The Disintermediation of Business Banking

architectural design architecture banks barclays

I recently had the pleasure of “attending” the LendIt Fintech – Europe 2020 virtual event.  Now, much of the content covered banking services for Small and Medium Enterprises (SMEs), an area that personally I’m not particularly familiar with, but one that is gaining more focus in the news of late.  One thing that struck me was the potential disruption of traditional business banking brought about by open banking.

Contact-free public transport (Part 3)

person holding smartphone

This is the third of three blogs about technologies to support contact-free use of public transport.

The radio again – I hear that the Transport Minister for England had just reported that there have been fewer than 400 fines for people failed to wear face covering on public transport. More than 115,000 travellers have been stopped and reminded that face coverings are mandatory, and 9,500 people prevented from travelling.

Contact-free public transport (Part 2)

photo of a bus

This is the second of three blogs about technologies to support contact-free use of public transport.

Public transport operators have been making great efforts to make public transport safe during the pandemic. TfL recently launched a new app that makes it easier for passengers to plan their travel and avoid routes where they might come close to large numbers of people. There are claims that the rate of uptake of contactless by passengers has increased significantly since the pandemic and the demand for contact-free transactions on public transport. Visa recently offered a graph relating to global public transport contactless transactions. However, it is not clear what the actual contactless usage is since they are hidden behind month-on-month percentage increases which look enormous when the previous months had fallen off the proverbial cliff.

Contact-free public transport (Part 1)

buildings city clock downtown

This is the first of three blogs about technologies to support contact-free use of public transport.

I heard on the radio that, despite ministers encouraging people in England back to work in their offices, most are staying at home. Commuter trains are about one-third full and buses are about 40% full. During the COVID-19 pandemic, demand for public transport fell off a cliff as governments told their people to stay at home.  A major part of encouraging travellers to use public transport is the provision of systems that allow social distancing of passengers from staff, ideally eliminating the need to exchange physical tickets, cash and paper receipts.

Payment card issuance errors leave you vulnerable to fraud

Major payment cards

As Consult Hyperion, and as many other analysts, predicted, Covid-19 has driven the adoption and use of contact-free technology at the point of service. A recent survey funded by the National Retail Foundation, found that no-touch payments have increased for 69 percent of US retailers surveyed, since January 2020. In May, Mastercard reported that 78% of all their transactions across Europe were contactless.

Fraudsters are always looking for ways to take advantage of potential weaknesses or even inexperience in new payment devices. A recent news story promoted a man in the middle attack in which two phones are used to transfer and manipulate the transaction message between a stolen contactless card and the point of sale terminal.

Contact-free and App Clips in Apple’s iOS 14

pexels-photo-887751.jpeg

The Use of Contact-free is Accelerating

At Consult Hyperion, we have already seen the pandemic accelerate the adoption of contact-free payments in the face to face environment as customers have become wary of catching COVID by touching shared devices, such as self-service terminals and PIN pads.  The use of personal devices for payments is hardly new but the attraction of an in-app/in-store version of mobile payments, whereby the consumer uses an app on their own device to interact with the retailer or service provider and pay for services, has just increased dramatically. Solutions for parking (RingGo) and for restaurants (like the Wahaca app, powered by Judopay) were already demonstrating the benefits of such an approach for customers and businesses before COVID struck.

City Currency

The pandemic has revised interest in a topic that has surfaced repeatedly in Tomorrow’s Transactions events over the years, and that is the issue of local and complementary currencies. The Bristol Pound, the Brixton Pound, the Lewes Pound and many other experiments have sprung up around the country (indeed, around the world) to try to stimulate and regenerate local and regional trade and prosperity in response the changing economic circumstances. We tend to think of currencies as being instruments of the nation state but that’s actually a recent invention in the great scheme of things. There’s no reason to see optimal currency areas as inviolable laws of nature rather than transitional borders under prevailing monetary and financial arrangements.

Paying for Transit

I recently presented at the Transport Card Forum 2017 in Birmingham. The subject I was asked to speak about was “How will we pay for transit in the future”. Knowing how slowly things move in the transport industry, the easy answer would have been, exactly as we pay now.

However, I thought it would be more helpful to assume that the answer is not cash, and to survey the categories of payments available and emerging today and put them into the context of paying for transit.

