Paying for identity

[Dave Birch] A number of industry observers in the UK expressed (eg, Kable) some surprise that the government’s estimates for the cost of the proposed national ID card scheme have gone up, despite the fact that the Home Office had announced that it was not going to build a new “gold standard” database but use some other databases (that already exist) and that it was no longer going to capture and store iris biometrics. The previous home secretary, John Reid, had said that this new approach would save money. Anyway, all of this means that the government needs some more ideas on how to recoup the cost of the scheme, especially since charging people thirty quid for the card is not a terribly popular approach. Nor is their plan to charge companies around 60p a time to check details held on the identity database. They hope for up to 770m ‘verifications’ each year. In fact, between the cost of the cards and the charges for verification, the Home Office forecast that the scheme will essentially be “self-financing through fee income” , although I’m sure if that income includes the income from fines (2.5K for not registering and 1K for notifying a change of address). I was wondering this because in the case of another high-profile local scheme, the Transport for London congestion charge, a common criticism of the scheme is that it relies on the income from fines rather than fees (and still has a 10% evasion rate). According to the publicly available figures for 2005, motorists paid £120 million in congestion charges and a further £70 million in penalty charges, but (according to an AA spokesperson)

In many cases these were not deliberate non-payers. They just didn’t understand the scheme and as a result were landed with £100 fines.

Technorati Tags: identity

There’s paying for identity, and there’s paying with identity. As I have long been advising our clients in the payment space, there will be inevitable implications for retail payments businesses once a national ID card is in place. If we look at the US, we can see the outlines of a potential disruption in payments already beginning to emerge from the gloom (fog, even) surrounding the debate on national identity. Over there, some service stations are beginning to accept the driver’s license as a payment card. A programme run by National Payment Card (NPC) gets customers to sign up by presenting their licence and a cheque. The details are scanned and from then on the customer can pay by swiping the licence and entering an online PIN. NPC processes the payment as an e-cheque with the Automated Clearing House (ACH), a network most commonly used for direct deposits. Although only 24 states currently issue licenses with magnetic stripes, NPC can of course use the same channel to add e-payment functionality to anything with a stripe on it (or at least anything with a stripe that can be read in the standard POS reader) such as existing loyalty cards. One of the first contracts NPC signed was with Flash Foods, a convenience-store chain based in Georgia, a state that doesn’t have magnetic-stripe licenses. This must be why NPC’s CEO is predicting 36,000 acceptance locations by 2010. It’s pretty obvious why retailers are signing up: a $36 traditional credit card purchase (which wouldn’t buy you much gas here in the UK, I can tell you) could cost a gas station around 86 cents, whereasa NPC charges a PIN debit-like flat 15 cent fee for each transaction it processes. Don’t forget though it doesn’t have to actually issue any cards or maintain any accounts, so that 15 cents isn’t bad.

One of the attractions for the retailers is that this bypasses schemes such as Visa and Mastercard. As has been discussed by Aneance, some thin-margin (eg, petrol) retailers in the US have started to discount for cash and are trying to persuade customers not to use cards. The National Association of Convenience Stores (NACS) reported that retailers total merchant service charge (MSC) payments increased 22% to $6.6 billion last year, which makes them the industry’s second-largest expense (and also makes them bigger than the industry’s total profit). There’s nothing sinister about their dislike of cards, they just see them as a another major source of costs.

In the US, as in the UK, the use of social security numbers and databases as national identity numbers and databases (instead of issuing new numbers and building new databases) is afoot. In the UK it is already part of the Home Office’s Strategic Action Plan, whereas in the US it is still just a proposal for the social security card to be updated with biometric information and for employers to be required to verify it with the Department of Homeland Security when hiring. Under this “Bonner Plan”, Americans would have to obtain a new Social Security card containing their photograph, a barcode or magnetic stripe containing an encrypted signature (verifiable through card readers provided by the Department of Homeland Security). If this plan comes to fruition, NPC will be cracking open the champagne because they can use their system to make payments work with an even-more-secure card that they’re not paying for.

Perhaps we should examine that kind of approach over here. If the Home Office want to find a way to charge for the proposed national identity scheme, they should be setting up their own acquirer: pre-paid or debit (against an existing bank account via ACH) only and a flat 3p per transaction. Then instead of legislating — or forcing in some other way — to make citizens ID use cards, the retailers will do it for them.

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