Category: Retail and Transit

Chips, contactless, cards and confusion

5th May 2016by Consult Hyperion2 Comments

Well, I’m back in America again and I can’t help but notice that the retail point-of-sale (POS) experience is getting weirder week by week. I’ll show you why in a moment, but first of all, just to remind you about the baseline, I should explain to foreigners that people here do have cards that have chips on. Lots of people do. They seem to hate them, but they have them.

The percent of cards with EMV chips grew by 10% from October 2015 to February 2016

From CardFlight EMV Migrations Tracker – April 2016

So 56% of cards presented to merchants in the US now have a chip on them. That’s good news, but on a personal level I continue to find the payment environment utterly baffling. For example, here is me trying to use Apple Pay. I tapped my phone on the contactless reader and was told to insert my chip card (which, of course, I did not have – it was back at the hotel).

Later I happened to pop into Whole Foods, where my Apple Pay Amex worked absolutely fine, but I couldn’t help noticing the logos lined up along the bottom of the screen, showing Apple Pay, Android Pay and Samsung Pay as the equivalents (in acceptance terms) of Visa, MasterCard, Discover and Amex. I’m really curious to know what all this means to the average, normal shopper who doesn’t spend their whole life thinking about payments.

At home, paying is boring. You know exactly what to do. If the terminal is contactless, you tap and go. If it’s not contactless, you insert and enter your PIN. That’s it. In America, it’s a completely different experience.

Look at the terminal above, at a Starbucks. The clerk rang up my latte on the register, so I tapped my phone on the terminal (the screen was blank, but I assumed it was contactless). Nothing happened. The clerk told me that I have to use a card. So I took out my Simple chip and PIN debit card and inserted it in the reader (see picture). Nothing happened. The clerk tells me that the chip readers don’t work so I have to swipe it. So I take it out and swipe it, and it processes as a Visa signature debit transaction (which wastes Starbucks money and my time). It would have been quicker to go to the ATM in the lobby and draw out $20 (which would have cost me a $3 fee).

When you walk up to a POS here, there’s just no telling what might happen. It might be contactless with the contactless turned off, it might be chip with the chip turned off, it might be stripe only. You can’t tell by looking at the POS, so some of the merchants (like Barnes & Noble above) have started using post-its or duct tape to create artisan POS signage. And when you do tap, insert or swipe there’s no telling what might happen. Sometimes you have to sign, sometimes you enter a PIN, sometimes you are asked for a zip code (I used 90210, and it didn’t work). Sometimes you don’t have to do anything. It’s utterly confusing to me and I’m supposed to know about this stuff.

In the taxi, I paid with Apple Pay (after authorising with my fingerprint) and I still had to wait for piece of paper to sign. I didn’t sign my real name, naturally. How is this all going to pan out (pun intended) ??? We went along to the NYPAY event “EMV 8 Months On” to find out. It turned out to be an absolutely super event, by the way. I thought quality of the discussion and the debate was absolutely excellent. Without caricaturing, I would say that the retailers were pissed about the whole thing, and with some good reason. They are faced with the cost of upgrades (some of which are still useless because of lack of certification) and a massive increase in chargebacks (with “no redress” or whatever the networks call it – i.e., the merchant can’t dispute) because of non-compliance. Consumers and retailers are also annoyed by how long EMV transactions take and they are confused (as I am) by the terminal designs.

Our very own Simon Laker was on the panel as an EMV expert. He pointed out that his US chip and signature card worked faster in a terminal in Bogota than it did in a terminal in New York, so it doesn’t seem to be EMV itself that is responsible for annoying US consumer and merchants, but something in the way it has been implemented. I suppose this is the sort of thing that can happen to issuers, processors and acquirers who chose the wrong consultants to advise them on important investments, but that’s by the by. The evening involved an odd coincidence that bears reporting. Part of the panel discussion was about restaurants and the essence was that restaurants haven’t bothered to upgrade to chip and PIN because in America people are used to giving their cards to staff. The cards are whisked away and then returned some time later with a receipt to sign. So… later that evening a group of us were having dinner nearby and when it came time to pay I handed my (UK Amex) card to the waitress and she disappeared off . She came back a couple of minutes later and politely asked me to follow her…

