A way to embrace “over the counter” mobile money transactions

As one of the pioneers of mobile money (cutting my teeth on the initial service proposition and business model for M-PESA, way back in 2004, three years before commercial launch), I’m always naturally inclined to see its potential in a positive light. But I’m starting to wonder if maybe we need to give it a bit of a nudge – realign it, if you will.
One of the more interesting phenomena we’ve seen in recent years is the rise of Over The Counter (OTC) transactions – those transactions carried out by agents on a customer’s behalf, in many cases without any link to the real people relating to a transaction. We’ve seen cases where agents maintain four or five mobile money accounts, on different phones, so that they can spread their customers’ transactions across accounts and so avoid transaction limits.
The reasons for OTC can be various, but certainly include illiteracy, lack of appropriate language support on mobile handsets, and – fairly commonly – liability (after all, if things are going to go wrong, you want someone else to blame, don’t you?). But the obvious potential for money laundering means that this situation can be a financial regulator’s nightmare.
Of course, it doesn’t have to be this way, and there are examples of it being done properly, with even in some cases biometric authentication of all parties to an OTC transaction. Worldwide, however, this is rare.
But I digress. What I really wanted to talk about was the somewhat self-congratulatory attitude we in the industry are all guilty of at some time – after all, an industry that has grown from nothing to something more than 270 services in over 90 countries in only fifteen years is undeniably impressive. But I do wonder if we’re all kidding ourselves sometimes. I mean, sure, for the middle classes, and for many of the employed poor, it has been an amazing opportunity, and has transformed access to financial services. But there are gaps – possibly some big gaps.
As an example, I’d like to relate a recent experience. First, you have to understand that I believe you can’t develop anything new without spending time with the people who are going to be using it; so I like to go out to the field, and see what people are actually doing, not what the research tells me. Just sit and watch, and ask the occasional question. It can be very educational.
So we were working with this mobile money operator (MMO), who has a deal with an MFI for the delivery of MFI services through MM. On paper, it all looks very good, plenty of transactions, lots of people receiving loans and making repayments, all through MM. I was very keen to go to a group meeting and find out what the customers thought, how they used it, what else they did – the usual.
We turned up at the meeting, and the first thing that was happening was training from the field officer. Great. But there was a surprise in store; the training included the following advice about security: “Always keep your PIN secret. Never tell anybody. EXCEPT the Agent – you should whisper it quietly into his ear” – uh oh. The alarm bells started to ring.
And then the Agent turned up. At this point the field officer started to gather repayments, in the traditional way for group lending – laboriously entering everyone’s name into a list, checking that they have the cash to make the repayment, noting down the repayment amount, all at a glacial pace (now this is one area where investment in IT could make an immediate impact) – and then the mobile money part started. Each person making a repayment took their phone and their cash, one by one, to the Agent – who took their phone, ‘deposited’ the cash for them, then forwarded the repayment to the MFI.
There were also three loan disbursements that day, and the process was much the same: hand your phone to the Agent, whisper your PIN to him, walk away with a wad of cash.
All of these people at the group meeting are in the MMO’s books as active mobile money subscribers. So I have to ask: in what way are these people mobile money subscribers? How is this empowerment? All that I can see is that the MFI has outsourced their cash management problems to the Agent, who walks the streets with a bag full of cash. Glad that’s not me.
So there are clearly a large number of people, down towards the bottom of the pyramid, for whom the step from a pure cash environment to being asked to use a mobile money wallet or account to manage their finances is just too big. Expecting people who’ve never had a bank account to make the conceptual leap from paper cash to mobile finance in one step is asking too much. Without help many of them will never do it.
Maybe the way forward is to make the steps a little more manageable. Introduce an intermediate step. And I think the way to do that is to embrace OTC, but to do it in a way that formalises it and addresses the concerns of the regulatory authorities: give this section of customers a card, which identifies their account. Maybe secure it with biometrics, if you want. Let them visit an agent, and get the agent to do the transactions for them, but now with all transactions linked to the card/the account. Link it to their mobile phone, so that the more adventurous can see their balance via the MM service. Make sure they’re comfortable with this, and make sure there’s a migration path that leads to the full MM service over time.
After all, this is the long term migration path we’ve seen in Europe over the course of decades; the move from cash, to bank accounts, to debit and credit cards, to Internet banking and mobile payments has happened, of course; but with each step taking years or even decades. Expecting people immersed in a world of cash to make the leap in a matter of days or weeks is just unrealistic. Why should they be any different?

