Category: Retail

Technology and a dilemma

3rd April 2009by Consult HyperionLeave a comment

[Dave Birch] I’ve got into a bit of trouble with a couple of our customers for saying that stickers are the future of mobile proximity payment, at least for the next couple of years. I’m not the only person who thinks this.

MasterCard Inc. is trying to prime the market for mobile financial services by offering contactless payments stickers that consumers can attach to their wireless handsets.
[From MasterCard’s NFC ‘Interim Solution’ – 03.31.2009 – U.S. Banker Article]

Coincidentally, thanks to my good friends at Garanti Bank in Turkey, my splendid new MasterCard PayPass sticker for my iPhone arrived today. Naturally, I went upstairs to the lab to try it out in a couple of POS terminals (it worked perfectly) and have a play with it.

Cool. Now, the reason why I said that the sticker would prosper is that

it’s a simple and inexpensive way of piggybacking on the mobile without have to actually integrate anything into the phone, which I predict will bring some new and innovative solutions into the space.
[From Digital Money Forum: Stickers are the future, I’m telling you]

And this is true. But it wasn’t that visionary a prediction. Consult Hyperion were also (this was two years ago, remember) already working on some NFC projects for real banks and real operators and I was already able to observe first-hand the problems that were under the surface. So one of the reasons that I was so enthusiastic about stickers wasn’t the technology per se but the dynamic around the initial bank-operator efforts. What is that dynamic? Surely, a reasonable person might say, it’s better to have NFC integrated into the handset so that you can do all sorts of terrific value-added services around the payment and, indeed, that is exactly what we are doing in our work for Barclaycard. Getting a bank to do something with an issuer, though, is much easier than getting all banks to do things with all issuers. For one thing, there are simply no handsets out there for the operators to choose from. For another thing, it’s taken far longer than anticipated for the operators and others to agree on the standards. The most important thing, though, may be much less tangible. It’s just that it’s taking a long time for banks and operators, payment schemes and the GSMA, to learn to work together. They are just different beasts. It takes a lot of time, and a lot of money, for harmonise technology, business and vision.

mobile, stickers

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London calling

16th March 2009by Consult Hyperion2 Comments

[Dave Birch] I’m a technologist so in a peverse way I rather like recessions, because (as The Economist pointed out a while back) a recession is when you see real innovation. Many successful companies got their start during hard times:

The list includes household names like Burger King, FedEx, Microsoft, Wikipedia and G.E.
[From How Will the Recession Affect Innovation? – Economix Blog – NYTimes.com]

Why is this? When things are pottering along splendidly, profits are high, no-one in a bank (or any other company) is going to invest much in anything new. The markets for innovative products are too small and the money to be made is insignficant.

Companies with overly deep pockets can flood a bad idea with money. Overly patient companies can let bad ideas linger for years.
[From Innovation During The Great Disruption – Forbes.com]

But when there’s a bit of a downturn, some companies see it as an opportunity to grab some business while competitors are retrenching to the core. This is why, I think, our payments-related work has been holding up in these difficult times. But businesses still need some inspiration to take the plunge and redirect resources away from core business. This is why that an exciting event like the London Olympics is such fun, because it serves as a spur to innovation, setting some targets for British industry to reach and make the Olympics a showcase for innovation. Oh wait…

But risk management is at the core of the IT implementation, so Pennell will maintain a conservative approach and favour proven technology, which will be customised for the Games’ purposes.
[From 2012 CIO hits the ground running – vnunet.com]

What’s the proven technology that he’s talking about? Steam engines? Television? Contactless smart cards? Well, it doesn’t appear to be the latter…

The same cautious approach applies to innovations such as contactless payments, despite the efforts of banks such as Lloyds TSB to push the idea of making the Games a cash-free environment. “Contactless is an interesting concept and we have had a few conversations around that, but my suspicion is that it isn’t something we are likely to do,” said Pennell.
[From 2012 CIO hits the ground running – vnunet.com]

So that’s that then. I hope LBG have some other innovations to excite the public with and make their 80 million pound sponsorship worthwhile. It’s just as well that their sponsorship manager says that LBG staff are inspired by Olympic history, because the Olympic future looks rather uninspiring. My prediction that London 2012 will more closely resemble London 1948 than Bejing 2008 is coming true. There’s still time for the government to re-introduce rationing to finish the effect (my Mum and Dad would love that, by the way).

innovation, smart cards

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Can contactless save content?

