Category: Retail

More mobile business models

7th December 2007by Consult Hyperion3 Comments

[Dave Birch] Mobile payments aren’t all about NFC and proximity. As you may recall, some time before RBS and Barclays announced their NFC pilots, the U.K. mobile operators launched a payment scheme allowing customers to pay through their mobile phone accounts for items such as train tickets, and parking fees. The new PayForIt technology scheme mobile phone customers to credit small purchases up to £10 to their mobile phone accounts, a scheme likened (not by me) to turning mobile phones into ‘digital wallets’. The reason why I don’t like this terminology is because in my distorted world view, a wallet is something that you can put cash in, and cash is something you can use to pay other people, not just merchants. Real m-cash can be transferred from person to person.

Technorati Tags: mobile, p2p, retail

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Sectioned

19th November 2007by Consult Hyperion3 Comments

[Dave Birch] One of the reasons why I always — and I mean always — use one of my credit cards both online and offline (and remain mystified about the growth in debit card usage) is because of the Consumer Credit Act (1974). In particular, it’s because of Section 75 of that Act. For those of you unfamiliar with the details of our credit regulations, “s.75” is the part of the Act that says to me as a consumer that (in essence) if shit happens, it’s bank’s problem and not mine. So if I buy a holiday from a travel agent who subsequently goes bust, I get my money back. If I buy a dishwasher from a web site and the dishwasher doesn’t show up, I get my money back. This isn’t a universal right (it’s limited to transactions between 100 and 30,000 Sterling) , but it covers most of the important transactions I ever make. Naturally, banks have been complaining about it, as I would if I was a bank since s.75 has an element of moral hazard about it: as a consumer, there’s no need for me to take any care in checking out the web merchant I’m dealing with because I’m not liable.

Technorati Tags: credit cards, payments, regulation

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I don’t care too much for money…

10th November 2007by Consult Hyperion1 Comment

[Dave Birch] Ah, a title that’s amusing on so many levels means that this tragic (in the sense of inevitable) post must be written. I have no choice. It’s all because iPhone fever swept the nation last night. People had been queueing outside Apple’s flagship Regent Street store for some time. At precisely 6.02pm, the hordes were empowered to exchange wonga for widget. The guy who was first in the queue, after spending time in freezing cold and lashing rain, proudly grabbed his trophy telecommunicator and ran down the stairs to the checkout. But he couldn’t pay, because the Apple store doesn’t take cash. So the guy who was second in line actually became the first person in Britain to buy an iPhone. Seems like cash can be something of a disadvantage in a high-tech economy as some bankers across the Irish Sea have noticed.

Technorati Tags: cashless, retail

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Which planet?

31st October 2007by Consult Hyperion1 Comment

[Dave Birch] I had a fun time in London the other day. I took my son to the Forbidden Planet London Megastore and when I got to the cash register I was genuinely shocked to see a Barclays Business contactless terminal there. I couldn’t use it, of course, because my purchase was over ten quid, as I imagine most of their purchases are. Yet when we went to the Cafe Nero down the road, and our coffee and hot chocolate came to less than a fiver, they didn’t take cards at all, let alone contactless ones. So we couldn’t buy the pastries we wanted (I only had a five pound note in cash on me). Their ridiculous cash-only restriction meant that I didn’t get the goods that I wanted and they didn’t get the money that they wanted. Afterwards, I was still consumed with curiousity — a genetic flaw, I imagine — so we went back to Forbidden Planet and I bought a Pirates pack for my son just so I could use my OnePulse card: it worked great, and I estimate that it was about thirty times quicker than using my chip and PIN card.

Technorati Tags: cashless, contactless, costs, retail

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It was a cunning plan

24th October 2007by Consult Hyperion1 Comment

[Dave Birch] It’s amazing to me — no, not amazing, more kind of quaint, reassuring and comforting — that in this high-technology e-money world, there are crooks who still try to rob banks the old fashioned way. Not the modern way (by working for them as traders) but the old fashioned way. There are still people out there who rob banks with shotguns. And there are still people out there who make dodgy banknotes. An example being the gang of Chinese counterfeiters currently on trial in London for attempting to defraud the Bank of England of more than TWENTY EIGHT BILLION POUNDS. Yes, that’s right. They tried to cheat the Bank of England out of more than FIFTY BILLION DOLLARS by swapping 360 “special-issue” £500,000 notes and and 28 million £1,000 notes for lower denominations. Unfortunately, there were two tiny flaws in their masterplan: the Bank of England has never issued a £500,000 note and £1,000 notes were taken out of circulation in 1943 (and there are only 63 of them not accounted for). The criminal geniuses tried to get the Bank of England to accept £1,000 notes with the signature of Jasper Holland, the chief cashier in 1963. Now, far be it from me to criticize — I know virtually nothing about counterfeiting — but c’mon guys. Didn’t anyone think that the Bank of England might double-check if someone turns up with twenty eight billion pounds in used notes? The only way to get away with this kind of thing is to skim off a small amount from each legitimate note in circulation (like the Chancellor of the Exchequer does).

Technorati Tags: credit cards, debit cards, EMV, fraud, retail, security

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Cards and costs

22nd October 2007by Consult HyperionLeave a comment

[Dave Birch] Retailers just won’t let it lay about the cost of cards and there are new articles about this every day. In the U.S., gas stations are a particular focus of discontent (as they have been for some time, in fact). What bothers the owners is that on a petrol sale, the the card companies make more money than they do. For example, on a $30 sale with petrol at $2.89 per gallon (that’s approximately zero per Imperial gallon, for British readers), the retailer will get 39 cents but (as the retailer sees it) the bank gets 69 cents. I saw a quote from another retailer recently that if a customer wants to buy a pack of gum with a card, he’d prefer them to just steal it because he loses less money that way. Not exactly a devoted customer base. It’s not just in the U.S. though. In Dubai, all petrol stations have banned cards and all Emarat, Enoc and Eppco stations accept only cash or own-brand cards. Denzil Lawson, the General Manager of MasterCard Middle East & Levant, said

We continue to consult with all parties concerned towards finding an effective solution… MasterCard is disappointed with the announcement by the fuel companies in Dubai that they will stop accepting payment cards, denying their customers the convenience and safety of using payment cards.