Footnote: Yes, the author is well aware of Safaricom’s moves to issue a companion card for the use of M-PESA for retail transactions. That’s somewhat different to the case described here, though in itself interesting.

Taking the cash out of a pop festival (literally)

A lovely story of Caledonian crime dropped in through the interweb tubes this weekend. It must have taken some balls to do it, so I have sneaking admiration for the ne’erdowells behind this one.

A cash machine has been stolen from the main arena area at the T in the Park festival.

From Cash machine stolen from main arena of T in the Park site

My son went to this pop festival, as I believe they are known, last year. I armed him with Barclaycard bPay wristband to pay for essentials whilst bopping along to the variety of popular beat combos on show. This turned out to be completely pointless because a) no-one of the stall look cards, let along contactless and b) he lost the wristband on the first day. I’ve written before about cashlessnees in these environments (e.g., my expedition to the Roskilde Festival in Denmark) and I don’t want to go over old ground again, but the advantages of getting cash out of these environments are many and varied.



I have been to many of these “festivals” myself

How the braveheart burglars got away with this one I don’t know. You can hardly stick an ATM under your trench coat and I imagine ATMs have some sort of GPS tracing device on board so it’s hard to know how you can make off with one, but there you go. It’s time for action. They should ban cash completely from this sort of event. It is nothing but trouble. From tax-evading criminal gangs running some of the pitches to thefts and losses, to massive queues for ATMs, it is a hassle from beginning to end. The only reason to take cash to pop festivals, at least as far as I can recall from my time at such happenings, was to buy drugs.

Glasonbury when it used to be cool


We didn’t have mobile payments in my day

Nowadays the kids have Venmo and PingIt and debit cards and Bitcoin and iZettle and what not so there’s no need to put them in the vulnerable position of carrying cash. The market seems unable to provide a suitable payment mechanism, like Pop-PESA or something, so perhaps the Scottish authorities should step in and follow the trail blazed in Ohio. Since banks and card companies won’t provide a convenient and safe alternative to cash for the purchase of mind-altering chemicals other than alcohol and Night Nurse, the state should.

Ohio’s new medical marijuana law proposes a new way around the bank problem. The law allows state officials to set up a “closed loop” payment processing system, similar to prepaid debit and gift cards.

From Cashless payment system proposed for Ohio medical marijuana program | cleveland.com

Why not provide prepaid pseudonymous debit cards so that they could be used for the purchase of both legitimate and illegitimate goods (not only at festivals) with a cryptographically protected link to real identity that would be revealed by the issuer only under appropriate legal circumstances (i.e., a warrant). Why is it a byproduct of buying anything at all that your identity is provided to your counterparty when it has nothing to do with the transaction? It’s for a new kind of blank debit card – no name, no number on the front, no CVV, no stripe – that can only be issued to adults.

 Knebworth 1979

We didn’t have mobile phones, so we had to talk to each other at festivals

There was a very good edition of “In Business” on the BBC recently where Peter Day visited Colorado and noted the problems associate with the use of cash (“armoured cars full of cash a common sight”). This is all because of the bizarre situation in the US where marijuana is legal in some states but you can’t use electronic payments to buy it.

But despite the legality of at least medical marijuana in many states, and the Department of Justice’s mostly hands-off approach to state-legal businesses, the federal ban still means that every financial institution serving marijuana businesses is theoretically violating anti-money laundering laws

From Pot Banking 2016: More State Ballots But Continued Unease | Bank Think

This isn’t only about marijuana and pop festivals, of course. There is a general problem around the tension between social and financial inclusion, law enforcement and regulatory environments. John Vardaman, until recently with the Department of Justice, summed this up nicely in American Banker back in April, noting that “We’ve seen large financial institutions exiting what have been deemed high-risk areas categorically. The effect is that whole swaths of legitimate businesses have been frozen out of banking”. If we are going to take the risk-based approach to all of this seriously, it means making low-value, pseudonymous payment accounts available to all.

