Living abroad, with tokens

digital wallet app on smartphone

Living abroad, with tokens.

I have just completed a three-month stint building our business in Australia, and expect to return for a similar period in the near future. How were payments, for me? The first thing to note (to coin a phrase) is that I used no cash whatsoever and don’t recall seeing anyone else either. All retail payments, including transport payments (don’t knock commuting if you’ve never travelled to work on the Manly ferry), were via my Apple Watch, so no PINs, either. (Australia is online PIN, so if you do use an old-fashioned card, you’re unlikely to ever have to insert it into a reader.)

Of course, virtual cards, as wielded by (for example) Apple Pay and Google Pay, present tokens (Device PANs) as an alias for the Primary Account Number (PAN). This ensures that the issuer is able to block fraudulent transactions that could present the Device PAN from somewhere other than the relevant wallet (for example, during a standard e-commerce checkout).

Living and working abroad for three months requires payments for things beyond the usual touristic or business travel items—for example, rent and utility bills. Credit cards are not particularly well suited to many of these payments, with the requirement for recurring (and, sometimes, variable) payments, returnable deposits and so forth. Further, in Australia, it is standard practice for credit card payments for these kind of transactions to attract hefty surcharges. And, of course, forex charges and spreads apply.

What would have been better, would have been to have an Australian bank account and use all the domestic money transfer facilities. The trouble was, I didn’t have much idea of eligibility criteria (such as long-term residency) or how long KYC checks would take (especially without an Australian Tax File Number or driving licence, etc). Fortunately, there is a partial solution.

A number of fintechs (I used Wise) enable you to set up an account in your home country and then create (or have created, automatically) linked accounts in many other countries. Thus, I acquired an Australian BSB (Bank-State-Branch, equivalent to UK Sort Code or US/CAN Routing Number) and Account Number, exactly as any long-term resident.

In essence, the BSB/Account Number combination is a token representing my (UK-based) relationship with Wise. Just like a Device PAN, it enables a class of transactions, using a convenient digital representation; and also limits the scope of transactions; e.g. preventing anyone misusing the token from raiding my Sterling or US dollar funds.

One current limitation is that I cannot use the Australian bank details to set up a further level of indirection, that is, to use an Australian PayID, which would enable me to use a convenient handle, such as my mobile number, in place of hard-to-remember bank details (and, in fact, enable account portability). As well as providing more convenience, like other forms of token, this improves security, by making it less likely that someone impersonating me, and requesting payment, can pass off bank details which they control.

It would be nice to go one further step, which would be to use PayTo, the service set up by Australian Payments Plus, using the New Payments Platform (NPP), to manage payment relationships via mobile apps provided by banks and fintechs. I hope Wise (and others) are working on that. Then, a digital nomad could truly fit in!

Finally, a related grouch: I was frustrated, on a number of occasions, by useful apps not being available to people, demonstrably present in the relevant country, with an Apple ID associated with a different country. One example was my mobile provider; the obvious way to top up an account would be via their app, on a phone carrying their SIM, one would have thought. It was not to be, unfortunately. The same issue occurred with a government app and a newspaper app. Conceivably, I could have created an additional Apple ID or temporarily changed my residence details on the existing Apple ID. You’ve got to me braver than me to do that!

Identity really is the new money

close up of hand holding text over black background

Today is International Identity Day supported by the many organisations around the world seeking to address the huge inclusion issues caused by a lack of digital identity. It is tempting to think that this is a mainly developing world issue and that in the developed world the lack of digital identity services is more of an inconvenience than a real problem. Here in the UK, however there are still up to 5m people who struggle to access financial services because they do not have the right documents or data. More on that in our recent report.

Something I’ve been thinking about quite a bit this year is interplay between Digital Identity and Central Bank Digital Currency (CBDC). What’s that got to do with the pressing need to give effective digital identity to those that need it most? Two things really:

  • Firstly, a significant factor in the development of a CDBC will be to ensure it is inclusive. After all one of the main objectives in CDBCs is to provide a digital alternative to cash. The financially excluded rely on cash and so a CDBC may have an important role to play in addressing their needs.
  • Secondly, whilst the need is pressing, making it happen will take time. The UN Sustainable development goal 16.9 calls for the provision of legal identity for all by 2030. Many CDBC initiatives are operating on a similar timeframe.

The beauty of CDBCs is that, in the main, central banks are starting from a blank sheet of paper, which creates the opportunity to design something well from the start. A big problem in digital identity has been trying to retrofit it into a digital world after the fact.