She lured me into a gloomy recess and asked me to enter my PIN. The restaurant had just upgraded their POS to chip and PIN, but it was in a fixed position and the payment process had not changed. Everywhere else in the world, the waitress would have brought a terminal with a Bluetooth, wifi or mobile connection to the table for me to enter my PIN and my card would not have left my sight. America has a way to go it seems to me. The next day, we went to another restaurant for breakfast and I spotted a new POS terminal by the door on the way. I assumed that this was their new upgraded EMV Bluetooth mobile-ready quantum blockchain super POS, but I couldn’t figure out where to insert the card. I did like the large, clear PIN Entry Device (PED) though and I enjoyed the satisfying clunking noise that it made when you entered each digit of the PIN.

So great to see continuing innovation at POS in the Home of the Fee and the Land of the Brave. Meanwhile, I’m off down under to see what it’s like paying in a country where everyone uses contactless, never mind chip and PIN. The Land of the Wave, if you will.

Contactless bank cards not safe

28th April 2016by Consult HyperionLeave a comment

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.

Taxis, Boris Johnson and another step closer to VC Day

31st March 2016by Consult Hyperion1 Comment

Speaking at the European Payment Summit this year, where he was chairing the panel discussion on Mobile Digital Payments, Michiel Verhaagen (Chief Commercial Officer at AirPlus International) told a story about forgetting his wallet and made the point that he always looks for taxis that accept credit cards and the problems he had trying to find one after arriving in Brussels for the conference. I had exactly the same problem, and I’m steadily becoming more militant about it. When I arrived in Brussels for the event I went to the taxi line at Zaventem and got into the first taxi in line, reassured by the Visa/MC sticker in the window. I loaded my luggage in the back and settled down. Just as the taxi was about to move off, I saw a sign in the back saying, in several languages, “no cards, cash only”. I told the driver to stop and got out. A woman, next in line, walked toward the taxi and asked, in an American accent, if I didn’t need the taxi. I told I didn’t, because it didn’t take cards. She told me that in that case she did want it either.

My heart skipped a beat. I’m a sucker for an American accent and a dislike of cash. A payments soulmate! We walked down the line of taxis together to find one that took cards. When we did, I think it was like the fourth or fifth in line, I naturally opened the door for her and moved on down the line. Fortunately the next taxi took cards as well, so I hopped in and headed to La Hulpe.

Unless we vote with our feet, nothing will change. The same is true in London, by the way, where if I get in a cab and it says “cash only”, I get out right away. It’s the only language they understand. The Mayor of London has just said that all London cabs must take cards by October, but there’s about to be some pushback on this.

However, the group said it was now planning to use the money it has raised so far, more than £350,000, to prevent TfL’s plans to have a contactless credit card reader installed in every cab, which it said could cost cabbies “tens of millions”.

From London cabbies abandon bid to challenge Uber licence after fundraising blow | London | News | London Evening Standard

I think I might be able to pour some oil on troubled waters here. The goal is for the average passenger to be able to get in a taxi and get somewhere in London without having to use cash. Another goal is for the average business passenger (eg, me) is to get a receipt that you can use when you submit your expenses at the end of the month. Frankly, an app like Hailo does both of these things and it does them much better than a card does, contactless or otherwise.

It’s not about tap and pay, it’s about app and pay.

Hence the obvious compromise position. Instead of regulating on the basis of specific technology like contactless, taxis should be regulated on the basis of the desired outcome, which is cashlessness. Why not require taxis to accept contactless payments or any one of a number of acceptable in-app solutions. If the driver refuses to accept any one of the acceptable in-app solutions (e.g., Hailo) then the ride is free. Furthermore, I would make it illegal to surcharge for a debit transaction or an in-app debit or (soon) instant payment transactions. Let them surcharge whatever they like for credit cards, cash, cheques, Bitcoins, cowrie shells or tickets to West End shows.