The direction of travel of the transit ticketing industry is to use Account Based Ticketing (ABT) and so I further assumed that ABT lies at the heart of any solution. Next, the travelling customer has a choice of media used to identify them to their payment mechanism.  This is ring 1.

ring1

These customer media can be categorised as either open- or closed-loop. Open loop means that they can be used to make payments generally, whereas closed loop means they can only be used within the transit ticketing scheme.

closed-open-loop-payment

Next comes the ‘authority to travel’ and ‘time of payment’ rings. Either the customer pays for authority in advance (e.g. season ticket) or they pay for it at the time of travel (e.g. pay on a bus or train) or they pay later. ‘Authority to travel’ might take the form of a ticket, but increasingly there will be no tickets issued. These are rings 2 and 3.

Time-of-payment

Finally, the outer rings (4 and 5) were added to show what kind of account might be used and how these relate to existing models such as those from the UKCA for the use of contactless bank cards in transit.

Models

The UKCA models on the left-hand side have been discussed in previous blogs. Models 1 and 2 are what are being used in the UK building on what was achieved in London on TfL between 2008 and 2014. UK buses are now implementing Model 1 (and some are implementing parts of Model 2). Transport for the North (TfN) is implementing Model 2 for the whole of the North of England. Model 3 seems to have been abandoned as too hard to run in parallel with the other models. Perhaps other technologies will continue to dominate, such as bar code and ITSO smartcard ticketing for Pre-purchased authority to travel on national rail. Perhaps there is no need for a third way?

But what about those unable to use, or who do not wish to use, their own contactless bank cards? The right-hand side shows the equivalent models needed for them. As the figure below shows, there are two options for them, Either:

  • They fund a pre-paid transit account (a bit like loading value to an Oyster card, but value is loaded to the account instead for ABT. Or …
  • They allow payment to be taken directly from their payment account outside of the transit scheme. Payment is claimed from an open-loop account such as a payment card, bank account, online wallet (PayPal, Google Wallet, etc.).

The challenge for the latter option is that the transit scheme will struggle to manage the risk since the cannot tell whether the payment account has funds in it to pay for travel. Therefore, the preference at this stage is likely to be for for pre-paid transit accounts. And, therefore, this is what is likely to be chosen by TfN and other places as their solution for those not using bank cards with ABT schemes.

Focus-on-closed-loop

Thanks are due to my colleague, Alex Lithgow Smith, for developing my original idea of the rings showing aspects of payment in transit.

Give the public what they want

Well, this is interesting. On the very day of Consult Hyperion’s 20th (yes, 20th) annual Tomorrow’s Transactions Forum to discuss the future of secure electronic transactions and much besides what should fall through the internet tubes but the fifth annual “ING International Survey Mobile Banking 2017 – Cashless Society“, which surveyed nearly 15,000 people across 15 countries, and found that one in five (21%) people in Europe now rarely carries physical notes and coins, and a third (34%) would go completely cashless if given the choice.

Gin and contactless, one of my very favourite combinations

Gin and contactless is my second favourite cocktail (after the Moscow Mule).

Like those 34%, I’d like to be given the choice, but there are still places that won’t accept cards (such as the Real Ale bar in Wembley Stadium) which is why I went to the gin bar instead (as shown above). But these are becoming fewer and farther between, and not only in London.

“Dr Michael Collins, assistant professor of Social Policy at the University College of Dublin, tried to live without cash during one month to see if Ireland could become cashless in a near future and follow the example of its Scandinavian neighbour. His investigation demonstrated that almost all transactions can be done without banknotes and coins, except for some small value transactions, such as a coffee in a train.”

Cash is not replaceable

Ha! Even on Southwest Trains you can pay using contactless cards or Apple Pay and, when the new Chinese owners take over later this year, I imagine that Alipay and WeChat will be on the menu too. When do we get to wave goodbye to cash in Woking then? Well, sadly no time soon because while the trains have contactless, the ticket machines don’t (and I shouldn’t have to go to ticket machines anyway, but that’s a different point). But in ten years? 20 years?