Another interesting thing is that the emerging model for CDBCs has close similarities to the decentralised model for digital identity, which is the direction of travel in that space. Let me explain a little.

This following picture illustrates 2-tier model for CDBC:

Senders and receivers will have wallets that interact with each other. They will hold the identifiers (backed by private keys) that allow the parties to control the use of their CDBC value. The actual system of record will be a ledger provided by (or on behalf of) the central bank. Wallets will use tokens, which are cryptographic representations of the value managed by the ledger, which are bound to the identifiers (and keys) belonging to the parties.

Now look at the standard model for decentralised identity:

Identity information is sent from holders to verifiers. The information is sent in the form of cryptographic credentials (you could think of them as identity “tokens”) that are bound to identifiers which can be checked in a registry. Of course for those credentials to have any value they need to come from a trusted source – an issuer.

So you can see there is a strong correlation between CDBC and decentralised identity systems. The content of the two grey boxes is basically the same.

Furthermore, CDBC systems will have some very particular digital identity and privacy requirements:

  • There will need to be controls in place to prevent AML.
  • The CDBC must not become a mass surveillance system.
  • The system must allow anonymous transactions in some circumstances but not all.
  • Users must have control over how much data is shared (and in some cases if the user is not willing to share data the transaction will not be able to be completed).

These requirements could be met very well through the use of decentralised identity technologies such as those being developed in W3C, which support the presentation of verifiable identity information whilst employing strong privacy controls. There seems to be a strong case for the CDBC community to collaborate with the identity community. We have a foot in both camps and are working hard to ensure that the years of work put into decentralised identity is leveraged effectively in CDBCs.

It really is the case that Identity is the New Money.

CBDCs – wallets, liability and acceptance

illuminated cityscape against blue sky at night

CBDCs are everywhere – and nowhere. Everyone is discussing them, but almost no one is actually deploying them. Sure, this is in part due to the early stage thinking that is going into working out what is actually required but it’s also due to the tricky business of actually working out how they would be implemented. Developing a retail payment solution is a lot harder than creating a Central Bank backed payment instrument.

Will 2022 start to drive the future of Interoperability and Inclusion?

close up shot of a calendar

Our overriding theme of this year’s Live5 is interoperability which will lead to inclusion. Whether this is in payments or transit, identity or as a generalised trend what we’re seeing is a collapsing of the barriers between silos. In some areas this is happening more quickly than in others.

Request to Pay’s Grand Tour

Earlier this year we were delighted to be part of the Consult Hyperion webinar on Request to Pay.  A common thread in post-event conversations that followed was an interest in the parallel developments of the UK and European flavours of Request to Pay and how they might work together.  With the launch of the European version on June 15th, we thought it an ideal time to signpost the bigger differences.

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.

The day that digital currency started

Mondex paraphernalia

We’ve just had an important anniversary. I’m sure you are all thinking of July 4th and, of course, who can forget it! It’s a date that is very important to many people because it is the anniversary of the birth of The Clash, who played their first live gig on 4th July 1976. But for me, there is a much more important and personal anniversary. Here is the front page of the Swindon Evening Advertiser from 4th July 1995. The day I finally made the front page of my home town newspaper. Got to see my picture on the cover, got to buy five copies for my mother…

MONDEX-History in the making

Yes, I was there on 3rd July 1995 in Swindon town centre when the Swindon Evening Advertiser vendor Mr. Don Stanley (then 72) made the first ever live Mondex sale. And here is the photographic evidence of same — in case you don’t happen to have copy of that Swindon Evening Advertiser — as I emerge Zelig-style from the crowd to watch Don take the e-cash. It was a very exciting day because by the time this launch came, my colleagues at Consult Hyperion, who were instrumental in creating Mondex devices and software, had been working on the project for some years (and for the first three or four years it was entirely in secret).

So for those of you who don’t remember what all of the fuss was about: Mondex was an electronic purse, a pre-paid payment instrument based on a tamper-resistant chip. This chip could be integrated into all sorts of things, one of them being a smart card for consumers. Somewhat ahead of its time, Mondex was a peer-to-peer proposition. The value was transferred directly from one chip to another with no intermediary and therefore no cost. In other words, people could pay each other without going through a third party and without paying a charge. It was true cash replacement, invented at National Westminster Bank (NatWest) in 1990 by Tim Jones and Graham Higgins. Swindon had been chosen for the launch because, essentially, it was the most average place in Britain. Since I’d grown up there, I was rather excited about this, and while my colleagues carried out important work for Mondex (software specification, development and testing for all of the core components), I watched as the fever grew out in the West Country.