But back to the story from the Summit. Michael was making a point about how close we are to having the phone replace the wallet and the cusp at which forgetting your wallet now longer matters. Well, I think we are close. If I forget my wallet in the morning, I apply this algorithm…

Am I going to our office in Guildford? If so, continue to office in Guildford. I can use my phone to buy lunch, coffee, whatever, so I don’t need my wallet.
Am I going into central London? If so, I call South West Trains every name under the sun, because the ticket machines at Woking station don’t take contactless, and return home for wallet. I can pay for the bus to the station with an app, I can pay for parking at the station with an app, I can pay for anything I need in London during the day (coffee, lunch, taxis, buses, tube) with my iPhone, but on South West Trains I am trapped in 2006 time warp.
Am I going overseas? If so, I’ve got my travel wallet in my bag and that has my passport, an Amex card, and a Caxton FX card that I can top up from an app, so continue.
Am I going somewhere else in the UK? If so… well it depends. If I’m driving somewhere, I can use my phone to buy coffee and lunch, I can use my Shell app to buy petrol. I’ll probably go. I once did drive off without my wallet, in the days before Apple Pay and Shell apps, and I ran out of petrol in Watford. I called the AA, and they told me that they couldn’t bring petrol because it’s against health and safety regulations, so they towed me to a garage. I filled up the car, wandered in to pay and… discovered I’d left my wallet at home. (Not the first time I’ve done this.). Having thought about it, and left the car keys with the clerk at the filling station, I phoned my bank. It turned out that there was a branch a few minutes walk away, so I set off to find it. On the phone, I answered some security questions, and when I got to the branch there was (if memory serves) £30 waiting for me. Hats off to Barclays.

We are surely (South West Trains unique role as boat anchor against progress notwithstanding) not that far away from the day that I started dreaming about when I saw my first Nokia phone will contactless payment all those years ago. The day when it finally doesn’t matter if you leave your wallet at home. Or “VC-Day” as I intend to call it (for Victory over Cash Day).

Open-loop payment in transit

17th March 2016by Consult Hyperion4 Comments

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.

Trends in smart ticketing

17th March 2016by Consult Hyperion3 Comments

I’ve been thinking a lot about smart ticketing system trends in recent months. It is a subject of interest to a lot of our clients.

Card-centric ‘Closed-loop’ Systems

At the front-end of a smart ticketing system, the customer needs a way of allowing the system to determine whether to let him travel or not. Conventionally, this has been a ticket in the customer’s hand, allowing a reader to check the customer’s right to travel. When smart ticketing systems emerged in the ‘offline’ world of the 1990s, storing the ‘travel right’ on the smart card was seen as the only way to design the architecture. Such systems are ‘card-centric’ or ‘card-based’. In most cases, to-date, these are implemented with Contactless Transit Cards (CTCs); i.e. cards specific to ‘transit’ (with, perhaps, a few permitted ancillary uses). Because the CTCs operate in a closed environment (i.e. it is not ‘general’ payment instrument), these systems are termed ‘closed-loop’.

Even where system components (e.g. station gates) were online, they were unable to perform online travel authorisations fast enough to meet the entry/exit speed requirements of the Transit industry. This reinforced the need for the data (travel rights and value) to be stored on the smart cards, for access at the point of presentation. This architecture became a massively distributed data management problem. Furthermore, a lost card could mean a lost PAYG balance, or a lost travel right.

To accommodate this architecture, some Payment Schemes (e.g. MasterCard and Visa) published specifications for Contactless Payment Cards (CPCs) embodying data storage areas in the card, which could potentially be used to store transit tickets; sometimes called ‘Transit Data Areas’. However, the Payment Schemes have not made availability of such data storage mandatory, and issuers have not yet issued CPCs to these specifications, widely. The fact that a transit operator will currently see few of these cards and therefore cannot rely on data being present is a severe inhibitor to the use of CPCs with this ticketing functionality.

Implementation of TDA would probably need to be an international trend before being worth trying to exploit it. (For example, the UK Cards Association (UKCA) has said that UK banks will never issue CPCs with this functionality on them.)

