Category: Uncategorized

Retail weak

25th January 2008by Consult Hyperion1 Comment

[Dave Birch] The drive by UK banks to “replace cash usage with cards” came under heavy attack from the British Retail Consortium (BRC). In a strongly worded statement toward the end of last year, the trade association accused card companies of exaggerating the extent to which cards have replaced cash. A BRC survey of 10,000 stores, which together account for a third of U.K. retail sales, showed that cash is still the most popular payment method, accounting for 54 percent of all UK transactions by volume and 32 per cent by value. Their spokesperson said

The card companies, in their publicity campaigns for their products, are giving the impression that cash is on the way out… For example, they are trying to present contactless cards as the ‘new cash,’ because contactless transactions below £10 do not require a PIN.

Well, whether card companies are giving the impression that cash is on the way out or not, European cash payments are declining. They now account for only a third of total European household expenditure, according Datamonitor. The value of cash payments in Europe was €1,787 billion (US$2,651 billion) in 2006, accounting for 34 percent of total household expenditure, down from 38 percent in 2002. And, as APACS pointed out at the time, the vast majority of cash transactions are under £5, whilst the average credit card transaction at a retailer is over £50 for credit. Anyway, the BRC’s point is that cash costs retailers less than cards. Their figures are that on average, a £20 cash transaction costs a retailer less than four UK pence, while a £20 credit card transaction costs at least 17 pence. I’m sure these are accurate: the costs of cash fall on consumers (and society) rather than retailers, so naturally retailers are in favour of it. There’s nothing wrong with that, but it seemed a little a over the top for the BRC director general Kevin Hawkins to say that

Banks have long abused their position by imposing much higher charges on retailers for processing card payments than cash… Clearly, the banks have spotted that replacing cash with cards would mean a further boost to their profits.

The BRC says it is asking the Office of Fair Trading (OFT) “to force the banks to reduce their (card processing) charges.” Surely the way to make a market work properly isn’t to ask regulators to fix prices but to increase competition. If retailers feel that cards cost too much, then they should develop alternatives, shouldn’t they? All they have to do is call…

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Making prepaid work

23rd January 2008by Consult Hyperion3 Comments

[Richard Allen] Why would anyone use a prepaid card? I’ve been doing a survey of some U.K. products in that space. (You can do your own research at Which prepaid card.) Typically, it costs £10 to get a card, a pound or so just to load some value, 50p minimum to buy something with it, a couple of quid to draw money out of an ATM, 3% currency charges for overseas use, and so on. Many of them charge a monthly fee of around £5 in return for lower charges, but they’re still expensive one way or another. Yet the market is still growing. Some of that growth is explained by the growth in online gaming, but I wonder if remittances might also be a strong growth driver. One of the cards you can get is actually two cards that are specifically designed for remittance purposes. You send one card to your Uncle Eric in Back-of-Beyond and top-up your card with value. You then “text” Uncle Eric some value (that bit is really bonkers and incurs a 2% fee) and he can take it out of any bank or ATM (with a MasterCard logo).

How much does it cost? If you ignore the cost of the card, sending £100 to USA will actually cost you about £107 and will yield approx $190 at the other end (based on $1.96=£1 exchange rate). Expensive? Well, compare it with Western Union, the market leader. It charges £114 to send a £100 that appears to yield $185. I made similar comparisons for India, Poland and Argentina. Shopping around, there are some good alternatives. I could just get a normal pre-paid card, send it to Uncle Eric (with the PIN, of course!), then add value at a UK Post Office thereby skipping the nutty “text” bit and save another £2. Some cards, such as the sensational, soar-away Sun pre-paid card, do not charge for foreign currency transactions, thus saving another 3% or so, and some come with a paying-in book and second card (for Auntie Ethel). I reckon that we can now get $195 to Uncle Eric at a cost of less than £103. That’s better than using your average credit card! We can do all that without a single bank account or credit record between us: the infrastructure is already there – it’s called MasterCard (most of the pre-paid cards I looked at were MasterCard/Maestro-branded). We just need to find ways of using it more effectively.