19th February 2009by Consult Hyperion4 Comments

[Dave Birch] I’ve always been interested in the potential for micropayments and the idea of a metaphorical “red button” on a keyboard that means “pay the owner of the web page I’m looking at 10 pence” or something similar. There are many times when I’ve come across an interesting or useful blog post, link to a magazine article or something and I would have happily paid a small amount for more detail, more links, more references. I certainly can’t be bothered to type in usernames and passwords, credit card details or to take out subscriptions though. So I have the sense — despite all of the reservations about micropayments, which I understand fully — that there is a market out there and a synergistic link between an effective low-value online payment system and a vigorous and innovative sort-of-content but also sort-of-relationship set of businesses on top of it. This view has been a minority view for some time, because the advertising-supported model came to dominate the content space. Yet, as I said last year, that model is not obviously the best solution, nor is it an immutable law of the web:

Therefore, while it is true to say that there is little demand for new micropayment mechanisms to support paid content at this time, I would not rule out a resurgence of interest in more sophisticated micropayment schemes in the future.
[From Digital Money Forum: Microebb and microflows]

While watching Jon Stewart’s Daily Show the other night, my interest was re-kindled by his interview with Walter Isaacson of the Aspen Institute. Many years ago I used to be one of the lecturers/facilitators for the European branch of that august body, the then Nortel Aspen Institute, so he caught my ear (so to speak) when he started talking about paid content, journalism and the future of news. A quick google revealed that he’d actually written a story about this for Time magazine, in which he referred to the odd paradox of content that has been noted here before.

Thus we have a world in which phone companies have accustomed kids to paying up to 20 cents when they send a text message but it seems technologically and psychologically impossible to get people to pay 10 cents for a magazine, newspaper or newscast
[From How to Save Your Newspaper – TIME]

There are some immediate explanations that spring to mind: perhaps people ultimately value communications more than content (which I believe to be true to a great extent) or perhaps the content isn’t actually worth 10 cents (which I also believe to be true to some extent, especially since I’m writing this on a train, having finished reading the free newspaper given to make at the station) or perhaps people just won’t pay for news but that means nothing for content in general (entirely plausible. But the technological determinist in me is drawn to another explanation: people won’t pay 10 cents for stuff on the Internet because they can’t, whereas they will spend $2 for a stupid ringtone on their phone because they can. Perhaps the technology is to blame. Isaacson goes on to say just that.

We need something like digital coins or an E-ZPass digital wallet — a one-click system with a really simple interface that will permit impulse purchases of a newspaper, magazine, article, blog or video for a penny, nickel, dime or whatever the creator chooses to charge.
[From How to Save Your Newspaper – TIME]

Put the news part of this to one side and ask why don’t we have this? It’s not like micromint, hashcash, millicent et al didn’t work. In fact many of them had very good technology inside them and many of them had some great ideas built in (I always liked the way that millicent, for example, changed the cursor to a “$” sign when you moved the mouse over a link that you would have to pay for). And it’s not like no-one has a working micropayment system: on my iPhone I pay for data, for voice, for applications, for text and I make 59p micropayments for music all the time. But can the iTunes example tell us any more? Clay Shirky, who has been consistently sceptical about micropayments asks a very specific question about this:

small payments survive in the absence of a market for other legal options. What’s interesting about ITMS, though, it that it contains other content that illustrates the dilemma of the journalists most sharply: podcasts. Apple has the machinery in place to charge for podcasts. Why don’t they?
[From Why Small Payments Won’t Save Publishers « Clay Shirky]