Shift to Account-centric Systems

In an increasingly on-line world, we are seeing a shift toward account-centric systems; where customer accounts are held in a back-office, and a token to securely identify the relevant account for the travel right is stored ‘in the cloud’. The result is an architecture that is much easier to manage, maintain and extend. It becomes easier to know your customer and make new offers, such as ‘loyalty’. This approach will also accommodate potential future developments in technologies used to identify customers/accounts, such as beacons and biometrics, and is therefore more future-proofed than a card-centric approach. However, it can be more difficult to be responsive at the point of use, compared with card-based architectures. Careful design of the system is needed to ensure that customer passage is not impeded.

Such account-centric schemes can be either:

Closed-loop: the card is a CTC (i.e. it is transit-scheme-specific), however, the balance and status information is maintained at the back-office (where the fare calculation are also performed),
Open-loop: the card is a CPC (i.e. it is a general payment instrument).

The use of a CTC in an account-centric environment may seem strange, since the advantage of the CTC (everything available at the point of presentation) seems to be lost when referencing the account at the back-office. However, using a CTC in such an environment can be an economically-attractive first step in migrating from a card-centric scheme to an account-centric scheme. This approach permits the transition to occur without the need to upgrade the readers in the field to accommodate a new Payment Scheme card. Hence ‘transition to account-based’ can be achieved prior to, and independently from ‘introduction of a new card-type’. This may be considered desirable, in that, the problems of each change will occur separately, and can be managed independently.

Smart Ticketing Solution Taxonomy

I’ve produced a ‘taxonomy’ matrix which groups smart ticketing solutions:

On the ‘Payment Type’ axis there are open-loop and closed-loop payment (i.e. cEMV which works most anywhere vs transit-only balance).
On the ‘Centricity’ axis, there are:
- Customer Medium (which includes cards, phones and ‘wearables’ such as watches);
- Transit accounts in back-office;
- Payment Scheme with connection to the EMV infrastructure via a Merchant Acquirer.

In general, cEMV cards cannot be written to by the transit reader. There is a specification for the Transit Data Area in EMV , but it has not gained any significant usage. Equally, Payment-Scheme-centric solutions cannot use transit cards. Hence two cells are greyed out below.

In my next blog, I will look in more detail at Open-loop payments in transit and our work at TfL leading to the UKCA models since this is what most of our transit clients are asking us about from Transport for the North in the UK to NZTTL in New Zealand.

How can we reshape retail without reshaping payments?

25th February 2016by Consult Hyperion

Well, the circus came to town again. Barcelona. It’s 100,000 people and non-stop meetings and basically no fun whatsoever. But it’s in Barcelona. The calendar is jammed from first thing in the morning until the evening, and then it’s out for dinner and drinks with customers and suppliers. Man, that Catalan pasta was delicious. It’s absolutely exhausting. My feet are killing me by coffee time and I’m not in heels. Loved that lemon beer though, never had that before. The communist traitors down the metro are on strike so we have to queue for buses. It’s lovely and sunny here. Eight halls! Still, let’s take a deep breath and get on with it.

I’ve been interested in mobile payments for 20 years. A decade ago, Consult Hyperion was lucky enough to be chosen by Vodafone to carry out the feasibility study on M-PESA. I can remember seeing the first Nokia with a contactless chip (Mastercard) embedded in it and being blown away by the convenience. I am the archetype for the stereotype in mobile futurists presentations, the person who often leaves the house with a phone but no wallet. Last year at MWC I gave a presentation about the impending shift to in-app payments. So, you can imagine how downhearted I was to see this vista before me on arriving in the host city.

Yep. Twenty years of mobile payments, twenty years of presentations about mobile payments at MWC, twenty years of pilots and trials and tests and MoUs, twenty years of arguing about SIM vs. embedded vs. SE, twenty years of closed-loop and open-loop and three-party and four-party, and there’s a queue a mile long for the ATM because you can’t use your phone to by a metro ticket or ride the bus into town. Where did it all go wrong?

