Digital Money

Wireless Sunday

Off to the Barclaycard Wireless Festival for the day. I don't really understand why its still called that. In the old days, when it was sponsored by O2, then calling it the wireless festival sort of made sense. But now it's sponsored by Barclaycard, they should probably call it the Contactless Festival instead. Anyhow it featured a great many very popular bands, as evidenced by the enormous crowd trying to get in.

I know it looks chaotic but in the end it only took about 25 minutes to get in. Contactless was much in evidence. Barclaycard had kitted all of the bars out with contactless terminals and were kind enough to give me one of the promotional lanyards containing a contactless card (a Visa gift card preloaded with £20) to go and try out. Which, naturally, I did. And, I have to say, it worked perfectly. As testimony, allow me to present the first beer I bought with it!

Being me, I couldn't leave it at that though, and I started to try out some other contactless paraphernalia about my person. An obvious experiment was to try my Barclaycard phone, and that worked too, but oddly it went online, which rather slowed the transaction down. I don't understand why it did this, so I'll ask the chaps when I'm next in the office.

More interestingly, I asked a couple of the bar staff what they thought about contactless and they had both positive and negative observations that I promised myself to report in a spirit of openness and balance...

Positive. It's quick, and you don't have to hand the terminal to the customer for them to enter a PIN. And they thought my phone was really cool. They also said that some customers had been paying with their own contactless cards and not just the promotional lanyards.

Negative. There were two big issues that came up in both conversations with bar staff. One was the spending limit, which the bar staff said was too low at £12 (the limit was actually £15, but the all of the drinks cost £4, so you could buy three drinks at £12 but not the advertised four beers in a drinks carrier, because that costs £16). Surely it would have made sense to have subbed the bars so that four beers plus carrier was a £15 special.

Enough of these scientific experiments (most of which I drank), and off to see some of the popular beat combos on show. Here's 47 second taster so that you can get the idea if you've never been to one of these events before.

I was reflecting on the security issue later on, because it really seemed a block. I took the time to explain to one of the women at the bar that there was no risk to her as a customer, because the UK banks' were unequivocal about unauthorised use: if someone uses your card without your permission, they will refund the transaction. Yet she was unconvinced and was clearly uncomfortable about the idea of "no CVM" purchase. This has been true since the earliest days. As I highlighted four years ago:

Among those that are not yet ready to use contactless, security appear to be the dominant consideration. Which means, of course, that whatever we might think about actual security situation we must get better at communicating it.

[From Digital Money: Contactless update]

As I don't know anything about customer communications and public information, I genuinely don't know how to cross this chasm, but I wonder if it's yet more evidence that we should be moving more quickly to contactless phones. The simple PIN code that I need to open up the mobile wallet on my Barclaycard MasterCard phone (the Samsung Tocco that I wrote about before) might well provide the reassurance that people want, even though it doesn't really make much difference to the overall risk (phones are inherently safer than cards because people notice when they go missing anyway).

Overall, the weekend's experiences did leave me with three firm conclusions:

1. Both the public and the merchants liked contactless. In this kind of environment - crowded, quick service - the technology performs very well. These were similar to the results seen elsewhere: the punters like contactless payments.

Festival-goers quizzed on the experience, said they were quicker (96%) and easier to use (98%) than credit or debit cards, while a resounding 100% said they'd want to use the PayPass prepaid wristbands again to pay at other festivals, concerts and sporting events.

[From Finextra: Contactless wristbands join wellies and camping gear as festival essentials]

2. We should accelerate the development of contactless phones, because they help with the security issue.

3. The Horrors are a good band, but not my cup of tea.

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

contactless and nfc, prepaid, retail

Dry

[Dave Birch] Having said that I couldn't see any circumstances in which I'd use a contactless card at my dry cleaners, I just did.

I went in with some dry cleaning which came to £11 or so. I took out my MasterCard and put it in the terminal, punched in my PIN and then waited a while for it to dial up and authorise. While this was going on, I noticed that the terminal was a new Ingenico i-series terminal with contactless interface. So, as an experiment, I bought £7 of shoe polish: the chap keyed in the transaction and sure enough the contactless interface lit up: I paid with my Visa contactless card which, since it was offline DDA, was instant. Excellent.

A steak in the ground

[Dave Birch] The news that Boots is going to trial contactless payments suggests that things are about to improve in that world. It's clearly important for the contactless payments sector that high street brands such as Boots are on board, although I'm not quite how it will work. I'd imagined that Boots will set aside one or two terminals for sandwiches and drinks and add contactless there, because I wasn't sure what would be gained by adding it to all of the POS locations. But I went in to Boots today and, oddly, contactless had been added to all of the normal POS terminals but not to the self-service quick-checkout areas for buying sandwiches and drinks. Nonetheless, a couple of us bought stuff and the terminals worked fine.