This is a good point, but is Clay right? I already do pay for podcasts — I support the Conversations Network — and, oddly, there is a lot of podcast content that I would pay for that is actually free — some of my favourite podcasts, for example, such as Dan Carlin’s Hardcore History or Skeptoid — despite the existence of a working payment system through my iPhone, so clearly there is another business model emerging as well, one that was sagely summarised many years ago by Esther Dyson as “content is an advertisement for a relationship” and it’s the relationship that is going to be monetised, not the content at all. But let’s focus on paid content for a moment. Some of the responses to Isaacson’s piece have been rather negative, and there’s no doubt that the relationship between content, journalism and the net is a complex one.

I’m not saying that problem is insoluble. Just that, as far as I know, no one has solved it yet
[From Poynter Online – Romenesko]

We can begin to look for solutions by narrowing down the options. I suppose I start from the general perspective that “proper” news is a good thing and that we ought to have some of it instead of the musing of the celebretariat.

There’s no guarantee that private demand will produce the socially optimal quantity of investigative political reporting.
[From A Voucher System for Investigative Reporting – Freakonomics Blog – NYTimes.com]

If a free press is a public good that cannot be satisfied by private demand, then it doesn’t matter one way or the other whether we use micropayments or not: we will have to come up with more radical solutions to the problem of news provision (as opposed to the narrower problem of how to save newspapers).

Newspaper readers have never paid for the content (words and photos). What they have paid for is the paper that content is printed on.
[From Op-Ed Contributor – You Can’t Sell News by the Slice – NYTimes.com]

So it may well be that news is a very special case of content and that it needs very special solutions. Indeed, I will be chairing a seminar on this topic at the Free University in Brussels on 19th March 2009 (for the Fleet project) and hope to develop my opinions further there.

contactless and nfc, internet, micropayments, mobile, stickers

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Fairy tales

30th January 2009by Consult HyperionLeave a comment

[Dave Birch] In a recent edition of European Card Review, Malte Krueger of Paysys noted that a cashless society is some way away (in fact he calls it a “fairy tale”), not because cash is more efficient but rather because the law ensures unfair competition. This is not because legal tender laws force people to use cash, as is sometimes claimed, because they do not. But there are some laws that do discriminate in favour of it. In Germany, for example, banks are simply not allowed to charge private customers for withdrawing cash. Similar laws would undoubtedly be enacted in other countries should banks try to recover any costs on this side.

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You can’t get away from interchange

23rd January 2009by Consult Hyperion6 Comments

[Dave Birch] At least as far as retailers are concerned. The ECB and the Commission’s “Action Plan” for SEPA was issued back in November and EuroCommerce (which represents wholesale and retail commerce across Europe) immediately highlighted the fact that there was still no (as they call it) “satisfactory” solution to the issue of interchange fees for either the SEPA Cards Framework (SCF) or the SEPA Direct Debit (SDD). I think we can all see what that “satisfactory” solution will be, irrespective of the economic or business case. The medium term plans for businesses in the European payments market must include a reduction in interchange. There’s no way to navigate around the reduced interchange environment, so the only option is to come up with better roadmaps through it.

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Movers and shakers

18th December 2008by Consult Hyperion5 Comments

[Dave Birch] Earlier in the year, Jacqueline Chilton from Glenbrook had a nice write up from CTIA and I remember making a note of it because of one particular point that she made. She reported on a mobile payments panel session, saying that:

In the end, there was general agreement that someone would make a big bet investment and turn the tide.
[From Glenbrook Partners: Report from CTIA – Mobile Payments Eventually]

I’m sure she’s right, because that’s the way of these things. Someone needs to be the American Express, the Apple or the Walmart that animates the new business models made possible by the new technologies. But who? If I actually knew, naturally, I wouldn’t be doing this job, but I think that some of our recent experiences might allow us to do better than random guesses or non-commital management consultancy blandishments. So here’s a bit of informed speculation. If it’s going to be a big bet investment, then it has to be a game changer, not simply the shift of some existing payment instruments over the handset.