Why aren’t there mobile payments everywhere? In a sane world, as we landed in Barcelona our phones would automatically fire up a Barcelona app that we could use to pay for the trains and taxis, restaurants and hotels. How long would it take for your bank to issue a four day, Barcelona merchant-only token to the handset? Five seconds? Why can’t I pay in-app for my hotel? Karen Webster wrote about this too.

…when it comes to commerce and payments, well, we’re still very much making our way to first base. And that’s more than two decades after the launch of the commercial Internet and nearly a decade after the introduction of the iPhone…

From Mobile Is Everything, But Where’s The Progress? | PYMNTS.com

Karen points to the role of the carriers as a fundamental problem, and she is certainly right to note that their attempts to be toll collectors for the superhighway have been a boat anchor on progress in mobile commerce just as it will be for IoT commerce, but I wonder if there’s something more fundamental going on. What if the attempts to shoehorn the existing infrastructure (of PANs and acquirers and networks and schemes and issuers and authorisation and all the rest of it) are themselves responsible for the drag? What if we should have started again? What if we should have just said that the mobile phone gives us a mechanism to establish (and verify) the identity of everyone and once you know who the counterparts are, payments are easy. What if we should have started with mobile ID instead of taking 60+ year old way of doing a payment?

I was lucky enough to be asked to chair the MWC conference session on “Digital Identity for Connected Societies”. During this discussion, it became very clear to me (and, I hope, the rest of the audience) that we already have all of the building blocks that we need to create a strong identity infrastructure based on the mobile phone. If we take that architecture as a given, then what “payments layer” should be put on top of it? You know where my sympathies lie: in the “push to push”. Karen correctly, in my opinion, talks about the reshaping of retailing.

Mobile and online – together — is creatively destroying the retail model that’s been in place for millennia – a model that used to rely only on consumers and merchants coming together face-to-face to do business.

From Mobile Is Everything, But Where’s The Progress? | PYMNTS.com

Why do we think that we can reshape retail without reshaping payments? Here’s just one example: why do you give card details to the merchant? It makes no sense: it’s because you used to hand your card to merchants in shops. Surely it would make more sense to send the _invoice_ to the bank, have the bank pay it and send back the _paid invoice_ to the merchant. Why should the merchant ever seen your card, tokenised or otherwise? Since merchants are installing BLE anyway, why not just transmit the invoice over BLE to your phone and have your phone send it to the bank for payment? I’m just giving a random example, but you see my point.

Here’s what’s gone wrong: we took amazing new technologies (smart cards, mobile phones, biometrics) and used them to emulate some cardboard hack from 1949. Time to scrub off the whiteboard and start again. I make this vow here and how: if you cannot use your phone to pay the airport bus in Barcelona at Mobile World Congress 2017, then I will never go again.

Ten more years! Ten more years!

16th February 2016by Consult Hyperion2 Comments

Saint Valentine, as I am sure you all know, is the patron saint of customer verification methods (CVMs). We celebrate St. Valentine’s Day on 14th February every year to commemorate the introduction of chip and UK In the UK on 14th February 2006. I am a payments romantic, so this is very special day.

Ah, St. Valentine’s Day. Very romantic. I woke up smelling the roses and wrote a poem from the heart, a caption for my Valentine’s Day card to Brian Rommele…

“Roses are red, violets are blue / chips are nice / and PINs are too”

Yes, lovely St. Valentine’s Day. Was it really a decade ago? That lovely day when we stopped pretending that anyone was looking at cardholders’ signatures on the backs of cards and instead mechanised the “computer says no” alternative. It really was! Ten whole years!

After what has been dubbed “chip and pin day”, consumers using chip and pin enabled cards will no longer be able to sign for their purchases.

From BBC NEWS | Business | Valentine’s day chip and pin deadline

We like heritage here in England. We still write our laws on vellum, we still say “what an interesting idea” when somebody says something that is transparently insane and we still use cards to buy things in shops. We cling to tradition. And chip and PIN is a tradition.

