

[Dave Birch] Our final podcast of 2006 is with Richard Mould, head of contactless payments for Barclays, talking about the recently announcement collaboration with Transport for London.

Technorati Tags: contactless, retail, travel

Contactless UK is on the way

[Dave Birch] More contactless action. The Visa UK Board of Directors has announced the nationwide roll out of contactless payment cards across the UK, starting in London, by the end of 2007. Sandra Alzetta, Visa Europe Senior Vice President Consumer Market Development, and sponsor of last years' Digital Money Forum, said: "With over 75% of all cash payments being less than £10, the introduction of contactless payments will play a major role in encouraging the use of cards over cash for low value transactions. In addition, the decision to go live in less than a year supports our vision for a cashless Olympic Games in London in 2012."

Technorati Tags: contactless, nfc, payments

Snap!

[Dave Birch] When the Snap Cafe in Georgetown, Washington D.C., decided to stop accepting cash they did so for many reasons. The owner says that it has saved her time and money, means she doesn't have to go to the bank any more and doesn't have to trust staff she doesn't know. She got a lower MSC from her card acquirer as well. Note the point about trust. This is a recurrent theme in surveys of retailers and cashlessness: even if they perceive cash to be cheaper than electronic payments, cash has a tendency to evaporate. It's also downright dangerous: attacks on security vans carrying cash are up 20% in the UK this year.

Technorati Tags: cash, costs, retail

Small Payments Roundtable comment

[Dave Birch] In the Peppercoin Small Payments Roundtable conference call, Mia Shernoff (Executive Vice President, Marketing, Chase Paymentech Solutions) said that in a recent survey of their merchants they had found that cost reduction was no longer the no. 1 requirement for new payment systems. Security and revenue enhancement scored higher.

Technorati Tags: costs, loyalty, micropayments, payments

Who will pay?

[Dave Birch] I was on BBC Radio 5 yesterday in a brief debate about cashlessness between me and a representative of the European Security Transport Association, who are complaining that cash is being marginalised in Europe. I've been thinking about quite a bit recently because of some projects I'm involved in but also because last month, Aneace had set me thinking about the cost of cash again. He correctly noted that merchants truly believe cash is cheaper than plastic (as was confirmed by the UK survey we discussed before). He makes the point that until there is no cash, a reduction in cash doesn't save merchants much money. But what if it goes the way of digital TV, and there's an “analogue switch-off” when the legacy wonga becomes worthless? Who should pay to complete the transition? What about the last few people who still want to use notes and coins, and therefore waste everyone else's money on cash registers and ATMs, security transport and jammed vending machines. Back in 1997, I wrote (in an e-cash fanboy piece for the New Labour think-tank DEMOS) about this issue.

Technorati Tags: costs, e-purse

Low fat hazelnut frappachino on credit

[Dave Birch] Costa Coffee is going to launch a prepaid card in the UK, following a 22 store pilot which saw a tenth of customers sign up for the combined prepaid and loyalty offering. This isn't the first tall skinny card with vanilla essence. I often use the US Starbucks card in case studies and workshops. Now it it is coming to the UK as well. And it will be internationally interoperable, sort of like, well a Visa for the hyperactive. We've often discussed the potential for a retailers' assault on the retail payment franchise, so this should be one to follow. One boring note though: since the card will work in the UK, US, Canada, Australia and Thailand then it must one of those old-fashioned stripe cards.

Technorati Tags: credit cards, e-purse, loyalty, payments, prepay, retail

Guido Mangiagelli, Visa Europe

[Dave Birch] The latest podcast is a discussion of Visa's strategy for contactless payments in Europe.

Technorati Tags: contactless

Adam Smith, Squidcard

The latest Digital Money podcast is Adam Smith of Squidcard. Adam thinks that a contactless electronic purse is a good idea, so he's going to launch one in London.

Technorati Tags: contactless, e-purse, payments, podcast

Innovative Italians

[Dave Birch] I've been in Milan for a client, running a workshop for bankers, which gave me a chance to catch up on the Italian payments world. One of the ways in which it is interestingly different from the UK market is the rapid growth of prepaid cards here. The Post Office (Poste Italiane) has three-quarters of the market with its Postepay card which is based on the Visa Electron platform. It has more than 2 million cards in circulation already and 20,000 new ones are issued each week. Why is prepaid so successful here?