I asked the guying serving me what he though about contactless and he told me that customers were using the contactless terminals and that the customers who used the contactless terminals really liked it. So my random sample of one POS at one store tells me that contactless is gaining ground. Not everyone thinks this.

Much hyped contactless payments may be a long way off from becoming the norm in the UK – despite trials by retailer Boots ahead of a potential roll out at their till-points nationwide – because the recession has delayed both retailers and issuers from investing the technology, finds analyst Datamonitor.

[From Internet Retailing » Contactless payments not taking off as recession curbs retailer and bank investment in the technology]

Hhhmmm. Meanwhile,

According to Euromonitor findings, the spread of contactless card technology has continued apace on a global level through 2010, gathering momentum in markets outside first mover region Asia Pacific. Despite decreased consumer spending and tighter margins for both card issuers and retailers during the global recession, investment in contactless technology is growing as both industry and consumers realize the benefits of contactless products.

[From Euromonitor research finds contactless card growth solid despite global recession - Market Research, Analysis, and Trends Blog]

I've no way of judging which of these is the more accurate reflection of the state of play, since I don't have access to any accurate public figures on the rate of deployment of contactless terminals in the UK or transaction figures, but I must point out that I have started to see more terminals popping up in various places in London.

What remains puzzling to me, though, speaking only as an observer, is why contactless remains absent in locations where cash is a nuisance, such as the vending machines on the London Underground. I mentioned before (in the Parable of Woking) that the car park that I use most is probably lost to cards -- contactless or otherwise -- forever now, since the card slots have been disabled...

The future's so bright I gotta wear shades. People seem to happily pay the 40p convenience charge for not using cash here, so presumably there is a convenience premium for contactless that can help to spread to the technology. But wait: a correspondent writes...

"Yesterday I went to buy my weekly steak and when paying for purchases less than GBP 10, my butcher says he needs to charge an extra 50p. I really don't get this. Why is there a minimum payment? And does this not fly in the face of low value contactless payments the you guys are pushing. WTF?"

My response to this would have been to put the steak down and go and buy it somewhere else, but I can see my correspondent's point. Where does the surcharge come from? The interchange on contactless transactions (currently under GBP 15) is probably around 4p, so if the butcher installed such a terminal he would not only speed up the POS but be able to offer a reasonable deal to his customers, who want to pay with debit cards. One approach might be the "broadband" angle being considered by the Dutch (I'll blog about this shortly), whereby these kinds of smaller retailers pay a monthly flat fee to cover the terminal rental and broadband connection, and this fee includes the MSC for all contactless debit transactions, thus (hopefully) aligning the private and social costs more efficiently (it's better for society as a whole if people use debit cards rather than cash).

But how come the car park can charge 40p for not using cash and it doesn't bother me, whereas it would really annoy me if the butcher charged me 40p for buying some sausages without cash? It must be something to do with the user experience. At the station I'm not just paying extra to not use cash, I'm paying extra to sort out my parking while I'm walking to, or sitting on, the train. It's not the payment transaction that is enhanced by going cashless but the value-added around the payment transaction.

Japanese notes

[Dave Birch] I had to take a look at some aspects of the Japanese payments market for some work I'm doing for a customer at the moment and thought I would share some of the up-to-date data I found. Naturally, I'm very interested in the spread of contactless pre-paid payment products (which I'll call "e-purses" for the purposes of this post) because of the extent to which they displace cash. So how are the e-purses doing? Many thanks to our good friend Dan Balaban for putting together this up-to-date table of Japanese e-purse cards (we're only looking at cards here and not the chips integrated into mobile handsets).

Contactless e-Money in Japan (FeliCa chips)

Operator	Scheme	Cards	Monthly Transactions	POS Terminals
bitWallet	Edy	52.2	26	175,000
JR East	Suica	28.4	28.5	80,800
PASMO	PASMO	14.2	12.3	68,000
Seven & i (7-11)	nanaco	9.5	32	27,700
Aeon	WAON	13	32.9	47,000
JR West	ICOCA	5.1	1.27	68,000
Cards and monthly transactions are in millions. Card figures include applications on contactless mobile phones. Transactions for Suica, PASMO and ICOCA do not include fare collection. Contactless credit services, such as iD and QUICPay, are not included. Source: Sony Corp., Nikkei (1/10).

I also looked up the latest consumer responses on "What Japan Thinks" and found that (2/10) some 58% of Japanese consumers carry at least one of these cards and that their three main reasons for using them are:

1. Speed, as you might imagine.
2. Points! It turns out that many of the e-purse schemes offer rewards, presumably funded by the float and/or cash displacement at the retailer POS.
3. Coin replacement, because consumers don't want pockets full of small change.