Could banks themselves be the game changers? Other people are starting to wonder what the world might look like if banks started breaking off from the international payment scheme networks and becoming their own networks. Banks like HSBC, Citi, Bank of America could simply operate their own payment schemes: they have enough customers. If WalMart took Citi cards, that’s a lot of volume. But it’s also a different basis for competition. As the literature tell us, “two-sided” payment networks have to balance the interests of customers, retailers and banks to work. In practice, this means that the banks (who owned the networks) structure the business. One of the effects of this has been to send a portion of the merchant service charge (MSC) levied on retailers back to the issuers in the form of interchange. Banks then use some of this interchange to incentivise customers (I’m happy to say: my Barclaycard Paypass card is currently giving me 2% cashback on petrol and supermarket transactions). This is the source of a great deal of friction between retailers and issuing banks (not to mention legal action and regulation around the world).

But if a network isn’t competing to sign up issuer banks, perhaps the incentives change. This might lead to the development of real value-added services for merchants (data mining, e.g.) or to more meaningful product differentiation (not just variations in rewards programs) for consumers. In short, shaking up the structure of the payments field might encourage payment companies to do a little more thinking outside the box.
[From Credit Slips: The Visa IPO]

It seems to me, though, that banks have a quite enough on their plates at present and this kind of big strategic decision must be hovering around bottom of the list of strategic decisions that need to be made real soon now. So who else could be the game changer?

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And there’s always the free superpower, of course

11th December 2008by Consult Hyperion1 Comment

[Dave Birch] The “jam jar” theory of prepaid is well-known, if not well-understood. The basic concept is that consumers seem comfortable with, in fact some show show a preference for, partitioning money into separate “jam jars” for separate purposes: the phone money, the holiday money, the going out money, that kind of thing. Apart from other reasons, this is why prepaid products can be so popular when properly targeted. My kids have closed-loop prepaid cards issued by their school for storing lunch money. They have prepaid mobile phones. Until recently, one of them had a prepaid open-loop card as well but it was a rubbish product, but my point is that although I have only one debit card and a couple of credit cards, I am the potential purchaser of several prepaid cards.

What’s true in physical commerce is also true in virtual commerce. My younger son has a prepaid card for World of Warcraft, for example, and soon he will want his own prepaid open loop card so that he can buy things on the Internet. So if I gave him an open loop card, would that mean that all of the closed loop cards would become redundant? Or suppose a closed loop card for all games came along?

People have said to us “what happens if some universal gaming card puts you out of business?” and we say there’s already a universal gaming card — it’s called a pre-paid Visa. If people really want to get their cash onto the web you can buy a pre-paid Visa at millions of outlets across the country.

What we have seen — not only from our digital and retail partner side but from our consumer side — is that the individual cards are very positively received, even just down to consumers enjoying the collectability of them, because we refresh the art periodically. In addition, we have the ability to do a lot more when the cards are individual — for example, with Zwinky, when you bought a card you also received your choice of a free super power. That’s the kind of value you can add when you’re doing a specific unique branded card, rather than when you have a card that merely acts as a payment method.
[From Worlds In Motion – Interview: GMG Entertainment On Pre-paid Cards’ Potential In Retail]

I couldn’t comment on the use of free superpowers as promotional devices, but you can see the point here. If a closed loop card is just a payment mechanism, then what’s the point? A key reason for using closed loop cards is to provide specific value-added services around the payment transaction.

