Slightly faster payments

[Dave Birch] Well, the Faster Payment Service (FPS) is up and running and I was thinking about it because I happened to have had a couple of meetings with APACS last week. I made mental note that next time I log in to my home banking I shall attempt an FPS transfer in the spirit of first hand investigation and report back, but I don’t think it will have much of an impact on day-to-day life for me in the short term. Where I think it will have an impact is in using secure mobile applications as a 2FA front-end to FPS transfers. If it is simple — and I mean really simply — to instruct an FPS transfer from the phone then it may become an established alternative to some other payment mechanisms. Clearly, one of those will be cheques. The Payments Council are studying mobile-based bank account to bank account transfers as we speak, guided by the focus given to mobile in the National Payments Plan published by the Payments Council (I interviewed the head of the Payments Council, Brian Pomeroy, in our podcast series), alongside further consultation on the future of cheques. These subjects are certainly related, since mobile (rather than Internet) payments are the only viable way to replace cheques as far as I can see.

Stars and stripes

[Dave Birch] As part of my campaign to deliver first-hand reports on contactless use and interoperability, I went into a McDonald’s in the U.S. and bought a very delicious meal. The line was quite long, so I’m sure they appreciated my attempt to pay in 500 milliseconds using my spendid Barclays OnePulse card featuring the excellent PayWave interface. I have my OnePulse in an outside pocket of my wallet for optimal tap action when I’m going on the underground or buses in London. So here we go…

Yet another picture of a POS terminal

Unfortunately, it didn’t work. So I had to take the card out of my wallet and pull it through the stripe reader, the way that POS terminals used to work in the old days. How quaint. There’s a bit of a pattern emerging in my interoperability tests, I’m afraid. If I try to buy a contactless coffee in Singapore, no problem, in the U.S., no chance.

Towards the (other) third way

[Dave Birch] Forum friend Peter Jones of Payment Systems Europe wrote an excellent piece for European Card Review last year in which he argued that a viable way to create a third payment network in Europe under SEPA pressures might be to start with existing ATM networks rather than to create new networks. He even gave a specific example (as one of the scenarios to be explored) linking together EUFISERV with First Data. Now comes news from Brussels that inter-bank switch EUFISERV (which was owned by retail banks and savings banks in Europe) has spun out its ATM card business. This is because of SEPA, as is the announcement that First Data acquiring a 50% stake in the switch business. This will create a new entity that connects 74,000 ATMs, 1.5m POS and 165 million debit and credit cards in Europe. Well, well.

Awards and ceremonies

[Dave Birch] Not really anything to do with Digital Money, but I’m one of the judges for this year’s CNET UK Business Technology Awards and they are looking for nominations in a variety of categories (see below) so I was wondering if any Digital Identity Denizens had any suggestions for payment-related products and services. If any of you have other suggestions then do scoot over to the web site and fill out a nomination form.

Red, yellow and green alert

[Dave Birch] I saw a post about Celent’s current payment advisory:

Celent expects some major shake-ups to occur in the payments industry in the near future. A new report, Disruption in the Payments World, examines the storms brewing that could have dire consequences for many issuers and offers insight into strategies that could help them weather these storms.

[From CELENT :: Strategy Consulting for Financial Institutions]

Just for “fun”, I thought I’d compare my view of the advisories with theirs so I spent some time on the train putting it all together in the same format. Here’s the combined result:

Payment system disruption

More mobile chat

[Dave Birch] I was talking to a client yesterday when the subject of mobile payment security came up. I was explaining some ideas for bringing some new ways to pay to the mobile phone, and one of the client team asked about security and so we went through some high-level risk analysis. The concerns expressed were perfectly reasonable and widespread, as consumer surveys confirm:

Convenience is the most compelling feature of both mobile banking and mobile payment at the point-of-sale. Participants cited the ability to perform banking functions, such as check balances and pay bills, from anywhere without the need of a computer as the major convenience of mobile banking, and the prospect of no longer carrying a wallet as the major convenience of mobile payment at the point-of-sale. Conversely, participants indicated security and fraud were their main concerns regarding these mobile applications, wondering what would happen if their mobile devices were lost or stolen.

[From Consumer Interest in Mobile Commerce Extends Beyond Banking]

As it happens, I had a ready-to-roll Powerpoint presentation on security in mobile payments so I was able to walk through it show the client how we would deal with these concerns and manage the risk down. Afterwards, I was thinking that we (ie, people who are bullish about mobile proximity payments, in this case) should be more upfront about security, because the truth is that there is more security overall in a mobile payment than a card payment.

“There’s a whole lot of upside and security advantages to mobile devices,” says James Van Dyke, president of Javelin Strategy and Research,

[From Javelin Strategy and Research » Safest way to bank online? Your cell phone]

Apart from the often-repeated point about noticing a missing phone much sooner than you notice a missing card, there’s also the issue of communications. You know where phones are and you can communicate with them, which greatly changes the risk and countermeasure situation when compared with cards. I think the question should be the other way around: from a security point of view, does it make sense to carry on with cards?

Low-tech loyalty

[Dave Birch] I’ve been sitting in a workshop on high technology solutions in the payments world but I’ve spent the whole time thinking about low technology paper receipts. It’s first of all because Aneace pointed out how Boots were doing a great job on using till receipts to deliver special promotions to shoppers. He goes on to make an excellent suggestion…

Imagine if the same type of offer appeared at the bottom of the customer’s credit or debit card receipt, triggered based on whatever criteria Boots chooses, using payment data managed by Boots’ acquirer.