As to where they use these products, the top two usage points are transit and convenience stores, just as you might expect. Hopefully, in a couple of years' time, this will be the same in London. One thing that did strike me as off the curve was that only a quarter of consumers reported using their e-purses at vending machines. I would have expected this to be higher, but perhaps that's reflecting my own spending patterns: maybe other people don't buy as many chocolate bars and Cokes on the Underground as I do. What do all of these numbers mean? Well, if you exclude transit, they mean that usage is still low.

The Japanese market is often cited as a success story by proponents of contactless and mobile contactless solutions, where consumers are estimated to make 1.8 contactless retail transactions per month per contactless device, and 4.7 customers make a contactless transaction on each contactless point of sale (POS) per day.

[From Finextra: Gartner takes a swipe at Citi mobile trial data]

Two transactions per consumer per month on average? They're not going to replace cash any time soon with that kind of penetration. What's the problem? Well, the POS terminals are expensive (we'll come back to that below) and, more of a barrier I think, there's no equivalent of "Square", so you can't use e-purses to pay each other. We can learn from this and do better in other markets that are moving to contactless, I'm sure.

contactless and nfc, mobile, retail, transit, tv

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

Where is the next NFC breakthrough?

[Dave Birch] We've all been a bit fed up with NFC recently, having got carried away on a tide of hype that didn't take into account the complexity of the relationship between banks, operators and manufacturers. This relationship does not seem to have advanced much in last year: the operators want a business case before they order handsets, the manufacturers want commitment before they invest in handset production, the banks can't see an opportunity without handsets. So no NFC>

As my colleague Neil Livingston pointed out in his workshop at NFC World in Singapore, there are actually a range of practical uses for NFC, beyond payments, where there do seem to be business cases and it was interesting to me that much more of the discussion at NFC World today in Singapore was about consumer electronics opportunities rather than just about mobile-related opportunities. So there are no handsets, but that doesn't mean there are no NFC opportunities. Nevertheless, we have to be realistic. It hasn't taken off the way that many had hoped. It's not because of the consumer proposition. The fact is, however, that in all of the pilots and trials to date, the response of consumers has been overwhelmingly positive. They like NFC. So the fact that some stakeholders have been unable to agree a basis for moving forwards in the co-operative world of "apartment" USIMs, shared TSMs and revenue sharing (GSMA model) is, I think, unlikely to put the brakes on NFC completely.

contactless and nfc, mobile, retail, smart cards, stickers

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.

prize

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.

mobile, smart cards, transit, tv

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.

contactless and nfc, prize

Technology and a dilemma

[Dave Birch] I've got into a bit of trouble with a couple of our customers for saying that stickers are the future of mobile proximity payment, at least for the next couple of years. I'm not the only person who thinks this.

MasterCard Inc. is trying to prime the market for mobile financial services by offering contactless payments stickers that consumers can attach to their wireless handsets.

[From MasterCard's NFC 'Interim Solution' - 03.31.2009 - U.S. Banker Article]

Coincidentally, thanks to my good friends at Garanti Bank in Turkey, my splendid new MasterCard PayPass sticker for my iPhone arrived today. Naturally, I went upstairs to the lab to try it out in a couple of POS terminals (it worked perfectly) and have a play with it.

Cool. Now, the reason why I said that the sticker would prosper is that

it's a simple and inexpensive way of piggybacking on the mobile without have to actually integrate anything into the phone, which I predict will bring some new and innovative solutions into the space.

[From Digital Money Forum: Stickers are the future, I'm telling you]

And this is true. But it wasn't that visionary a prediction. Consult Hyperion were also (this was two years ago, remember) already working on some NFC projects for real banks and real operators and I was already able to observe first-hand the problems that were under the surface. So one of the reasons that I was so enthusiastic about stickers wasn't the technology per se but the dynamic around the initial bank-operator efforts. What is that dynamic? Surely, a reasonable person might say, it's better to have NFC integrated into the handset so that you can do all sorts of terrific value-added services around the payment and, indeed, that is exactly what we are doing in our work for Barclaycard. Getting a bank to do something with an issuer, though, is much easier than getting all banks to do things with all issuers. For one thing, there are simply no handsets out there for the operators to choose from. For another thing, it's taken far longer than anticipated for the operators and others to agree on the standards. The most important thing, though, may be much less tangible. It's just that it's taking a long time for banks and operators, payment schemes and the GSMA, to learn to work together. They are just different beasts. It takes a lot of time, and a lot of money, for harmonise technology, business and vision.

mobile, stickers