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And now, time for the money forecast

3rd November 2008by Consult Hyperion1 Comment

[Dave Birch] One of the functions of banks has already been changed forever by the Internet, and that’s what economists call the information function. People used to rely on banks to provide certain kinds of information into the market (eg, credit ratings) but a combination of technology-enabled business change and vanishing delivery costs has meant that they are themselves consumers of exactly the same information as non-banks. (This is not the same point as the current debates about the privledged role of “agents” and information asymmetry which focuses on the knowledge gap between bank shareholders and bank managers as a contributory factors in the financial crisis.)

This is hardly new thinking — I can remember discussions a decade ago pointing out that some kinds of information were out of bank’s hands and that (given all sorts of constraints to do with data protection, competition law and so on) the operators of payment networks could use the “data exhaust” from their transaction networks to create information to “turbocharge” other businesses (it was the 1990s, remember). Indeed, I worked on a project for SWIFT to look at his kind of thing in (if I remember correctly) the late 1980s.

Now, advances in “web 2.0” technology mean that this turbocharging is both technically trivial and incredibly powerful, providing ways to create new kinds of information that would never have been generated by banks internally nor made available to the market as a whole. A favourite example of mine, that I originally found thanks to our friends at Payments News, is that courtesy of the New York Fed you can see U.S. bank card delinquency by county, and thus get yourself a real-time map of the credit crunch sweeping across the nation, like bad weather.

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Debit dreams

20th October 2008by Consult HyperionLeave a comment

[Dave Birch] One of the key negatives in one of my diatribes against debit was that security is much more of a problem for debit than for credit. If debit goes bad, the money is gone from your bank account, not from your credit card provider’s bank account. Here’s an interesting suggestion for getting around this.

It would be really great if card issuers would give everyone two card numbers, one for only recurring, stable, relatively secure payments, and another, which is on the card that is used for day to day use at merchants, and maybe even a third, ‘high risk’ number for online/card not present purchases – but all linked back to the same ‘master’ account. This way, you wouldn’t need to get a new card if compromised online, wouldn’t need to change recurring payments if the card was lost, and wouldn’t need to manage multiple accounts – all activity ‘forwards’ to one account. Decoupled debit might be one way to get closer to this. There has been some activity around single use/virtual/disposable card numbers which usually expire after a short period of time. These are effective for avoiding fraud in online purchases, but I think they are too limiting, there are too many issues if you want to try to return something, and creates an extra step in the purchasing process most consumers don’t want to deal with.
[From Use Case for Decoupled Debit Cards]

This is an inventive twist: a decoupled debit product that uses existing debit products. I rather like the idea of my existing debit card provider (Barclays) offering me a disconnected debit product that connects to the same bank account. Why? Because I only use my physical debit card in ATMs — I never use it at POS — but I might sometimes want to use debit online and I don’t want to give out my real debit card number in case it ends up in the hands of fraudsters. But, you might ask, why would I want to use my debit card online but not in shops? It’s because I’m a rational consumer: there are some things that I pay for online that offer a not insignificant discount for debit (eg, car tax).

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Remember “off line”?

22nd September 2008by Consult Hyperion4 Comments

[Dave Birch] For reasons not germane to the post, I’m wondering if I can detect the first pangs of crisis in the world of EMV. Have we been rolling out the wrong system? This horrible suspicion obtains vitality from a big picture perspective which says that, in essence, it was mad to start rolling out a system that was designed to allow secure offline payments at the very inflexion point in human history when the whole world went online.

Most consumers still pay offline, like in restaurants or stores. But I have no doubt that in future all these businesses will be connected to the Internet and then, virtually all payments will be made online.
[From Globes [online] – Israel business news – For PayPal, it is only the beginning]

Gulp. We’ve spent billions installing a legacy payment system and it isn’t even finished yet. Everything else is going online, bank-issued cards are going offline.

EMVCo, the EMV standards body owned by JCB International, MasterCard Worldwide and Visa Inc., has today announced plans to broaden industry participation in the development work of the organisation and establish a regular, formal dialogue between EMVCo and the global payments industry, through the launch of a new website subscription programme and annual user meeting.
[From Finextra: EMVCo looks to broaden industry participation]

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