Tamper-resistant hardware (chips) are a good idea, but in terms of reducing fraud it is better authentication (PINs) that seems to make the difference (at US retailer told me that the fraud on swipe and sign cards is two orders of magnitude higher than on swipe and PIN cards). Now, in that bygone age when European retailers could not go online to verify PINs due to the anticompetitive pricing of the monopoly public telephone providers, we decided to put chips on the cards and verify the PIN locally. But this is 2016. We have smart phones and laser beams and space probes on a comet. If we want to spend a ton of money on introducing a new payment system today, would we really start with smart cards? Smart cards were invented a long time ago. So long ago, in fact, that I had hair.

And if that isn’t shocking enough, remember that this picture was taken years after the first smart card was patented. As Brian Rommele pointed out on this anniversary, EMV was out of date when it was introduced in the UK a decade ago, and not only because of the technology: but because it was a payment system optimised for face-to-face, offline transactions in a world that was moving to remote and online transactions.

By the time the UK implemented Chip & Pin, the base concept and much of the technology was already almost 40 years old.

From The entire retail payment system is moving to t… – Accepting Payments – Quora

Well, Brian is right about this, of course. But my brand spanking new chip card from a UK issuer not only arrived with a 2000s app of a 1990s implementation of a 1980s product (debit) on 1970s chip, it also came with a 1960s magnetic stripe on it and a 1950s PAN with a 1940s signature panel on the back. It’s no wonder it seems a little out of place in the modern world.

Early chip and PIN focus group.

The US will discover, as the UK did, that while EMV will put a temporary dent in card fraud, what it will really do is to displace card fraud from card-present to card-not-present channels and fraud will continue to rise. In order to put a lid on fraud, we have to implement two-factor authentication which, in the modern world, generally means the smart phone. So… why not just use the smart phone?

Well, this is what is going to happen and it is why I insist that tokenisation is, in the great scheme of things, more important than EMV cards. We are helping clients to put together their tokenisation infrastructure right now so we understand both the challenges and the opportunities. And if that’s true, and tokenisation is the way forward, then we might as well use EMV tokenisation (since it exists) and so EMV remains important, as does EMV Next Generation. But it is important to understand how the dynamic of competition will change as payments shift in-app. Introducing a new payment mechanism faces the well-known “two-sided market” problem: retailers won’t implement the new payment mechanism until lots of consumers use it, consumers won’t use it until they see lots of retailers accepting it. This gives EMV a huge lock-in, since the cost of adding new terminals is too great to justify speculative investment.

When you go in-app, however, the economics change vastly. For Tesco to accept Bitcoin in store is a big investment in terminals, staff training, management and so on. But for the Tesco app to accept Bitcoin is… nothing, really. Just a bit of software. However traditional we might be, the marginal cost of adding new payment mechanisms is falling and our industry needs to think about what that means. All I’m saying to the EMV industry (i.e., our customers) is that it’s time to start thinking about what might come next.

Caption Competition

By the way, between us we came up with plenty more captions for our Valentine’s card to Brian. If you’ve got a better one, post it! I will think of a suitable prize for the winner…

Roses are light / violets dark / yes the card’s smart / it came with the Ark

Roses are red / violets are blue / chips are nice / and PINs are too

Roses are thick / violets are thin / stop your moaning / enter the PIN

Roses are nice / violets yuck / PIN always works / signatures suck

Roses grow high / violets stay low / chip and PIN rocks / signatures blow

Roses are lovely / so is wine / EMV won’t help / the fraud’s online

Roses are red / violets are blue / chip and PIN / won’t get us through

Roses are red / violets are not / chip and PIN snooze / tokens are hot

Roses are red / violets are blue / we’ve had it for years / now the Yanks have too

Roses are tall / violets are short / I remembered my PIN / here’s what I bought

Roses are out / violets are in / signing can’t fix it / for that you need PIN

Toodle pip!

Should customers be charged more to use chip and PIN? Yes!