Many of the retailers were quite enthusiastic because there was no transaction charge and for some of them the costs of cash handling and management were high. I can remember talking to a hairdresser who was keen to get rid of cash because it was dirty and she had to keep washing her hands, a baker who was worried about staff “shrinkage” and so on.

The retailers were OK about it.

“From a retailer’s point of view it’s very good,” said news-stand manager Richard Jackson. “But less than one per cent of my actual customers use it. Lots of people get confused about what it actually is, they think it’s a Switch card or a credit card.”

That’s if they thought about it all.

It just never worked for consumers. It was a pain to get hold of, for one thing. I can remember the first time I walked into a bank to get a Mondex card. I wandered in with 50 quid and had expected to wander out with a card with 50 quid loaded onto it but it didn’t work like that. I had to set up an account and fill out some forms and then wait for the card to be posted to me. Most people couldn’t be bothered to do any of this so ultimately only around 14,000 cards were issued.

So, why I am wallowing in this nostalgia again? Why do I think more people should be celebrating the Mondex Silver Jubilee? Well, look East, where the first reports have appeared concerning the Digital Currency/Electronic Payment (DC/EP) system being tested in four cities: Shenzen, Chengdu, Suzhou and Xiong’an. DC/EP is the Chinese Central Bank Digital Currency (CBDC).

with the kind permission of Matthew Graham @mattysino

The implementation follows the trajectory that I talk about in my book The Currency Cold War, with the digital currency being delivered to customers via commercial banks. The Deputy Governor of the People’s Bank of China, Fan Yifei, recently gave an interview to Central Banking magazine in which he expanded on the “two tier” approach to central bank digital currency (CBDC). His main points were that this approach, in which the central bank controls the digital currency but it is the commercial banks that distribute it, is that is allow “more effective exploitation of existing business resources, human resources and technologies” and that “a two-tier model could also boost the public’s acceptance of a CBDC”.

He went on to say that the circulation of the digital Yuan should be “based on ‘loosely coupled account links’ so that transactional reliance on accounts could be significantly reduced”. What he means by this is that the currency can be transferred wallet-to-wallet without going through bank accounts. Why? Well, so that the electronic cash “could attain a similar function of currency to cash… The public could use it directly for various purchases, and it would prove conducive to the yuan’s circulation”. How will this work? Well, you could have the central bank provide commercial banks with some sort of cryptographic doodah that would allow them to swap electronic money for digital currency under the control of the central bank. Wait a moment, that reminds me of something because… yep, that’s how Mondex worked.

MONDEX wallet

That was the big difference between Mondex and other electronic money schemes of the time, which was that Mondex would allow offline transfers, chip to chip, without bank (or central bank) intermediation. Offline person to person transfers. Just like cash. That’s huge. Libra can’t do it, and never will be able to because, like Bitcoin, it needs to be online to check for “double spending”.

Mondex was a window into the future of money.

That’s why this week’s special webinar is a Mondex reunion! Tim Jones, one of the co-inventors and Mondex CEO, will be joining with Debbie Gamble who was head of Mondex North America. On our side, our CEO, Neil McEvoy (who led the Mondex specification and implementation team) and Tim Richards (who designed the underlying portable, secure operating system), will join Tim and Debbie to reminisce and have a bit of fun, but much more importantly, to talk about the lessons learned from that incredible experiment, and to share ideas for the coming generation of digital currency innovators. And there may be one or two special guests…

Those who cannot learn from history are doomed to repeat it!

No Delay to SCA

Since the FCA announced a further 6 month delay in the UK’s deadline for Strong Customer Authentication there’s been a general expectation that the EBA would follow suit and relax the date for the EEA. However, it now appears that won’t happen – the 31st December 2020 remains the key date and there won’t be any further relaxation in the rules.

This hasn’t been officially announced but appears to have been the gist of a letter by the European Commission’s Executive Vice President Valdis Dombrovskis which makes clear that there’s no consideration in place for a delay and that, in the Commission’s view, the Coronavirus pandemic and the subsequent rise in e-commerce makes it more urgent to implement rather than less. It looks like the Commission is not for turning and with only a little over six months left to be prepared any merchant or payment service provider than hasn’t been planning for this is likely to be in full panic mode.