The Bavarian Savings Bank Association and large-denomination banknotes

The European Central Bank (ECB) interest rate for bank deposits is currently minus 0.4% and economic theory would predict that at a minus rate, depositors (and this includes companies as well as banks and individuals) would prefer to hold cash rather than pay the central bank to look after their money for them. It has to be said that this doesn’t appear to have happened on a large scale yet, but clearly one of the reasons why economists are interested in getting rid of cash is in order to allow the interest rates to go further into negative territory in order to stimulate economic activity over hoarding. Now, it clearly costs something to manage cash over and above the cost of managing an electronic deposit hence it is interesting to speculate what the crossover rate might be, the modern version of the old “specie point” at which it was cheaper to hold bullion for monetary purposes rather than paper instruments.

In Germany, this calculation is being made. The negative interest rate cost German banks about a quarter of a billion euros last year, which has set them thinking about how negative the interest rates needs to be in order to make it worthwhile to store cash instead of holding deposits at the central bank. The Bavarian Savings Bank Association has already sent around a circular to their members setting out their version of the calculation. On this basis, the crossover rate is actually less than half of the current negative rate: we’ve already crossed the crossover point, if you see what I mean.

With 1.50 euros plus insurance tax for 1000 Euro, the value would be at 0.1785 percent, below the ECB’s deposit penalty rate of 0.3 percent, it said. Additional costs for CIT or additional burglary protection are not taken into account.

From Penalty interest: Unions want money rather stash in the vault – SPIEGEL ONLINE

 This isn’t really a serious calculation because, as it says at the end, it doesn’t take into account the significant costs of cash in transit (CIT) or the additional security expenditure that would be needed to guard cash hoards. But it does make a fun point, at least to me, which is that the existence of the €500 notes has an impact on that crossover rate. Clearly, if the maximum denomination banknote in Europe was (as it should be) €50 then you will need 10 times as many of them to create a hoard of the same value and that means higher costs for storage and transport. Now that the ECB has decided stop printing the 500s, banks will have to store masses of 200s, so the cost of storage and transport will be higher (which, in turn, will put a premium on the 500s in circulation so that they will trade above par). Just as an indication, two billion euros in 200 euro notes weighs about 11 tonnes.

The calculation may not be complete, but it does make an interesting point, which is that although we have passed the crossover point already, no banks have to date decided to store their squillions under the mattress rather than leave them on deposit. Oh, wait…

Commerzbank, one of Germany’s biggest lenders, is examining the possibility of hoarding billions of euro in vaults rather than paying a penalty charge for parking it with the European Central Bank, according to sources familiar with the matter.

From RTÉ Mobile – Commerzbank may hoard cash to avoid ECB charges

Why on Earth would they want to do this? Does it really make any sense? Either they will be setting themselves for the biggest robbery in history when thieves eventually get in to the vault, or they will be incurring costs that are insanely high in order to prevent this. I hope they’ve got good insurance. Or perhaps they can crowdsource the security from loyal customers, as Barclays once did in the UK.

Bank customers had to stand guard after a branch of Barclays was left unlocked for almost four hours. Even the cashiers’ service area and the route to the vault were left open to passers-by in Leigh-on-Sea, Essex, on Saturday afternoon. The blunder was only noticed when a customer went into the branch to withdraw cash and found no staff present.

[From Blundering Barclays bank staff go home… and FORGET to lock up or set the alarms]

It seems to me that the costs of transport, security, insurance and so on are actually quite high, so the ECB will be able to push interest rates further negative before it gets close to a genuine crossover point that would see banks investing in larger mattresses. If the ECB wants to have negative interest rates in its monetary policy toolbox in the long term, however, it would make sense for them to institute discussions about a practical policy on a cashless Europe, a topic that I will be talking about with my good friend Geronimo Emili of CashlessWay at the end of his NoCashTrip3 at Pay360 in Liverpool next Monday. See you all there!

There you go bringing class into it again

Cash continues to dwindle in the UK, albeit slowly. No-one really needs it any more, except to pay people smugglers, although I suppose it might find a niche amongst hipster nostalgics sort of like vinyl records. I don’t need it to buy stuff in shops since I won’t go to a shop that doesn’t take cards. I don’t even need it to provide a stream of subs to student children, since the requests and the responses all go via PingIt now. Apparently I’m not the only one.