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More on innovation

22nd January 2008by Consult Hyperion2 Comments

[Dave Birch] Forecasts of future events are heavily influenced by present circumstances. That’s why predictions are usually wrong. It’s hard to transcend current assumptions to obtain genuine insight. In the world of banking and payments, we are no different. Chris Skinner said:

Maybe I’m wrong … but I cannot think of one, bank-created innovation that has then permeated other industries. C’mon. I must be wrong. Give me one that banks created and is now seen in airlines, retailers, or elsewhere. Ah … hold on, here’s one. The ATM. The ATM is now in airports as self-service ticketing machines, and also in retailers as self-service checkout terminals.

I hate to argue with Chris (not really — we rather enjoy a good argument), but it’s the other way round. The ATM as we know it today was invented by at baggage handling company!

However, the modern, networked ATM was invented in Dallas, Texas, by Don Wetzel in 1968. Wetzel was a department head at an automated baggage-handling company called Docutel. In 1995 the Smithsonian’s National Museum of American History recognized Docutel and Wetzel as the inventors of the ATM.
[From Automated teller machine – Wikipedia, the free encyclopedia]

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Money museum

17th January 2008by Consult Hyperion7 Comments

[Dave Birch] Wallowing in nostalgia over coffee today — and spurred by Ian Grigg’s comment about innovation and Steve Klebe’s mention of Cybercoin — I was reminded that our good friends at Payments News pointed me to the VisaCash and Mondex testimonial web site, every page of which is laden with memories for many of the Digital Money denizens.

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1% of the way

15th January 2008by Consult HyperionLeave a comment

[Dave Birch] Things haven’t been going terribly well for America’s ambitious Real ID scheme. Government agencies missed the end of October deadline to complete background checks for employees and contractors who have worked for the federal government for 15 years or less and to begin issuing the new identity cards that include employees’ fingerprints as required under Homeland Security Presidential Directive 12, which President Bush issued in 2004. In all, about 1.9 million federal employees and 591,358 contractors require credentials. As of that deadline, 97 percent of federal employees and 79 percent of contractors had completed the required background checks, but federal agencies had issued only 1 percent of the new cards. Now it turns out that some of the other deadlines around driving licenses are being rolled back as well.

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The internet of things 2.0

9th January 2008by Consult HyperionLeave a comment

[Dave Birch] Over on the Digital Money Blog, we’re obsessed with the spread of NFC technology built in to mobile phones because it will have a disruptive impact on the retail e-payments world. But the technology will undoubtedly have an impact on the identity world as well, and not just because the NFC-enabled mobile phone is an ideal personal identity management device, but also because it bridges the local and remote environments to provide infrastructure for the internet of things: in fact, one might argue that bringing mobile into the picture (the internet of things 2.0) turbocharges the whole concept. The Auto-ID guys seem to think this as well. At the St. Gallen/ETH Zurich Auto-ID Lab, for example. They agree that NFC-enabled mobile phones could give consumers access to the EPCglobal Network. This isn’t because NFC phone can read EPC tags — they can’t, because NFC technology, which operates in the high-frequency band, and EPC technology, which operates in the ultrahigh-frequency band, are incompatible — but because they could link local devices that can read tags (Bluetooth-connected pens and that sort of thing) into the savant network needed to make RFID work in a useful way. It’s possible, of course, that UHF EPC readers may be integrated into mobile phones in the future, though it’s technically challenging because the readers drain a lot of energy from the phone’s battery. What’s more likely is that some applications will end up using NFC tags. I tend to favour this NFC direction on the overall roadmap, because it links to the wider demand for NFC phones. While NFC is still in pilot for most operators around the world, this is about to change as an increasing number of commercial launches are due to take place in 2008: while in the short term there still remain important challenges for the development of NFC-enabled devices, analysts are saying that in the long term NFC will be a feature supported on the large majority of the phones sold. This already the case in Japan, where NTT DoCoMo has FeliCa contactless technology embedded in about 80% of the phones they sell. There are no great technological or cost barriers for NFC to be integrated quickly into a wide range of devices, so this must stimulate a tag ecosystem.