8th January 2016by Consult Hyperion3 Comments

Now that more than one in ten retail card transactions is in the UK is contactless, I think we’re beginning to approach a tipping point around the technology. This is important, because I think it’s a tipping beyond contactless cards and towards mobile and then in-app. I make it my business to collect and collate the weak signals for change around POS, so with that in mind, here’s a recent story from the UK newspapers. A customer was outraged to be surcharged for making a low-value payment with chip and PIN in a fast food outlet.

Bill was faced with this charge at Subway in Brislington, Bristol, where customers were being asked to pay 10p more for using a debit card that wasn’t contactless.
[From No contactless card? That’ll be 10p extra – the Subway charging people MORE to use Chip and PIN – Mirror Online]

I don’t have a problem with this at all and I don’t understand why the readers comments were negative. For one thing, I love Subway sandwiches and for another thing it makes complete sense from any informed perspective for both retailers and customers (almost all of whom have contactless cards anyway and those who don’t can always use Apple Pay, Samsung Pay, Android Pay, a sticker, a watch, a wristband or whatever else). Contactless debit card payments cost the retailers less (and since most low value card payments are debit, that means most low value card payments cost the retailer less) and putting your chip card into a reader and then punching in a PIN wastes time your time and everybody else’s too. I wouldn’t be at all surprised to see more retailers surcharging people who do not pay contactlessly or, any day now, who do not pay in-app.

Overall, 83% of consumers use less cash than they did a year ago with 19% saying they are annoyed if they cannot pay using contactless cards or devices.
[From Bar news | Contactless payments at bars and pubs nearly double]

I wrote about this couple of years ago when I pointed out how illogical it was for retailers to have signs that said they would accept card payments only for transactions above a certain level when it would have been more logical to have signs that said that below a certain level they would accept only contactless card payments.

It baffles me that some retailers ban you from paying with cards for transactions below £10 when it would be more logical for them to say that transactions below £10 must be contactless
[From Retailers could take more advantage of contactless | Consult Hyperion]

Now, since the acquirers have to price contactless debit payments below their price for contact payments (otherwise they are not a viable cash replacement product) retailers are therefore incentivised to steer to contactless. If you are buying a £5 sandwich, the contactless interchange is only 2p and there’s a limit to how much the acquirers can add on top in a competitive market, hence Subway’s entirely logical structure. Incidentally, this is nothing new. Subway in the UK have always been at the forefront of payment technology. Here’s Forum Friend Julian Niblet writing about them back in 2013:

At least Subway (I really do eat better than this) have a sign which allows you to pay by contactless for any value but has a minimum spend for credit and debit. Somebody there has at least done some maths and realised that they ought to use the nice new kit they have installed.
[From A fresher way to pay? | Consult Hyperion]

Personally (as some of my Twitter correspondents observed) I think Subway should charge 10p more for cash as well, since when customers pay by cash they rarely have the correct change. This means that the person serving has to open up the register and count out the change. But the main issue is how the retailers choose to configure the POS and set the floor limits. Here’s what someone who says they were a Subway employee had to say about the matter.

Standing at the till with a que of 30-40 people you would long for them to pay in cash as subway do not have their card machines connected to the tills. Therefore you have to input the cost, wait for the customer to insert their card,( only after you imputed the price or the machine would crash) and then wait painful minutes on occasion for the machine to contact the bank and have a reply sent. When it comes to contactless it does it immediately.
[From No contactless card? That’ll be 10p extra – the Subway charging people MORE to use Chip and PIN – Mirror Online]

Now you can see why the retailer has the surcharge in place. And, as an aside, cash also also means that at the end of the day the manager has to cash up, reconcile the register and then deposit the cash, wasting even more time and money. Good on you, Subway.

Transport for the North

2nd January 2016by Consult Hyperion1 Comment

Cash still accounts for 48% of transactions in the UK, according to Moneybox on BBC R4 just now. As part of this programme, Shashi Verma from Transport for London was being interviewed about the acceptance of contactless payment cards (which we helped him design and implement from 2008-2014) on TfL modes of transport. The interviewer asked about the famous ‘capping’ provided by Transport for London (TfL) to all travelling customers using contactless. Shashi explained that using contactless bank cards is guaranteed to be cheaper than buying a ticket. Not just the same price, but cheaper. Guaranteed.