Continued growth is also predicted in the Faster Payments Service as more consumers move to online and mobile payments. These payments will more than double over the next 10 years, with 1.9 billion one-off and forward-dated payments forecast to be made in 2025.

From Debit cards to overtake cash in UK by 2021

When you can send money, instantly, from any bank account to any other bank account it’s hard to imagine what you might need cash or cheques for. We have the annoyance of having to give out sort codes and account numbers from time to time, but PingIt and PayM allow us to send money to mobile phone numbers and I imagine that an outcome of Payment UK’s deliberations on payee confirmation may well be the creation of a database of “paynames” (i.e., £dgwbirch) to make casual instant payments even easier.

On a typical day, I leave the house with no cash. I buy my bus ticket on my mobile, I use a card at the train station (they still don’t take contactless in the ticket machines) and I use contactless cards or (more usually) mobile to buy coffee and lunch and so on. I’m quite surprised that some shops still go through the pfaff of messing about with cash, especially when I nip in for some milk and the person in front of me is buying a couple of things and paying with a £20 note that means that I have to wait while they have change counted out for them. I don’t know why they bother. Actually, some of them don’t.

Healthy high street food chain Tossed has today opened what is thought to be the UK’s first completely cashless restaurant. Two new stores in Central London have been fitted with self-service kiosks, instead of manned tills, taking payment by credit or debit card, contactless, or Apple Pay instead of cash.

From Tossed opens the UK’s first entirely cashless restaurant

I’m surprised that supermarkets don’t already have cash-only lanes so that the rest of us can zip through. In fact, I would have thought that in some areas the cashless supermarket cannot be far away. I say in some areas, because I see cashlessness as a class issue. And I can prove it…

Waitrose is set to become the UK’s first major supermarket brand to operate a cashless store, where only card and mobile payments are accepted… Five self-service checkouts in the store will accept credit, debit and contactless card payments, as well as mCommerce tools that use near-field communication technology such as Apple Pay.

From Waitrose follows cashless store trend – Essential Retail

I should explain to our foreign readers that Waitrose is commonly understood to be the most middle-class of all shopping experiences. Yes, well, OK I know it’s only the Waitrose store on the Sky campus, but it’s a start. We are nation of debit card users. The middle classes rarely carry cash and use it only for paying tradespersons off the books.

 Apple Pay !!

The Apple Store still accepts cash.

The less well off remain trapped in a cash economy that loads costs on to them for no benefits. This is certainly an issue and it demands a national strategy for cash replacement, but as we don’t have one we will see continuing bifurcation as the poor are forced to bear the costs of cash while the rest of us dump it. This is not far-fetched techno-blinkered optimism, by the way. Cashlessness has a toehold and is beginning to spread.

Alex Wrethman, owner of the Charlotte’s Group restaurant business, decided to make his most recent opening, W5, an entirely cashless affair. “We are entirely cashless, it’s cards and Apple Pay only. There’s no going to the bank. There’s no cash on site which takes about two and a half hours a day to count. We reduced our insurance as we don’t have cash handling and the opportunity for theft is not there,” he says.

From Welcome to a cashless future where retailers recognise our faces | Guardian Small Business Network | The Guardian

Now I suppose this policy might deter the occasional oligarch or drug dealer but I shouldn’t imagine the general public much care, since anyone who can afford to go to the restaurant will have a  card, phone, bracelet, hat, badge or whatever.

Wrethman is passionate about cashless businesses and believes it is the way forward. He also says most customers “don’t care” as most use their cards or Apple Pay regularly anyway and prefer better prices as a result of cuts in administration.

From Welcome to a cashless future where retailers recognise our faces | Guardian Small Business Network | The Guardian

That last point is really telling. As has often been pointed out, as cash usage slowly dwindles, it doesn’t result in much of a saving for retailers. But when cash stops, the retailers can throw away their cash drawers and reconfigure the point of sale, reallocate staff away from dreary reconciliation and cancel the security guards. 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. 

