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« What's in-store? | Main | Fit and counterfeit »

ID and payments

By Dave Birch posted Dec 23 2009 at 10:15 AM

[Dave Birch] At ID World, Jan van der Sluis from Unisys made a very good presentation pointing out that the future of payments and identity are intertwined, a point that often underlays some of the threads here and at the Digital Money blog. You might even go further and say that the future of payments is the future of identity: one could envisage -- whether you think it a good idea or not -- a simple universal payment scheme that is linked to a single universal identity, a kind of galactic PayPal in which everyone participates. There are undeniable efficiencies to such a proposition, with instantaneous and very, very inexpensive payments a key element. If all payments were effected by the change of a few bytes in a database, surely everyone would be better off?

This is hardly a new idea. The paleo-future of ID cards has often encompassed universal payments. Nothing is new under the sun or, in one case, under the Sun News, since the Las Cruces Sun-News in New Mexico ran this piece by Jack Lefler about the possibility of a cashless society more than 40 years ago:

Some bankers envision nationwide system In which a single identification card would be used in place of all checks and almost all cash.

[From Paleo-Future: A Cashless Future Society? (1968)]

Off the top of my head, I can immediately see three different ways to achieve this ancient vision:

  • decoupled debit (link the ID card to a bank account and process transactions through the bank networks);
  • multi-applications (put a bank payment application on the ID card chip), or
  • e-money (create a pre-paid natiomal e-purse that can be accessed using the ID card).

Now for many reasons, some of which I have written about before, that middle option is far from optimal because the complexity and co-ordination problems outweigh any benefit (you don't want criminals stealing ID cards, for example, when what they really want are payment cards). But suppose we decided to implement one or other of the other two?

The government could put a contactless e-purse on the national ID card as a way to kick-start the shift to cashless environments and at the same time encourage Visa and MasterCard to develop a standard decoupled debit product so that customers could associate their ID card with their bank account either directly for individual purposes or for automated reload of the purse. In the former case, I would certainly allow non-bank issuers in to the loop (provided they had appropriate electronic money licences) as this would be a way of stimulating competition in the low-value payments space. In most countries where this kind of system is used, though, it has been restricted to banks. An good example to look at it Oman.

As well as providing an alternative to debit and credit cards, the system will help government departments collect payment for their services and it will be mandatory to use the cards to pay for transactions such as fines with the Royal Oman Police.

[From Finextra: Oman introduces national e-purse system with Nets and Gemalto]

In Malaysia, the purse scheme (Touch n' Go) has long been available as a standalone card or on the MyKad national identity cards.

Currently, there are 6.08 million Touch N Go cards and 936,696 SmartTAGs in circulation as well as more than 8.9 million MyKads with Touch N Go application.

[From Touch N Go To Venture In Various Retail Segments :: Bernama.com]

These kinds of schemes are aimed at cash replacement and might be added to by some sort of decoupled debit product that is linked to the card. This is not an especially new idea again, since you can already use ID cards and driving licences to pay in some countries (eg, Malaysia with ID cards and the US with drivers' licenses.

If you live in one of 24 states that attach a magnetic stripe to their driver's licenses, you can easily transform yours into a debit card -- and save three cents or more per gallon at the gas pump in the process -- by registering it at Rollbackprice.com.

[From How to turn your driver's license into a debit card]

Both approaches are technologically feasible and they may well be economically very efficient. The reason I say this is that one of the complexities of payment products, and a great deal of the cost in creating them, is that the products combine identity management with payments. If the payment system knows absolutely who you are (because of the ID card) then it becomes relatively easy to handle the funds transfer. The identification and authentication cost would, presumably, be shared between the payment application and lots of other applications.

But would this be desirable? That's a different question and one that demands its own debate. While it is technically feasible (in fact, i would go so far as to say straightforward) to implement a payment system that could be co-located with an ID card and provide mathematical protection against "spying" (thus replicating one of the key characteristics of cash: unconditional anonymity) it is far from clear that this is either socially desirable or economically optimal.

There are two issues here that both need attention. The first is the issue of anonymity itself, and whether it is a necessary, or even desirable, characteristic of the means of exchange. The second is the issue of implementation: whether it is feasible (spoiler: it is) to implement an e-money system that can deliver the requisite degree of anonymity.

[From Digital Money Forum: Nymity vs. anonymity]

Should we make life easy and convenient by providing people with a national ID card and a national payment card? Perhaps, but if we do, we need to understand more about both the requirements and potential for the technology to deliver a much more sophisticated infrastructure than "common sense" might allow.

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

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