At one level it’s hard to disagree with the Commission’s position – the deadline has been shifted already from last September in order to accommodate the industry’s inability to implement in time. Although, in fairness, it ought to be noted that original requirements require a degree in semiotics to fully understand and clarifications have been fitful and, on occasion, too late. However, there’s a degree of real-world pragmatism missing from the decision – the last thing the European economy needs right now is an e-commerce cliff edge right in the middle of the busiest shopping period of the year.

The divergence between the UK and Europe also starts to raise some interesting questions. PSD2 applies to countries within the EEA and not to transactions starting or finishing outside – and as of January 1st 2021 the UK will be fully outside. PSD2 will apply within the EEA ex-UK and within the UK ex-Europe but, barring some kind of passporting agreement, not between them. One option for desperate European e-tailers may be to shift operations to the UK where the SCA deadline is a further 9 months away. Of course, the same applies in reverse: logically there ought to be a compromise, but those seem thin on the ground.

Overall, then, the message to all organisations involved in electronic payments is to assume that SCA will be  enforced from January 1st next year and any firm that can’t support it should expect to see transactions declined. Merchants and PSPs may choose or may not be able to handle SCA but issuers will be ready and won’t want to be upsetting the regulators. For any companies out there that don’t know what to do come and talk to us, we can help guide you through the process – first by helping ensure you’re compliant and then by addressing the additional friction that SCA will introduce.

It isn’t too late to do something about SCA but it does very much look like we are at the eleventh hour.

Paying for food

It feels strange to be writing about paying for food, one of the basic skills we learn in early childhood. However, these are exceptional times, when the basic notion of how we pay is being challenged. It seems we are now considering the different options for paying safely when physical contact must be kept to a minimum.

Consult Hyperion has been alerted to many requests for advice from community groups who normally rely on cash payments, so in response we have drawn up some guiding principles:

1. Maintain good practice: be aware of the vulnerability, both real and perceived, of people unable to leave their homes. Asking them to do things differently risks increasing anxiety and leaving them open to fraud.

2. Keep it simple: work with payments options people already use, and those they are familiar with. The large spike in phishing attacks over the past month highlights scammers’ eagerness to abuse this situation.

3. Maintain records: clear and consistent transaction logging is essential to protect both organisers and the people they are helping. Keep invoices for tracking and reconciliation purposes.

4. Work with existing networks: local authorities, housing associations, care providers, charities, community groups, faith groups, even village shops. The mix will vary according to the community.

5. Only allow demonstrably trustworthy individuals to handle payments: the list of people permitted to countersign passport applications could be a good starting point, but each community is different. Trust is vital in payments.

6. Keep payments and shopping separate: older readers will remember having an account with their local shop and having items added to their tally, paying the bill weekly or monthly.

7. School meals provide a good example: cards (or biometrics) are used to ensure all students have equal access to food, without the stigma attached with free school meals. Food is still served, even if the system has technical issues.

8. Take the time to discuss people’s preferences over the phone: The person receiving the shopping doesn’t have to be the person who pays. Be creative in encouraging people to contribute a little extra, or allow friends and family to pay on their behalf.

When organising payments, only use options people already have. This is not the time for a stressful sign-up process. In order of preference:

Online – PayPal, Bank Transfer, Pingit

With any new online payment, if there is a level of trust through an existing relationship, ask the account holder to send a small sum of 1p or 10p to the intended account, to check that it does arrive in the right place.

PayPal: convenient if you already have an account. Allows you to choose different sources of funds to transfer. Can be used for paying individuals as well as organisations. Includes a degree of protection.

Bank transfer (frequently referred to as Faster Payments): Despite communication from many of our banks, the full roll out of Confirmation of Payee is delayed. There is uncertainty over whether the money will arrive in the right place, so test initially with small amounts. It is irreversible. It can be performed easily via internet banking if you have the capability. Telephone banking is currently overloaded.

Some apps enable an invoice with bank details to be presented through a link to web page. This is better than simply sending requests for payments within an email, as fraudsters can’t just intercept the email and change the recipient details. It requires more effort to set up a fraud and is more likely to get spotted.

Pingit: Less widespread but convenient person-to-person payments which can be sent to a mobile number.

Contactless at the door

Using a portable reader from companies like iZettle, SumUp and Square. Apple Pay and Google Pay are good options as they allow higher value payments without the need to touch the device, if people already have the capability. Appropriate distancing must be observed.

Cheques

The householder only has to part with a single piece of paper and does not have to receive change. Cheques will have to be paid in and take a while to clear but there is very little risk of the householder absconding.

Cash

People are encouraged to avoid handling cash and avoid touching ATMs. Keeping cash in the home makes people more vulnerable. However, some people rely on cash. Where change is to be given, this should be arranged in advance and put in an envelope.