Contactless bank cards not safe

According to Katie Morley from the Telegraph:

Millions of passengers across Britain could be left stranded under plans for every bus in Britain to go cashless despite widespread security fears over contactless technology.

She goes on to say:

Which? said that despite nine in ten of its members owning a card with a contactless option, 40% of them had not used it for at least 12 months, opting instead to pay via chip-and-pin.

This is odd, because TfL has found that in London, c. 25% of journeys are now paid for using contactless bank cards rather than Oyster or paper tickets.

She also asserts:

Busses in Scotland and Northern cities such as Manchester, Leeds and Sheffield are looking to copy London busses which do not allow travellers to pay by cash onboard, according to plans outlined in a major report by the UK Cards Association, a body which represents the payments industry.

This kind of justifies her headline:

Millions of travellers could be stranded under plans for every bus in Britain to go “cashless”

Except that it is not true. Yes, our work at TfN has plans for rolling out modern smart ticketing technologies across the north of England. Yes, there are current plans for contactless payments cards to be accepted by the largest bus operators across the UK. But they have not committed to banishing cash from buses like London has.

And when London did stop accepting cash on buses, were millions stranded? No.

Open-loop payment in transit

In my previous blog, I talked about the trends in smart ticketing systems leading to account-centric and open-loop payments which I want to consider in more detail in this blog.

‘Open-loop’ Payments

‘Open-loop’ is the term used for transit payment instruments which can also be used for generic payments outside of the transit system. By contrast, traditional transit payment smart cards (such as Oyster in London) have required customers to convert their money to transit-only funds stored in a transit account and used to pay for travel. Customers have been prepared to do this because of the benefits of speed of access to the transit system without having to stop to purchase tickets. However, the down-side is that they have to periodically load funds to their CTCs, such funds then being unavailable for other purposes unless a refund from the CTC is sought.

There are many payment instruments emerging, but the one which is currently most ubiquitously accepted by merchants is EMV, the smart debit and credit standard used by the large payment networks including MasterCard, Visa and American Express whose members are the banks. These Payment Schemes are currently lobbying the transit sector for their open-loop cards to be accepted as payment instruments within transit.

This approach has the obvious benefits that (i) fewer CTCs need to be issued by the transport operator, and (ii) customers can arrive in a city from anywhere in the world and travel using the bank cards in their pockets.

The leading example of open-loop payments in transit is London where all Oyster readers have accepted contactless EMV (cEMV) payment cards from across the globe since 2014. Other transit schemes already committed to rolling out acceptance of cEMV open-loop payments include the national OV-Chipkaart scheme in the Netherlands and MTA in New York.

UKCA Transit Framework Model

The country with the most practical experience of a large-scale open-loop payment transit deployment is the UK, and, in particular, Transport for London which now sees more than one million journeys per day using ‘contactless payment cards’, the generic term used to described all EMV-compliant contactless devices, including ApplePay.

The deployment in London was pioneering and occurred before any models existed for cEMV use in transit. Subsequently, a payment model framework has been developed by the UK Cards Association (UKCA) in conjunction with the transport industry. The Association’s members issue the vast majority of debit and credit cards in the UK.

UKCA has identified three models which are described below. Two of the models are ‘pay as you go’ (PAYG) and the third model assumes that a ‘travel right’ or PAYG balance has already been purchased.

The important point to understand is that UKCA models 1 and 2 exploit EMV payments and are therefore bound to EMV-issuing banks, which are communicated with via the Merchant Acquirer. These models are different from transit account-centric solutions which could accept pre-payment from any payment instrument, not just bank cards. Furthermore, the ‘token’ used to identify the passenger in the account-centric solutions can be either an open-loop (CPC) or a closed-loop (CTC) token.

This last point is important in relation to ‘unbanked’ passengers. It has been shown (e.g. Ventra in Chicago) that cEMV technology cards can be issued to the unbanked and used as smart ticketing ID tokens to access pre-purchased transit products.

Developing services that change people’s lives

One of the most exciting things about working here at Consult Hyperion is that you are involved in the design and delivery of services which have a huge impact on people’s lives. My family moaned when I asked the taxi driver that took us from the airport into Nairobi whether he used M-PESA. However they were soon having similar conversations as they realised how important the service is to every Kenyan they met. More recently they have accused me of being responsible for “card clash” on the London Underground and have resorted to buying shielded wallets to ensure that TfL only take money from the Oyster Cards that I fund!