Technorati Tags: costs, credit cards, debit cards, retail

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Hammer of the gods

15th October 2007by Consult HyperionLeave a comment

[Dave Birch] I read in my Daily Telegraph that there has been a postal strike in the U.K. I can’t say that I noticed, because I never send letters anymore and never receive any except for junk mail and the occasional utility bill (which, since I pay all utility bills by direct debit, I rarely look at anyway). I’m from the same mould as the terrific U.S. stand-up Jim Gaffigan: if I did actually see a hand-addressed envelope drop onto the doormat I’d assume that someone had been kidnapped. But I digress. I further read in the very same newspaper that in an attempt to waste an impressive amount of public money, the Department for Work & Pensions (the DWP) sent out 400,000 pension cheques last week by courier because of the strike. I was really shocked: I had no idea that they sent out cheques at all, let alone sent them out by courier when they would otherwise be delayed. Surely it should be a condition of receiving pension cheques that you get yourself a bank account and end the anachronistic printing, posting, depositing and clearing of bits of paper. If I sound more intemperate than usual about allowing this quaint Georgian payment mechanism to persist, it’s because I’m writing this in Iceland.

Technorati Tags: cashless, future, payments

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Read all abaht it: retailers don’t really like cash

25th September 2007by Consult Hyperion3 Comments

[Dave Birch] Retailers say that cards are more expensive than cash. Therefore, they can’t help noticing comments such as those by Bank of England supremo — much in the news in the U.K. at the moment Mervyn King. Mervyn reportedly said about having cash in circulation that:

such mutual convenience is a public good, and may not correspond to the private interest of commercial banks.

In other words, everyone else is happy with cash but bankers are consipiring against the general welfare by trying to persuade people to use cards. Now, one might reasonably imagine that part of retailers apparent devotion to cash is as a bargaining chip with banks, but their suspicion is genuine enough: they don’t want to held to ransom over payments (which, for some retail categories are already a significant overhead). But are they right (as in that article) to look at contactless payments as being a wheeze to increase retailers bank charges tenfold? The calculation that they are making here (ie, a small shop with 450 cash transactions per week being replaced by contactless) shows the retailer’s costs rising by £200+ per month compared to the current £20 per month they pay for banking cash. I think there are two issues about this calculation: first of all, retailers are right to ask for differential interchange of offline EMV transactions that are replacing low-value cash, so that means the cost wouldn’t be anything like £200. Maybe £50-£80, something like that. Secondly, I can’t help noticing that the retailers are only calculating the cost: they don’t see any upside. They don’t see any benefits to them in reduced cash handling or shorter queues, they’re not being offered any value-added services. As our good friends at Payments News perceptively noted, this sort of thing is a symptom of an the symptoms of an industry (ie, acquiring) that is competing only on price but that should instead be looking to offer something new.

Technorati Tags: cashless, contactless, retail

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Who will pay? And how?

1st August 2007by Consult Hyperion9 Comments

[Dave Birch] It’s all very well for informed observers such as myself to call for a more efficient payment system, but the economics have to work out as well. Given that merchants already feel that they pay too much (whether it’s true or not, that’s what they feel) then finding ways to deliver more value to them has to be a priority in the design of new systems and services. In America, the Merchant Payments Coalition (MPC) have been complaining that the collective setting of interchange fees by Visa and MasterCard is a violation of federal antitrust laws and saying that they favour a payment system that is transparent and open to competition. Well, you might think, what’s stopping them? You can’t help but observe that a decade of growing complaints from merchants, and the ready availability of the core technologies required to create viable alternatives (ie, chip cards, mobile phones and the Internet) no large-scale rivals have emerged. Perhaps the truth is that merchants are happy with the bank-centric payments model and the complaints about interchange ARE just posturing for lower prices after all. Having been at a recent meeting between a bank and some large U.K. merchants, however, I think there’s more to it. It’s not just the size of the interchange fee that annoys merchants, it’s what it’s for. U.S. merchants paid $56 billion in interchange fees last year and small retailers have seen interchange costs jump by 16 per cent a year on average since 2000 but a good chunk of those fees don’t go to cover the cost of the payment plus a profit, they go to pay for frequent flyer miles, cashback and other issuer incentives. In fact, in the U.S., almost half of the interchange goes to pay for issuer rewards.

Technorati Tags: credit cards, debit cards, ID cards, retail

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Cost dynamics, again

25th July 2007by Consult Hyperion5 Comments

[Dave Birch] The Swedish central bank published some detailed figures on the cost of payments and they provide useful input to the debate on the future of payments. They show that on average the variable cost of an ATM cash withdrawal to the issuing bank is around 1.3 SKr, compared to 0.23 SKr for a debit card payment, but that is still less than credit card transactions. As in the case of the Norwegian study we discussed before, the central bank study highlights the fact that consumers get very little information through the price structure on the costs that banks have in the provision of payment services. In particular, they say that

the problem is that for a large number of payment instruments the variable fee is set to zero, although our study indicates that marginal costs are above zero

On the whole, with the exception of debit card transactions (on the acquirer side) and direct debits, variable costs and fees differ significantly. Private customers only face transaction fees when making payment transactions at the bank branch-office or when using cheques (although cheques are hardly ever used). Transaction fees are almost exclusively taken from corporate customers, particularly merchants.

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