“Gala Casino used linear regression on cash usage data from 2004 to 2014, which saw a drop from 71% to 53%, and Payments UK predictions for 2024, to arrive at its guesstimate that 2043 will be the year in which the number of cash transactions reaches zero per cent.”

Britain to go cashless in 2043?

I would imagine the graph turns out to be show cash asymptotic to zero rather than zero, but while I’m not sure that the number of “cash” transactions will ever reach zero, because some people will always want to use some form of immediate and anonymous payment system, I am sure (as I told the BBC’s “Wake up to Money” chap when he called to invite me on this morning) that William Gibson’s words in “Count Zero” are prescient: “He had his cash money, but you couldn’t pay for food with that. It wasn’t actually illegal to have the stuff, it was just that nobody ever did anything legitimate with it”. By 2043? Sure. But rather than just let it happen, we really need to set a national policy about it.

“Reducing cash doesn’t mean big savings, but removing cash does, and without an actual national policy on this, the benefits will go to the middle classes at the expense of the poor. “

via There you go bringing class into it again | Consult Hyperion

Therefore another vision for 2043 might be that cash becomes a class issue, where the middle classes never see cash from one week’s end to the next (except for the purpose of aiding and abetting tax evasion by paying the builder in £50s) but the underclass, trapped in cash, are excluded from the world of bank accounts and cards. This will be a good topic for discussion at this afternoon’s excellent expert panel on inclusion chaired by our CEO Neil McEvoy with Katie Evans (Money and Mental Health), Susie Lonie (who has years of experience in emerging markets), Elizabeth Duke from Carta Worldwide (who build pre-paid schemes for the unbanked) and our very own Paul Makin (the man who did the original feasibility study for M-PESA). Great stuff.

Dominating the city centres in the next five years

On 25 January 2017, I moderated a panel discussion at Transport Ticketing Global 2017 entitled “which public transport technology solution will be dominating city centres in the next five years”.

On the morning of the event, I get together with the panellists to consider how the discussion might go. I start to think about my experience of the past as a proxy for the future. Past performance is no guarantee of the future, I know, but my mind races:

In the 1990s, things started to move from paper and plastic tokens to smart card-based solutions. ITSO was born. In 2005, we worked with ITSO and the DfT to assess the suitability of ITSO for a national travel e-purse. We were asked by the DfT to help develop Part 11 of the ITSO specification in order that ITSO could be made more suitable to an online world and not require every reader to contain an ISAM.

In 2005, we worked with DfT to help them understand how their planned new smart ID card and driving licence might be used to modernise life for citizens in the UK. In 2007 we worked with DVLA on their planned pilot of smart driving licences to be issued from their new production plan in Swansea. UK gov decided not to issue any smart driving licences.

In 2008 we worked with DfT to determine the benefits and costs of a national smart ticketing infrastructure. In the same year, we ran a trial of how ITSO tickets could be supported on the primitive NFC phones available at the time. Mobile was going to be the next big thing. Also in the same year, we started working with TfL on how Open Loop ticketing could be deployed across the whole of the London Oyster reader estate.

This was nine years ago. We worked with TfL for seven years on that project, from specification of the readers and revenue inspection devices to designing the end-to-end security.

In 2012, TfL launched Open Loop ticketing on buses. In 2017 (approximately five years later) we are seeing the large bus operators outside of London launching their Open Loop ticketing systems, as well as collaborating with Transport for the North on a multi-modal, multi-operator solution.

I’m back into the room. The panellists and I quickly agree that the answer to the panel discussion questions is, pretty much, that the same technology solutions that are dominating now will be dominating in five years’ time, because of the slow speed at which the industry moves. There is a lot of work going on under the surface, but it takes years to emerge. I am sure that Account-based ticketing is coming next and some of that will be Open Loop. Various operators across the globe are talking to us about this at present.

A final example, last year we conducted a study on beacons for Be-In Be-Out (BIBO) style transit ticketing.  Our research showed that the industry has been looking at this since around 1997. There are still very few examples of it being successfully used, and yet it is still regularly cited as one of the next big things.

In April this year, Consult Hyperion is celebrating 20 years of annual Tomorrow’s Transactions conferences. I will be chairing a session on Transit ticketing on the second day about what is coming next. Confirmed speakers include:

Come and hear what they think is coming next. I expect we will have to look beyond five years.


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