Sat here as I am at the AidEx conference in Brussels, surrounded by the great and good of the Humanitarian Aid community, I feel that Consult Hyperion is on the verge of delivering yet another life changing service.

The refugee issue is a regular topic of discussion across all media. Most stories focus on the plight of the individuals walking across Eastern Europe. However there is a growing awareness of the impact of so many refugees on the local economy. For example Alex Forsyth, reporting for the BBC’s From Our Own Correspondent, highlighted that the holiday season in Lesbos has been extended, as people descend on the island to help the refugees arriving by sea.

The conversations in Brussels have focused on the need to provide aid to the refugees in the form of cash-based payments, rather than physical goods, such as rice or tents. The argument goes that if the refugees have the funds to buy the goods, then the entrepreneurs in the host country will invest in the distribution channels to ensure that the goods that the refugees need are where they want to buy them.

The trouble with cash is that it has a tendency to evaporate, i.e. not all the intended funds reach the recipient, even if it is transported into the region in 40 foot steel shipping containers on the back of a truck.  As we discovered in Nigeria the principal alternative, paper vouchers, have some major disadvantages. They are difficult to manage in large numbers; they must be printed by specialist printers; they have to be ordered significantly in advance; they have to be the right value to allow the refugee to spend all the funds in one visit to the merchant, even when the local currency is devaluing; the merchant and the agency running the scheme have to reconcile the vouchers before the funds can be provided to the merchant; and the used vouchers have to be stored in case of dispute.

Recognising this, there is growing support within the Humanitarian Aid community for the use of Cash Based Transfers (CBTs), essentially smartcard based e-money schemes, which can be rapidly established in times of crisis and in which the reconciliation process can be done automatically in the Cloud. The trials to date have focused on prepaid card schemes. But these also have significant disadvantages, since they require access to expensive payment terminals designed to operate in clean retail environments typically found in urban areas, whilst creating a huge problem with cash liquidity in the local community.

Groups of representatives from the Humanitarian Aid community under the auspices of Electronic Cash Transfer Learning Action Network (ELAN), the Cash Learning Partnership (CALP) and the High Level Panel on Humanitarian Cash Transfers, sponsored by DFID, have analysed these trials and documented their requirements for CBT solutions.

Reviewing these with the retail payment experts within Consult Hyperion it became apparent we had already developed many of the building blocks required to deliver the Humanitarian Aid community’s ideal CBT solution:-

•  A proven, robust and scalable beneficiary registration and voucher distribution service, The TAP Platform, which was used to register in excess of 500,000 subsistence farmers in Nigeria’s northern states to the Ministry of Agriculture and Rural Development’s GES voucher scheme. The transparent nature of the information stored within the system allowed us to remotely identify incorrect or fraudulent activity within the system and initiate remedial action accordingly.

•  Mobile applications which can be used to complete transactions initiated by tapping a smartcard to the merchant’s mobile phone, replacing the payment terminals and removing the need for physical cash.

•  AML/KYC compliance solutions developed for use in regions where regulatory supervision is limited, such as Somalia.

•  A group of ethical hackers who could validate the security of the end to end service.

The result is TeMS (the TAP e-Money Service), which we are launching at the AidEx conference. Our market research tells us that TeMS will make it easier for the Humanitarian Organisations to rapidly and securely deliver cash payments in areas with limited or no communications or electricity.

But there is a lot more behind that simple statement. The local community will be more inclined to welcome the recipients as they will bring income into the region. The teams delivering the aid will be able to focus on the financial awareness of the merchants and recipients, helping them to learn how to plan and save, rather than spending time reconciling paper vouchers or ensuring that there is sufficient cash in the region. Donors will have access to detailed information about who is receiving what aid and where, allowing them to respond to the growing demand for value for money information from their local media.

My hope is that my daughter, who is planning to spend time within the Humanitarian Aid Community when she graduates from medical school, will again be able to ask the people she is working with how a product Consult Hyperion developed has changed their lives.