Long division

[Dave Birch] Scott Lofteness pointed me to a lovely post by Stephen Lubeen over at Credit Slips, talking about the problems of being an American traveller in a Europe that no longer accepts your credit and debit cards.

But it also presents something of a puzzle, since the effect has been to encourage me to bring more cash and not rely on my debit or credit cards when I travel. Other than train stations, this typically fixes the problem, but in a way that seems unlikely to be optimal for credit card issuers.

[From An Aside – Credit Slips]

As we were discussing here recently, this is an unsustainable situation. Something has gone wrong. Even within Europe, we seem to be going backwards while introducing new technology. At Mobile Payment Services in Barcelona, one of the lunchtime discussions was about the various NFC schemes implementing e a nice standardised, EMV-based approach to mobile proximity payments in Europe.

• In the UK, I tap my phone, enter the PIN on the POS, and then tap my phone again.
• In France, I enter the PIN on my phone and then tap it at the POS.
• In Spain, I tap my phone on the POS and then enter the PIN (for online verification).

The thing I love most about standards, as the old saying goes, is that there are so many to choose from! I used to go anywhere in the world with my Visa, MasterCard and Amex and they worked exactly the same way everywhere. My current favourite payment mechanism is the MasterCard prepaid sticker on the back of my iPhone, but maybe in six months it will be an iPhone add-on or a microSD card.

Where can we look for inspiration? How about Turkey. The Turkish payment market is very dynamic, and they have been using all sorts of implementations, mixing US MSD and European EMV, stickers and SD, cards and SIM overlays (the latest):

A launch by Turkcell of mobile payment using SIMs with flexible antennas over the coming weeks would allow it to stay even with competing mobile operator Avea. Avea last month announced with Garanti Bank plans to commercially launch a mobile-payment service in July using SIM cards linked to contactless chips and flexible antennas. Avea said it was targeting 100,000 users the first year.

[From Turkcell Considers Contactless Mobile-Payment Launch | NFC Times – Near Field Communication and all contactless technology.]

Now, one the one hand I love all of this experimentation, because I really do think that we should let a thousand flowers bloom and see what the market wants. On the other hand, this is wasting money for some of our clients, because they are being forced to invest in systems that will not exist further along the roadmap. I should stress, as always, that the problem isn't the demand.

At a Federal Reserve Bank of Chicago payments conference last week, Wences Casares, co-chief executive of the mobile payments company Bling Nation Ltd., said there is pent-up consumer and merchant demand for NFC.

[From Outlook Cloudy for Near-Field Communication Payments – American Banker Article]

I agree with him completely (and not just because he uses stickers). In all of the pilots and trials that we have been involved with, the consumer reaction has been universally and highly positive. Getting together a viable ecosystem to support this demand is, however, a real problem, and I don't see much evidence that the co-operation between banks and MNOs getting much better (although, to be fair, it may do). In the long term, everything may coalesce into a new global set of standards, but it the short term it looks as if we're going to see some interoperability problems (much to the disappointed, I would imagine, of the eSEPA Cards, Internet and Mobile Reflections Group, but more on that in a future post).

On a completely different subject, the Credit Slips report goes on to mention something in passing that I am fascinated by…

The technology is hardly the issue — my building's laundry room has been using similar cards for years, so that can't be it.

[From An Aside – Credit Slips]

Quite. In fact, as I often talk about as a case study in workshops, one of the milestones of my young life in e-payments was when I came out of a bank meeting at which I heard that there was no business case for stored-value smart cards and that the Manhatten e-purse pilot was to be terminated, only to discover that launderettes were spending $30,000 per outlet to convert to e-purses and that national chains that managed laundry facilities in apartment buildings and dormitories were doing the same. Here's an extract from a case study on laundromats that I wrote up for the Financial Times back in 1999.

There was one area where Mondex and VisaCash were received warmly in this pilot and that was in coin-operated washing and drying machines. These accounted for almost one third of total card usage. This illustrates an interesting trend not only in New York, where the Clean Rite chain has gone over to smart cards, but in the U.S. (the world's most supposedly most smart card-unfriendly market) as a whole. Mac-Gray Corp recently announced that it will convert half of the 105,000 laundry machines that it has in apartment buildings and college dormitories to smart cards. At every level, the installed base is increasing: Laundromax, for example, already has three smart card-based laundry outlets in Florida and plans to open 20 more such outlets this year.

[From Digital Money: Throwing good zinc after bad]

As Stephen says, this was years ago. Meanwhile, different schemes have been launched for parking, transit and other niches. Instead of a bank offering providing something for each of these niches, the niches have abandoned banks and done it themselves. The conclusion must be that banks simply can't offer a cost-effective and efficient e-purse solution because their cost structures, management structures and product structures simply don't allow it, and it's got almost nothing to do with business case (since the business case clearly works for the laundromats).

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