These are extraordinary times, which force us to look differently at the way we pay. Consult Hyperion have been enabling secure payments for over 30 years and we are able to apply our own Structured Risk Analysis process to understand the threats and possible countermeasures in every situation. These threats normally relate to the security of systems but in this case also encompass the risk of infection and people being left without essential supplies.

Finally

If you are reading this from home and need help, try phoning your local shop. If they are not organising deliveries themselves, they may well be aware of groups who are. Many local stores and community groups are providing help to these who need it, providing a much needed service. Get in touch with your local group.

Raising contactless limits to allow more paying without the PIN

In these extraordinary times with the need for social distancing, the payments industry is raising the contactless limits across many countries in order to prevent the need to touch PIN Pads in order to pay for our essential supermarket and pharmacy shopping.  Indeed, such is the concern over the use of cash that contactless payments are being actively encouraged over cash, with some countries, notably China and Russia[1] now requiring that cash is sanitised before it is allowed back into circulation.

The Dutch Payment Association[2] has moved to double their contactless CVM limit from €50 to €100, similar increases are being introduced by Poland; Norway; Canada; Turkey etc.  Yesterday the British Retail Consortium[3] announced that the UK too will raise its contactless limit from £30 to £45 on the 1st April.

So why do we need to wait a week? What does it mean? What are the alternatives?

First let us explain how contactless limits work and understand the difference between contactless payments in the UK compared to most other countries.  Contactless payment terminals have 3 limits:

  • Floor Limit
  • CVM Limit
  • Transaction Limit

The Floor Limit determines if the transaction should be sent online to the Issuing bank for authorisation. In the UK the contactless floor limit has been set at £0 for some time, ensuring all transactions are sent online, preventing spend from any cards that have been reported lost or stolen.

The CVM Limit is the one which is being changed on the 1st April. Above the CVM Limit a transaction requires a cardholder PIN or biometric authentication in order to be approved, which generally means a Chip & PIN transaction is needed. We are now seeing the introduction of some biometric contactless cards, but there are very few of them in the market today. By raising the CVM limit to £45 any contactless transactions below this will be sent to the Issuer for authorisation, which should result in the need to touch the POS less by reducing the number of Chip & PIN transactions.

The Transaction Limit is the maximum value that is allowed for any contactless transaction at that Merchant. This has been badly handled in the past, creating different customer experiences at different merchants. Ideally the contactless Transaction Limit should be the same as the Chip and PIN transaction limit. This then allows a contactless transaction carried out using a mobile phone, with Apple Pay or Google Pay, to be treated in the same way as Chip & PIN transactions. In the coming weeks, most payments will be made at Supermarkets, and whilst the raising of the limit to £45 will enable a higher number of contactless transactions, a large family shop will exceed £45. To be able to Pay without PIN, people should enable their cards in Apple Pay or Google Pay, this will allow them to Pay by contactless no matter the transaction amount.

In the UK, the Transaction Limit has not been uniformly implemented, in some merchants it is set to the same as the CVM Limit, meaning contactless can only happen below £30. The result has been confusion over when Apple Pay and Google Pay transactions will work and when you need to perform Chip & PIN.  POS providers and merchants need to take the opportunity of this limit change to test their systems to ensure that both the CVM Limit and the Transaction Limit are set appropriately to provide the maximum opportunity to pay by contactless.

As my fellow Principal Consultant Tim Richards points out in our video blog, other countries are using mobile apps to prevent the need for PIN – completely “Contact Free” transactions. We don’t have that capability in the UK yet, Apple Pay and Google Pay being the best options for now. We expect this to change as Open Banking progresses and payments without the need for PIN become more common.

Consult Hyperion have extensive experience in contactless and “Contact Free” payments and testing,  we will be able to help organisations ensure they optimise their payments capability to meet the needs of their customers, get in touch for more information on how we can help.

In the meantime, to avoid PIN Pads, shop below £45 or ensure Apple Pay or Google Pay is working on your mobile device, and stay safe.


[1] https://www.finextra.com/newsarticle/35509/russian-banks-act-to-decontaminate-cash?utm_medium=newsflash&utm_source=2020-3-24&member=56902

[2] https://www.finextra.com/newsarticle/35493/dutch-banks-raise-contactless-limits-for-pin-entry

[3] https://www.theguardian.com/money/2020/mar/24/limit-for-contactless-spending-to-rise-to-45-at-beginning-of-april



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