Technorati Tags: banking, prepay

Coin-operated laundry

[Dave Birch] An article in last month's Financial World (not available online) set me thinking. One of the key issues in designing new electronic payment systems is balancing the privacy of transaction counterparties (which may be a social good, even if neither of the counterparties cares one way or the other) with the legitimate requirements of law enforcement. But the article on Money Laundering says that the biggest recent boost to global money laundering is not hawala or pre-paid mobiles, but the euro. The fact that launderers can stuff 500 euro notes in their underpants, and zoom around Europe spending and depositing, helps them enormously.

Technorati Tags: cash, costs, privacy

Cashless country

[Dave Birch] Channelnewsasia.com reports that Singapores InfoComm Development Authority (IDA) is working on a project together with industry players like the Land Transport Authority, NETS and EZ Link to produce a national e-purse. They have developed a new national standard, known as the Contactless E-Purse Application for Singapore (CEPAS) and have persuaded the relevant key players to adopt it. They say that expect it to be in operation in 2010 and generating $50 billion in transactions.

They could be right. For a start NETS, a key player in the financial sector, has plans to roll out CEPAS compliant Combi CashCard for mass market use later this year. Like all CashCards managed by NETS, it will be jointly issued by local banks. Ms Jocelyn Ang, General Manager for CashCard and Financial Transaction Processing, NETS, said, "CEPAS is a specification that enables NETS to offer unmatched convenience for Singaporeans, by allowing a single unified payment system for the public transport, retail and motoring".

Technorati Tags: cash, contactless, e-purse, mobile

Payments and profits

[Dave Birch] I was reading a report in Finextra concerning a detailed study of the Dutch banks ABN Amro, ING, Fortis, SNS Reaal and Rabobank which reported that gross profits of EUR3.996 billion on all payment instruments were more than offset by EUR4.019 billion in costs. While small differences between big numbers are not always an accurate snapshot, this net loss on payments transactions caught my eye. The loss wasn't across the board: business payments generated net revenues of 700 million euros, consumer payments net losses of 640 million euros. The study was paid for by the Dutch central bank and the Dutch Association of Banks.

Technorati Tags: banking, costs, payments, SEPA

Cashless moneybox

[Dave Birch] The BBC's Money Box programme had a report about the RBS/MasterCard pilot of PayPass contactless debit cards in Edinburgh. I heard it on the radio on Sunday evening. The report was, I have to say, very positive. It definitely reinforced my feeling that something different is happening in retail electronic payments.

The one concern that was expressed by an interviewee was security, but the use of the extended EMV risk management parameters (eg, the offline "noCVM" counter) appeared sufficient to overcome the fears. Yes, I know the general public aren't especially familiar with EMV risk management parameters, but they were interviewing bank staff who had been using the contactless debit cards.

Technorati Tags: cash, contactless, debit cards, security

Micropayments

[Dave Birch] I've been reading a report on micropayments from the Federal Reserve Bank of Phildelphia (except when England were playing Sweden, of course). It concludes that the primary vehicles for electronifying micropayments in the US will be the existing payment card networks (which I'm not absolutely sure about) but outside the US both smart card and phone-based micropayments could be more important (which I'm pretty sure about) It does, however, say that the US is approaching a "tipping point".

Technorati Tags: e-purse, micropayments

Tfl E-Money

[Dave Birch] There's a new digital money podcast up: I'm talking to Will Judge, the Director of E-Money at Transport for London.

Technorati Tags: contactless, e-purse, travel

The Cash Menace up North

[Dave Birch] Linkdump points me to a speech by the Governor of the Swedish Central Bank who was (correctly) moaning about cash. Interestingly, given my proposed tabloid campaign, he specifically factors the cost of criminality into the cost of cash. There can only be one (cost-based) conclusion: end the unfair cross-subsidy of cash and make it compete with e-payments fairly and squarely!

Technorati Tags: banking, cash, costs

My generation

[Dave Birch] Technologists (and I include myself in this category) generally tend to overestimate the short term impact of technology but underestimate the long term impact. This is as true in payments as in any other sector: we tend to assume that because technology B is “better” than technology A it will automatically supplant it. Yet there are many entirely non-technological reasons for things being the way they are.