[From Aneace’s Blog: Boots till receipt promotions]

His general point — the receipts are an opportunity to deliver to some extra value in the payments value chain — is certainly correct, but it of course led me to think about the additional possibilities that will arise when paper receipts are replaced by electronic ones. I think electronic receipts are an excellent service: when I buy things in the Apple Store, their system automatically recognises my credit card and the assistant asks me if I want a paper receipt (in a tone of voice that suggests that she may then ask me if I have a butter churn). I say no, and the receipt is automatically e-mailed to me: great service. Now move forward to the situation where there are no paper receipts any more…

The Federal Reserve Board recently requested public comment on a proposal to exempt transactions of $15 or less from the “Reg E” requirement that consumers receive paper receipts for all electronic transactions.

[From Digital Money Forum: Where’s the Walmart?]

Apart from saving lots of trees, one might expect banks, retailers and others to come up with some interesting new services around the management and processing of receipts. If there’s the slightest prospect of the bank filling out my expenses claim for me at the end of every month, I will batter down their door to sign up.

I don’t use debit, but…

[Dave Birch] I’ve no idea why anyone uses a debit card, decoupled or otherwise, for anything, but I hear they’re very popular. That’s one of the reasons why I found Capital One’s decoupled debit experiment so interesting. In fact, I went on the record as saying that I thought it was the most interesting new product last year. But now Capital One have terminated the experiment after only a few months. So was I wrong to focus on the product? Well, I don’t think so. For one thing, while Capital One won’t say why they are stopping, it’s not because of the people who count: merchants. According to American Banker, Rich Steckroth, who is Director of Business Development for Sheetz, said clearly “We like the program”.

So who didn’t? One of the analysts quoted says, rather plausibly, that it’s more to do with Capital One not having the money necessary to really launch the project than a verdict on the concept itself, and I agree. Other people think that they will simply offer the facility to their own credit cards holders (as some other issuers are going to do, I’m sure). Customer and merchant proposition apart, though, you may also recall something else lurking in the background. If I were a competitor, particularly a smaller bank sensitive to the loss of interchange revenue, I might be very tempted to take the traditional banking approach to competition in the payment sector and ask the relevant regulators for clarification about the new entrant. As it happens, just such a clarification took place earlier in the year…

There was an excellent post by Carol Coye Benson over at Payments News the other day. She highlights the new rules interpretation around decoupled debit in the US. The three key points are:

First, the transactions must be classified as “POS” transactions, rather than using other ACH transaction codes.

Second, the transactions cannot represent an aggregation of underlying consumer purchases – e.g. three separate purchases at one (or more) merchants on a given day cannot be combined into a single ACH debit transaction.

Third, the “payee” in the ACH transaction, which is carried through to the consumer’s bank (and therefore appears on the consumer’s statement or online transaction listing) must be the underlying merchant, and not the card issuer: in other words, “Capital One” could not be the payee shown on the consumer’s statement.

[From Digital Money Forum: Decoupling the small print]

There’s no doubt that the ban on aggregation increased costs for Capital One, but who knows whether they increased them enough to make the program uneconomic. I’m sure that wasn’t the goal of the clarification anyway, which was wholly to do with safety and soundness of the U.S. banking system and nothing to do with raising barriers to new entrants. I’m sure we haven’t heard the last of the decoupling concept. I can certainly imagine decoupled debit operating through any secure token to provide maximum customer convenience. Why shouldn’t I pay with my Tesco Clubcard, digital certificate on my PC, fingerprint, employee badge or (rather obviously) mobile phone — as they do in Germany — and have the transaction routed via ACH?

A few coppers

[Dave Birch] There’s no doubt that “green” is a business pressure now. There are plenty of ways in which payments could use new technology more effectively to deliver more environmentally-friendly products: there’s plenty of low-hanging fruit around the elimination of paper that’s a “win win”, as they say.

The good news about the elimination of paper in our paper intensive industry is that any move to reduce the amount of paper in a customer’s relationship improves the profitability of that account for the bank.

[From Banking on Customers: Green is good…as far as it goes]

I’m all favour of this kind of thinking, but I also always really appreciate a spurious green veneer on a press release: it shows deference to zeitgeist as well a spin skills on show. Very modern. A particularly impressive case in point is in Business Week. In a story called “How to turn pennies green“, which I imagine is based on a press release from Coinstar (a company I have always liked, and still do, not that it matters), we are reminded that mining copper uses lots of power and water. What do you make out of copper? Well, coins for one thing. So, Coinstar estimate that there are 150 billion “unused” coins around in the U.S. at present, and they add up to about $90 per household. They reckon that if people were to take just 10% of these coins down to their local supermarket and chuck them in the Coinstar machine then they would generate hundreds of millions of dollars in revenue for Coinstar but also, more importantly, stop the U.S. Mint from wasting loads of money (the Mint loses money on every coin it makes, remember: nickels now cost 7.7. cents each) and reduce the demand for copper thus saving the energy used by 4m light bulbs. No sure if the logic stands up to really detailed scrutiny, but it’s a fun story anyway.

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