But what about the “Premium on the Poor,” as the programme called it? Now that buses in central London do not accept cash how can those without contactless cards travel by bus. Shashi’s answer was simple: they can use cash to buy an Oyster card. I believe they can also use their cash to buy tickets in ticket machines off the bus, but this was not mentioned and would also be more expensive than using Oyster.

But why was I so interested in this programme about things I already know about?

It’s because Chyp have been appointed Development Partners to Transport for the North (TfN). Since 7 December 2015 we have been working with TfN in Leeds to help them prepare designs, implementation plans and business cases sufficient to inform George Osborne’s budget in March 2016. Assuming all goes well, in March, the Chancellor will allocate sufficient fund to TfN to allow improved smart ticketing systems to be delivered across the north of England.

My particular role in the TfN project is to lead the Design stream of work proposing what should be implemented, where and when. It is a really interesting project and in many ways it will be more challenging than London. Will it be ITSO, or EMV? We’ll have to wait and see. Que sera, sera …

Retailer pressures for direct-to-account payments

22nd December 2015by Consult Hyperion4 Comments

Back in the October edition of “Digital Transactions” there was a nice column by George Warfal from our friends at Edgar Dunn called “The Next Way to Pay” in which he says that “merchants are re-purposing their rewards cards as payment cards using the automated clearing house and gaining per transaction savings”. He goes on to say that this mode of operation presents a challenge to the current card network model, and I’m sure he’s right. In fact, if you take a look at the latest figures from the US ACH, you can see an explosion in the account-to-account (P2P) payments which, I think, is related to growth in mobile app-instructed transfers.

As you can see, all categories of ACH transfer are growing, with the exception of the check-replacement volumes that continue to fall (including at POS), as you might expect. I expect this trend to be even more marked in Europe, where the arrival of PSD2 means that retailer direct access to payment accounts will be one of the defining trends of the next era of payment evolution.

Under PSD2 banks and other payment service providers (PSPs) must give so-called payment initiation service providers (PISPs) access to their customers’ accounts so as to facilitate transactions ordered at the customers’ request.
[From Expert predicts innovation in payments market after PSD2 reforms are finalised]

I wrote an article exploring this for the Electronic Payments Law & Policy newsletter, arguing that while banks have been rather nervous about the effects of the access-to-account provisions of PSD2, it is time for them to adopt a more positive strategy, disrupting themselves before others do so. One suggestion, therefore, might well be for the banks to create their own access-to-account payment service, a sort of next generation debit product.

The recent EUR21.2 billion deal agreed between Visa Inc and European banks over the sale of Visa Europe has led to increased calls for the banking industry to put the windfall to use to create a competing product to tackle the duopoly enjoyed by Visa and MasterCard.
[From Finextra: Finextra news: Visa/MasterCard EU dominance adds impetus to calls for bank-backed competitor]

Now, Visa and MasterCard are rather good at what they do, so it would really take something special to be better at it than them. It might, in some observers’ calculation, be better to focus on delivering products into new channels where Visa and MasterCard have to work harder, such as mobile and online. Creating a direct-to-account service, with appropriate security and consumer protection, delivered through the EBA Digital Customer Service Interface (DCSI) as an API for retailers and other service providers to use, could deliver a worthwhile new payment product that (rather crucially) keeps the information relating to the transaction under bank control.

The European Payments Council has released proposals for the design of a pan-European instant credit transfer scheme, with the aim of bringing real-time money transfers across the Sinlge Euro Payments Area (Sepa) by November 2017.
[From Finextra: Finextra news: EPC publishes proposals for pan-European instant payments scheme]

This is pretty interesting. API access to a pan-European instant payments networks would mean a really important new “push platform” for product and service innovation in the payment space. If George is correct about the pressure from retailers to move to direct to account solutions, then I can see that there will be plenty of new opportunities for services in that environment: banks can offer real-time, API-centric, value-added payment services that offer specific functionality for retailers.