One of the key reasons seems to be that new technology is deployed in support of existing business processes. It's long time since transistors, laser beams and computers arrived in London yet it still takes three days to clear a cheque. Technology has been used to “digitise” existing processes and mechanisms (banks, clearing houses, settlement cycles and so on), not to support more efficient or more effective processes.

This is why the next generation of digital money will be different, because it will bring the bastard son of BPR (business process re-engineering) and non-bank competition to bear on the payments industry.

Technorati Tags: e-purse, predictions

Echoes of Mondex

[Jane Adams] Transport for London has put on ice its plans to use the Oyster card for low value non-transit payments for items such as coffees and newspapers, reports the London Evening Standard today. The plans were canned after TfL failed to reach agreement with a financial sector partner over terms. The Standard quotes Will Judge, project manager at TfL as saying that they were unable to agree on a system that would cost retailers less to accept than existing credit cards.

Getting it out in public

[Jane Adams] As I was up in Edinburgh over the weekend, I took the opportunity to look out for parking meters offering mPark's mobile parking service. There were certainly a good number of mobile enabled meters, especially in the business areas of the city centre. Here's how the system works.

UK downloading payments market

[Carl Olav-Scheible] PayPal and Datamonitor have produced “The PayPal Digital Content Report”. It predicts pending on downloads will reach £1.7 billion in next five years; music downloads to grow ten-fold by 2010 and will account for 15% of all sales. Spending on internet and mobile phone downloads and online gaming could account for as much as 10% of all online retail spending in the UK by 2010. The biggest growth areas for digital downloads are the mobile and music industries, which will account for 89% of all consumer spending on digital content. However, by 2010, film downloads and online gaming will have become substantial markets and the e-book sector is also expected to be showing early signs of development.

Technorati Tags: internet, mobile, payments, predictions

A few highlights of the first day

[Half dead from London]  Apologies but I couldn't resist that. Conferences are tiring. Anyhow, here in no particular order are some of the points raised at the first day of the Digital Money Forum that particularly engaged me.

In London, we get mugged for our mobiles. As Vodafone's Susie Lonie showed, in Kenya, mobiles and the M-PESA scheme is making life a lot safer for people, especially in the areas of Nairobi where carrying cash in best described as unwise. The system is currently in the sixth month of its pilot phase and already £24,000 is being transferred through the system each week.

Bernard Morvant, Peppercoin

[Live from London] Bernard Morvant from Peppercoin presented on building a world of small payments by linking issuing banks, card networks, processors & acquirers, merchants and consumers.

Technorati Tags: credit cards, debit cards, internet, payments, micropayments

End the cash menace now!

[Dave Birch] Surely, the e-payments industry should adopt the same approach as other more mature industries, such as Hollywood: don't innovate, legislate! But how to ban the competition? We need to get the tabloids on our side. The hopeless heisters have given me an idea. If we remind the general public that cash is the reason for most armed robberies, that most drug deals take place in cash, that cash can carry Bird flu and that terrorists can use cash to avoid being traced, then they would be agitating for it to be banned! Let's start a campaign in the Daily Express and the News of the World: End the cash menace now!

Technorati Tags: costs, e-purse, payments

Mobile Payments and Microfinance

For the last couple of years, CHyp has been working on a mobile payments and microfinance project for Vodafone. It's called M-PESA, and it highlights the way in which digital money can really make a difference. There's going to be a presentation on M-PESA at the Forum this year, but I thought I'd also use it to bring out a few points about digital money for discussion. Some of them were covered in an article that Dave Birch and I wrote for the Journal of Internet Banking and Commerce.

Party like it's 1999: Part 1

If you ask people if they would like to use their mobile phone to pay for things, they generally say yes. But when they have to sign up for a service that means that all they have to do in Starbucks is log in to a service using their phone, punch in a bunch of different numbers (and yet another PIN) in order to pay $2.75 for a coffee, they haven't proved enthusiastic.

Technorati Tags: credit cards, mobile, WAP

No-one knows anything (including me)

As everyone and his blogger has been pointing out, it's a decade since the treasured first edition of Bill Gates' <