Technorati Tags: identity, internet, rfid

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Triple play

2nd January 2008by Consult HyperionLeave a comment

[Dave Birch] Someone asked me about the idea of connecting contactless cards to PCs via USB (since PCs lack contactless interfaces — or at least they do outside Japan). This is kind of product they were thinking about: a USB interface on a payment card, using the chip to generate a one-time password (OTP) for transactions. The card is emulating keyboard output so no drivers are required and it can work across machines or operating systems. A trojan could capture the OTP and redirect it, but that’s a general problem with this kind of 2FA. But what’s the point of using an OTP? If you can connect the card to the PC, and you’re not bothered about keyboard input being subverted, then why just use EMV and do a level 2 transaction (using the PC as a POS terminal)? Oh right, it’s a U.S. card.

Technorati Tags: contactless, identity, smart cards, technology

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Banking is free like the NHS is free

17th December 2007by Consult Hyperion1 Comment

[Dave Birch] Research based on the typical charging structures for banking in other countries indicates that should the UK banks be forced to scrap “free” banking then customers would be paying:

32.9p per direct debit;
34.2p for each standing order;
23.9p for getting cash out of the bank;
53.8p for card transactions; and
44.7p to process a cheque.

They also add on a monthly charge for running the account of £4.13p. That sounds like a lot, but wouldn’t it be better than having the costs hidden? By making the charging open and up-front, banks would be helping market to function more efficiently. The pricing of payment services would provide information for consumers to make informed choices — where there’s no proper pricing, there’s no proper market.

But how does a card transaction cost 54p when a cheque costs 45p? Surely, insofar as banks know what anything costs, they cannot possibly handle a cheque for less than an card transaction. How does this come about? This is another example of how the lack of proper pricing shapes the model for retail payments. In the UK, current accounts are, theoretically, free. You can open an account and there won’t be any service charges accrued as long as you keep the account in good order. You’ll get charges for other things though, but those will be for other services you consume on the back of your free current account. You get subsidised to use inefficient mechanisms such as cheques and thus they perpetuate, but if banks allocated full costs to cash and cheques then consumers would go berserk and complain to their M.P.s and Watchdog.

Technorati Tags: banking, cashless, costs, government, p2p, cheques (checks)

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The march of the mobile

7th December 2007by Consult HyperionLeave a comment

[Dave Birch] We’ve long felt that the mobile phone will become the central identity device, the pivot of the emerging digital identity infrastructure. Plenty of other people seem to think the same, so it’s puzzling that organisations that need significant improvements in both the security and the convenience of large-scale identity management are taking so long to exploit the mobile environment. An obvious case in point is banks. Since, in the U.K., everyone who might conceivably bank online already has a mobile phone, one might reasonably have expected mobile phones to become a standard 2FA token for online banking and shopping. It’s not exactly hard to imagine how that might work. But instead, banks have opted for the simple, not end-to-end 2FA that uses chip and PIN cards to generate one-time-passwords (OTPs) for logging in to home banking. Now, as it happens, my bank just send me one of these and I used it for the first time on Saturday. It worked fine, and I didn’t have to remember either my numerical passcode or my secret word. But does it give me security?

Technorati Tags: identity

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What are “low value” payments?

6th December 2007by Consult Hyperion1 Comment

[Dave Birch] There are different groups vying for the “low value” payment market at retail POS. Hence there’s the potential for some real innovation. But what is the “low value” market? I was in a meeting recently where the discussion took an interesting turn. One group of retailers were unhappy with the UKP10 limit (fifteen euros on the continent) for contactless payments in London and the suggestion popped up — which I thought was reasonable — that the low value cut-off might well vary between retailers or categories. But it might also depend on the channel. In the mobile world, the Payforit scheme has a UKP5 maximum purchase value but some operators are already saying that this should be raised to UKP10 (as I’m sure it will be soon) because the fiver limit doesn’t cover a broad enough range of content. We don’t want to end up with a confusing landscape for consumers though: it would, surely, be more sensible to have a universal definition of low-value payment across all channels and categories so that both customers and shopkeepers knew exactly where they stood: if the payment is under X then there’s one set of rules and rights, above X then there’s another set of rules and rights (eg, Consumer Credit Act-style rights). This would also simplify implementation and customer education at the same time.

Technorati Tags: cashless, contactless, retail, SEPA, smart cards

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